Supreme Court Of Canada To Revisit Bhasin And Contractual Parties' Duty Of Good Faith

The Supreme Court of Canada (SCC) recently granted leave to appeal from the British Columbia Court of Appeal's decision in Greater Vancouver Sewerage and Drainage District v Wastech Services Ltd., 2019 BCCA 66. The case raises issues left outstanding in the SCC's decision of Bhasin v Hyrnew, 2014 SCC 71 [Bhasin], including the scope of the duty of good faith and honesty in contractual performance. In particular, the case considers whether a party who exercises a contractual right in an honest and reasonable manner may nonetheless breach its duty of good faith if its conduct undermines a counterparty's business interests.

The Principle from Bhasin: Parties Must Perform Contracts in Good Faith

In Bhasin, the SCC affirmed the existence of the duty of good faith as a "general organizing principle" of Canadian contract law. The principle of good faith requires contracting parties to have appropriate regard to the legitimate contractual interest of their contracting partner and not act in bad faith. Flowing from this principle is the duty of honest performance, which requires parties to perform their contractual obligations honestly and to not lie or knowingly mislead another party in the performance of the contract. While the principles enunciated by the Court in Bhasin are clear, the application of those principles has persistently plagued litigators across the country.

Background

Wastech Services Ltd. (Wastech) and Greater Vancouver Sewerage and Drainage District (Metro) had a long-term agreement for Wastech to dispose waste on behalf of Metro. In 2011, Metro, in accordance with the agreement, relocated waste disposal locations which significantly increased Wastech's operating costs.

Pursuant to the terms of the agreement, Wastech and Metro proceeded to arbitration, with Wastech arguing, in part, that the central issue to be determined was not one of contractual interpretation, but rather the operation of the duty of good faith in contractual performance. While the arbitrator did not find that Metro had exercised its discretion to relocate the facility capriciously or arbitrarily, he did find that Metro's behaviour lacked "appropriate regard" for Wastech's interests under the agreement. The arbitrator...