C.M. Callow Inc. Appellant v. Tammy Zollinger, Condominium Management Group, Carleton, 2020 SCC 45

SUPREME COURT OF CANADA Citation: C.M. Callow Inc. v. Zollinger, 2020 SCC 45, [2020] 3 S.C.R. 908 Appeal Heard: December 6, 2019 Judgment Rendered: December 18, 2020 Docket: 38463 Between: C.M. Callow Inc.

Appellant and Tammy Zollinger, Condominium Management Group, Carleton Condominium Corporation No. 703, Carleton Condominium Corporation No. 726, Carleton Condominium Corporation No. 742, Carleton Condominium Corporation No. 765, Carleton Condominium Corporation No. 783, Carleton Condominium Corporation No. 791, Carleton Condominium Corporation No. 806, Carleton Condominium Corporation No. 826, Carleton Condominium Corporation No. 839 and Carleton Condominium Corporation No. 877 Respondents - and - Canadian Federation of Independent Business and Canadian Chamber of Commerce Interveners Coram: Wagner C.J. and Abella, Moldaver, Karakatsanis, Côté, Brown, Rowe, Martin and Kasirer JJ.

Reasons for Judgment: (paras. 1 to 120) Kasirer J. (Wagner C.J. and Abella, Karakatsanis and Martin JJ. concurring) Concurring Reasons: (paras. 121 to 182) Brown J. (Moldaver and Rowe JJ. concurring)

Dissenting Reasons: (paras. 183 to 238) Côté J. c.m. callow inc. v. zollinger C.M. Callow Inc. Appellant v.

Tammy Zollinger, Condominium Management Group, Carleton Condominium Corporation No. 703, Carleton Condominium Corporation No. 726, Carleton Condominium Corporation No. 742, Carleton Condominium Corporation No. 765, Carleton Condominium Corporation No. 783, Carleton Condominium Corporation No. 791, Carleton Condominium Corporation No. 806, Carleton Condominium Corporation No. 826, Carleton Condominium Corporation No. 839 and Carleton Condominium Corporation No. 877 Respondents and Canadian Federation of Independent Business and Canadian Chamber of Commerce Interveners Indexed as: C.M. Callow Inc. v.

Zollinger 2020 SCC 45 File No.: 38463. 2019: December 6; 2020: December 18.

Present: Wagner C.J. and Abella, Moldaver, Karakatsanis, Côté, Brown, Rowe, Martin and Kasirer JJ. on appeal from the court of appeal for ontario Contracts — Breach — Performance — Duty of honest performance — Clause in winter maintenance agreement permitting unilateral termination of contract without cause upon 10 days’ notice — Contract terminated by condominium corporations with required notice to contractor — Contractor suing for breach of contract — Trial judge finding that statements and conduct by condominium corporations actively deceived contractor and led it to believe contract would not be terminated — Trial judge awarding damages for breach of contract — Whether exercise of termination clause constituted breach of duty of honest performance.

In 2012, a group of condominium corporations (“Baycrest”) entered into a two-year winter maintenance contract and into a separate summer maintenance contract with C.M. Callow Inc. (“Callow”). Pursuant to clause 9 of the winter maintenance contract, Baycrest was entitled to terminate that agreement if Callow failed to give satisfactory service in accordance with its terms. Clause 9 also provided that if, for any other reason, Callow’s services were no longer required, Baycrest could terminate the contract upon giving 10 days’ written notice.

In early 2013, Baycrest decided to terminate the winter maintenance agreement but chose not to inform Callow of its decision at that time. Throughout the spring and summer of 2013, Callow had discussions with Baycrest regarding a renewal of the winter maintenance agreement. Following those discussions, Callow thought that it was likely to get a two-year renewal of the winter maintenance contract and that Baycrest was satisfied with its services.

