The Duties of Good Faith and Honesty In Contractual Relationships Have Been Clarified By the Supreme Court
On November 13, 2014, the Supreme Court of Canada released its decision in Bhasin v. Hrynew
2014 SCC 71, and clarified and settled “piecemeal, unsettled and unclear” principles in law.
The Supreme Court noted that there is an overriding good faith obligation in contractual performance. The Supreme Court further noted that there is a common law duty which applies to all contracts “to act honestly in the performance of contractual obligations.”
The Good Faith Obligation
In the former overriding principle, the good faith obligation, a contracting party must have appropriate regard to the contractual interests of the other contracting party. A party may not undermine those interests in bad faith. This is not tantamount, however, to a fiduciary obligation. In a fiduciary relationship, duties of utmost loyalty are paramount. That is not the case in many contractual relationships. Claims of good faith rest upon respect, honesty, candour, and reasonable contractual performance.
Whether, the Supreme Court says, someone breaches the duty of good faith is “highly context-specific,” and what constitutes a breach of the duty of good faith requires an appropriate consideration of the legitimate interests of the contracting parties.
The Obligation of Honesty
The duty of honesty in contractual performance requires parties to not lie or deceive each other about matters directly linked to the contract’s performance. The Supreme Court noted that it is a simple requirement in how parties govern themselves during the currency of a contract.
This, like the duty of good faith, is not tantamount to a fiduciary duty. A person ought not subordinate his or her interests to that of the other contracting parties. But a minimum standard of honesty arises during the currency of a contract.
These clarified standards of performance in contractual relationships are important for Canadian jurisprudence going forward.
If you believe that somebody has been dishonest to you during the currency of your contract with that other party, or if you believe the other party has breached their duty of good faith owed to you, I encourage you to contact me at email@example.com