A 'First Look': The Canadian Courts' Treatment of Good Faith Contractual Performance Post-Bhasin

• Author: Brandon Pasternak
• Position: JD Candidate, University of Toronto Faculty of Law
• Pages: 124-150

© 2016 Brandon Pasternak and Dublin University Law Society

A“FIRST LOOK”:THECANADIANCOURTS’

TREATMENTOFGOODFAITHCONTRACTUAL

PERFORMANCEPOST-BHASIN

BRANDONPASTERNAK*

Introduction

TheSupremeCourtofCanada’sdecisioninBhasin vHrynew1reflectsa

growingrecognitionamongstcommonlawjurisdictionsoftheneedfor

goodfaithtogoverncontractualrelationships.2Morethan a centurybefore

Bhasin, theseminalcaseofParker v TheSouthEasternRailwayCompany3

setinmotiontheincrementalandinconsistentdevelopmentofthisareaof

thelawthroughoutthecommonlawworld.Theadhocnatureofgood

faith’s roleincontractlawwaslaterbroughttolightbyBinghamLJ(ashe

thenwas)inInterfotoPictureLibrary v Stilletto,4wherehediscussedhow

thelawofEnglandandWaleshadrefusedtoacknowledgeanoverriding

principleofgoodfaithbutinsteaddevelopedpiecemealsolutionsin

responsetodemonstratedproblemsofunfairness,recognisingspecific

dutiesofgoodfaithincertaincontexts.5BinghamLJalsomadereferenceto

therolethatParliamenthasplayedinimplementing a dutyofgoodfaithin

specificcontractualsettings.6IntheyearsfollowingInterfoto,European

UnionDirectives7havespurredsignificantgrowthinthisareaofthelaw8

andhavebeengiveneffectin anumberofcountries,includingIreland,

*JD Candidate, University of Toronto Faculty of Law. The author would like to dedicate this

article toGod, his wife, Shannon, and parents, Kathy and Gary, for their continued support.

The author would also like to extend a special thanks toSeán-Patrick Dunne for his exceptional

assistance and isalso grateful to Professors Geoff Halland Stephen Waddams for their

insightful comments.

1[2014] SCC 71; [2014] 3 SCR 494 [hereinafter Bhasin].

2MSC Mediterranean Shipping Company SA v Cottonex Anstalt[2015] EWHC283 (Comm),

at 97.

3 [1877] 2 CPD, at 427.

4[1989] QB433.

5[1989] QB433, at 439 [hereinafter Interfoto].

6[1989] QB433, at 439.

7 Council Directive 93/13/EECof 5 April 1993 on unfair contract terms in consumer contracts,

OJ L 95/29, 21 April 1993.

8MSC Mediterranean Shipping Company SA v Cottonex Anstalt[2015] EWHC283 (Comm).

2016] A “First Look”: The Canadian Courts Post-Bhasin

125

wheretheyhavesculptedtherhetoricofgoodfaith.7InIreland,thisrhetoric

hasincorporated a varietyoffairness-basedconcepts,suchasfairdealing,

andhasdefinedgoodfaithin a numberofways,includingas:

[a]skingnomorethanthatthepartiestoanagreementacthonestly

andin accordancewiththespiritofthatagreementtobegleanedfrom

thewordingusedandconstruedinthecontextinwhichitwas

reached.8

Nevertheless,theAnglo-Canadianjurisprudencehasnotalwaysbeen

entirelyconsistentorclearinestablishingwhatrole goodfaithwouldserve

inthelawofcontracts.TheSupremeCourtofCanadawaswellawareof

thiscomplexandtroublesomejurisprudence,anditwasagainstthis

backdropthattheBhasindecisionwasreleased.Inparticular,Bhasin

representsanattempttobothclarifyandexpandhowgoodfaithappliesto

theperformanceofcontracts.TheSupremeCourtsoughttodosoin a

mannerconsistentwiththe“dynamicandevolvingfabricof…society.”9

However,asiscommonfollowingthereleaseofSupremeCourt

judgments,CromwellJ’sverdictinBhasin(McLachlinCJ,LeBelJ,Abella

J,RothsteinJ,Karakatsanis J andWagnerJJallconcurring)createdanarray

ofnewquestionsthatremainunansweredandleftimportantissues

unaddressed.Notbeforelong,academics andpractitionersidentifiedthese

gapsleftbytheCourt,recognisingthatitwillbeuptobothfuturelitigants

andCanada’slowercourtstointerprettheBhasindecisionmoving

forward.10Nevertheless,theacademicliteratureongoodfaithcontractual

performancepost-Bhasinhasyettoprovidea comprehensivereviewofhow

courtshavereactedtothisdevelopmentinthelaw.Inresponsetothisgap

7SI 27/1995 European Communities (Unfair Terms in Consumer Contracts) Regulations.

8Flynn & Anor v Breccia & Anor [2015] IEHC 547, at [156].

9R v Salituro [1991] 3 SCR 654, at 670.

10 For academic commentary, see Chris Hunt, “Good Faith Performance in Canadian Contract

Law” (2015) 74(1) CLJ 4; Geoff Hall, “Bhasin v Hrynew: Towards an Organising Principle of

Good Faithin Contract Law” (2015) 30 BFLR335 [hereinafter Hall]; and for practitioner

commentary, see Brad Hanna and Calie Adamson, “Let’s Be Honest: The New Duty of Good

FaithinContractual Performance” (2014) McMillan Litigation Bulletin

New-Duty-of-Good-Faith-in-Contractual-

Performance>; PeterKryworuk, “Good Faithin Performance of Contracts” (2015) Lerners

Articles & Publications; Tim Pinos, TedFrankel, Colin

Pendrith, and Christopher Selby, “Supreme Court Expands Obligations of Good Faith and

Honesty inContract Performance” (2014) Cassels Brock Resources

th_and_Honesty_in_Contract_Performance>.

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intheliterature,thisarticlewillprovideanintroductoryanalysisofhow

Bhasinhasbeenappliedbylowercourtsintheyearfollowingitsrelease

andarguehowthesedecisionsmightbeinterpretedinthecontextoffuture

litigation.Furthermore,itiscontendedthatalthoughtheCourthasnot

successfullyaccomplishedwhatitsetouttodothroughBhasin - thatis,to

bringcoherenceandpredictabilitytothisareaofCanadiancontractlaw,the

resultinguncertaintyisanessentialpartofhowthelawdevelopsvis-à-vis

the“judicialdialogue”approach.

Theargumentproceedsasfollows. PartI providesan overviewof

Bhasin,includingwhattheCourtsetouttoaccomplishthroughthedecision

anditscontributiontothelawofgoodfaithcontractualperformance.Part

IIanalyseshowthesubsequentcaselawinCanadahasrespondedtoBhasin.

Buildinguponthis, PartIIIcontendsthattheSupremeCourtdidnot

successfullyaccomplishitsgoalsoffosteringcoherenceandpredictability.

Finally,thisarticleconcludesbypresentingthe“judicialdialogue”

approachtolegaldevelopmentas a potentialjustificationfortheresulting

uncertainty.

I. The Bhasin Decision

A.TheFacts

Theappellant,Mr.Bhasin,wasinthe businessofsellingeducational

savingsplansforCanadianAmericanFinancialCorporation(hereinafter

Can-Am),oneoftherespondents.11Bothpartieshadenteredintoa

dealershipagreementthatwouldautomaticallyrenewattheendofeach

three-yeartermunlesssixmonthsieshadenteredinto a dealershipagreeof

theterm.12

WhentheAlbertaSecuritiesCommissionrequiredCan-Amtoappoint

anofficertoreviewCan-AmdealersforcompliancewithAlberta’Whenthe

AlbertaSecuritiesCommissionrequiredCan-Amtoappointan13Hrynew

wasalso a Can-AmdealerandthusBhasin’scompetitor,andthetwohad a

historyofanimosity.14BhasincomplainedaboutHrynew’sappointment,

largelybecauseHrynewwouldbeauditinghiscompetitors’agenciesand

haveaccesstotheirconfidentialbusinessinformation.15

11[2014] SCC 71, at [2]-[3].

12[2014] SCC 71, at [4], [6].

13[2014] SCC 71, at [10].

14[2014] SCC 71, at [7].

15[2014] SCC 71, at [10].

