Page 27 - CCCA 239285 Magazine_Fall 2015

{ Feature }

With the contractual law landscape in Canada
being altered substantially as a result of a landmark
Supreme Court of Canada (SCC) ruling delivered
he SCC’s unanimous deci- late last year, in-house counsel are now required the strict terms of the con-
sion in Bhasin v. Hrynew, tract, the communications
t2014 SCC 71, delivered on to navigate their organizations through contractual that surrounded it can be a
November 13, 2014, dramatically terminations more carefully than ever in order to problem and lead to a claim
impacts the obligations of all par- manage the potential risks more effectively, and that there’s been a breach of
ties to commercial contracts in contract.”
Canada, as it established a duty avoid expensive, reputation-damaging litigation. In turn, in-house counsel
to act in good faith as well as a are going to have to do things
duty of honesty in which the parties to a contract must not lie differently now to ensure they limit their organizations’ expo-
or knowingly mislead one another. Furthermore, neither party sure to litigation risk arising from a contractual termination.
can contract out of these obligations. This new dynamic has In many respects, though, they can look to their experiences
signifcant implications for in-house counsel, as they need to in other similar and somewhat related areas to understand the
ensure their organizations are honouring these duties when requirements of this new paradigm.
performing their contractual obligations during the process of “There already are for in-house counsel so many interesting
terminating a contract. experiences in the employment area; and if they advise their
“This represents a signifcant shift in the law because it now organizations in that area, they already understand that duty of
puts that duty squarely on both parties to perform obligations good faith and how to translate that into the commercial con-
honestly,” says Eli Lederman, Partner with Lenczner Slaght in tract space,” says Elisabeth Preston, Managing Partner of Lex
Toronto, who represented the defendant in Bhasin. “On the one Aegis LLP in Ottawa, who provides virtual in-house counsel
hand, it would seem that this is not a signifcant change, as one services for various organizations and also serves as Chief Le-
party would not reasonably expect the counterparty not to per- gal Offcer for Allen-Vanguard Corp. In particular, employers
form or act honestly in its contractual obligations. On the other are required to act in good faith when terminating employees
hand, though, when you apply a broad duty of honest perfor- and they cannot be untruthful, misleading, or insensitive when
mance to every contractual provision, there’s a risk that there’s dismissing that employee. (The Bhasin decision confrmed that
going to be tremendous uncertainty as to whether a party can this duty extended to all commercial contracts.)
rely on contractual provisions and be sure that it will not be
exposed to liability associated with a claim for a breach of the
duty of honest performance.” “This represents a signifcant shift in the law
As a result, “corporate counsel need to be more circumspect because it now puts that duty squarely on
to consider matters that may arise outside of the strict reading both parties to perform obligations honestly.”
of the contract,” explains Dalton McGrath, Partner with Blake, Eli Lederman, Partner, Lenczner Slaght
Cassels & Graydon LLP in Calgary. “Now, within the context of
this new case, it’s not enough to simply be reading the contracts,
but rather you have to look at the surrounding circumstances Furthermore, Preston cites her experience in working with
and factors that the counterparty can use against you in alleging Allen-Vanguard and several other multinationals that oper-
the contract was improperly terminated.” ate internationally, in which certain jurisdictions already have
As an example, Lederman says, “Even though a provision may similar laws in place. “In Europe, there’s this concept that if you
strictly say that you need to provide six months’ written notice have a dealer or a representative who’s a subcontractor and you
in order to terminate or end the contract effectively—and even terminate the contract with them, [the law] takes into consid-
though six months’ notice is complied with and you meet the eration the goodwill that the entity has built up in the process
technical requirements needed to put an end to the contract—if of ramping up to be a good partner with you. So, even when
there are communications that surround the performance of you terminate in accordance with the contract, you do have to
that termination provision that are found to be dishonest or not pay them for the goodwill they can no longer use because the
perfectly forthright, then, arguably, even though you’ve applied relationship is over.”

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