During the summer of 2013, Callow performed work above and beyond the summer maintenance contract at no charge, which it hoped would act as an incentive for Baycrest to renew the winter maintenance agreement. Baycrest informed Callow of its decision to terminate the winter maintenance agreement in September 2013. Callow filed a statement of claim for breach of contract, alleging that Baycrest acted in bad faith. The trial judge held that the organizing principle of good faith performance and the duty of honest performance were engaged.

She was satisfied that Baycrest actively deceived Callow from the time the termination decision was made to September 2013, and found that Baycrest acted in bad faith by withholding that

information to ensure Callow performed the summer maintenance contract and by continuing to represent that the contract was not in danger despite knowing that Callow was taking on extra tasks to bolster the chances of the winter maintenance contract being renewed. She awarded damages to Callow in order to place it in the same position as if the breach had not occurred. The Court of Appeal set aside the judgment at first instance, holding that the trial judge erred by improperly expanding the duty of honest performance beyond the terms of the winter maintenance agreement.

Further, it held that any deception in the communications during the summer of 2013 related to a new contract not yet in existence, namely the renewal that Callow hoped to negotiate, and therefore was not directly linked to the performance of the winter contract. Held (Côté J. dissenting): The appeal should be allowed and the judgment of the trial judge reinstated.

Per Wagner C.J. and Abella, Karakatsanis, Martin and Kasirer JJ.: The duty to act honestly in the performance of the contract precluded the active deception by Baycrest by which it knowingly misled Callow into believing that the winter maintenance agreement would not be terminated. By exercising the termination clause dishonestly, it breached the duty of honesty on a matter directly linked to the performance of the contract, even if the 10-day notice period was satisfied. Accordingly, the Court of Appeal should not have interfered with the conclusions of the trial judge.

The duty of honest performance in contract, formulated in Bhasin v. Hrynew , 2014 SCC 71 , [2014] 3 S.C.R. 494, applies to all contracts and requires that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. In determining whether dishonesty is connected to a given contract, the relevant question is whether a right under that contract was exercised, or an obligation under that contract was performed, dishonestly.

While the duty of honest performance is not to be equated with a positive obligation of disclosure, in circumstances where a contracting party lies to or knowingly misleads another, a lack of a positive obligation of disclosure does not preclude an obligation to correct a false impression created through that party’s own actions. The organizing principle of good faith recognized in Bhasin is not a free-standing rule, but instead manifests itself through existing good faith doctrines.

While the duty of honest performance and the duty to exercise discretionary powers in good faith are distinct, like each of the different manifestations of the organizing principle, they should not be thought of as disconnected from one another. The duty of honest performance shares a common methodology with the duty to exercise contractual discretionary powers in good faith by fixing on the wrongful exercise of a contractual prerogative.

Each of the specific legal doctrines derived from the organizing principle rest on a requirement of justice that a contracting party have appropriate regard to the legitimate contractual interests of their counterparty. They need not subvert their own interests to those of the counterparty by acting as a fiduciary or in a selfless manner. This requirement of justice reflects the notion that the bargain, the rights and obligations agreed to, is the first source of fairness between parties to a contract.

Those rights and obligations must be exercised and performed honestly and reasonably and not capriciously or arbitrarily where recognized by law. The duty of honesty as contractual doctrine has a limiting function on the exercise of an otherwise complete and clear right since the duty, irrespective of the intention of the parties, applies to the performance of all contracts, and by extension, to all contractual obligations and rights. Instead of constraining the decision to terminate in and of itself, the duty of honest performance attracts damages where the manner in which the right was exercised was dishonest.

This focus on the manner in which the termination right was exercised should not be confused with whether the right could be exercised. No contractual right, including a termination right, can be exercised dishonestly and, as such, contrary to the requirements of good faith. The requirements of honesty in performance can go further than prohibiting outright lies. Whether or not a party has knowingly misled its counterparty is a highly fact-specific determination, and can include lies, half-truths, omissions, and even silence, depending on the circumstances.

