Keeping The Faith — Five Years After Bhasin v Hrynew

On November 13, 2014 the Supreme Court released Bhasin v Hrynew, 2014 SCC 71 creating a duty of good faith contractual performance. In the last five years much ink has been spilled in an effort to interpret and apply Bhasin. A comprehensive review is beyond the scope of this article but the basic contours of the duty can be highlighted.

The Organizing Principle

In Bhasin, Justice Cromwell articulated a duty of good faith as an "organizing principle" that in carrying out a contract, the contracting party should have "appropriate regard to the legitimate contractual interests of the contracting partner" and "not seek to undermine those interests in bad faith." This duty of good faith contractual performance requires that "parties generally must perform their contractual duties honestly and reasonably and not capriciously or arbitrarily."1

Bhasin involved a long term dealer who had an automatic renewal agreement unless notice of non-renewal was provided. While the notice was given within the proper time frame, the Court found that misleading the dealer during the term of the contract about a plan not to renew the contract and instead work with a new dealer amounted to a breach of the duty.

Cromwell J. described the duty as incremental step in the law noting it did not nullify "the legitimate pursuit of economic self-interest" and that it does not impose "a duty of fiduciary loyalty or of disclosure or require a party to forego advantages flowing from the contract..."2

In articulating the organizing principle Cromwell J. also noted that the previously delineated fact specific categories of good faith obligations within contractual relationships should continue to be recognized. These include:

where the parties must co-operate in order achieve the objects of the contract; where one party exercises a discretionary power under the contract; and where one party seeks to evade contractual duties. Justice Caldwell of the Saskatchewan Court of Appeal explains that it is appropriate to first look for "guidance in the existing jurisprudence regarding the duty of good faith" and, if applicable, "interpret the requirements of the general organising principle within the existing legal doctrines."3

Post Bhasin

It has been affirmed that the Bhasin good faith doctrine does not create a freestanding cause of action. Rather the applicable cause of action remains breach of contract and without underlying contractual obligations there can be no application of the...