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The parties to a construction project contract have to make decisions that require them to interpret their contractual obligations and engage in conduct that could be considered by the Court in the event of a dispute. From contract formation to termination, the parties have a duty to act in good faith, even if it is not explicitly specified in the contract.1 According to established case law, the Court can go beyond contractual stipulations when determining the good faith of the parties based on their conduct. This article will focus on how the duty of good faith imposes certain limits on the exercise of contractual rights. To this end, it will first address the concept of good faith, and then provide an overview of recent case law.
The Concept of Good Faith, in a Nutshell
In the late twentieth century, a series of landmark rulings formally introduced the concept of good faith into Québec contract law. Since then, the concept has given rise to a wealth of case law and become an integral part of our legislation.2 When it comes to contracts, an infringement of the general duty of good faith is considered an abuse of right that would normally justify awarding damages. These two concepts are therefore intrinsically linked in contractual matters.3
But what does "good faith" mean, in practice?
Before the principle of good faith was introduced, the courts' analysis was limited to the wording of the contract and didn't consider the conduct of the contracting parties. According to the Supreme Court, the introduction of good faith and the theory of abuse of rights in contractual matters has a social and economic role in that it controls the contractual rights of the parties and guides their rights and obligations from a justice and fairness perspective. Therefore, the basis for determining whether a party has acted in good faith is not limited to the absence of malice or bad faith, but also includes whether the party was reasonable in exercising their rights, in accordance with the rules of fairness and loyalty.4
In a recent ruling (hereinafter the "Churchill Falls decision"), the Supreme Court was unequivocal—the general duty of good faith allows courts to intervene and impose obligations on contracting parties based on a notion of contractual fairness, while maximizing the meaningful effect of a contract and of the benefits that are, for the parties, the object of said contract.5 However, the fact remains that good faith and the principle of fairness and loyalty cannot go against the will of the parties and their common intention. In all circumstances, parties to a contract are presumed to be acting in good faith.6 The burden of proof therefore lies with the party claiming that its co-contractor has breached this obligation.
Several specific obligations arise from the general obligation of good faith, such as the duty of loyalty, cooperation and information. These duties are tempered and nuanced according to the contracts and circumstances in which the contractual relationship evolves. The duties of information and cooperation are particularly important when it comes to contracts for services, the type of contract generally concluded for construction projects.
(1) The duty to inform
In 1992, the Supreme Court laid out the framework for the duty to inform in a highly cited decision (hereinafter the "Bail Ltée decision").7 In this decision, the Supreme Court stated that modern civil law recognizes that some parties may find themselves at a disadvantage when it comes to access to information. Whereas in the past everyone was required to inform themselves, the Court now imposes a duty to inform on the better-informed party, particularly when the other party is in a vulnerable position. This obligation includes the duty not to mislead, which means that omissions can also constitute a breach. This being said, the duty to inform does not absolve the parties from their fundamental duty of care and diligence in conducting business.
(2) The duty to cooperate
In the Churchill Falls decision, the Supreme Court referred to a number of doctrinal texts and analyzed case law to establish that parties must cooperate.8 In fact, the duty of cooperation stems from the duty of good faith. It implies a proactive approach aimed at meeting the legitimate expectations of the co-contractor, while avoiding conduct likely to harm the latter. In particular, it requires reasonable cooperation in the performance of the contract. Moreover, the Supreme Court reiterated that a party cannot invoke the terms of the contract in an unreasonable manner, especially if it compromises the contractual relationship or runs counter to the legitimate expectations of the other party.
In recent years, the Court of Appeal of Quebec has, on several occasions, considered the duty of good faith between co-contracting parties in the construction sector. These interventions were often aimed at interpreting the conduct of the parties in the performance of their contractual obligations, in order to determine what can constitute an abuse of rights.
Recent Examples of Case Law in Construction Law
Recent case law shows that the courts sanction non-compliance with the duty of good faith, specifically by awarding damages to compensate for the harm suffered. Three recent Court of Appeal rulings illustrating this approach are discussed below.