One can mislead through action, by saying something directly to its counterparty, or through inaction, by failing to correct a misapprehension caused by one’s own misleading conduct. The duty of honest performance is a contract law doctrine, not a tort and therefore a nexus with the contractual relationship is required. A breach must be directly linked to the performance of the contract. The framework for abuse of rights in Quebec is useful to illustrate the required direct link between dishonesty and performance from Bhasin .

Authorities from Quebec serve as persuasive authority and comparison between the common law and civil law as they evolve in Canada is a particularly useful and familiar exercise for the Court. Like in the Quebec civil law, no contractual right may be exercised dishonestly and therefore contrary to the requirements of good faith. The direct link exists when the party performs their obligation or exercises their right under the contract dishonestly. While the duty of honest performance has similarities with civil fraud and estoppel, it is not subsumed by them.

Unlike estoppel and civil fraud, the duty of honest performance does not require a defendant to intend that the plaintiff rely on their representation or false statement. The duty of honest performance attracts damages according to the ordinary contractual measure. The ordinary approach is to award contractual damages corresponding to the expectation interest. That is, damages should put the injured party in the position that it would have been in had the duty been performed.

Although reliance damages, which are the ordinary measure of damages in tort, and expectation damages will be the same in many if not most cases, they are conceptually distinct, and there is no basis to hold that a breach of the duty of honest performance should in general be compensated by way of reliance damages. In the instant case, Baycrest knowingly misled Callow in the manner in which it exercised clause 9 of the winter maintenance agreement and this wrongful exercise of the termination clause amounts to a breach of contract.

Even though Baycrest had what was, on its face, an unfettered right to terminate the winter maintenance agreement on 10 days’ notice, the right had to be exercised in keeping with the duty to act honestly. Baycrest’s deception was directly linked to this contract, because its exercise of the termination clause was dishonest. It may not have had a free-standing obligation to disclose its intention to terminate, but it nonetheless had an obligation to refrain from misleading Callow in the exercise of that clause. Baycrest had to refrain from false representations in anticipation of the notice period.

If someone is led to believe that their counterparty is content with their work and their ongoing contract is likely to be renewed, it is reasonable for that person to infer that the ongoing contract is in good standing and will not be terminated early. Having failed to correct Callow’s misapprehension that arose due to these false representations, Baycrest breached its duty of good faith in the exercise of its right of termination. Damages thus flow for the consequential loss of opportunity.

While damages are to be measured against a defendant’s least onerous means of performance, the least onerous means of performance in this case would have

been to correct the misrepresentation once Baycrest knew Callow had drawn a false inference. Had it done so, Callow would have had the opportunity to secure another contract for the upcoming winter. Per Moldaver, Brown and Rowe JJ.: As a universally applicable minimum standard, all contracts must be performed honestly. Contracting parties may therefore not lie to, or otherwise knowingly mislead, each other about matters directly linked to performance. If a plaintiff suffers loss in reliance on its counterparty’s misleading conduct, the duty of honest performance serves to make the plaintiff whole.

It does not, however, impose a duty of loyalty or of disclosure or require a party to forego advantages flowing from the contract. The dividing line between (1) actively misleading conduct, and (2) permissible non-disclosure has been clearly demarcated by cases addressing misrepresentation and the same settled principles apply to the duty of honest performance, although it also applies (unlike misrepresentation) to representations made after contract formation. There is, in the context of misrepresentation, a rich law accepting that sometimes silence or half-truths amount to a statement.

Although contracting parties have no duty to disclose material information, a contracting party may not create a misleading picture about its contractual performance by relying on half-truths or partial disclosure. Representations need not take the form of an express statement. So long as it is clearly communicated, it may comprise other acts or conduct on the part of the defendant. The entire context, which includes the nature of the parties’ relationship, is to be considered in determining, objectively, whether the defendant made a representation to the plaintiff.

