Trends and Developments

Recent Developments in Canada's Legal Landscape

Introduction and summary

The Canadian legal landscape over the last year was punctuated not only by the profound effect of COVID-19 and how it shaped the way we practise law, but also by the number of significant decisions released by our highest court, the Supreme Court of Canada.? In this article, we highlight the court's pivotal decisions from the last year, including cases bringing clarity to the good faith doctrine in contract law, addressing the constitutionality of legislation to mitigate climate change, and the fiduciary duty of our federal and provincial governments to protect indigenous peoples against exploitative transactions and ensure they receive fair compensation for their land.?Oh, and there is nothing special about releases in terms of contractual interpretation. Sorry releases.

Good faith in contract law

In late 2020 and early 2021, the Supreme Court of Canada (SCC) released two decisions on good faith in contract law, C M Callow Inc v Zollinger, 2020 SCC 45 (Callow), and Wastech Services Ltd v Greater Vancouver Sewerage and Drainage District, 2021 SCC 7 (Wastech), building on the foundation laid in its landmark 2014 decision, Bhasin v Hrynew, 2014 SCC 71 (Bhasin). 

Previously, in Bhasin, the SCC recognised that the organising principle of good faith underlies contract law and manifests itself in more specific doctrines governing contractual performance. One manifestation of this principle is the duty to honestly perform contractual obligations; meaning "not to lie or otherwise knowingly mislead" the counter-party about matters directly linked to the performance of the contract. 

After Bhasin, courts struggled with the range of conduct that was captured by the phrase "knowingly misleading" where a failure to honestly perform contractual obligations was alleged and Callow addressed what is meant by "knowingly misleading" a counter-party in this context. In Wastech, the SCC addressed the duty to exercise contractual discretion in good faith, a scenario falling under the good faith organising principle.


In Callow, the SCC clarified what constitutes a breach of the duty of honest performance regarding the exercise of a seemingly unfettered, unilateral termination clause. The SCC held that while the determination of whether a party has actively misled their counter-party is a highly fact-specific determination, it can include lies, half-truths, omissions and even silence, depending on the circumstances.

The plaintiff had a two-year winter maintenance contract with the defendants, a group of condominium corporations, containing a clause allowing the defendants to terminate the contract without cause with ten days' written notice to the plaintiff. The parties also entered into a separate contract for summer maintenance. The defendants decided to terminate the winter maintenance contract, but waited several months to provide the required notice. During this time, the plaintiff provided free services related to the summer maintenance contract, hoping that it would incentivise the winter contract's renewal. The plaintiff also formed the impression that the defendants were satisfied with its services and likely to grant a two-year renewal of the winter contract. 

When the defendants terminated the winter contract, the plaintiff claimed breach of contract based on a breach of the duty of honest performance in the manner in which the termination clause was exercised. The SCC majority found that the defendants had "knowingly misled" the plaintiff in the manner in which they exercised the termination clause, which amounted to a breach of contract under Bhasin. The SCC confirmed that the duty to act honestly is a negative obligation not to act dishonestly, although it is not a free-standing duty to disclose information to a counter-party. The SCC majority determined that the appropriate measure of damages for a breach of the duty of honest performance is the usual "expectation measure" of damages for breach of contract, placing the innocent party in the position that they would have been in had the duty been performed. 


In Bhasin, the SCC identified situations in which the organising principle of good faith has been found to manifest itself in an existing doctrine. Included among these situations is the scenario where one party exercises a discretionary power under the contract, which is what happened in Wastech. 

The Wastech contract was complex. Wastech and the defendant, Greater Vancouver Sewerage and Drainage District (GVSDD), had a long-standing commercial relationship for waste disposal. In 1996, they entered into a 20-year contract, which contemplated Wastech hauling waste to three facilities for certain rates. The rate for the Cache Creek Landfill ("Cache Creek") was higher than the others because the site was further from Vancouver. Wastech's compensation was structured around a target operating ratio; however, the contract did not guarantee that Wastech would achieve the target in any given year. The GVSDD was required under the contract to provide Wastech annually with a detailed forecast of waste allocation for the next year; however, GVSDD had the absolute discretion to determine and amend the minimum amount of waste to be transported to Cache Creek. 

In the 2011 operating year, GVSDD reallocated waste to Cache Creek, resulting in a reduction of Wastech's anticipated profits. An arbitrator ruled in Wastech's favour, finding that GVSDD's discretionary power was constrained by a duty of good faith. The arbitrator determined GVSDD breached its duty of good faith because it had deprived Wastech of its ability to achieve the target operating ratio. 

The British Columbia Supreme Court allowed GVSDD's appeal, overturning the arbitrator's determination that GVSDD had breached a duty of good faith, specifically one that constrained how it could exercise its discretionary power to allocate waste among the disposal facilities. The British Columbia Court of Appeal and the SCC dismissed Wastech's further appeals.

