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.
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
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
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
82Mesa Operating Ltd Partnership v Amoco Canada Resources Ltd(1994) 149 AR 187, at
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.
Trinity College Law Review [Vol 19
150
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].
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