Since the Supreme Court decision in Bhasin v
Hrynew1 which firmly established a duty of good
faith in contractual relations, the exact contours of that duty
have been a fairly open question. In a recent Ontario Superior
Court case, 2336574 Ontario Inc. v 1559586 Ontario
Inc.2, the court examined what that duty looks like
in a one-off real estate transaction between sophisticated
The facts, briefly summarized, of the case are as follows: the
vendor was a condominium builder and vendor of condominium
units. The purchaser was a corporation that had as its
principals business people and experienced real estate investors.
Both sides were represented by experienced counsel at all
times. The parties entered into an agreement of purchase and
sale for the purchase of a condominium unit, which allowed the
vendor to set the interim occupancy closing date, as well as the
final closing date for the transaction.
When the vendor set the interim occupancy date in September of
2014, the purchaser requested and was granted a series of
extensions. The vendor then subsequently set the closing date and
what followed was a series of requests from the purchaser to extend
the closing date, which the vendor consistently rejected. The
purchaser ultimately refused to close by not signing back closing
documents or providing closing funds on the day of closing. When
the principals of the purchaser tried to close the next day with
their own personal funds after a change of heart, the vendor
refused and held the purchaser's deposit ($40,000), as well as
the amount that was required to be contributed by the purchaser on
interim occupancy ($31,999).
Relying on UK case law the court stated that "a duty of
good faith is required in contract law, but it is measured by the
specific relationship between the parties."3
The court cited with approval the statement that the standard of
good faith in a particular transaction is, "whether, in
the particular context, the conduct would be regarded as
commercially unacceptable by reasonable and honest
Applying the standard to this transaction, the court held,
"Where the parties have a long-term ongoing relationship,
a level of good faith may be expected that imposes flexibility and
obligations beyond the letter of the contract; where they are
commercially experienced buyers and sellers in a discreet, one-off
transaction, the level of contract adherence would not be expected
to vary from the strict contractual terms." The judge
went on to state that "Given the relationship of vendor
and purchaser in a discreet real estate deal, good faith meant
sticking to the contract, not bending the contract – even
just a little bit – to one side's
In the end, the court found in favour of the vendor, finding
that since the purchaser did not close on the closing date that was
enough to terminate the agreement. The vendor's actions did not
constitute a breach of the duty of good faith because the vendor
was following the terms of the agreement of purchase and sale. The
vendor was able to keep the $40,000 deposit, but was required to
return the $31,999 as that was not a deposit, but rather a payment
on account of closing.
This case may provide some important context to how the courts
will interpret the duty of good faith. If other courts choose to
follow this path, they will look at the relationship between the
two parties to the contract, their sophistication and previous
history to help inform their analysis of the metes and bounds of
the duty of good faith. What seems clear from this case is –
sticking to the contract is the safest bet to ensuring you
don't fall foul of the duty of good faith.
1 2014 SCC 71
2 2016 ONSC 2467
3 Yam Seng Pte Ltd. v International Trade Corp.
Ltd.,  1 A11 E.R. (Comm.) 1321,  EWHC 111 (Q.B.),
cited at para 23
4 Mid Essex Hospital Services NHS Trust v Compass
Group UK and Ireland Ltd.,  EWCA Civ. 200
5 2336574 Ontario Inc. v 1559586 Ontario Inc., para
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Russell v. Township of Georgian Bay provides a useful reminder of the fact that while municipal officials sometimes appear to hold all of the cards in disputes with home owners, that is not always the case.
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