The SCC reiterated that the duty to exercise contractual discretion is breached only where the discretion is exercised unreasonably, meaning in a manner unconnected to the purposes underlying the discretion, eg, where it is arbitrary or capricious. What is considered unreasonable is highly context-specific and ultimately depends on the parties' intention as disclosed by their contract. Like the duty of honest performance, the duty to exercise contractual discretion in good faith is not an implied term, but a general doctrine of contract law that operates irrespective of the parties' intentions.  The duty to exercise discretionary powers in good faith does not require a party to confer a benefit on the other party that was not a part of their original agreement, nor does it require a party to subordinate its interests to those of the other party.

Contractual release clauses

In 2021, the SCC confirmed in Corner Brook (City) v Bailey, 2021 SCC 29 (Corner Brook) that there is no special rule of interpretation that only applies to releases. The current approach to contractual interpretation is set out in?Sattva,?2014 SCC 53: a contract is to be read as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. In Corner Brook, the SCC reiterated that a release is a contract and the general principles of contractual interpretation apply. The SCC concluded that the "Blackmore Rule", derived from the 1870 decision of the British House of Lords and traditionally followed by Canadian courts, should no longer be referred to. 

The SCC suggested that drafters of releases should consider wording that makes clear whether the release will cover unknown claims and whether the claims must be related to a particular area or subject matter. Releases that are narrowed to a particular timeframe or subject matter are less likely to give rise to tension between the words and what the surrounding circumstances indicate the parties objectively intended. 

Carbon pricing

On 25 March 2021, the SCC released its highly anticipated judgment on whether Canada's federal parliament has the constitutional authority to enact as a matter of national concern the Greenhouse Gas Pollution Pricing Act (GGPPA), thereby affecting the rights of the Canadian provinces. The majority of the SCC (6-3) found the GGPPA to be constitutional.

The case presented the SCC with an opportunity to comment extensively on the national concern doctrine and the division of powers between the federal and provincial governments. Importantly, the SCC recognised climate change as a national and international concern and the necessity of collective action to address it.?

The GGPPA seeks to mitigate climate change by applying minimum national pricing standards for greenhouse gas (GHG) emissions to the listed provinces that have not adopted sufficiently stringent pricing mechanisms. Saskatchewan, Ontario and Alberta challenged the constitutionality of this.  The majorities of the courts of appeal in Saskatchewan and Ontario found the GGPPA to be constitutional; the majority of the Alberta Court of Appeal found it unconstitutional. All three decisions were appealed to the SCC.

The majority of the SCC concluded that parliament has jurisdiction to enact the GGPPA as a matter of national concern under the "peace, order, and good government" clause of Section 91 of Canada's Constitution Act, 1867.  The test for identifying matters of national concern has three steps: 

  • the threshold question of whether the matter is of sufficient concern to Canada as a whole; 
  • the singleness, distinctiveness and indivisibility analysis; and
  • the scale of impact analysis.

Applying this test, the SCC acknowledged the uncontested factual backdrop to the GGPPA is that climate change is real, and the only way to address it is to reduce GHG emissions. The majority found that evidence clearly shows that establishing minimum national standards of GHG price stringency to reduce GHG emissions is of concern to Canada as a whole.

The majority concluded that the principles underpinning the singleness, distinctiveness and indivisibility inquiry supported that the federal government has jurisdiction over the matter of establishing minimum national standards of GHG price stringency to reduce GHG emissions. The majority viewed the matter as specific, identifiable and qualitatively different from any provincial matters and concluded that federal jurisdiction was necessitated by the provinces' inability to address the matter as a whole through co-operation, which exposes each province to harm that it is unable to prevent. The majority concluded that the impact on the provinces' freedom to legislate was minimal. 

The most obvious immediate impact of this case is that, because the SCC found the GGPPA to be constitutional, it may now be implemented.  Provinces that don't amend or enact their own legislation to meet the minimum federal requirements regarding GHG emissions will be subject to the GGPPA. As these federal and provincial programmes take form, businesses and individuals will be faced with a variety of taxes and levies designed to alter their behaviour.

Measure of monetary damages to indigenous peoples

On 16 July 2021, the SCC released Southwind v Canada, 2021 SCC 28 (Southwind), a case involving Canada's indigenous peoples, which confirmed that the fiduciary duty of the provincial and federal governments (the "Crown") to indigenous peoples when exercising control over reserve or treaty lands includes a duty to protect against exploitative transactions and to ensure fair compensation. Southwind concerned Canada's failure to seek the consent of the Lac Seul First Nation (LSFN) to surrender certain reserve lands eventually flooded following the construction of a hydroelectric dam in 1929. 