The question is whether the defendant’s active conduct contributed to a misapprehension that could be corrected only by disclosing additional information. Contracting parties are required to correct representations that are subsequently rendered false, or which the representor later discovers were erroneous. The question of whether a representation has been made is a question of mixed fact and law, subject to appellate review only for palpable and overriding error.

T he legal aim in remedying a breach of contract is to give the innocent party the full benefit of the bargain by placing it in the position it would have occupied had the contract been performed. But the justification for awarding expectation damages does not apply to breach of the duty of honest performance. In such cases , the issue is not that the defendant has failed to perform the contract, thereby defeating the plaintiff’s expectations .

It is, rather, that the defendant has performed the contract, but has also caused the plaintiff loss by making dishonest extra-contractual misrepresentations concerning that performance, upon which the plaintiff relied to its detriment. The plaintiff’s complaint is not lost value of performance, but detrimental reliance on dishonest misrepresentations. The interest being protected is not an expectation interest, but a reliance interest. And just as these are unrelated interests, an expectation measure of damage is unrelated to the breach of the duty of honest performance.

Much like estoppel and civil fraud, the duty of honest performance vindicates the plaintiff’s reliance interest. A contracting party that breaches this duty will be liable to compensate its counterparty for any foreseeable losses suffered in reliance on the misleading representations. The duty of honest performance is not subsumed by estoppel and civil fraud; rather, it protects the reliance interest in a distinct and broader manner since the defendant may be held liable even where it does not intend for the plaintiff to rely on the misleading representation.

Irrespective of the defendant’s intention, all a plaintiff need show is that, but for its reliance on the misleading representation, it would not have sustained the loss. Disposing of the present case is a simple matter of applying the Court’s decision in Bhasin ; Callow’s claim should be resolved by applying only the duty of honest performance. There is no basis for disturbing the trial judge’s conclusions. Baycrest’s conduct did not fall on the side of innocent non-disclosure. The trial judge found that active communications between the parties deceived Callow.

Baycrest identifies no palpable and overriding error to justify overturning these conclusions. The proper measure of damages represents the loss Callow suffered in reliance on Baycrest’s misleading representations. The majority relies on the civilian concept of “abuse of rights” in its analysis. In so doing, it departs from the Court’s accepted practice in respect of comparative legal analysis. The principles that apply to this appeal are determinative and settled. Canada’s common law and civil law systems have adopted very different approaches to the place of good faith in contract law.

The majority’s reliance on the civilian doctrine of abuse of a right distorts the analysis in Bhasin and elides the distinction between honest performance and good faith in the exercise of a contractual discretion. Courts should draw on external legal concepts only where domestic law does not provide an answer or where it is necessary to modify or otherwise develop an existing legal rule.

Courts may also look to the experience of other legal systems in considering whether a potential solution to a legal problem will result in negative consequences, or to observe that a domestic legal concept mirrors one found in another system. Even where comparative analysis is appropriate, it must be undertaken with care and circumspection. The golden rule in using concepts from one of Canada’s legal systems to modify the other is that the proposed solution must be able to completely and coherently integrate into the adopting system’s structure. Per Côté J. (dissenting): The appeal should be dismissed.

Callow’s recourse cannot be based on a breach of the duty of honest performance. Although Baycrest’s conduct may not be laudable, it does not fall within the category of active dishonesty prohibited by that duty. The duty of honest performance is described in Bhasin as a simple requirement not to lie or knowingly mislead about matters directly linked to performance of the contract. The requirement that parties not lie is straightforward; however, the kind of conduct covered by the requirement that they not otherwise knowingly mislead each other is not.

The law imposes neither a duty of loyalty or of disclosure nor a requirement to forego advantages flowing from the contract on a contracting party. Absent a duty to disclose, it is far from obvious when exactly one’s silence will knowingly mislead the other contracting party or at what point a permissible silence turns into a non-permissible silence that may constitute a breach of contract. In any event, the duty of honest performance should remain clear and easy to apply. The obligations flowing from the duty of honest performance are negative obligations.