2016] A “First Look”: The Canadian Courts Post-Bhasin

127

Inresponse,Can-AmmisledBhasinbyexplainingthatHrynewwould

beboundbyconfidentiality,whichwas nottrue,andthattheCommission

hadrejectedtheappointmentofanoutsideauditor.16Inreality,theonly

outsideauditorthatCan-Amconsideredhadnotmetthenecessary

requirements.17Can-Amwasalsoconsidering arestructuringplanthat

involvedmerging BhasinandHrynewality,which w18Ineffect,themerger

wouldforceBhasintobeginworkingforHrynew.19WhenBhasininquired

astowhetherthemergerwasfinal,Can-Amresponded“equivocally”even

thoughtheplanhadbeenformulatedmonthsbefore.20Itwas theseevents

thatledthetrialjudgetoconcludethatCan-Amhadacteddishonestlywith

Bhasin,especiallywithrespecttoitsintentionsconcerningthemerger.21

Can-AmultimatelynotifiedBhasinthatitwouldnotberenewingtheir

agreementwhenBhasinrefusedtoallowHrynewtoaudithisrecords.22As

a result,Bhasinlostthevalueofhisbusinessandwasforcedtofindwork

elsewhere.23

B.TheProblem

TheSupremeCourt’sdecisioninBhasinwasmotivatedby adeep

disapprovalofthestateofthe lawatthattimeasitpertainedtogoodfaith

contractualperformance.24Canadiancourtshavedisagreedoverwhatrole

goodfaithshouldplayinthelawofcontracts.Somejudges,includingKelly

J inGatewayRealtyLtdv ArtonHoldingsLtd, haveviewedgood faithas

requiring a minimumstandardofcommercialbehaviourinallcontracts.25

Incontrasttothisview,others,notablyO’notably O toTransamericaLife

CanadaInc v INGCanadaInc,haveendorsedlimitingtheapplicationof

goodfaithtoparticularcontextsinfearofunderminingfreedomofcontract

andcommercialcertainty.26AlthoughAnglo-Canadiancommonlawhas

refusedtoacknowledge a generaldutytoperformcontractsingoodfaith,27

16[2014] SCC 71, at [12].

17[2014] SCC 71,at [101].

18[2014] SCC 71, at [101].

19[2014] SCC 71, at [11].

20[2014] SCC 71, at [11]-[12].

21[2014] SCC 71, at [15].

222014] SCC 71, at [12].

232014] SCC 71, at [13].

242014] SCC 71, at[32], [59].

25 [1992] CanLII 2620 (NSCA), at [38]; 112 NSR(2d) 180, citedin[2014] SCC 71;[2014]

3 SCR 494, at[38].

26 [2003] CanLII 9923 (ON CA), at [103]; 234 DLR (4th) 367; 127 ACWS (3d) 235.

27[2014] SCC 71, at [32].

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exceptionshavebeenmadeinspecificcircumstanceswherethe courts

decidedthatjusticerequired a dutyofgoodfaithcontractualperformance.28

TheCourtrecognisedthattheproblemwiththis“piecemeal”

developmentofthelawwasthatitlackedconsistencyandcoherence.29

Therewasno“overarchingrationale”to illustratehowtheseseemingly

unrelatedexceptionswereconnected,otherthanthesimplefactthatgood

faithwassomehowinvolvedineachcase.30Forexample,thecourtshave

foundthat a dutyofgoodfaithgovernscontractualconductasvariedasthe

mannerinwhichaninsurerinvestigatesaninsured’sclaimandthe

considerationofbidssubmittedinthetenderingcontext.31Moreover,inthe

absenceofguidanceastowhennewexceptionsshouldberecognised,there

wastheriskthatjudgesweremorelikely to beswayedbytheirsubjective

senseofjusticeandcreatenewdutieson a purelyadhocbasis.32Itwasin

responsetotheseproblemsthattheSupremeCourtinBhasindecidedtotake

a new“incremental”approachtothisareaofthelaw.33

C.Bhasin’sSolution:TheOrganisingPrinciple

InBhasin, theSupremeCourtsoughttoclarifyandexpandhowgoodfaith

appliestotheperformanceofcontractsthroughtwoincrementalsteps.

Thefirststepwasanattempttobringclaritybyrecognisinggoodfaith

contractualperformanceas ageneralorganisingprincipleofcontractlaw

[hereinaftertheorganisingprinciple].34TheCourt’srecognitionofgood

faithasanorganisingprincipleindicateswhatrolegoodfaithwillhavein

thelawofcontractsasitpertainsto contractualperformance.35However,

beforeunderstandingwhatfunctiongoodfaithwillserve,itisimportantto

firstconsiderwhattheCourthadinmindwhenitspokeofgoodfaith.

AsHallcomments, “Bhasinprovidednocomprehensivedefinitionof

goodfaith.”36Nevertheless,thelanguagethattheCourtusedtodescribe

28[2014] SCC 71, at [42].

29[2014] SCC 71, at [42].

30Hall, note 2, at 335.

31702535 Ontario Inc v Non-Marine Underwriters, Lloyd’s London, England (2000) 184 DLR

(4th) 687, at [29]; 95 ACWS (3d) 556 (Ont CA), citedinFidler v Sun Life Assurance Co of

Canada [2006] SCC 30; [2006] 2 SCR 3, at [36]; Martel Building Ltd v R [2000] SCC 60;

[2000] 2 SCR 860, at [88]..

32[2014] SCC 71,at [70].

33[2014] SCC 71; [2014] 3 SCR 494,at [33].

34[2014] SCC 71, at [63].

35 Unless otherwise stated, the term “good faith” will refer specifically to “good faith

contractual performance.”

36Hall,note 2, at 336.

2016] A “First Look”: The Canadian Courts Post-Bhasin

129

goodfaithcanbeinterpretedasgivingrisetothreedefinitions,each

presentingdifferentaspectsorfacetsofwhatgoodfaithrequiresasan

organisingprinciple.37Theorganisingprincipleofgoodfaithcontemplates

thatpartiesshouldperformtheircontracts(1)“honestlyandreasonablyand

notcapriciouslyorarbitrarily,”[hereinafterDefinition1]38(2)honestly,

candidly,forthrightly,andreasonably,[hereinafterdefinition2]39and with

(3)“appropriateregardtothelegitimatecontractualinterestsofthe

contractingpartner,”which“merelyrequiresthat apartynotseekto

underminethoseinterestsinbadfaith”ratherthanrequiringthemto

prioritisethecontractingpartner’sinterests[hereinafterDefinition

3].40Althoughsomeaspectsofgoodfaitharerepeated (ie, honestyand

reasonablenessarefoundinthefirstandseconddefinitions),these

definitionshelptocapturethelanguagethatisavailabletojudgesand

litigants whenapplyingtheorganisingprinciple.

Moreover,goodfaithwillfunctionas a principle.Althoughtheremay

be a temptationtointerprettheabovedefinitionsas a listoflegally-

enforceableobligations,thisorganisingprincipleisnotanindependent and

generaldutyofgoodfaithcontractualperformance.41Boththeorganising

principleandgeneraldutyofgoodfaitharegeneralinthattheyapplytoall

contractingpartiesregardlessofthetypeofcontractualrelationship.

However,thedifferencebetweenanindependentdutyand a principleisthat

thelattermerelysetsoutwhatjusticewouldrequireinanygiveninstance.42

AstheCourtarticulated,itissimply“astandard,”thefunctionofwhichis

tohelp“understandanddevelopthelawina coherentandprincipledway,”43

andthusismorenormativeinitsapplication.Unlike a free-standingruleor

duty,theorganisingprincipleisnot a legalobligationthatpartiescancall

uponcourtstoenforce.44

Anotherfeatureoftheorganisingprincipleisthat itmanifestsitselfin

theformofparticularduties. TheCourtmadeitclearthatalloftheexisting

circumstancesinwhichcourtshaverecognised a specificdutytoperform

contractsingoodfaitharemanifestationsofthisorganisingprinciple

37 The Court refers to the organising principle in these terms at three different points inthe

judgment, although not explicitly as definitions.

38[2014] SCC 71, at [63].

39[2014] SCC 71, at [66].

40[2014] SCC 71, at [65].

41[2014] SCC 71, at [64].

42[2014] SCC 71, at [64].

43[2014] SCC 71, at [64].

44[2014] SCC 71, at [64].

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[hereinaftermanifestations].45Itisinthissensethattheconceptofgoodfaith

helpstoorganisetheexistinglaw.

