In Ocean Pacific Hotels Ltd. v Lee, 2025 BCCA 57, the Court of Appeal for British Columbia confirmed that the duty of honest performance in contract does not extend to pre-contractual negotiations.
The plaintiffs are representatives of current and former employees who signed offers of casual employment that replaced their contracts of regular employment with Ocean Pacific. The agreements provided that employees would continue to receive extended benefits coverage "subject to and in accordance with the terms and conditions of the applicable plans and policies and the continued approval of [Ocean Pacific's] carrier." In January 2021, extended benefits coverage terminated for most employees that had opted for casual employment.
The plaintiffs alleged that Ocean Pacific breached the duty of honest performance by intentionally withholding during negotiations information regarding health benefit coverage. In addition to common issues relating to an alleged breach of contract, the chambers judge certified three common issues concerning the alleged breach of the duty of honest performance:
- Did the defendant intentionally mislead the Class members about the limited continuation of their benefits?
- If so, did that conduct amount to a breach of the defendant's duty of honest performance of its contractual obligations toward Class members?
- If so, what remedies are the Class members entitled to?
Ocean Pacific appealed the chambers judge's conclusion that Ocean Pacific's alleged breach of the duty of honest performance disclosed a reasonable cause of action. The Court of Appeal observed that the contractual duty of honest performance applies to the performance of a particular contract. It held that the duty does not extend to precontractual negotiations.
The Court cautioned that expanding the duty of honest performance to pre-contractual negotiations would balloon the remedies available for breach of contract "exponentially" and, importantly, without regard for whether the defendant intended to induce the other party to enter into the agreement.
In the result, the Court allowed the appeal, setting aside the chambers judge's certification of the three common issues relating to the alleged breach of the duty of honest performance, but granted the plaintiffs leave to amend their claim to plead a breach of the duty of honest performance in respect of the existing employment agreements at the time of negotiations of the casual employment agreements.
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- The Court held that the idea that pre-contractual dishonesty can satisfy the "direct link" requirement of contractual performance was counterintuitive because it is difficult to conceive how a duty to perform a contract honestly can arise before that contract exists; and
- The Court concluded that there was no need to expand the contractual duty of honest performance to capture pre-contractual negotiations because the torts of negligence and fraudulent misrepresentation provide adequate remedies.
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