Extending the duty beyond that scope would detract from certainty in commercial dealings. Therefore, silence cannot be considered dishonest within the meaning of Bhasin unless there is a positive obligation to speak. Such an obligation does not arise simply because a party to a contract realizes that his counterparty is operating under a mistaken belief. Absent a duty of disclosure, a party to a contract has no obligation to correct his counterparty’s mistaken belief unless the party’s active conduct has materially contributed to it. What constitutes a material contribution

will obviously depend upon the context, which includes the nature of the parties’ relationship as well as the relevant provisions of thecontract. Parties that prefer not to disclose certain information — which they are entitled not to do — are not required to adopt a new lineof conduct in their contractual relationship simply because they chose silence over speech. In the context of a right to terminate a contract without cause, a party that intends to end an agreement does not have toconvey hints in order to alert his counterparty that their business relationship is in danger.

No obligation to speak arises when a partybecomes aware of his counterparty’s mistaken belief that the contract will not be terminated unless the party has taken positive actionthat materially contributed to that belief. If one party leads another to believe that their contract will be renewed, it follows that the otherparty can reasonably expect their business relationship to be extended rather than terminated. But an inference to that effect cannot bedrawn in the abstract.

In order to infer that one party, through discussions about renewal, led the other party to think that there was norisk their existing agreement would be terminated, the inference-drawing process must obviously take into account the nature of the riskat stake and what was actually communicated during those discussions. Otherwise, the inference would entail a palpable and overridingerror that would be subject to appellate review. In the present case, Baycrest bargained for a right to terminate its winter agreement for any reason and at any time upongiving 10 days’ notice.

In her assessment of Baycrest’s conduct, the trial judge did not ask herself if Baycrest lied or otherwiseknowingly misled Callow about the exercise of its right to terminate the winter agreement for any other reason than unsatisfactoryservices. She wrongfully insisted on addressing alleged performance issues despite the fact that the winter agreement could be terminatedeven if Callow’s services were satisfactory. The trial judge also did not consider that the active deception had to be directly linked to theperformance of the contract.

It is clear that the representations she found had been made by Baycrest were not directly linked to theperformance of the winter agreement. The trial judge’s misunderstanding of the applicable legal principles vitiated the fact-findingprocess. Cases Cited By Kasirer J. Applied: Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494; referred to: Canadian National Railway Co. v. NorskPacific Steamship Co., (SCC), [1992] 1 S.C.R. 1021; Deloitte & Touche v. Livent Inc. (Receiver of), 2017 SCC 63,[2017] 2 S.C.R. 855; Kingstreet Investments Ltd. v. New Brunswick (Finance), 2007 SCC 1, [2007] 1 S.C.R. 3; Farber v.

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Flood, [1898] A.C. 1; United Roasters, Inc. v.Colgate-Palmolive Co., 649 F.2d 985 (4th Cir. 1981); IFP Technologies (Canada) Inc. v. EnCana Midstream and Marketing, 2017ABCA 157, 53 Alta. L.R. (6th) 96; Xerex Exploration Ltd. v. Petro-Canada, 2005 ABCA 224, 47 Alta. L.R. (4th) 6; Yam Seng Pte Ltd. v.International Trade Corp. Ltd., [2013] E.W.H.C. 111, [2013] 1 All E.R. (Comm.) 1321; Dunning v. Royal Bank (1996), (ON SC), 23 C.C.E.L. (2d) 71; Honda Canada Inc. v. Keays, 2008 SCC 39, [2008] 2 S.C.R. 362; Atlantic Lottery Corp. Inc. v.Babstock, 2020 SCC 19, [2020] 2 S.C.R. 420; PreMD Inc. v.