Accordingly,partiescanclaimthattheorganisingprinciplemanifests

itselfinthespecificcontractualcircumstancesthattheyfindthemselvesin

andthatthedutythatisrecognisedas aresultofthemanifestationis

enforceable.Thislitigationstrategyisavailablebecausethelistofpossible

manifestationsisnotclosed.46Bywayofadvice,theCourtinstructedthat

newmanifestationsshouldberecognised“wheretheexistinglawisfound

tobewantingandwherethedevelopmentmayoccurincrementally….”47

Manifestationsmustalsobe“consistentwiththefundamentalcommitments

ofthecommonlawofcontract,”includingthefreedomtopursueindividual

self-interest.48

Inparticular,thisarticleproposesthefollowingclassificationasa tool

forunderstandingthetypesofmanifestationsthatcouldberecognisedand

howlitigantsmightarticulatetheirclaimsfornewmanifestationsmoving

forward.Newandexistingmanifestationscouldbeanalysedwithreference

toboththeir“content”and“application,”eachofwhichcouldbeeither

“general”or“specific.”Intermsof“content,”eachofthethreedefinitions

aboverevealdifferentaspectsorfacetsoftheorganisingprinciple (eg,

honesty,reasonableness,etc.).Eachmanifestationdrawsfromthese

aspects.Furthermore,“application”referstotherangeofcontractual

relationships (eg, insurancecontracts)orspecificcircumstanceswithin

those relationships (eg, investigatinganinsured’sclaim)inwhichthe

manifestationwouldapplytorequiregoodfaithconduct.

Table 1illustratesthedifferentpossibilities.Forexample,a

manifestationcouldbegeneralintermsofcontentifitrequiresconductin

linewitheveryaspectoftheorganisingprinciple,yetbespecificin

applicationifthisbehaviourisrequiredonlyin a particularcontractual

setting,suchasemploymentcontracts.

45[2014] SCC 71, at [63]-[64].

46[2014] SCC 71, at [66].

47[2014] SCC 71, at [66].

48[2014] SCC 71, at [70].

2016] A “First Look”: The Canadian Courts Post-Bhasin

131

Table1:ManifestationsoftheOrganisingPrinciple

ApplicationoftheManifestation

GENERAL

[appliestoall

contractual

relationships]

SPECIFIC

[appliestoone

or a few

contractual

relationship(s)]

Contentofthe

Manifestation

GENERAL

[includesall

aspectsofthe

organising

principle (ie,

Definitions1,

2 and3)]

Generaldutyofgood

faithcontractual

performance(notyet

recognised)

Dutyofgood

faithcontractual

performance

governingthe

mannerof

termination

under

employment

contracts

(similarto

Wallace)

SPECIFIC

[includesone

or a few

aspect(s)of

the

organising

principle (eg,

honesty,

reasonablenes

s,etc.)]

Dutyofhonest

contractualperformance

(Bhasin)

Dutyof

forthright

contractual

performance

governing

suspensions

under

employment

contracts

(similarto

Potter,

describedinPart

II)

ThesecondstepthattheCourttookinBhasinhelpstofurtherillustratethis

classification.Afteracknowledgingtheroleoftheorganisingprinciple,the

Courtproceededtoexpandtheapplicationofgoodfaithbyrecognising a

newmanifestation,thedutyof honestcontractualperformance,requiring

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thatcontractingparties“mustnotlieorotherwiseknowinglymisleadeach

otheraboutmattersdirectlylinkedtotheperformanceofthecontract,”but

notrequiringdisclosure.49AlthoughBhasinreferstothisas a generalduty

becauseitappliestoallcontracts (ie, itsapplicationisgeneralinnature)it

isstillcontent-specificinthatitdrawsfrom aparticularaspectofthe

organisingprinciple.

WithrespecttothefactsinBhasin, theCourtconcludedthat Can-Am

wasdishonestwithBhasinandthatitsdishonestywas“directlyand

intimatelyconnected”toCan-Am’sperformanceunderthecontractanduse

ofthenon-renewalprovision.50Accordingly,Can-Ambreachedthedutyof

honestperformance.51

D.TheSupremeCourtofCanada’sObjective

Beforeventuringintoananalysisofhowsubsequentcourtdecisionshave

respondedtoBhasin, itisworthconsideringwhattheSupremeCourtof

Canadaplannedtoaccomplishthroughthisdecision.Inparticular,these

objectives willserveasthestandardagainstwhichitseffortscanbe

measured.AlthoughtheCourtrecognisedthatitsproposedsolutionwasnot

a panacea,52itanticipatedthatitstwostepapproachwouldnevertheless

create“ameasureofcoherenceandpredictability.”53

Coherenceandpredictabilityworktogether.Lookingbackwards,

“coherence”speakstotheCourt’sdesiretoclarifyhowspecificdutiesof

goodfaithcontractualperformancethathavealreadybeenrecognisedare

connectedandfittogetherasmanifestationsoftheorganisingprinciple.In

contrast,“predictability”isaboutunderstandingthewayforward.It

concernstheCourt’sattempttoguidejudgesastheyrecognisenew

manifestationsand,accordingly,settletheexpectationsofcontracting

parties inthisrespect.

II. The Response to Bhasin

Thissectionwillprovideanoverviewofhowcourtshaverespondedtothe

Bhasindecisionintheyearfollowingitsrelease.Thisanalysisdoesnot

purporttobeexhaustive.Nevertheless,itwillfocusonthosedecisionsthat

49[2014] SCC 71, at [73].

50[2014] SCC 71, at [103].

51[2014] SCC 71, at [94].

52[2014] SCC 71, at [41].

53[2014] SCC 71, at [41].

2016] A “First Look”: The Canadian Courts Post-Bhasin

133

aremosteffectiveinillustratingtheimpactofBhasinonhowthisareaof

thelawhascontinuedtodevelop.

A.SupremeCourtofCanadaDecisions

Potter v NewBrunswick(LegalAidServicesCommission)54isthefirstand

onlySupreme CourtofCanadadecisiontociteBhasin.AlthoughtheCourt

brieflyreferredtoBhasinonlyonceinthiscase,itisworthexaminingPotter

toassesshowtheBhasindecisionhasbeentreatedbytheverycourtthat

handeditdownlessthan a yearearlier.

TheCourt’sdecisioninPotteraddressestheconceptofgoodfaithin

theemploymentlawcontext.Inparticular,theCourtconsideredwhat

factorsarerelevantfordeterminingwhethertheadministrativesuspension

ofanemployeeiswrongful.55Writingforthe majority,Wagner J (Abella,

Rothstein,Moldaver,Karakatsanis,JJconcurring)statedthatcourtsmust

identifywhetherthesuspensionisjustified.56WGoodfaithonthe

employer’spart”willalwaysbea relevantfactorinmakingthat

determination.57

Wagner J wentontociteDefinition 2 fromBhasin, commentingthat

“actingingoodfaithinrelationtocontractualdealingsmeansbeinghonest,

reasonable,candid,andforthright.”58Inthiscase,therespondentemployer

didnotactingoodfaithbecauseitsfailuretoprovidetheappellant

employeewithanyreasonforhissuspensionwasnotbeingforthright.59

Wagner Jconcludedthata suspensionwillonlybejustified,andthusnot

wrongful,iftheemployeractsingoodfaithbyprovidinglegitimatebusiness

reasons.60Indeed, a suspensionamountsto abreachofcontractifitisnot

authorisedbythecontract.61Giventhatthereisnoimpliedauthorityto

suspendanemployeeintheabsenceoflegitimatebusinessreasonsfordoing

so,62failingtoexercisegood faithbynotdisclosingthesereasonsresultsin

a breachofcontract.

54[2015] SCC 10; [2015] 1 SCR 500 [hereinafter Potter].

55[2015] SCC 10,at [97].

56[2015] SCC 10, at [97].

57[2015] SCC 10, at [97].

58[2015] SCC 10, at [99].

59[2015] SCC 10, at [99].

60 In Potter, at[98], the Court noted that legitimate business reasons may not be required in the

context of a disciplinary suspension.

61[2015] SCC 10, at [45].

62Potter [2015] SCC 10, at [98].

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TheCourtappearedtobecreating a newmanifestationofthe

organisingprincipleinthecontextofemploymentlaw.Inadditiontoan

employer’sexistingdutytodismissemployeesin agoodfaithmanner,63

Pottersuggeststhatemployersmightalsohaveanobligationtoactingood

faithwhenissuingsuspensions.However,theCourtdidnotexplicitlystate

thatthisiswhatitwasdoing.

AlthoughthisisonlyonepossiblereadingofPotter, thereareatleast

a fewconsiderationsthatweighinfavourofthisinterpretation.First,the

factthattheCourtwasnotexplicitaboutidentifying a newmanifestationin

thiscontextvis-à-visa specificdutyofgoodfaithdoesnotnecessarilymean

thatitdidnotintendtodoso.Indeed,theremayberoomforlitigantsto

“readbetweenthelines”inanattempttoidentifywhatisbeingimplied.The

Courtmayhaveavoidedanexplicitreferencetotheorganisingprinciple

herenotbecauseitwasnot beingcontemplated,butforotherreasons.To

beginwith,onemightthinkthatiftheCourtintendedtorecognise a new

manifestation,itmayhavewantedtotaketheopportunitytofleshout

Bhasin’sadviceconcerningwhenandhowlowercourtsshouldrecognise

thesenewmanifestations.64Moreover,itcouldhavebeenusefultoillustrate

thisprocesstothecourtswiththehelpofthespecificfactsinPotter.

