Recent Supreme Court of Canada case enshrines the legal duty to perform contractual obligations honestly. How does this apply to you?

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In Bhasin v. Hrynew, 2014 SCC 71, a judgment released on November 13, 2014 (by the Supreme Court of Canada (SCC) which is Canada’s highest court and legal authority) the requirement for parties to perform their obligations honestly and in good faith was recognized in Canada.

Initially it seems somewhat bizarre that the SCC has had to recognize a new duty to perform contractual obligations honestly.  One might have hoped that when parties enter into an “agreement”, they do so with the intent to perform their obligations both in good faith and in an honest manner.  However, the Court reviewed the state of the jurisprudence in the common law provinces of Canada and found that this duty was applied inconsistently and with little coherence.  The Court therefore enshrined a new common law duty requiring parties to be honest with each other in the performance of their contractual obligations, and provided guidelines for doing so.

This case has been considered a landmark case in Canada.  Principles of good faith and honest performance inform the entire contractual process.  The new requirement may therefore affect the way agreements are negotiated and structured, and interpreted in the event of a dispute.

In this case, the Court was particularly concerned with the conduct of one party, which was actively misleading, and possibly deceptive. The Court accepted that one of the parties had consistently lied, withheld information, made misrepresentations, and engaged in a conflict of interest in relation to its contractual obligations.  Clearly these behaviors will not be acceptable going forward.  However it will be fascinating how the duty to act in good faith evolves.

Lawyers have a responsibility here too.  When we take the oath on becoming licensed, we accept the ethical duty to act honestly and in good faith in dealings with other lawyers and the Courts.  However, how often have we seen and experienced respected lawyers accepting the lies and misrepresentations presented by their clients without challenge, and/or enacting competitive and disrespectful behaviour towards other lawyers and clients?  Will this also be a reminder of first principles not only in respect of their clients, but also for lawyers?  It seems to me that the outcome and evolution of this newly enshrined duty will depend on the intention of each person.

Leave me a comment and let me know: Where do you stand?

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