In 1991, Roger Southwind (individually and on behalf of the members of the LSFN), filed a civil action against Canada seeking equitable compensation, damages, and a declaration that the LSFN's interests in the flooded lands had not been encumbered or extinguished. The LSFN also argued that it should be compensated for Canada's failure to negotiate a revenue-sharing agreement on its behalf. 

In 2017, 26 years later, the?Federal Court found?that Canada had breached its fiduciary duties to the LSFN and that it had breached the Indian Act by failing to obtain a surrender from the LSFN, or taking the steps necessary to expropriate the lands. However, the court concluded that Canada was not obliged to negotiate a revenue-sharing agreement on the LSFN's behalf. The court valued the flooded land as if it had been lawfully expropriated according to general expropriation law and excluded the value of the land for hydroelectricity generation, awarding equitable compensation of CAD30 million based on the fair market value of the lands at the time they were flooded. 

At issue before the SCC was the proper approach to calculating compensation where First Nation lands are taken or damaged in the absence of a valid surrender or expropriation. In deciding whether the?Federal Court had erred in its assessment of the value of the flooded land, the majority of the SCC considered the content of the Crown's fiduciary duty, what obligations it imposed, and how to assess equitable compensation in light of those obligations.

The majority held that where reserve land is involved, the Crown has a fiduciary obligation to protect and preserve the First Nation's quasi-proprietary interest from exploitation, which includes protection from exploitation by the Crown itself. Where reserve land is surrendered, the fiduciary duty also requires the Crown to "protect against improvident bargains, manage the process to advance the best interests of the First Nation, and ensure that it consents to the surrender".  In an expropriation, the obligation to ensure consent is replaced by an obligation to minimally impair the protected interest. 

When the Crown breaches its fiduciary duty, the remedy will seek to restore the plaintiff to the position it would have been in had the Crown not breached its duty. Equitable compensation is the preferred remedy when restoring the plaintiff's assets is not available. Here, the LSFN sought equitable compensation because what it had lost - its land - could not be returned. 

The majority took the view that expropriation law is not the appropriate legal framework governing historic breaches of the Crown's fiduciary duty to protect a First Nation's interest in reserve land because it does not represent the unique indigenous interests in land. 

Given the LSFN's unique interest in the reserve land and the impact on the LSFN, Canada was duty-bound to "capture the full potential value of the land" for the LSFN. The Crown's fiduciary duty to the LSFN required more than compensation based upon expropriation principles. Equitable compensation should have instead been assessed on the basis that Canada was obliged to negotiate with the LSFN in order to obtain the best possible compensation based upon the value of the land to the hydroelectric purpose. The SCC set aside the award for equitable compensation and returned the case to the Federal Court for reassessment.

Southwind affirms that as a fiduciary, the Crown has the duty to preserve the First Nation's quasi-proprietary interest in the land as much as possible and to ensure fair compensation reflecting this unique interest. This duty applies even where the Crown considers the taking of First Nation land to be necessary for the public interest.

Technological advances in court as a result of COVID-19

The COVID-19 pandemic highlighted the need for Canadian courts of all levels to modernise and enhance their virtual technology to ensure that the courts continued to operate. In Natco Pharma (Canada) Inc v Canada (Health), 2020 FC 618, the court noted: "[T]he pandemic has caused many public institutions to re-consider how they do business. It has accelerated a move from the traditional physical presence to a way of functioning in a virtual setting for many workplaces and institutions, including Parliament, provincial legislative assemblies, and courts." 

Canadian courts have acknowledged that the move to a virtual setting is, for many people, an uncomfortable change; however, access to justice is too important to wait. In Arconti v Smith, 2020 ONSC 2782, the Ontario Superior Court ordered examinations by video-conference, having decided that the benefits of preventing further delay of the proceedings outweighed the risks of any shortcomings due to the use of technology. Justice F L Myers of the Ontario Superior Court said: 

"In my view, the simplest answer to this issue is, 'It's 2020'. We no longer record evidence using quill and ink. We now have the technological ability to communicate remotely effectively. Using it is more efficient and far less costly than personal attendance." 

In British Columbia, the pandemic accelerated the implementation of the province's five-year Court Digital Transformation Strategy for all levels of court, which was commenced in 2019.

In early 2021, the Ontario government introduced the Justice Accelerated Strategy, which builds on measures introduced during the pandemic, including the expansion of online court filings through the Justice Services Online platform, updated small claims court processes, and modernised civil court procedures. Ontario has also enacted the Accelerating Access to Justice Act, 2021, which builds on other modernisation initiatives by helping fill judicial vacancies more quickly, and permanently allowing the virtual witnessing of wills and powers of attorney.

The Canadian Bar Association takes the position that the pandemic propelled the justice system into a "long-awaited modernisation", and has strongly recommended that these measures, procedures and innovations must continue to be built upon. We anticipate that other provincial governments will implement initiatives similar to those in British Columbia and Ontario, and many have now started down this road.

Previously published in Chambers Global Practice Guides

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