AlthoughitisnotunheardoffortheCourttoreaddressissuesthatithas

alreadydealtwithin a recentdecision,65itwouldnotbesurprisingifthe

lackofexplicitnessanddetailinthiscasecouldbeexplainedbytheCourt’s

unwillingnesstoformallyrevisitBhasinsosoonafteritsrelease.

Furthermore,itisalsorelevantthatPotterwasheardsix months

beforetheCourt’sjudgmentinBhasinwasreleased.ThePotterdecision

wasthenhandeddownlessthanoneyearlater.Accordingly,thepartiesdid

nothavetheopportunitytoconsiderthisnewcaseintheirwrittenororal

submissions.Although theCourtcouldhavedelvedinto a substantial

discussionofBhasinwithouttheparties’input,itwouldhavelikely

requestedorallowedfurthersubmissionsfromthepartiesinresponseto

Bhasin, aswasthecaseintheOntarioCourtofAppealdecisionofHigh

63Wallace v United Grain Growers Ltd[1997] 3 SCR 701; 152 DLR (4th) 1 (SCC), at [95]

[hereinafter Wallace].

64See[2014] SCC 71, at [66], [69]-[70].

65 Leave to appeal to the Supreme Court of Canada wasrecently granted following two

contractual interpretation cases a little over a year after the Supreme Court addressed the

standard of review for questions of contractual interpretation inCreston Moly Corp v Sattva

Capital Corp [2014] SCC 53; [2014] 2 SCR 633. The twocases are Ledcor Construction Ltd

v Northbridge Indemnity Insurance Co [2015] ABCA 121; 386 DLR (4th) 482 and British

Columbia v Teal Cedar Products Ltd [2015] BCCA 263; 386 DLR (4th) 40.

2016] A “First Look”: The Canadian Courts Post-Bhasin

135

TowerHomesCorp vStevens.66ThattheCourtdidnotdosoheremay

suggestthatBhasinwouldnothavehad a profoundeffectontheoutcome

ofitsdecision.Indeed,theCourt’sprimarytaskinPotterwastoclarifythe

lawonconstructivedismissal.WagnerJ’streatmentofgoodfaithcomprised

only a smallpartofthatanalysisandCromwellJ,whowroteforthemajority

inBhasinbutdissentedinPotter, didnotmentiontheconceptofgoodfaith

onceinhisdissent.Accordingly,theCourtmayhavedeliberatelyavoided a

discussionoftheorganisingprinciplebecauseitwouldhavebeentoo

tangential.

Secondly,theCourt’sbriefreferencetoBhasincouldbeinterpreted

asanacknowledgementofwhatBhasinstandsforandanacceptanceofits

application to thefactsinPotter.Asaforementioned,Wagner J citedBhasin

foroneofitsexplanationsofwhatgoodfaithrequires.However,this

particularexplanation,Definition2,canbetracedbacktomuchearlier

cases,includingWallace v UnitedGrainGrowersLtd.67ItwasinWallace

thattheSupremeCourtrecognised a dutyofgoodfaithwithrespecttothe

mannerofdismissalinemploymentcontracts68anddefinedgoodfaithin

thatcontextasrequiring,“ata minimum,candid,reasonable,honestand

forthright” behaviour.69TheCourt’suseofthisdefinitioninPotterrather

thanoneoftheotherdefinitionsarticulatedinBhasinlikelyspeakstoits

recognitionoftheneedforconsistencyinhowgoodfaithisinterpretedin

theemploymentcontext.Indeed,confusion isavoidedif a requirementof

goodfaithinemploymentcontractsrequiresthesametypeofbehaviour

irrespectiveofwhetheritappliestothemannerofdismissalorto

administrativesuspensions.

AlthoughbothWallaceandBhasindefinegoodfaithcontractual

performanceintermsofcandid,reasonable,honest,andforthright

behaviour,Wallacegoesfurtherbyspecifyingthatthisismerelythe

minimumlevelofconductrequired.70Pottermimicsthisspecificlanguage,

whichwasnotpresentinBhasin. This suggeststhattheCourtmayhavehad

Wallaceinmindwhendefininggoodfaithinthecontextofadministrative

suspensions.GiventhatWallaceconsiderswhatgoodfaithrequiresin

employmentcontracts,thesamecontextasinPotter, andthattheCourt

seemedtobedrawingfromthespecific“at a minimum”languageusedin

Wallace, onemightthenaskwhyWagner J citedBhasininstead.Onelikely

66 [2014] ONCA 911; 123 OR (3d) 81, at [36] [hereinafter High Tower Homes].

67[1997] 3 SCR 701; 152 DLR (4th) 1 (SCC).

68[1997] 3 SCR 701; 152 DLR (4th) 1 (SCC), at [95].

69[1997] 3 SCR 701; 152 DLR (4th) 1 (SCC), at [98].

70[1997] 3 SCR 701; 152 DLR (4th) 1 (SCC), at [98].

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explanationisthatBhasinisthemostrecentSupremeCourtdecisionto

recognise a dutyofgoodfaithcontractualperformance.However,thereis

anotherpossibility.TheCourtcouldhavebeensignalingbothitsawareness

ofBhasinandtheapplicabilityofthatdecision,aswellasimplicitlydrawing

attentiontooneofitsmainconclusions:thatcourtscanrecognise new

manifestationsoftheorganisingprincipleandthedirectapplicationofthat

conclusiontothefactsinPotter. Inotherwords,itpointstotheCourt’s

recognitionoftheholdinginBhasinthatthereisanorganisingprincipleof

goodfaiththatmanifestsitselfinnewcontexts,andthatthefactsofPotter

illustrateoneofthosecontexts.

Finally,regardlessofwhethertheCourtintendedtoapplyBhasinto

thefactsofPotterbyinformallyrecognising a newmanifestation,itcould

bearguedthatthiswasneverthelesstheeffectoftheCourt’sdecision.

Indeed,similarinterpretationsofPotterhavebeenarticulatedby

practitioners.71Attheveryleast,thisprovidesanindicationofhowlitigators

maytrytospinthePotterdecisioninfuturecases.

WhentheCourtinPotterstatedthat a partybreaches a contractifthey

failtoexercisegoodfaithinparticularcircumstances,72thissuggeststhat

thecontractisimposing a dutytoactingoodfaithinthosecircumstances.

Itisasifthisrequirementofgoodfaithis a termoftheemploymentcontract,

similartotherecognisedimpliedtermofgoodfaithgoverningthemanner

oftermination.73Insuch a case,employersseekingtosuspendanemployee

areonlyauthorisedbythecontracttodosoiftheyexercisegoodfaithby

providingreasonsforthesuspension.74Whenconductingsuspensions,

therefore,employersareobligedbythecontracttoactingoodfaith.This

suggeststhatevenifnon-disclosureisnotcontrarytothedutyofhonest

performance,itcanstillbecontrarytoanotherspecificdutyofgoodfaith.

Tosummarise,althoughtheSupremeCourtwasnotexplicitabout

acknowledginga newmanifestationinPotter, theCourt’sjudgment

neverthelesssuggeststhatthereis a specificdutyofgoodfaithtoprovide

legitimatereasonsforemploymentsuspensionsandthatthisdutytakesthe

71See Joshua Concessao, “Indefinite Suspensions With Pay: The SCC Clarifies the Test for

Constructive Dismissal”(2015) HicksMorley Case inPoint

with-pay-the-

scc-clarifies-the-test-for-constructive-dismissal/>; Stephanie Brown and Joel Smith, “Honesty,

Good Faith and Constructive Dismissal: Supreme Court Clarifies Employer Obligations”

(2015) Shields O’Donnell MacKillop LLPBlog

.

72[2015] SCC 10; [2015] 1 SCR 500, at [45], [98].

73[2014] 3 SCR 494, at[53]-[54].

74[2015] SCC 10, at [98].

2016] A “First Look”: The Canadian Courts Post-Bhasin

137

formofanimpliedterm.ThisdevelopmentislikelyinlinewithBhasin’s

“incremental”approach. However,theCourtdidnotformallyconsider

Bhasin’sadviceinthisrespect.