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Norsk Pacific Steamship Co., (SCC), [1992] 1 S.C.R. 1021; Bou Malhab v. Diffusion Métromédia CMR inc., 2011 SCC 9, [2011] 1 S.C.R. 214; Saadati v.Moorhead, 2017 SCC 28, [2017] 1 S.C.R. 543; Deloitte & Touche v. Livent Inc. (Receiver of), 2017 SCC 63, [2017] 2 S.C.R. 855;Kingstreet Investments Ltd. v. New Brunswick (Finance), 2007 SCC 1, [2007] 1 S.C.R. 3; St. Lawrence Cement Inc. v. Barrette, 2008SCC 64, [2008] 3 S.C.R. 392; Sport Maska Inc. v. Zittrer, (SCC), [1988] 1 S.C.R. 564; Colonial Real Estate Co. v.

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No. 5855 (QL), 2018 CarswellOnt 18697 (WL Can.), setting aside a decision ofO’Bonsawin J., 2017 ONSC 7095, [2017] O.J. No. 6176 (QL), 2017 CarswellOnt 18587 (WL Can.). Appeal allowed, Côté J. dissenting. Brandon Kain, Adam Goldenberg, Vivian Ntiri and Miriam Vale Peters, for the appellant. Anne Tardif, Rodrigue Escayola and David Plotkin, for the respondents. Catherine Beagan Flood and Nicole Henderson, for the intervener the Canadian Federation of Independent Business. Jeremy Opolsky and Winston Gee, for the intervener the Canadian Chamber of Commerce.

The judgment of Wagner C.J. and Abella, Karakatsanis, Martin and Kasirer JJ. was delivered by Kasirer J. — I. Introduction [1] This appeal concerns a clause in a commercial winter maintenance agreement that permitted the clients to terminatethe contract unilaterally, without cause, upon giving the contractor 10 days’ notice. The dispute does not turn on whether the clauserepresented a fair bargain between the parties. There is also no issue about the meaning of the termination clause. The dispute turnsrather on the manner in which the respondents (collectively “Baycrest”) exercised the termination clause.

Acknowledging that 10 days’notice was given the appellant, C.M. Callow Inc. (“Callow”), argues that Baycrest exercised the termination clause contrary to therequirements of good faith set forth by this Court in Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494, in particular the duty toperform the contract honestly. [2] In Bhasin, Cromwell J. recognized a general organizing principle of good faith, which means that “parties generallymust perform their contractual duties honestly and reasonably and not capriciously or arbitrarily” (para. 63).

This organizing principle, heexplained, “is not a free-standing rule, but rather a standard that underpins and is manifested in more specific legal doctrines and may begiven different weight in different situations” (para. 64). The organizing principle of good faith manifests itself through “existingdoctrines” addressing “the types of situations and relationships in which the law requires, in certain respects, honest, candid, forthright orreasonable contractual performance” (para. 66). [3] In this appeal, the applicable good faith doctrine is the duty of honesty in contractual performance.

As Cromwell J.explained in Bhasin, at para. 73, the duty of honesty applies to all contracts as a matter of contractual doctrine, and means “simply thatparties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract”. Callowsays Baycrest’s failure to exercise its right to terminate in keeping with the mandatory duty of honest performance amounted to a breachof contract.

It points to the trial judge’s findings that Baycrest withheld the information that the contract was in danger of termination.Baycrest then continued to represent that the contract was not in danger and knowingly declined to correct the false impression it hadcreated and under which Callow was operating.

This dishonesty continued for several months, “in anticipation of the notice period” wrotethe trial judge and, claims Callow, resulted in it foregoing the opportunity to bid on other winter contracts and thereby justifies an awardof damages (2017 ONSC 7095, at para. 67 ). [4] Baycrest, for its part, recalling that Cromwell J. explicitly stated in Bhasin that the duty of honest performance doesnot amount to a duty to disclose, argues that its silence did not constitute dishonesty.

