Ontario Court of Appeal Considers Contractual Duty of Good Faith

Andrew Ottaway, B.A. (Hons.), LL.B.Commercial0 Comments

In CM Callow Inc. v. Zollinger, 2018 ONCA 896 (CanLII) the plaintiff company provided maintenance services to condos managed by the defendant condo corporations. The defendants entered in two two-year maintenance contracts with the plaintiff: one for summer maintenance and one for winter maintenance.  The winter contract (which ran from November 2012 to April 2014) allowed for early termination by the defendants on 10 days’ notice.

In March or April of 2013, the defendants decided to terminate the winter contract, but did not provide notice of termination of the agreement until September 12, 2013.  The defendants delayed informing the plaintiff that they were terminating the contract in order to avoid interfering with the defendant’s work under the summer contract (which ran from May 2012 to October 2013).  The plaintiff provided free work in the summer of 2013 as an incentive for the defendants to renew the contracts. The defendants knew that the plaintiff was he was under the impression that the contracts were likely to be renewed.

The trial judge ruled that the defendants breached their contractual duty of honest performance by acting in bad faith, specifically by failing to tell the plaintiff that they intended to terminate the winter contract 2) by representing to the plaintiff that the winter contract would be renewed.

The Court of Appeal disagreed, and overturned the trial judge’s ruling.  The Court of Appeal stated that, while not approving of the defendant’s’ conduct, stated that their conduct did not amount to a breach of the duty of honest performance.  The Court, referring to the Supreme Court’s leading decision in Bhasin v. Hrynew, 2014 SCC 71 (CanLII), stated that the duty of honest performance only requires the parties to be honest with each other concerning matters “directly linked to the performance of the contract”.  The winter contract provided that it could be terminated by giving the required notice. The Court found that in the circumstances the duty of honest performance did not limit the defendants’ freedom concerning future contracts not yet negotiated or entered into.

The lawyers at Gilbertson Davis LLP have experience with commercial litigation, including contract disputes, contract termination and the duty of honest performance.  Please contact us for an initial consultation.

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About the Author
Andrew Ottaway, B.A. (Hons.), LL.B.

Andrew Ottaway, B.A. (Hons.), LL.B.

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