Furthermore,theCourtadoptedDefinition 2 oftheorganising

principle,emphasisingthatgoodfaithrequiresforthrightconductandthat

providingreasonsfor a suspensionisanexampleofforthrightness.Finally,

thismanifestationwouldbeclassifiedascontent-specific(ie, forthrightness)

andapplication–specificinthatitappliesnotonlytothespecific

employmentrelationship,butalsothespecificcontextofemployment

suspensions.

B.LowerCourtDecisions

Atthetimeofwritingtherewereone-hundredandtwenty-sevenlowercourt

decisionsthatconsideredBhasin.75SixteenofthesewereCourtofAppeal

decisions.Inparticular,eighteenofthetrialleveldecisionsandeachCourt

ofAppealdecisionwerereviewed.Althoughonly a fewofthesedecisions

respondmeaningfullytoBhasin, thosethatengageBhasin(i)drawattention

tosomeoftheprobingquestionsthatitleftunanswered,(ii)helptoillustrate

whatfuturemanifestationsmightlooklike,and(iii)demonstratewhat

aspectsoftheorganisingprinciplehavebeenemphasised.

i.!ProbingQuestions:AreManifestationsImpliedTermsor

Doctrines?

Bhasinisexplicitaboutcourtsbeingabletorecognisenewmanifestations

oftheorganisingprinciple,76butitremainsunclearwhatformthose

manifestationsandtheirrespectivedutieswilltake.Forexample,someof

theexistingmanifestationsthatwereexplicitlymentionedinBhasinhave

takentheformofanimpliedcontractualterm.77However,Cromwell J took

theefforttopointoutthat thenewestmanifestationoftheorganising

principle,thedutyofhonestperformance,“shouldnotbethoughtofasan

impliedterm,but[as] a generaldoctrineofcontractlawthatimposesas a

contractualduty a minimumstandard….”78Moreover,theCourtreferredto

doctrinesatnumerouspointsinthejudgment.79

75 This number is based on “key cite” data generated on WestlawNext on February 14, 2016.

76[2014] SCC 71, at [66].

77[2014] SCC 71, at [53]-[54].

78[2014] SCC 71, at [74].

79[2014] SCC 71, at [35], [42], [63], [66].

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Thesecommentsmightindicatethatnewmanifestationscannolonger

taketheformofdutiesimpliedbythecontractitselfandshouldberouted

insteadthroughmoregeneraldoctrines.80Thefirst approachtracesthe

specificdutyofgoodfaithtoanimpliedterminthecontract.Impliedterms

areoftenrecognisedas a matterofinterpretation,andthusareimposedby

thecontractitselfandfulfillthepartieshecontracti81Underthesecond

approach, whatwillbecalledthe“doctrine”approach,thesourceoftheduty

is a doctrineofcontractlawthatexistsoutsideofthecontract.82

Tworecentappellatecourtdecisionshaverespondedtothisissuein

favourofthedoctrineapproach,concludingthat manifestationsshouldnot

beinterpretedasimpliedterms.InHighTowerHomes, theOntarioCourtof

AppealcitedBhasinforthepropositionthat“thedutyofgoodfaithshould

notbethoughtofasanimpliedterm.”83However,whatCromwellJ actually

wroteinBhasinwasthatthe“newdutyofhonestperformance…shouldnot

bethoughtofasanimpliedterm.”84Thedutyofhonestperformanceisonly

oneexampleof aspecificdutyofgoodfaith.Accordingly,itisunclear

whetherCromwellJ’sremarkconcerningthecorrectclassificationofthe

formercanbeextendedtothelattermoregenerally.Cromwell Jclarified

hisposition:“Iamatthispointconcernedonlywith a newdutyofhonest

performance.”Thismaysuggestthathiscommentwasnotintendedtohave

thisextendedapplication.85Nevertheless,theCourtofAppealappearsto

readCromwellJ’sstatementasapplyingtonotonlythedutyofhonest

performance,buttoallspecificdutiesofgoodfaith.

TheBritishColumbiaCourtofAppealcameto asimilarconclusion

inMoultonContractingLtd vBritishColumbia.86Whentherespondent

attemptedtorelyonBhasin87theCourtconfirmeditssupportfortheOntario

CourtofAppeal’sdecisioninHighTowerHomes, statingexplicitlythat

“Bhasinclarifiesthatgoodfaithisnotanimpliedterm,but…manifestsin

particulardoctrines...”88Regardlessofwhethertheinterpretationsadopted

80 It is noted that the difference between doctrines and dutiesishard to pin down and that the

Bhasin decision does not bring clarity to this distinction. How these terms are articulated here

isan attempt to create a degree of clarity.

81Mesa Operating Ltd Partnership v Amoco Canada Resources Ltd(1994) 149 AR 187, at

[15]; [1994] ABCA 94 (CanLII) (Alta CA), citedin[2014] SCC 71, at [74].

82Mesa Operating Ltd Partnership v Amoco Canada Resources Ltd(1994) 149 AR 187, at

[15]; [1994] ABCA 94 (CanLII) (Alta CA), citedin[2014] SCC 71, at [74].

83 [2014] ONCA 911; 123 OR (3d) 81, at [36].

84[2014] SCC 71, at [74].

85[2014] SCC 71, at [74].

86 [2015] BCCA 89; 381 DLR (4th) 263 [hereinafter Moulton].

87[2015] BCCA 89, at [65].

88 [2015] BCCA 89, at [67].

2016] A “First Look”: The Canadian Courts Post-Bhasin

139

bythesecourtsofappealarewhattheCourtinBhasinhadinmind,litigants

inbothOntarioandBritishColumbiamightnowhavetoframetheir

requestsfornewmanifestationsastherecognitionofdoctrinesratherthan

ofimpliedterms.

However,itisworthconsideringthepracticaleffectofthesedifferent

approaches. A validconcernwiththedoctrineapproachisthatthenewly-

recogniseddutydoesnotariseoutoftheparties’ intentions(expressor

implied)andthusthattheapproachinterfereswithparties’freedomof

contract.89Thedistinctionbetweentheseapproachesappearstobe

somewhatartificialthoughinthattheeffectofeitherapproachislikelyto

besimilar.Regardlessofwhether a dutyisimpliedas a termofthecontract,

andthusreflectstheparties’implicitintentions,orisimposedbyanexternal

doctrinewithnoconnectiontotheparties’intentions,onecanstillbecritical

ofthefactthatboththeimpliedtermanddoctrineimposeanobligationon

theparties,evenifitwasnotexpresslycontemplatedbythem.Indeed,the

differencebetweena courtstating“thepartiesimpliedthattherewas a duty”

and“adoctrineimposes a duty”maybeinsignificantgiventhatthesource

ofboththedoctrineandtheimplicationisoften a similarassumptionabout

parties’reasonableexpectations.90

Nevertheless,astheCourthighlightedinBhasin,thereis akey

differencebetweentheseapproaches. A dutyimposedbydoctrinecannotbe

excludedbythepartiesbecauseitisexternaltotheagreement.91

Accordingly,itdoesnothavetocompetewithan‘entireagreement’Aclause

orexpresstermsthatmightpointtowards a differentresult.92Thepresence

ofan‘entireagreement’clauseinBhasinexplainswhytheCourtoptedto

characterisehonestperformanceas a doctrine-imposedduty.93Indeed,the

Courtstatedthatitwouldhavebeen“difficulttosaythat adutyofgood

faithshouldbeimpliedinthiscaseonthebasisoftheintentionsofthe

parties.”94Itwantedtoavoidimplying atermintothecontractwhenthe

“entireagreement”clauseillustratedthatthepartiesexpresslyintendedto

avoidsuch a result.95

Whethernewmanifestationscantaketheformofimpliedtermsalso

hasaneffectontheproperinterpretationofthePotterdecision.Although

89[2014] SCC 71, at [39], [76].

90[2014] SCC 71, at [76].

91[2014] SCC 71, at [75].

92[2014] SCC 71, at [75].

93[2014] SCC 71, at [72].

94[2014] SCC 71, at [72].

95[2014] SCC 71, at [75].

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thelanguageinPottercouldbeinterpretedaspointingto a dutyofgood

faithasanimpliedterminemploymentcontracts,itdoes notalludetothe

existenceofanydoctrine-basedduty.Ifmanifestationsarelimitedtothe

latterform,itwouldbehardertoassertthat anewmanifestationwas

recognisedinPotter.

However,therearetwoadditionalreasonswhyitstillmightbe

possibleforfurthermanifestationstobecharacterisedasimpliedterms.