It also says the alleged dishonesty was notconnected to the contract in place at the time because, in its submission, the impugned communications related to the possibility of a

future contract not yet executed. The Court of Appeal agreed and overturned the trial judge’s decision ( 2018 ONCA 896 , 429 D.L.R. (4th) 704). [ 5 ] I respectfully disagree with the Court of Appeal on whether the manner in which the termination clause was exercised ran afoul of the minimum standard of honesty. The duty to act honestly in the performance of the contract precludes active deception. Baycrest breached its duty by knowingly misleading Callow into believing the winter maintenance agreement would not be terminated.

By exercising the termination clause dishonestly, it breached the duty of honesty on a matter directly linked to the performance of the contract, even if the 10-day notice period was satisfied and irrespective of their motive for termination. For the reasons that follow, I would allow the appeal and restore the judgment of the Ontario Superior Court of Justice. II. Background [ 6 ] Baycrest includes 10 condominium corporations managed by Condominium Management Group and a designated property manager.

Each corporation has its own board of directors to manage its affairs and, collectively, they established a Joint Use Committee (“JUC”). The JUC makes decisions regarding the joint and shared assets of the condominiums. In 2010, the condominium corporations entered into a two-year winter maintenance agreement with Callow, a corporation owned and operated by Christopher Callow.

Pursuant to the terms of the agreement, Callow provided winter services, including snow removal, to the condominium corporations. [ 7 ] At the conclusion of the two-year term in 2012, the corporations entered into two new agreements with Callow. Joseph Peixoto — president of one of the condominium corporations, and representative on the JUC — negotiated the main pricing terms with Mr.

Callow for the renewal of the winter maintenance contract, which also added a separate summer maintenance services contract. [ 8 ] At issue in this appeal is the winter maintenance agreement, which had a new two-winter term from November 1, 2012 to April 30, 2014. Pursuant to clause 9, the corporations were entitled to terminate the winter maintenance agreement if Callow failed to give satisfactory service in accordance with the terms of this Agreement.

Moreover, clause 9 provided that “if for any other reason [Callow’s] services are no longer required for the whole or part of the property covered by this Agreement, then the [condominium corporations] may terminate this contract upon giving ten (10) days’ notice in writing to [Callow]” (A.R., vol. III, at p. 10). [ 9 ] During the first winter of the two-winter term, there were complaints from occupants of various condominiums, many of which related to snow removal from individual parking stalls. In January 2013, Mr. Callow attended a JUC meeting to address the concerns.

The minutes reflected the positive nature of this meeting, recording that “[t]he Committee confirmed that [Callow] has been diligent in addressing this issue as best as could be expected considering the nature of the storms recently experienced” (A.R., vol. III, at p. 35).

After the meeting, the property manager at the time also sent a follow-up email to the JUC members: “I know that your Board has been generally satisfied with the snow removal — so there is nothing outstanding to report here” (p. 39). [ 10 ] A few months later — still in the first year of the agreement — respondent Tammy Zollinger became the property manager. About three weeks after Ms. Zollinger’s arrival, another JUC meeting was held, this time without Mr. Callow present. During the meeting, Ms.

Zollinger advised the JUC to terminate the winter maintenance agreement with Callow “due to poor workmanship in the 2012-13 winter” (A.R., vol. III, at p. 43). The minutes went on to indicate that Ms. Zollinger had reviewed the contract and advised the JUC members that they could terminate the contract with Callow with no financial penalty. Ms. Zollinger further advised that she would get quotes from other snow removal contractors. The JUC voted to terminate the winter maintenance agreement shortly thereafter, “in either March or April” of 2013 (trial reasons, at para. 51). Baycrest chose not to inform Mr.

Callow of its decision to terminate the winter maintenance agreement at that time. [ 11 ] Although only one winter of the two-winter term had been completed, Callow began discussions throughout the spring and summer of 2013 with Baycrest regarding a renewal of the winter maintenance agreement. Specifically, Mr. Callow had various exchanges with two condominium corporations’ board members, one of whom was Mr. Peixoto. Following these conversations, wrote the trial judge, “Mr.

