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Contract - Duty of Good Faith - General. 6844987 Canada Inc. v. The United People of Canada/Les Peuple Unis du Canada [good faith versus express terms]
In 6844987 Canada Inc. v. The United People of Canada/Les Peuple Unis du Canada (Sup Ct, 2022) the court considered the interaction between a contractual 'time is of the essence' provision and the duty of good faith:[53] In Deangelis v. Weldan Properties (Haig) Inc., 2017 ONSC 4155, at paras. 41 to 43, Justice Ricchetti explained why the enforcement of “time is of the essence” clauses in commercial agreement of purchase and sale does not violate the principle that a contracting party must act in good faith:It would be tempting to let principles of fairness and equity direct a finding that a three day delay in the closing in the four year history of the Agreement, is a minor breach resulting in a financial windfall to the builder and, therefore, the Agreement should be upheld.
However, in my view, it would be wrong in law to find that insisting on compliance with a term of the agreement, agreed to by both parties with the assistance of counsel, amounts to bad faith depriving a party of the ability to strictly enforce an agreement where time is of the essence. Such a determination would mean that no party could insist on strict compliance of the term of an agreement because to do so would or might amount to bad faith. This would throw the law of contract into chaos by creating uncertainty in the enforcement of contracts.
Such a decision would also be contrary to numerous authorities which provide that, when a party fails to comply with its obligation to complete the transaction at a specified time and there is a time of the essence clause, the other party has the right to terminate the agreement. . 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. . Pinto v. Regan and White v. Regan
In Pinto v. Regan and White v. Regan (Div Ct, 2021) the Divisional Court considered issues of duress and the contractual duty of good faith in ordering a new hearing based on an RTA agreement to terminate a tenancy:[38] The facts on each appeal suggest that the respondent’s intention to obtain vacant possession of each unit on a permanent basis without having to give notice to each appellant under s. 50 was behind each transaction. The real substance of those transactions was not considered by the Member on either motion. Nor did the Member consider if the respondent was acting in good faith when he interacted with each appellant to obtain their signatures on the N11.
[39] The Supreme Court of Canada in Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494, established the organizing principle of good faith applicable to all contracts. This principle requires the performance of contractual duties and obligations honestly, not capriciously or arbitrarily, and with regard to the legitimate contractual interests of the other party: see Bhasin, at paras. 63 and 65. The relationship between a tenant and a landlord is contractual in nature and requires that they discharge the obligations they owe to one another in good faith. This duty of good faith includes how the parties conducted themselves toward each other at the end of that relationship.
[40] Section 202 of the RTA imposed a statutory duty on the Member to determine questions of fact and to apply governing principles of law to ascertain the real substance of the transactions and activities regarding the rental units at issue, and the good faith of the parties to the N11. The Member did not consider all the evidence to determine the element of good faith on the part of the respondent other than making a passing reference in the Reasons. The Member did not take the totality of the evidence into account when he applied the substantive law. This amounted to an error of law. . 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 whether the lease negotiation provision imposed any substantive duty of the landlord to actually reach a rent adjustment, here under the contractual doctrine of good faith:(3) Did the motion judge err in finding that the Landlord did not breach its duty of honest performance in negotiating a rent adjustment under s. 18.07?
[53] The parties acknowledge that they were required to fulfill their obligations under s. 18.07 of the lease and negotiate a rent adjustment in good faith. However, they disagree as to what constitutes compliance with that obligation.
(a) The Governing Principles
[54] In Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494, the Supreme Court recognized that good faith in contractual performance is “a general organizing principle of the common law of contract” in Canada and requires parties to act “honestly and reasonably and not capriciously or arbitrarily” in the performance of their contractual duties: Bhasin, at paras. 33, 63.
[55] Generally, good faith obliges each party to a contract: to co-operate in order to achieve the objects of the contract; to exercise discretionary power in good faith; not to evade contractual duties; and to perform contractual obligations honestly and reasonably: 2161907 Alberta Ltd. v. 11180673 Canada Inc., 2021 ONCA 590, 462 D.L.R. (4th) 291, at para. 44; Bhasin, at paras. 33, 47.
[56] This case focuses on good faith performance in the negotiations required by s. 18.07 of the lease, which engages the discretionary power of each party. A party exercising contractual discretion must do so reasonably and “in a manner consistent with the purposes for which it was granted in the contract”: Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7, [2021] 1 S.C.R. 32, at para. 63.
[57] The cases recognize and reconcile competing tensions: a party’s duty of good faith performance, on the one hand, and the party’s achievement of its legitimate economic self-interest, on the other hand. The duty of good faith in contractual performance must be balanced with other bedrock principles of contract law, such as a party’s freedom to act in its own self-interest in accordance with commercial realities. The Supreme Court noted in Bhasin, at para. 70:In commerce, a party may sometimes cause loss to another — even intentionally — in the legitimate pursuit of economic self-interest: A.I. Enterprises Ltd. v. Bram Enterprises Ltd., 2014 SCC 12, [2014] 1 S.C.R. 177, at para. 31. Doing so is not necessarily contrary to good faith and in some cases has actually been encouraged by the courts on the basis of economic efficiency: Bank of America Canada v. Mutual Trust Co., 2002 SCC 43, [2002] 2 S.C.R. 601, at para. 31. [58] The Bhasin court added an important caution, at para. 70:The development of the principle of good faith must be clear not to veer into a form of ad hoc judicial moralism or “palm treeˮ justice. In particular, the organizing principle of good faith should not be used as a pretext for scrutinizing the motives of contracting parties. [59] In other words, good faith performance “does not require that contracting parties serve each other’s interests”: 2161907 Alberta Ltd., at para. 43; see also C.M. Callow Inc. v. Zollinger, 2020 SCC 45, [2020] 3 S.C.R. 908, at para. 82. Put differently, “A contracting party can act in its own best interests, but it must not seek to undermine the legitimate interests of the other party in bad faith”: Lafarge Canada Inc v. Bilozir, 2018 ABCA 416, at para. 5, citing Bhasin, at para. 65.
[60] The duty of good faith in contractual performance will not produce mutually agreeable results in every fact situation. The duty’s purpose is to ensure a “standard that underpins” contractual performance and is afforded “different weight in different situations”: Bhasin, at para. 64. Accordingly, “The duty’s animating principle is focused on good faith performance of contracts, not the creation of a generalized duty of good behaviour”: Potash Corporation of Saskatchewan Inc. v. HB Construction Company Ltd., 2022 NBCA 39, at para. 163. . Metro 1 Development Corp. Ltd. v. Michael Garron Hospital
In Metro 1 Development Corp. Ltd. v. Michael Garron Hospital (Ont CA, 2023) the Court of Appeal notes a limit the extent of a contractual duty of good faith:[13] ... We also disagree with the submission that MGH was obliged to offer any prospective Tim Horton franchisees to Metro 1 as sublease prospects to cure its breach. The duty of good faith in contract law does not require a party to subordinate its interests to those of the other party: Wastech Services Ltd. v. Greater Vancouver Sewage and Drainage District, 2021 SCC 7, 454 D.L.R. (4th) 1 at paras. 6, 112-113. ... . Will v. Geo. A. Kelson Company Limited
In Will v. Geo. A. Kelson Company Limited (Ont CA, 2023) the Court of Appeal cited a test for contractual 'good faith':[20] She referred to the correct legal test to establish a breach of good faith, as set out in Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494 and C.M. Callow Inc. v. Zollinger, 2020 SCC 45, 452 D.L.R. (4th) 44, and she noted that the test provides that the parties must perform their contractual duties honestly and reasonably and not capriciously or arbitrarily.
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