First, CromwellJ’sdescriptionofthedutyofhonestperformanceinBhasin

asa doctrineratherthanasanimpliedtermmightstemfromthisduty’s

generalapplicationtoallcontractualrelationships (ie, itisapplication-

general).Incontrast, themajorityoftheexistingmanifestationshavearisen

in“specifictypesofcontractsandrelationships” (ie,theyareapplication-

specific).96AsisillustratedbyCromwellJifestationshavearisenin “of

unconscionability,97 adoctrinemightsimplybebettersuitedto

manifestationsthathave a generalapplication.Accordingly,itmightnotbe

outofthequestionforfutureapplication-specificmanifestationstocontinue

totaketheformof impliedterms.

Secondly,wherethereisanexistingmanifestationin aparticular

contractualcontext,andthatmanifestationtakestheformofanimplied

term,consistencywouldbeachievediffurthermanifestationsinthatcontext

alsotookthesameform.Therefore,intheemploymentcontextwherethe

dutytoterminateingoodfaithwasimpliedas a contractualterm,itwould

notbeunreasonabletoconcludethattheCourtinPottermighthaveimplied

a newdutytoprovidereasonsforsuspensionas a contractualtermaswell.

Therearevalidreasonsforarguingthatnewmanifestationsarerooted

indoctrinesratherthaninimpliedterms,namelytheneedtoavoidtheeffect

of“entireagreement”clauses.Nevertheless,theabovediscussion

demonstratesthatCromwellJ’scharacterisationofthedutyofhonest

performanceasdoctrine-baseddoesnotnecessarilymeanthatallfuture

manifestationswilltakethesameform,especiallygiventhebreadthof

existingmanifestationsintheformofimpliedterms.Ifnewly-manifested

dutiesareimpliedascontractualterms,futurelitigantswillhavetoconsider

towhatextentthesedutiescanbemodifiedordisplacedbytheexpressterms

oftheagreement.98

96[2014] SCC 71, at [36], [42], [44].

97[2014] SCC 71, at [75].

98[2014] SCC 71, at [77] indicates that the doctrine-imposed duty of honest performance can

be modified by the terms of the contract as long as the “core” of the duty isrespected. However,

itis unclear to what extent an“entire agreement” clause willaffect animplied duty of good

faith (ie, whether itcan be displaced entirely).

2016] A “First Look”: The Canadian Courts Post-Bhasin

141

ii.!PossibleManifestationsoftheOrganisingPrinciple

TheAlberta CourtofAppealarticulated apossiblemanifestationofthe

organisingprincipleinStewartEstate v1088294AlbertaLtd.99Although

theconceptofgoodfaithonlyaroseinthiscaseinthecontextof a discussion

concerningdamagesforthetortoftrespass,theCourt’swordsprovidesome

insightintowhat a specificdutyofgoodfaithmightlooklike.

OfparticularrelevanceisMcDonaldJA’scommentconcerningthe

sophisticationofthepartiesinthiscase:“wearedealingwithlarge,

sophisticatedandwell-informedcorporationsontheonehand,andlay

people…ontheother.Theneedfortheformertoactingoodfaithwhen

dischargingtheircontractualobligationstothelatterhasbeen

highlighted…inBhasin.”100Here,McDonaldJAemphasisedtheneedfor

goodfaithbehaviourwhencontractingpartieshavedifferentlevelsof

bargainingpower.However,hisremarksfallshortofexplicitlyrequiring a

specificdutyinthiscontextandthuscannotlikelybeinterpretedas

implyingsuchanobligation.Nevertheless,thesecommentscouldbeused

infuturecasestosupporttheargumentthat aspecificdutyshouldbe

recognisedgenerallyinrelationshipsdefinedby a powerimbalance,rather

thanonlyin“certainclassesofcontractssuchasemployment…and

insurance…”wherepowerimbalancesarefound.101Thismanifestation

wouldlikelybecontent-general (ie, notfocusingon a particularaspectof

goodfaith)andapplication-specific(ie, relationshipsdefinedby apower

imbalance).

Anothercasethatcouldbeinterpreted asarticulating anew

manifestation,oratleasttheneedforone(asinStewart),isDirectcashATM

ManagementPartnership v Mauriceculating anewmanifestatio102Inthis

NewBrunswickCourtofAppealdecision,theappellantsenteredinto

processingagreementswiththerespondentstoprovideservicesthatwould

connecttherespondents’ATMstoanInteracnetwork.103Inparticular,these

contractscontained a rightoffirstrefusal.104Uponexpiryoftheagreements

therespondentswererequiredtogivenotice to theappellantsifthe

respondentsreceivedanyoffersfromothercompaniestoprovidesimilar

99 [2015] ABCA 357; 237 ACWS (3d) 517 [hereinafter Stewart].

100 [2015] ABCA 357, at [313].

101[2014] SCC 71, at [44].

102 [2015] NBCA 36; 387 DLR (4th) 50 [hereinafter Directcash].

103 [2015] NBCA 36, at [2].

104 [2015] NBCA 36, at [4].

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services.105Theappellantswouldthenbeentitledtoenterinto anew

agreementwiththerespondentsunderthetermsofthatoffer.106

TheCourt’sanalysisisrelevantbecauseofitsapplicationofBhasin

totheprocessingagreementsatissueinthiscase.Thecentralissueforthe

Courtwaswhetherthedisclosureclauseintheagreementshadbeen

breachedbytherespondents.107TheCourtultimatelyconcludedthatthe

respondents’failuretoprovidetheappellantswiththe“specificterms”of

thenewofferthattheyhadreceivedwas a breachofthatdisclosureclause.108

Inobiterdicta, theCourtalsocommentedontheissueofgoodfaith,even

thoughtheappellantshadnotallegedthattherewasanyseparatebreachof

a goodfaithobligation.109Onthispoint,theCourtdeterminedthatthe

respondents’decisionnottodisclosewasmadeinbadfaith.110Inparticular,

therespondentshadactedcapriciously.111

Itisworthdrawingattentiontotherespondents’Ispecificconduct

becauseitexemplifieswhatcourtsmightclassifyas“capricious”behaviour,

pursuanttoDefinition1.Therespondentsnotifiedtheappellantsthatthey

wouldnotberenewingtheircontract112andfound a newprovider“without

havinggiven[theappellants]theopportunitytobidonthecontracts,”113

contrarytotherightoffirstrefusal.Despitetheappellants’requestsfor

specificinformationconcerningtheofferandindicationthattheprovision

ofthisinformationwasrequiredbytheircontract,therespondentsrefused

toprovideinformationbecauseitwas,intheiropinion,notcontractually

required.114Therespondentsthenproceededtocontractwithanother

company.115

Inparticular,theCourttookissuewiththerespondentsrelyingon

theirowninterpretationofthe“firstrefusal”clausewithoutconsideringthe

underlyingintentoftheagreementsasa wholeandemphasisedthatitwould

nothavebeendifficultfortherespondentstoprovidetherequested

information.116

105 [2015] NBCA 36, at [4].

106 [2015] NBCA 36, at [4].

107 [2015] NBCA 36, at [23].

108 [2015] NBCA 36, at [7], [23].

109 [2015] NBCA 36, at [30].

110 [2015] NBCA 36, at [30].

111 [2015] NBCA 36, at [30].

112 [2015] NBCA 36, at [5].

113 [2015] NBCA 36, at [6].

114 [2015] NBCA 36, at [6].

115 [2015] NBCA 36, at [6].

116 [2015] NBCA 36, at [30].

2016] A “First Look”: The Canadian Courts Post-Bhasin

143

ItisunlikelythattheCourtwasacknowledging a specificdutyofgood

faithcontractualperformanceinthiscase,largelybecauseitscommentson

thisissuewereobiter. Indeed,theCourt’sconclusionthattheconduct

resultingin a breach ofthedisclosureclausehadbeeninbadfaithwasonly

incidentaltothecentraldisclosureissue.ThisisincontrasttoBhasinwhere

therespondenthadnotbreachedtheexplicittermsofthecontract,yetwas

liableforbeachofthedutyofhonestperformance.Althoughbadfaith

conductmaybereprehensible,thereisnoaddedsignificanceabsent a

specificdutyofgoodfaiththatcanbebreached.

Nevertheless,theNewBrunswickCourtofAppeal’slanguagecould

beinterpretedbylitigantsasrecognising a dutyofgoodfaith.TheCourt

statedthatpartieshave adutytoperformtheircontracts“honestlyand

reasonablyandnotcapriciouslyorarbitrarily,”117andthenitexplicitly

commentedthatitwas“applyingtheabovestatement”tothefactsofthe

case,whereitfoundthattherespondentshadactedin a “capricious

fashion.”118Thisdecisioncouldstandforthepropositionthatthereis a

specificdutytoavoidcapriciousconduct (ie, itiscontent-specific),similar

tothedutyofhonestperformance.

