Jurisprudence should Dominate
Editorial
http://ahabit.com
November 14, 2014
The truth is determined by the facts not the practice or the power to exclude evidence from a court of law. The evidence never changes, the facts can never be altered, and they are never, ever wrong, despite every effort to the contrary.
Moreover, honesty isn’t just the best policy — it’s the law, the Supreme Court of Canada has ruled.
In a case released Thursday November 13, 2014, called Bhasin v. Hrynew, the court said Canadian contract law comes with an implied duty of good faith that requires parties to perform their contractual obligations honestly.
“Finding that there is a duty to perform contracts honestly will make the law more certain, more just and more in tune with reasonable commercial expectations,” wrote Mr. Justice Thomas Cromwell in the unanimous seven-judge decision.
“The first step is to recognize that there is an organizing principle of good faith that underlies and manifests itself in various more specific doctrines governing contractual performance. That organizing principle is simply that parties generally must perform their contractual duties honestly and reasonably and not capriciously or arbitrarily.”
“In my view, we should. I would hold that there is a general duty of honesty in contractual performance. This means simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. This does not impose a duty of loyalty or of disclosure or require a party to forego advantages flowing from the contract; it is a simple requirement not to lie or mislead the other party about one’s contractual performance. Recognizing a duty of honest performance flowing directly from the common law organizing principle of good faith is a modest, incremental step. The requirement to act honestly is one of the most widely recognized aspects of the organizing principle of good faith: see Swan and Adamski, at § 8.135; O’Byrne, “Good Faith in Contractual Performance”, at p. 78; Belobaba; Greenberg v. Meffert (1985), 1985 CanLII 1975 (ON CA), 50 O.R (2d) 755 (C.A.), at p. 764; Gateway Realty, at para. 38, per Kelly J.; Shelanu Inc. v. Print Three Franchising Corp. (2003), 2003 CanLII 52151 (ON CA), 64 O.R. (3d) 533 (C.A.), at para. 69. For example, the duty of honesty was a key component of the good faith requirements which have been recognized in relation to termination of employment contracts: Wallace, at para. 98; Honda Canada, at para. 58.”
“I think this is the most important contract case in 20 years,” said Neil Finkelstein of McCarthy Tétrault LLP, counsel for Harish Bhasin, the plaintiff who won the case. “We’re going to find another series of jurisprudence arising out of this case over time about how far this duty of good faith and duty of honesty goes.”
Justice Cromwell acknowledged that the common law has long resisted acknowledging a general duty of good faith in contracting outside those specific areas. The piecemeal approach of Canadian common law is out of step with the civil law in Quebec and in most U.S. jurisdictions, he wrote.
“In my view, it is time to take two incremental steps in order to make the common law less unsettled and piecemeal, more coherent and more just. The first step is to acknowledge that good faith contractual performance is a general organizing principle of the common law of contract which underpins and informs the various rules in which the common law, in various situations and types of relationships, recognizes obligations of good faith contractual performance. The second is to recognize, as a further manifestation of this organizing principle of good faith, that there is a common law duty which applies to all contracts to act honestly in the performance of contractual obligations.”
Mr. Bhasin, the plaintiff, had a business that sold RESPs. He struck a deal to sell his customers RESP products provided by the defendant. The contract automatically renewed every three years. Either party had a non-renewal right on six months’ notice. The written agreement did not require the company to provide a reason for ending the deal.
Mr. Bhasin argued that the contract was terminated in bad faith. He won a judgment in an Alberta trial court, but that decision was overturned by the Alberta Court of Appeal. The provincial appellate court found that the trial court had erred by implying a term of good faith in a deal that contained a clear, unambiguous termination clause.
The Alberta appellate ruling was appealed to the Supreme Court of Canada, which heard the case last February.
Justice Cromwell said the respondent RESP company, which was formerly known as Canadian American Financial Corp. (Canada) Ltd., misled Mr. Bhasin about the circumstances involving the termination of the agreement in May 2001. The judge awarded him damages of $87,000 plus interest.
Eli Lederman of Lenczner Slaght Royce Smith Griffin LLP, counsel for the defendants, said the case fills a gap in Canadian law by creating a general organized principle that parties are to act honestly in the performance of all contractual obligations. Yet that does raise questions, he said.
“What does it mean if you have a generalized duty to act honestly in your contractual obligations? When you exercise a contractual right not to renew an agreement, does that you mean you have to explain your reason for doing so?”
Counsel for Mr. Bhasin argued in their factum that the freedom to contract comes with reasonable limits. Good faith should exist when a party is exercising a discretionary power that can devastate a counter party, they wrote. He was represented by Mr. Finkelstein and Brandon Kain of McCarthy Tétrault LLP, John McCamus of Davis Ward Phillips & Vineberg LLP and Stephen Moreau of Cavalluzzo LLP.
“The law of contracts is not exempt from basic requirements of honesty and fairness,” Mr. Bhasin’s lawyers argued. “One need look no further than the existing jurisprudence of this court, which recognizes the duty of good faith in employment, insurance and tendering agreements, in addition to cases like this one where a discretionary power is exercised for an improper purpose so as to defeat a party’s legitimate contractual objectives.”
Mr. Lederman, Jon Laxer and Constanza Pauchulo of Lenczner Slaght, counsel for the defendant RESP company, countered that the first principle of common law contracting is that parties are bound by the terms they have agreed to, not what they ought to have agreed to. “To succeed in this appeal, Mr. Bhasin must persuade this Court to adopt a radically new contract model which would give effect to new, unbargained for rights and obligations,” they wrote.
Honesty, it appears, is not an unbargained right anymore.
(1) There is a general organizing principle of good faith that underlies many facets of contract law.
(2) In general, the particular implications of the broad principle for particular cases are determined by resorting to the body of doctrine that has developed which gives effect to aspects of that principle in particular types of situations and relationships.
(3) It is appropriate to recognize a new common law duty that applies to all contracts as a manifestation of the general organizing principle of good faith: a duty of honest performance, which requires the parties to be honest with each other in relation to the performance of their contractual obligations.
Next: Every single miscarriage of justice is identical.
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