In its ruling in Constructions Concreate ltée v. Attorney General of Quebec, 2020 QCCA 570, the Court of Appeal reiterated the principles of the Churchill Falls decision, emphasizing that the obligation of good faith must be analyzed based on the contract clauses to determine the extent of the parties' obligations, particularly regarding the duty to cooperate.
In this case, the dispute was between the Ministère du Transport du Québec ("MTQ") and a general contractor. The Court of Appeal intervened to, among other things, overturn the trial judge's decision, in part, finding that the judge had failed to consider the MTQ's unreasonable conduct when it (i) refused to authorize the closure of a traffic lane, (ii) remained silent in the face of the CSST's interventions in the matter, and (iii) refused to consider alternative solutions to the contractor's request, even though it ended up granted the contractor's request, resulting in a 22-day delay. Following the determination that this conduct was unreasonable and constituted an abuse of rights, the Court of Appeal awarded damages of $220,000 for the delay caused to the contractor (i.e. $10,000 for each day of the delay).
In Ville de Québec v. ITE Construction Inc. 2021 QCCA 1628, the Court of Appeal confirmed that, in addition to awarding damages for overdue payment in the form of interest charges, the Court can also order damages for an abuse of rights.
In this case, the City refused to release the contract holdback for more than 18 months, as it did not yet have the receipts from suppliers and subcontractors in its possession. However, in accordance with its contractual obligations, this refusal was unjustified given that the city's consultants had recommended paying the sum in question, making its conduct an abuse of rights. Having proven harm, the Court of Appeal confirmed that the trial court was justified in awarding the contractor damages in the amount of $10,000.
Similarly, the Court of Appeal confirmed in Sintra Inc. v. Ville de Montréal, 2023 QCCA 793 that an award of damages of $5,000 plus interest was justified due to the Ville de Montréal's refusal to release a contract holdback after the settlement of its claim arising from facts disclosed at the Charbonneau Commission. In this decision, the Court concluded that the City could withhold sums in accordance with the wording of a contract clause, even if the debt was not confirmed, while its claim arising from the findings of the Charbonneau Commission was ongoing. This holdback was therefore found to be neither abusive nor unreasonable up until the time the case was settled. However, after that date, the City failed to cooperate and was ordered to pay interest on the excess amounts withheld at the rate stipulated in the contract or, otherwise, the legal rate. A conviction for wrongfully withholding payment after the settlement was therefore upheld by the Court of Appeal.
Conclusion
In conclusion, good faith goes beyond just the clauses of a contract—it guides the interpretation of behaviour and breaches can lead to sanctions. Three recent Court of Appeal decisions illustrate this trend. Moreover, several Superior Court rulings involving the determination of good faith are currently being appealed, reflecting the evolving nature of this concept and the ongoing need for clarification from the courts.9
Footnotes
1. S. 1375, Civil Code of Québec, CQLR, c. CCQ-1991 (hereinafter "the CCQ").
2. 6, 7 and 1375 CCQ.
3. Vincent Karim, Les obligations, Vol. (Montréal: Wilson & Lafleur, 2024).
4. Ibid.
5. Churchill Falls (Labrador) Corp. v. Hydro-Québec, 2018 SCC 46, para. 103.
6. S. 2805, CCQ.
7. Bank of Montreal v. Bail Ltée, 1992 CanLII 71 (SCC)
8. Churchill Falls decision, para. 115 and 118.
9. Services Ricova inc. v. Ville de Montréal, 2024 QCCS 80 (judgment rendered on appeal reversing the trial decision after the writing of this article: Ville de Montréal v. Services Ricova Inc., 2025 QCCA 901); PG4 Construction Corp. v. Énergir, 2024 QCCS 4179 (statement of appeal served December 18, 2024); 9150-2732 Québec inc. (Groupe TMD) v. Hacker-Bousquet, 2025 QCCS 300 (statement of appeal served March 17, 2025).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
