Page 44 - CCCA Magazine Summer 2015

{ LegaL innovation }

the duty oF honeSt perFormAnCe:

neW Ammunition For plAintiFFS Alleging BreACh oF ContrACt

By Anu Koshal

A recent landmark Supreme Court of Canada decision on the communicates one thing to another party
principle of good faith in contract law is expected to trigger (that it will likely renew a contract, for
instance) and then changes its mind? The
more lawsuits alleging breach of contract, with far-reaching Court did not address these questions,
implications for Canadian corporations. leaving it to lower courts to clarify the
scope of the duty over time.
In short, the duty of honest performance
n Bhasin v. Hrynew, 2014 SCC 71 (Bha- corners of the agreement. They must also provides a new and still undetermined way
sin), the Court held that an organizing be mindful of the manner in which they for plaintiffs to allege breach of contract,
iprinciple of good faith applies to all carry out their contractual obligations. and increases the risk of litigation arising
contractual relationships in Canada, re- Conduct which can be construed as de- from contractual relationships. There are,
gardless of whether the parties specifcally ceptive or misleading may amount to a however, steps that in-house counsel can
included a good faith requirement in the breach of contract even if it follows the take to manage these risks.
contract. This principle includes a new strict terms of the agreement. ■ Scope of duty: Try to limit the scope
duty to act honestly in the performance Adding to this risk is the lack of clarity of the duty when drafting commercial
of contractual obligations, which cannot around the scope of the new duty. While agreements. In Bhasin, the Court said
be excluded from the terms of the agree- lying or misleading another party will that parties may “relax the require-
ment. The Court also held that the prin- clearly breach the duty of honest perfor- ments of the doctrine so long as they
ciple of good faith includes several other mance, the Court was careful to say that respect its minimum core require-
existing duties, and has the potential to the duty does not entail a duty of loyalty ments” and as long as it’s done “in
generate further duties in the future. or disclosure. But what about conduct express terms.” To reduce some of the
Parties to commercial contracts are no that falls between these two extremes? uncertainty surrounding the new duty,
longer immune to litigation simply be- Can silence in response to a question be counsel should seek to clarify upfront
“ In short, the duty of honest performance provides a ■ Scrutinize communications: Con-
when the duty of honest performance
cause their conduct falls within the four interpreted as deceptive? What if a party
will and will not arise.
sider whether communications be-
tween contracting parties could be
interpreted as deceptive or misleading.
new and still undetermined way for plaintifs to allege
In Bhasin, for instance, the Court held
” its duty of honest performance in part
breach of contract, and increases the risk of litigation
that the corporate defendant breached
arising from contractual relationships.
because the defendant “equivocated”

44 CCCA MAGAzinE | SuMMEr 2015 été