2021: Contracts year in review
January 4th, 2022
Commercial litigators often lament the fact that Canada’s highest court sometimes appears increasingly uninterested in commercial issues and unwilling to grant leave to appeal in commercial cases – even ones that raise serious issues that have a broad impact on transactions and disputes across Canada. Well, 2021 has bucked that perceived trend with many important commercial decisions emerging last year – in particular, on issues of contract law and the contractual duty of good faith and honest performance that stemmed from the 2014 Supreme Court of Canada Decision in Bhasin v. Hrynew, 2014 SCC 71.
Here are a few of those decisions, along with links to further analysis by the lawyers of this firm:
Supreme Court of Canada explains duty to exercise contractual discretion in good faith: In Wastech v. The City of Vancouver, the Supreme Court of Canada Contracting parties must be mindful that exercising discretion under a contract is constrained by the duty of good faith – that means acting reasonably, consistent with the purpose of the discretion granted and the intention of the parties as set out in the terms of the contract.
Silence can be a breach the duty of honest performance of a contract: In the case of C.M. Callow v. Zollinger, Canada’s highest court clarified that the duty of good faith can, in some circumstances mean that parties to contracts must be careful not to mislead the other parties, not just by their actions but also by their inaction and omissions. Where a partial disclosure of information or failure to disclose, in light of the other facts, would lead to a material misapprehension by the other party, the party in breach could end up having to pay damages for their breach.
But silence will not always breach the duty of good faith: However, the Court of Appeal for Ontario released a decision a few months after Callow v. Zollinger in Subway Franchise Restaurants of Canada Ltd. v. BMO Life Assurance Company, clarified that silence will not always breach the duty of good faith. At issue was whether Subway renewed its commercial lease within the timeframe required under the lease, namely, at least 9 months and not more than 12 months prior to the expiration of the term. Subway had incorrectly failed to exercise its option to renew within the applicable timeframe and BMO was silent about this failure. Both the Superior Court and the Court of Appeal held that the duty of good faith did not require BMO to make sure that Subway fulfilled its own obligations correctly. See Michael Binetti’s article here for further analysis.
Releases are interpreted like any other contract: In the case of Corner Brook (City) v. Bailey, a unanimous Supreme Court of Canada overturned a Newfoundland appeal decision and restored a stay of a third party claim based on the wording of a release given in a previous, separate action arising from the same accident; making it clear that releases are subject to the same rules of interpretation as any other contract.