How A Plaintiff Proves Breach Of Good Faith In A Commercial Contract

• Published date: 17 August 2021
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Litigation, Mediation & Arbitration, Charges, Mortgages, Indemnities, Financial Services, Contracts and Commercial Law, Trials & Appeals & Compensation, Securities
• Law Firm: Torkin Manes LLP
• Author: Mr Marco P. Falco

In 2020, the Supreme Court of Canada in CM Callow Inc. v. Zollinger, 2020 sec 45 reinvigorated the duty of honest contractual performance, i.e. the obligation that parties to an agreement must not "lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract."

But in order for a plaintiff to successfully sue a defendant for breach of honest contractual performance, do they have to show that the defendant lied or misled to their own personal advantage? Moreover, will an exclusion of liability clause render the defendant immune from an action for breach of good faith?

A recent decision of the Alberta Court of Appeal, Canlanka Ventures Ltd. v. Capital Direct Lending Corp., 2021 ABCA 115, provides answers to both of these questions.

Misrepresentations and good faith

Canlanka involved a contract between the appellant mortgage broker and the respondent who had purchased second mortgages from the appellant as an investment. The appellant was retained to administer the respondent's mortgages.

The contract included an exclusion of liability clause which purported to limit the appellant's liability for any errors or omissions in the administration of the mortgages:

Due to the nature of the mortgage business and the surrounding environment of notices and information from a variety of sources, the [appellant] will strive to attend to all aspects of the [respondent's] mortgage interests, but cannot therefore be held liable for any oversight, errors or omissions related to the mortgage interests included under this agreement.

According to the trial judge, the appellant made two intentional misrepresentations to the respondent in the performance of the agreement:

• The appellant told the respondent that one of its mortgages had been placed into foreclosure. When the appellant learned that foreclosure was in relation to another mortgage, owned by a third party, the appellant did nothing to correct this representation and
• The appellant told the respondent that another party intended to buy out a second mortgage - this information was incorrect. The buyout did not take place.

As a result of these representations, the respondent was unable to make an informed decision about whether to foreclose on one of its mortgages, to obtain its own appraisals and to offer to buy out another mortgagee. The respondent commenced an action for its losses.

The trial judge dismissed three of the respondent's four claims, but awarded judgment...