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Everybody’s Talking About Bhasin, But Do YOU Care?

About two years ago, our esteemed Supreme Court of Canada pronounced, for the first time, on whether or not contract parties have a general duty to act in good faith and honestly towards each other. Business and civil litigation lawyers are still all a-twitter about this “landmark decision”. Should you be a-twitter about it?

You may have already heard about this decision: the case is Bhasin v Hyrnew, and it involved the exercise of renewal rights under an existing agreement. The two parties were hostile competitors, and the Supremes found that Bhasin had, in fact, been lied to and mislead by the other key parties.

Up to now, Canadian law on good faith dealing under contracts was fragmented and inconsistent. Under Bhasin, performance under a contract must be honest, candid and reasonable. There is a general duty of honesty from one party to the other. What does this mean?

What Does Bhasin Say?

Commentators believe that Bhasin stands for the principle that a party cannot lie or deliberately mislead the other party in respect of the performance of their contract.

The learned Justices distinguished between non-disclosure of a fact, which is thought to be permissible, and actively misleading or deceiving the other party. Frankly, I find this distinction to be bogus, and it will just be a matter of time before non-disclosure will be added to the good faith doctrine. There is one case (Lavrijsen Campgrounds Ltd. v Reville) that obliterates the distinction between non-disclosure and “intentional misrepresentation”, i.e., lying.

Bhasin also discusses the need to consider the expectations of the parties under their agreement, and this is bound to create chaos and skullduggery with ex post facto posturing.

Can You Opt-Out of Bhasin?

The better view, at least for now in the early days of academic debate, is that the duty to act in good faith and with honesty cannot be excluded or avoided by new clever wording in the agreement. That’s a shame, because we lawyers just love to dream up clever wording to negate a high profile case or avoid a new law, but it seems that this tactic may not work here. Besides, who in their right mind would want to do business with another party who insists on expressly excepting a duty of good faith? Sort of big bright red flag, don’t you think?

The Supreme Court decision of course contained the typical wording about how there will be exceptions and limitations depending on the circumstances.  We wouldn’t want too much certainty, would we?

You can be sure that every contract action will now include all kinds of exploratory allegations from both sides that the new good faith principle was breached in order to bootstrap weak arguments on the facts or law. Rather than clarify an area of contract law, I believe the Bhasin case will create and increase uncertainty in business dealings.

Business lawyers must caution their clients to consider the Bhasin principle of good faith and honesty in their negotiation and performance of contracts, but where it goes from there we cannot yet say.


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