One of the most persistent sources of confusion about the duty of honest performance concerns its temporal scope. Must the dishonesty occur while the contract is in existence in order for the duty to be violated? What of dishonesty that precedes the contract, but takes place during the formation of it? How about dishonesty that occurs after the contract is terminated?
Two recent appellate decisions address this issue at different contractual points. The first, Ocean Pacific Hotels Ltd. v. Lee, 2025 BCCA 57, considers if the duty can apply prior to the existence of a contract, while the negotiations for it take place. The second, Heritage Property Corporation v. Triovest Inc., 2025 ABCA 64, examines whether the duty may operate after the contract has ceased to exist. Taken together, the two decisions serve as important bookends for the duty of honest performance, and help to clarify its temporal boundaries.
Background
In Bhasin v. Hrynew, 2014 SCC 71, the Supreme Court of Canada recognized "a general duty of honesty in contractual performance". It held this duty "means simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract". Subsequently, in C.M. Callow Inc. v. Zollinger, 2020 SCC 45, the Court clarified that "[d]ishonesty is directly linked to the performance of a given contract where it can be said that the exercise of a right or the performance of an obligation under that contract has been dishonest".
The strong implication from this is that the duty can only be engaged by dishonesty that takes place during the life of the contract, at least absent contractual rights or obligations that continue after its termination. Otherwise, no contractual right or obligation will exist to be exercised or performed. While, as Callow holds, "[i]t is not enough to say that, temporally speaking, dishonesty occurred while both parties were performing their obligations under the contract" – since "the dishonest or misleading conduct must be directly linked to performance", rather than "take place in the abstract" – dishonesty that occurs prior to or after the time when the contract exists should generally not attract the duty. Nevertheless, the issue continues to be litigated before the courts.
Ocean Pacific: No Duty During Pre-Contractual Negotiations
The Ocean Pacific case provided the British Columbia Court of Appeal with the opportunity to consider whether the duty of honest performance applies at the stage of pre-contractual negotiations. The dispute arose when the plaintiffs, while employees of the defendant, signed casual agreements of employment during the COVID-19 pandemic which replaced their existing contracts of regular employment. The plaintiffs alleged that, in the course of negotiations for the casual employment agreements, the defendant misled them about the health benefits coverage which the casual agreements would provide, a factor which induced the plaintiffs to contract. Following their dismissal from employment, the plaintiffs brought a proposed class action against the defendant, and succeeded before a Chambers Judge in certifying claims that included a breach of the duty of honest performance.
On appeal, Justice Butler for the unanimous Court held that the Chambers Judge erred in law by certifying the dishonest performance claim. In doing so, Butler J. accepted that "the decisions in Bhasin and Callow leave open the possibility, however slight, that dishonesty prior to the formation of a contract may be sufficient to support a claim in breach of the duty of honest performance". As well, he acknowledged that "the SCC has not explicitly found there is no manifestation of good faith which could apply to pre-contractual negotiations", referring to Martel Building Ltd. v. Canada, 2000 SCC 60, where the point was left open.
Nonetheless, Butler J. found there to be a "developing consensus" in the case law since Bhasin that the duty of honest performance does not apply at the pre-contractual negotiation stage (citing, e.g., Algo Enterprises Ltd. v. Repap New Brunswick Inc., 2016 NBCA 35 and Larizza v. Royal Bank of Canada, 2018 ONCA 632). Drawing on this case law, along with the potential for unnecessary confusion and overlap with the torts of negligent and fraudulent misrepresentation, he concluded that "dishonest conduct in the course of pre-contractual negotiations which is intended to induce the formation of a contract [cannot] form the basis for a claim for breach of the duty of honest performance". Justice Butler also held that this rule was not affected by the "unique context of employment contracts, and the vulnerability of employees within those contracts".
The decision in Ocean Pacific is important in clarifying that the duty of honest performance does not apply to pre-contractual negotiations which induce a contract's formation. Nevertheless, the Court of Appeal offered two qualifications to this that could prove significant in future cases.
First, Butler J. recognized that the duty of honest performance may still play a role during contractual negotiations which are carried out under an existing agreement. He found that "Callow is illustrative of the point that 'statements made during the negotiation of a future contract may also be directly linked to the performance of an existing contract, such that the duty of honest performance is engaged'" (since the dishonesty in Callow, while relating to negotiations for a future renewal, misled the plaintiff about the termination of its existing contract as well). Accordingly, Butler J. permitted the plaintiffs to amend their pleadings, in order to allege that the defendant breached the duty of honest performance in their existing contracts of regular employment – in relation to termination pay owed under them – while negotiating the casual employment agreements. A similar point was recently recognized under Quebec civil law in Ponce v. Société d'investissements Rhéaume ltée, 2023 SCC 25.