However,thismanifestationwouldlikelyonlyapplytothosenarrow

circumstancesinwhich,aswasthecasehere,thereis adisagreement

concerningthescopeof a contractualterm (ie, itisapplication-specific).In

thatcontext,theremightbea goodfaithobligationfor apartynottoact

capriciouslybyblindlyrelyingontheirowninterpretationofthecontractto

justifyconductthattheotherpartycontendswouldbe a breachofitsterms,

especiallywherelittleisrequiredtodowhattheotherpartysuggestsis

neededtoavoidthebreach.Attheveryleast,thisishowlitigantsmight

attempttoexplaintheeffectofthisdecision.

Finally,theAlbertaCourtofQueen’sBench’sdecisioninStyles v

AlbertaInvestmentManagementCorp119presentsthe mostexpliciteffortto

recognise a manifestationoftheorganisingprinciple.Theplaintiffinthis

casewasterminatedwithoutcauseandtheprimaryissuebeforetheCourt

waswhetherhewasentitledtoanypaymentundertheemployer’sLong

TermIncentivePlan.120

AfterreviewingBhasinindetailandconsideringtheexistinglaw,the

Courtexplicitlyrecognisedthata “dutyofreasonableexerciseof

discretionarycontractualpowers”was amanifestationoftheorganising

117 [2015] NBCA 36, at [29].

118 [2015] NBCA 36, at [30].

119 [2015] ABQB 621; 258 ACWS (3d) 539 [hereinafter Styles].

120 [2015] ABQB 621, at [1].

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principle.121Inparticular,thisdutyrequiresthat“discretionary

powers…mustbeexercisedfairlyandreasonablyandnotin a mannerthat

is“capricious”or‘arbitrary.’”122QuotingthelanguageusedinBhasinto

describethedutyofhonestperformance,theCourtstatedthatthesourceof

thisdutyis a generaldoctrineratherthananimpliedterm.123Accordingly,

thedutycannotbeexcludedbytheparties.124AsinBhasin, theCourt’s

relianceonthedoctrineapproachwaslikelymotivatedbytheexistenceof

an“entireagreement”clauseintheemploymentcontractatissue.125

Althoughthisdutyisframedgenerally,theCourtlaterstatedthat“it

isdesignedtodealwith…theunfairmanneroftermination.”126First,this

languagesuggeststhatfuturelitigantsmighttrytorestricttheapplicationof

thisdutytothespecificcontextofemploymentrelationships.Second,the

abovequotealsoindicatesthattheCourtseemedtobedisplacingthe

existingdutytoterminateina goodfaithmanner,whichhasbeenrecognised

asanimpliedterm,127withthismoregeneraldoctrine-baseddutytoexercise

discretionarypowersingoodfaith.Thetrueeffectofthisdevelopmentwill

havetobefleshedoutinfuturedecisions.

Additionally,thedutyofhonestperformancethatwasrecognisedin

Bhasinwasapplication-general.Itispossiblethatthedoctrine-approach

wasadoptedinBhasinforthatreason.However,inStylesthedoctrine-

approachwasappliedevenwherethemanifestationwasapplication-

specific.Thisdevelopmentsuggeststhatmanifestationsshouldtakethe

formofdoctrines,evenwheretheapplicationofthedutyisspecificrather

thangeneral.

Finally,astheSupremeCourthighlightedinBhasin, therehave

alreadybeeninstancesinwhichthecourtshaverecognised a dutyofgood

faithinrelationtotheexerciseofdiscretionarypowerundercontracts.128

TheAlbertaCourtofQueen’sBenchrecognisedthisinStyles.129Although

theCourt’sacknowledgementofthismanifestationmightnotappeartobe

a “new”development,itisimportanttorememberBhasin’sadvicethat

courtsshouldconsider“theexistinglawastheprimaryguidetofuture

121[2015] ABQB 621, at [63].

122 [2015] ABQB 621, at [63].

123 [2015] ABQB 621, at [63].

124 [2015] ABQB 621, at [64].

125 [2015] ABQB 621, at [104].

126 [2015] ABQB 621, at [66].

127[2014] SCC 71, at [53]-[54].

128[2014] SCC 71, at [47], [50].

129 [2015] ABQB 621; 258 ACWS (3d) 539, at [59].

2016] A “First Look”: The Canadian Courts Post-Bhasin

145

development”130anditsindicationthatthelawshoulddevelop

incrementally.131IncontrasttoStewartandDirectcash,Stylesisperhaps

moreillustrativeoftheincrementalapproachthatBhasinhadinmindwhen

givingcourtslicensetorecognisemanifestations.

iii.!DrawingfromtheThreeDefinitions

ThelackofclarityinBhasinconcerningthedefinitionofgoodfaithhas

madeiteasyforlowercourtstopickatthedifferentaspectsofBhasin’s

fragmenteddescription.Inadditiontothecasesalreadymentioned,132the

followingdecisionsillustratehowcourtshaveappliedBhasin’sthree

definitionsofgoodfaithindifferentways.

InIndustrialAllianceInsuranceandFinancialServices v Brine133the

NovaScotiaCourtofAppealemphasisedDefinition3:“appropriateregard

tothelegitimatecontractualinterestsofthecontractingpartner.”This

definitionwasalsoappliedinStyles. InStyles, theemployerhadtogive

properconsiderationtotheplaintiff’sentitlementsunder aLongTerm

IncentivePlan,whichwasdeemedtobe a legitimatecontractualinterest.134

TheBritishColumbiaCourtofAppealhighlightedDefinition 1 in

Moulton.135Here,therespondententeredintoanagreementwith the

ProvinceofBritishColumbiathatgrantedhimrightstoharvestCrown

timber.136TheCourtfoundthattheProvince’sfailuretodisclosethat a

memberofthelocalFirstNationshadthreatenedtodisrupttherespondent’s

loggingoperationswasnotdishonest,unreasonable,capriciousor

arbitrary.137However,theCourtdidnotconsiderwhetherthelackof

disclosurewascontrarytothe“forthrightness”aspectofgoodfaith,aswas

thecaseinPotter.

Finally,inShewchukv BlackmontCapitalInc,138theOntarioSuperior

CourtofJusticeheldthatthedefendantemployer’sresponsetotheplaintiff

employee’scomplaintsovercompensationwasnotcapriciousbecausethe

130[2014] SCC 71, at [69].

131[2014] SCC 71, at [66].

132Seethe previous discussion of Directcash for anexample of what the courts have considered

to be “capricious” conduct.

133 [2015] NSCA 104, at [94; [2015] NSCA 104 (CanLII) [hereinafter Industrial Alliance].

134 [2015] ABQB 621; 258 ACWS (3d) 539, at [104].

135 [2015] BCCA 89, at [70].

136 [2015] BCCA 89, at [1].

137 [2015] BCCA 89, at [76].

138 [2015] ONSC 5079; 257 ACWS (3d) 579, at [231], [233].

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employerlistenedtotheemployee’sconcerns,evenifitdidnotconcedeto

hisdemands.

Table2:ManifestationsoftheOrganisingPrinciple(ArisingOutofCases

Considered)

ApplicationoftheManifestation

GENERAL

[appliestoallcontractual

relationships]

SPECIFIC

[appliestoone

or a few

contractual

relationship(s)]

Contentof

the

Manifestation

GENERAL

[includesall

aspectsofthe

organising

principle (ie,

Definitions1,

2 and3)]

Generaldutyofgood

faithcontractual

performance(notyet

recognised)

Dutyofgood

faithcontractual

performance

governingthe

mannerof

termination

under

employment

contracts

(similarto

Wallace)

Dutyofgood

faithcontractual

performancein

contractual

relationships

definedby a

powerimbalance

(similarto

Stewart)

SPECIFIC

Ie, Honest

(Definition 1/2)

Duty of honest contractual

performance (Bhasin)

Applicationof the Manifestation

2016] A “First Look”: The Canadian Courts Post-Bhasin

147

GENERAL

[applies to allcontractual

relationships]

SPECIFIC

[applies to one or a

few contractual

relationship(s)]

Content of the

Manifestation

SPECIFIC

Ie, Reasonable

(Definition 1/2)

Duty of reasonable

exercise of

discretionary

contractual powers

in employment

contracts (Styles)

SPECIFIC

Ie, Not

Capricious

(Definition 1)

Duty of “not

capricious”

contractual

performance where

there is a

disagreement

concerning the scope

of a contractual term

(similar to

Directcash)

SPECIFIC

Ie, Forthright

(Definition 2)

Duty of forthright

contractual

performance

governing

suspensions under

employment

contracts (similar to

Potter)

III. Measuring Up

Takenatfacevalue,itisnotdifficulttoseehowvariousaspectsofthe

BhasindecisionhavecreatedproblemsfortheCourt’spursuitofcoherence

andpredictability.Intermsofcoherence,thepurposeoftheorganising

principlewastoexplainhowthealready-recognisedspecificduties of good

faithareunitedbya commonorigin.Althoughthismetaphorsomewhat

helpstounderstandtheexistinglaw,thesemanifestationsoftheorganising

principlearestillexceptionstotheabsenceof a generaldutyofgoodfaith

contractualperformance.Indeed,Bhasindidnotcreateoneandtheyarestill

adhocinthatitremainsunclearwhysomespecificdutieswererecognised

whenotherswerenot.AsHallcomments,139andastheOntarioSuperior

139Hall, note 2, at 341.

