Duty of Good Faith

Best Lifestyle v. County of Simcoe, 2019 ONSC 6619 (CanLII)

[76] This is clearly a contract of adhesion as referred to in Shelanu at para. 58-59. Further in Shelanu, the court explained the difference between a fiduciary duty and a duty of good faith: [69] There is at least one important difference between the duty of good faith and a fiduciary duty. If, for example, A owes a fiduciary duty to B, A must act only in accordance with B's interests when A exercises its powers or exercises a discretion arising out of the relationship: see York Condominium Corp. No. 167 et al. v. Newrey Holdings Ltd. et al. (1981), 1981 CanLII 1932 (ON CA), 122 D.L.R. (3d) 280 (Ont. C.A.) at 289, leave to appeal to the Supreme Court of Canada refused [1981] 1 S.C.R. xi; Hodgkinson v. Simms, 1994 CanLII 70 (SCC), (1994) 3 S.C.R. 377. If, on the other hand, A owes a duty of good faith to B, A must give consideration to B's interests as well as to its own interests before exercising its power. Thus, if A owes a duty of good faith to B, so long as A deals honestly and reasonably with B, B's interests are not necessarily paramount: see for example Mason v. Freedman, 1958 CanLII 7 (SCC), (1958) S.C.R. 483.

[77] It has also been held by the courts that parties should deal fairly with each other in order “not to nullify the reasonable expectations” that the parties have “fostered”. CivicLife.com Inc. v. Canada (Attorney General), 2006 CanLII 20837 (ON CA), (2006) O.J. No. 2474 (C.A.) para. 18. In CivicLife at para. 52, the court also made it clear that an entire agreement clause does not preclude the expectation that the parties would act in good faith. The court has a discretion to refuse to enforce such a clause where to do so would be “unconscionable, unfair or otherwise contrary to public policy”. See Guarantee Co. of North America v. Cordon Capital Corp. [1993] 3 S.C.R. 423.

[79] In Bhasin v. Hrynew, 2014 SCC 71 (CanLII), at paras. 63- 65, the Supreme Court of Canada discussed the principle of good faith as an “organizing principle” and that it is “not a free-standing rule, but rather a standard that underpins and is manifested in more specific legal doctrines and may be given different weight in different situations”. The organizing principle of good faith is “simply that parties must perform their contractual duties honestly and reasonably and not capriciously or arbitrarily” and to have “appropriate regard to the legitimate contractual interests of the contracting partner”. The Court stated:

[73] …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 s. 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.

See also: Greater Vancouver Sewerage and Drainage District v. Wastech Services Ltd., [2019] B.C.J. No. 236 (C.A.)