Ever since the Supreme Court of Canada's 2014 decision in
Bhasin v. Hrynew, the duty of good faith in contracting
has been an ever-present and heavily relied upon concept in
The February 2016 decision in Mayotte v. Her Majesty in Right of
Ontario (2016 ONSC 1233) provides some additional guidance
on how that duty works. Most importantly, Mayotte is a reminder
that a contracting party's good (or bad) faith is determined by
evaluating the process by which the contract is reached and carried
out, not by the contract's outcome. Put simply, the duty of
good faith ensures a certain standard of performance rather than
any specific contracting result.
Mayotte involved a class proceeding brought by members
of the Private Issuer Network (PIN), a group of private individuals
operating Service Ontario "stores" across the province,
against the Government of Ontario. The plaintiff PIN members
alleged that the Province failed to act in good faith when setting
their compensation for completing various transactions, which the
Province had unilateral authority to establish under the
parties' existing contract.
The plaintiffs argued that their compensation was objectively
inadequate given the Province's growing profits from the use of
private Service Ontario providers. While the Court agreed that the
Province owed the PIN members a duty of good faith in setting their
compensation, the Court also made clear that there was no precedent
for the duty of good faith being tied to a contracting outcome
rather than the contracting process.
Therefore, to prove that the Province failed to meet its duty of
good faith, the plaintiffs had to show that the Province acted
unreasonably in fixing their compensation. However, the Court found
that the Province's compensation decisions driven by a concern
about the use of public resources, a consideration which would have
been communicated to the plaintiffs. The Court found that although
the plaintiffs did not like the end result of the Province's
use of the discretion afforded to it under their contract, the
Province exercised that discretion in good faith.
While the Court's conclusions in Mayotte are not
ground-breaking, the decision is a helpful reminder that the duty
of good faith in contracting is about process, not outcome. The
duty of good faith in contracting is an evolving principle whose
boundaries will continue to be tested and pushed by litigants and
their lawyers. As helpful decisions like Mayotte appear,
McMillan LLP will endeavour to continue to keep you informed.
advocacy and litigation group has extensive experience in
litigation contract disputes in a wide variety of contexts. Please
don't hesitate to contact us for advice with respect to your
specific contractual duties and rights.
The foregoing provides only an overview and does not
constitute legal advice. Readers are cautioned against making any
decisions based on this material alone. Rather, specific legal
advice should be obtained.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
While most are well aware that the sale of a business is generally a complex process, even sophisticated business owners are surprised by just how much cost and effort is required to complete the sale.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).