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CourtofJustice’sjudgmentinEmpireCommunitiesLtd vOntario140

suggests,Bhasinmerelyattached a newnameorlabeltotheexistinglaw.

Thelawhasnotbecomelessincoherentas a result.141

InBhasin, theSupremeCourtwarnedjudgesthattheirapplicationof

theorganisingprincipleshouldnotgiveriseto“adhocjudicial

moralism.”142Nevertheless,theeffect oftheBhasindecisionisprimarily

thatcautiouslowercourtjudgesnowhavesomewhatmoreconfidenceto

findnewinstancesinwhich a specificdutyofgoodfaithexists,yetareleft

withlittleinstructionfromBhasinastowhentodoso.

Furthermore, althoughBhasincreateda degreeofpredictabilityinthat

theorganisingprinciplepointsthewayforward,predictabilityisalso

underminedbecauseBhasinprovidedonlyminimalguidancewithrespect

tohowtheorganisingprincipleshouldbeapplied.The SupremeCourtin

Bhasinadvisedanincrementalapproachthatisconsistentwiththeexisting

law,143butofferedlittleclarityconcerningwhethernewmanifestations

shouldbeinterpretedasrootedindoctrinesorimpliedterms.Itsguidance

was“mostlyconceptual”and“maynotbeeasytoapplyinpractice.”144

Ina numberofinstances,thecourtshaveprovidedreasonable

interpretationsoftheBhasindecision.Forexample,inBankofMontreal v

Javed, theOntarioCourtofAppealclarifiedthatBhasindidnot modifyor

expandthetestforunconscionability.145

However,withtheexceptionofthedutyofhonestperformance,146

subsequentcourtdecisionshavefrequentlymisunderstoodimportant

elementsofBhasin. ThismisunderstandingsuggeststhattheBhasin

decisionwasnotentirelysuccessfulinguidingcourtsandhelpingthemto

understandthewayforward.Forexample, afewcourtshavereferredto

Bhasininsucha wayastosuggestthattheyinterpretedtheorganising

principleas ageneralduty,oratleastdid nottakethetimetoclarifythe

differencebetweenthetwo.InIndustrialAlliance, theNovaScotiaCourt

ofAppealstatedthat“theSupremeCourtofCanadaexpanded…implied

contractualdutiesfrom…particularcontextsinto a generalcontractual

140 [2015] ONSC 5183; 256 ACWS (3d) 791, at [26].

141Hall, note 2, at 341.

142[2014] SCC 71, at [70].

143[2014] SCC 71, at [66].

144Hall, note 2, at 344.

145 [2016] ONCA 49; [2016] ONCA 49 (CanLII), at [11]-[12].

146 None of the cases considered misinterpreted Bhasin’s duty of honest performance. See, for

example: Canaccord Genuity Corp v Pilot[2015] ONCA 716, at [50; 259 ACWS (3d) 290;

Burquitlam Care Society v Fraser Health Authority [2015] BCSC 1343, at [7; 256] ACWS

(3d) 823.

2016] A “First Look”: The Canadian Courts Post-Bhasin

149

duty.”147TheCourtalsodescribedthedutyofhonestperformanceasan

impliedtermdespiteBhasin’sclearindicationtothecontrary.148

Similarly,inDirectcashtheNewBrunswickCourtofAppeal

commentedthat“implicitisthedutyofcontractingpartiesto…fulfilltheir

contractualobligations…‘honestlyandreasonablyandnotcapriciouslyor

arbitrarily,’”afterwhichitstatedthat“Cromwell J hascreated anew

commonlawdutyunderthebroadumbrella oftheorganising

principle…”149Althoughthelanguageinthelatterquotewastakenfrom

Bhasin’sdiscussionofthedutyofhonestperformance,theNewBrunswick

CourtofAppealdidnotrefertohonestperformanceonceinthisdecision.

Thissuggeststhatthe“newcommonlawduty”thatitreferstois a dutyto

performcontractshonestly,reasonably,etc.Nosuchdutywascreatedin

Bhasin.

Insummary,thelawofgoodfaithcontractualperformanceremains

relativelyincoherent.Totheextentthatcourtshavefrequently

misinterpretedBhasin, predictabilityisunderminedaswell.Accordingly,it

appearsthattheSupremeCourthasonlyminimallyaccomplishedwhatit

setouttodointheBhasindecision.

Conclusion

BhasinrepresentstheSupremeCourtofCanada’sattempttodevelopthe

lawofgoodfaithcontractualperformance.AlthoughtheCourtsuccessfully

expandedthisareaofthelawbyrecognising a newdutytoperformcontracts

honestly,itseffortstobringclarityprovedtobelessthanfruitful.Thisis

illustratedbythedifficultiesfacedbylowercourtsin interpretingBhasin.

Indeed,Bhasinhasatbestbroughtonlyminimalcoherenceand

predictabilitytothisareaofthelaw.

Nevertheless,initialuncertaintyisoften a necessaryby-productofthe

mannerinwhichtheSupremeCourtchoosestodevelopthelaw.InBhasin,

theCourtdidnotattempttofleshouteveryissueinrelationtogoodfaith.150

Instead,theapproachadoptedbytheCourtcouldbereferredtoas“judicial

dialogue,”151oneinwhichadditionstoorclarificationsofthelaware

147 [2015] BCSC 1343, at [7].

148[2015] NSCA 104, at [95], [99].

149[2015] NBCA 36; 387 DLR (4th) 50, at [29].

150Hall, note 2, at 336.

151 This approach issimilartothe notion of Charter “dialogue” theory articulated inPeter Hogg

and Allison Bushell, “The Charter Dialogue Between Courts and Legislatures (Or Perhaps the

Charter of Rights Isn’t Such a Bad Thing After All)” (1997) 35:1 OsgoodeHallLJ 75.

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presentedbythe SupremeCourtandthen“discussed”bythelowercourts

inresponse.Inthiscontext,judicialdialoguewillallowthelawofgood

faithcontractualperformancetodevelopincrementally,mostlikelyina

non-linearfashion,asBhasinisappliedbylower courtstodifferent

circumstancesbeforeeventuallybeingreconsideredbytheSupremeCourt.

Despitetheinitialuncertaintythatithascreated,theorganising

principlethatwasrecognisedinBhasinhasthepotentialtosettle

expectationsandfosterclarityoverthelong-term.Indeed,theabsenceof a

generalorganisingprincipleinIrelandhasledto a considerabledegreeof

uncertainty,asisillustratedbytherecentIrishHighCourtdecisionofFlynn

& Anor v Breccia & Anor.152Asthepost-BhasinanalysispresentedinPart

IIIreveals,Canadiancourts(appellatecourtsinparticular)havelargely

avoidedexplicitapplicationsoftheneworganisingprinciple.However,

Canadianlitigantscanbeoptimisticthatuncertaintywillgivewayto

somewhatgreater clarityascourt-to-courtandcourt-to-litigantdialogue

continues,asnewquestionsareaddressedandasthecontentofthisnew

organisingprincipleisfleshedout.Althoughthisanalysishasrevealed

possibleinterpretationsoftheearliestphaseof thisdialogue,whatis

providedwithinthisarticleshouldberegardedas a “firstlook”athowthis

areaofcontractlawiscontinuingtodevelop.Asforthefuturedevelopment

of a generalprincipleinEnglandandIreland,proponentsofanexpanded

role forgoodfaithincontractlawcanfindreliefinLaggattJ’scomments

inYamSengPteLtd v InternationalTradeCorporationLtd:153 a refusalto

recogniseanygeneralobligationofgoodfaithwouldbe“swimmingagainst

thetide.”154

152[2015] IEHC 547.

153[2013] 1 CLC 662.

154[2013] 1 CLC 662, at [124].