Justice Butler did not address the further question of whether the duty of honest performance may not simply apply during negotiations, but may apply to the very act of negotiating itself, if the right or obligation to negotiate arises under a binding pre-existing or preliminary agreement. However, his decision would seem to allow for this possibility, consistent with recent cases like Quebec (Attorney General) v. Pekuakamiulnuatsh Takuhikan, 2024 SCC 39, Royal Bank of Canada v. Peace Bridge Duty Free Inc., 2025 ONCA 54, along with the Court of Appeal's own seminal decision in Empress Towers Ltd. v. Bank of Nova Scotia, 1990 CanLII 2207 (B.C.C.A.).
Second, Justice Butler declined to resolve "the pure temporal question of whether there may be circumstances in which pre-contractual dishonesty, unrelated to misrepresentations in negotiations, can form the basis for a claim for breach of the duty of honest performance". While he found it "difficult to imagine how a duty to perform a contract honestly can arise before that contract comes into existence", he was not prepared to completely exclude the possibility of this result. Accordingly, Ocean Pacific would seem to leave the door open, however slightly, to future arguments about the pre-contractual application of the duty of honest performance, at least in cases that do not involve negotiation disputes.
Heritage Property: No Duty After Contractual Rights and Obligations Cease to Exist
The Alberta Court of Appeal's decision in Heritage Property deals with the converse question to the one in Ocean Pacific: can the duty of honest performance continue to apply after a contract ceases to exist? On the facts before it, the Court decided that it could not.
The plaintiffs in Heritage Property owned land in downtown Calgary which they planned to develop. To do so, they required two approvals from the City: a rezoning permit, and a development permit. The defendants were owners of neighbouring lands, and expressed an interest in acquiring a small parcel of the plaintiffs' lands which was not required for the development. The parties entered into an agreement for the sale of the parcel, which required one of the defendants to sign a letter stating that it did not object to the rezoning permit. However, the agreement was silent about the development permit.
After the defendants performed the contract by providing the signed letter, the City approved the rezoning permit. The plaintiffs then applied to the City for the development permit, and were successful in obtaining it. However, other neighbouring landowners opposed the development, and they appealed the development permit to the Subdivision and Development Appeal Board (the "SBAD"). The defendants made an unsuccessful offer to purchase the plaintiffs' entire parcel of land, and proceeded to join the other landowners in opposing the development permit at the SBAD, which allowed the appeal and revoked the development permit. The defendants ultimately purchased the plaintiffs' lands through a judicial sale process at a significantly reduced price, after the plaintiffs' creditors obtained a court order listing them for sale.
The plaintiffs sued the defendants for breach of contract, alleging what appeared to be a breach of the duty to exercise contractual discretion reasonably through their opposition to the development permit. The claim was summarily dismissed by both a Master and the Court of King's Bench. These decisions were upheld by the Court of Appeal, where the claim was considered from the perspective of the duty of honest performance rather than the discretion duty.
In holding that the claim could not succeed, the Court of Appeal emphasized that the defendants' obligations under the agreement had already expired by the time they opposed the development permit. In its view, "[t]he duty of honest performance does not take the specific obligation agreed to by the respondents – which was to provide a non-opposition letter in respect of the rezoning application – and expand it into a general obligation to not oppose the proposed development in any way or at any subsequent stage". According to the Court, "[t]he development permit application, which was submitted by the appellants after the Lot 13 agreement had been performed, was not a matter directly linked to the performance of that agreement". The Court also found there was no evidence of dishonesty by the defendants.
The decision in Heritage Park demonstrates that the duty of honest performance is unlikely to operate where the allegedly dishonest conduct takes place after the contract been the parties has been performed. A similar decision was reached by the Manitoba Court of Appeal in Albo v The Winnipeg Free Press, 2020 MBCA 50. Nevertheless, neither case precludes the duty of honest performance from applying where, after the end of a contract, rights or obligations under the contract continue to exist. The possibility of this has been recognized by other courts. As observed in Brown-Forman Corporation v. Charton-Hobbs Inc., 2024 ABKB 261, "[a]rguments of a breach of the obligation of good faith have failed where the agreement does not provide for the survival of the relevant contractual terms upon termination of the contract", but "where there are obligations that survive termination of the contract, the duty of fair dealing would continue to apply to such obligations to the extent they must be performed".
Takeaways
The temporal application of the duty of honest performance can give rise to difficult issues, some of which have yet to be fully resolved. The general position, as confirmed in Ocean Pacific and Heritage Properties, is that the duty operates only during the life of the contract, since that is when it creates rights and obligations that can be exercised or performed. The duty does not apply while the contract is being negotiated, unless the negotiations take place under or during the term of another binding agreement. Nor does the duty apply after the contract has been terminated, if all rights and obligations under it have ceased. Between these two goalposts, there remains considerable scope for the application of the duty. It is likely that future cases will continue to refine its temporal contours.
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