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Contract - Duty of Good Faith - Discretion. Spina v. Shoppers Drug Mart Inc.
In Spina v. Shoppers Drug Mart Inc. (Ont CA, 2024) the Ontario Court of Appeal considered class action franchise appeals (direct and cross) from summary judgment decisions.
Here the court considered the common law duty of 'good faith' in contract dealings, and it's interaction with contractual discretion:[164] The issue is whether these actions constituted a breach of Shoppers’ duties related to good faith, which it owed to the Associates.
[165] Our courts have recognized obligations of good faith in contract. In Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494, the Supreme Court recognized an organizing principle of good faith performance in contract and specific duties derived from this organizing principle. The law has recognized the importance of respecting the intention of the parties as embodied in their agreement and the role of the obligation of good faith.
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[167] The Supreme Court in Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7, [2021] 1 S.C.R. 32, confirmed that there is also a duty to exercise contractual discretion in good faith. Discretion creates a set of possible choices consistent with the terms of the contract. Discretionary power, even if unfettered, is constrained by good faith”: Wastech, at para. 62.
[168] To be clear, this does not prevent a party to a contract from pursuing its own self interest, nor does it require a party to a contract to prioritize the other party’s interests over its own – the duty to exercise contractual discretion in good faith is not a fiduciary duty: Wastech, at paras. 52, 73-74. It simply means that a party to a contract must exercise its discretion in a manner “consonant with” the purpose for which the discretion was conferred in the contract: Wastech, at paras. 69-71.
[169] Whether a party to a contract exercises its discretion in a manner not connected to the underlying purposes of the discretion granted by the contract, such that it is in breach of the duty to exercise contractual discretionary powers in good faith, is a matter of contractual interpretation: Wastech, at paras. 76, 88. Where the contract is not explicit about the parties’ intentions, the purpose for which the discretion was granted can only be understood in the context of the contract as a whole: Wastech, at paras. 72, 76.
[170] Professor John McCamus states that, “Although the cases typically deal with expressly conferred discretionary powers, presumably ‘[d]iscretion also may arise, with similar effect ... from the lack of clarity or an omission in the express contract”: John D. McCamus, The Law of Contracts, 3rd ed. (Toronto: Irwin Law, 2020), at p. 932, footnote 115, quoting Steven J. Burton & Eric G. Andersen, Contractual Good Faith: Formation, Performance, Breach, Enforcement (Boston: Little, Brown and Co, 1995), at p. 46.
[171] A breach of the duty to exercise contractual discretion in good faith is a breach of contract: Wastech, at para. 62. As with any breach of contract, the aggrieved party will ordinarily be awarded “expectation damages” that place the plaintiff in the same position it would have been in had the duty been performed: Callow, at paras. 106-7. . Stericycle ULC v. HealthPRO Procurement
In Stericycle ULC v. HealthPRO Procurement (Ont CA, 2021) the Court of Appeal considered the contractual duties of good faith and honesty:[43] The organizing principle of good faith in contractual dealings was addressed in Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494 and expanded upon in C.M. Callow Inc. v. Zollinger, 2020 SCC 45, 452 D.L.R. (4th) 44 and Wastech Services Ltd. v. Greater Vancouver Sewage and Drainage District, 2021 SCC 7, 454 D.L.R. (4th) 1. In these decisions, the Supreme Court recognized two existing doctrines as manifestations of the principle of good faith – the duty to exercise a contractual discretion in good faith and the duty of honest performance of a contract.
[44] The duty to exercise a contractual discretion in good faith will be breached where the exercise of discretion is unreasonable, in the sense that it is unconnected to the purposes for which the discretion was granted: Wastech, at para. 88. The duty of honesty in contractual performance was explained by Cromwell J. in Bhasin as meaning “simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract”: at para. 73. . Royal Bank of Canada v. Peace Bridge Duty Free Inc.
In Royal Bank of Canada v. Peace Bridge Duty Free Inc. (Ont CA, 2025) the Ontario Court of Appeal dismissed an appeal, here from a commercial tenant's motion (in an application) denial of "rent adjustment or abatement" under a 'material adverse effect' negotiation lease provision, during the COVID pandemic.
The court considers the interaction of contractual discretion with the duty of good faith:[61] Finally, I note that in examining whether a party has breached its duty to exercise contractual discretionary power in good faith, the court must determine whether the party exercised its discretion for an improper purpose, that is, one unconnected to the purpose for which the contract granted the discretion; if so, the party has not exercised the power in good faith: Wastech, at para. 69. . 100 Bloor Street West Corporation v. Barry's BootCamp Canada Inc. [duty limits contractual discretion]
In 100 Bloor Street West Corporation v. Barry's BootCamp Canada Inc. (Ont CA, 2023) the Court of Appeal considered the Wastech case, which limits the allowed purposes of the exercise of a contractual discretion by a party - as a matter of the contractual duty of good faith:[7] Barry’s now appeals that decision. It has constructed an elaborate argument contending that the application judge committed an extricable error of law by erroneously identifying the purpose of the discretionary attribution subclause, thereby applying a mistaken assessment of reasonableness. This argument is crafted out of the decision in Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7, 454 D.L.R. (4th) 1, at paras. 88, 92, which holds that the exercise of a contractual discretion is unreasonable if it is unconnected to the purposes for which the discretion is granted. ...
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