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Contract - Duty of Good Faith - Ponce v. Société d’investissements Rhéaume ltée (SCC, 2023). Ponce v. Société d’investissements Rhéaume ltée
In Ponce v. Société d’investissements Rhéaume ltée (SCC, 2023) the Supreme Court of Canada considered a Quebec fact situation where corporate officers ('presidents'), hearing of third party interest in purchasing shares in the corporation, did not disclose it to their shareholders and then purchased the shares personally to resell them to the third parties at a profit. Through this time there was also an 'incentive pay agreement' between the officers and the shareholders, which "governed the parties’ relationship and entailed implied obligations for the presidents."
In these quotes the court comments on the content of the duty of good faith (which is a Quebec statutory duty as well as a common law one), particularly it's element of 'loyalty' - examined here in a 'duty to disclose' context:[76] First, the prohibitive dimension of good faith requires, among other things, that parties to a contract not act dishonestly in performing it (Lefebvre (2015), at p.93). In this case, contractual loyalty did not require the appellants to forsake their own interests to benefit the respondents, let alone to refrain from exercising the legal rights they had under the Agreement. But in the pursuit of their interests and the exercise of their rights, parties to a contract must conduct themselves loyally by not unduly increasing the burden on the other party or behaving in an excessive or unreasonable manner (see Churchill Falls, at paras. 112‑13, per Gascon J., and para. 177, per Rowe J., dissenting, but not on this point). The prohibitive dimension of good faith also requires each contracting party not to jeopardize the existence or equilibrium of the contractual relationship (Lluelles and Moore, at No. 1979).
[77] However, I agree with the trial judge that in this case the appellants conducted themselves in a disloyal manner and lacked probity when they failed to disclose the interest expressed by IA to the shareholders and when they signed the Undertaking of Confidentiality with IA (paras. 544‑47). They were, of course, not obliged to subordinate their interests to those of the respondents in performing the Presidents’ Agreement, but they did have to look out for the interests of the respondents in the legitimate pursuit of their own interests (see Dunkin’ Brands, at paras. 74‑75; Provigo, at pp. 24‑25; see also Bhasin, at para. 70). The respondents could therefore legitimately expect the appellants to refrain from scheming in any way to enrich themselves at their expense. In the context of the business relationship in question, the appellants thus engaged in dishonest conduct that thwarted the respondents’ legitimate expectations in pursuing the goal they all had, which was to maximize the profits and value of the Groupe Excellence companies for the benefit of both the appellants and the respondents.
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[80] Second, in addition to these breaches of the prohibitive dimension of good faith, the appellants also contravened its proactive dimension. In this regard, good faith requires, from each contracting party, active behaviour that is intended to assist their contracting partner but that still remains compatible with the party’s own interests. Based on the circumstances, each party must, in particular, [translation] “inform [their partner], in the course of the contract, of events they had better know about for the performance of the contract” (Lluelles and Moore, at No. 1997 (footnote omitted)). Good faith thus imposes on each contracting party a duty to inform that [translation] “encompass[es] their partner’s legitimate expectations” (D. Mazeaud, “Chronique de jurisprudence civile générale: Obligations et protection des consommateurs”, in Répertoire du notariat Defrénois (1996), at p. 1010, quoted in Lluelles and Moore, at No. 2001; see also Desjardins Financial Services Firm Inc. v. Asselin, 2020 SCC 30, [2020] 3 S.C.R. 298, at para. 61). In keeping with this proactive dimension, as Professor Cantin Cumyn helpfully notes, [translation] “the duty of [contractual] loyalty requires [a contracting party] to provide the other party with the information that is relevant to the performance of their prestation, in order to facilitate it or avoid making it more onerous than originally intended” (Cantin Cumyn (2012), at p. 20). Like its prohibitive counterpart, the proactive dimension of contractual good faith does not require a contracting party to act selflessly. However, it does always require a contracting party to consider the other party’s perspective when exercising the legal rights conferred by the contract (p. 21; see, e.g., Dunkin’ Brands, at para. 74).
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[82] All that remains to be determined is the extent of this duty to inform in the specific context of the business relationship that existed here. For this purpose, I will refer to the landmark decision in Bail. In that case, the Court outlined a general theory regarding the duty to inform arising from the obligation of good faith in contractual matters, which served to determine whether particular information fell within this duty. As the Court of Appeal properly noted, this Court laid down the following three criteria in Bail (at pp. 586‑87): (1) knowledge of the information, whether actual or presumed, by the party owing the obligation to inform; (2) the fact that the information in question is of decisive importance; (3) the fact that it is impossible for the party to whom the duty to inform is owed to inform itself, or that the creditor is legitimately relying on the debtor of the obligation.
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