Callow thought that he was likely to get a two-year renewal of his winter maintenance services contract and they were satisfied with his services” (para. 41). [ 12 ] Meanwhile, Callow continued to fulfill its obligations under the winter and summer maintenance agreements including, pursuant to the latter arrangement, finishing “spring cleanup”, cutting grass on a weekly basis and conducting garbage pick- up. Furthermore, during the summer of 2013, Callow “performed work above and beyond [its] summer maintenance services contract” (para. 42), even doing what Mr.

Callow described as some “freebie” work, which he hoped would act as an incentive for Baycrest to renew the winter maintenance agreement at the end of the upcoming winter. [ 13 ] Conversations between Callow and Mr. Peixoto continued into July 2013, at which time Callow decided to improve the appearance of two gardens. In an email dated July 17, 2013, Mr. Peixoto wrote to another condominium corporation board member regarding this “freebie” work, writing in part: “It’s nice he’s doing it but I am sure it’s an attempt at us keeping him.

Btw, I was talking to him last week as well and he is under the impression we’re keeping him for winter again. I didn’t say a word to him cuz I don’t wanna get involved but I did tell [Ms. Zollinger] that [Mr. Callow] thinks we’re keeping him for winter” (A.R., vol. III, at p. 73). [ 14 ] Baycrest did not inform Callow about the decision to terminate the winter maintenance agreement until September 12, 2013. At that point, Ms. Zollinger advised Callow by way of email “that Baycrest will not be requiring your services for the winter contract for the 2013/2014 season, as per

section 9 of the contract, Baycrest needs to provide the contractor with 10 days’ notice” (A.R., vol. III, at p. 49). [ 15 ] Callow consequently filed a statement of claim for breach of contract, alleging that Baycrest acted in bad faith by accepting free services while knowing Callow was offering them in order to maintain their future contractual relationship. Moreover, Callow alleged that Baycrest knew or ought to have known that Callow would not seek other winter maintenance contracts in reliance on the representations that Callow was providing satisfactory service and the contract would not be prematurely terminated. Accordingly,

“[a]s a result of these misrepresentations and/or bad faith conduct, [Mr. Callow on behalf of Callow] did not bid on other tenders for winter maintenance contracts. [Baycrest is] now liable for Callow’s damages for loss of opportunity” (A.R., vol. I, p. 45, at para. 30).

Finally, Callow alleged that Baycrest was unjustly enriched by the free services it provided in the summer of 2013. [ 16 ] Callow sought damages in the amount of $81,383.68 for breach of contract, an amount equivalent to the one year remaining on the winter maintenance agreement, damages for intentional interference with contractual relations, inducing breach of contract, and negligent misrepresentation. It also asked for damages in the amount of $5,000.00 for unjust enrichment, an amount equivalent to the “freebie” work, and pre- and post-judgment interest and costs on a substantial indemnity basis. III.

Prior Decisions A. Ontario Superior Court of Justice (O’Bonsawin J.), 2017 ONSC 7095 [ 17 ] In her review of the circumstances of the dispute, the trial judge commented on the testimony of several key witnesses, concluding that Mr. Callow was a credible witness. In contrast, she found that Baycrest’s witnesses — including a former property manager, as well as Ms. Zollinger and Mr. Peixoto — had “provided many exaggerations, over-statements and constantly provided comments contrary to the written evidence” (para. 11). The trial judge thus preferred Mr.

Callow’s version of events to that of Baycrest. [ 18 ] At trial, Baycrest advanced two main submissions. First, it argued that, as a matter of simple contractual

interpretation, clause 9 clearly and unambiguously states that it could terminate the contract for any reason by providing Callow with 10 days’ notice in writing. Second, even though no cause had to be shown to invoke clause 9, Baycrest nonetheless argued that the evidence before the trial judge demonstrated that Callow’s level of service did not comply with the contractual specifications and was not to its complete satisfaction. [ 19 ] The trial judge dismissed both arguments. First, she found that Callow’s work met the requisite standard.

While there were complaints about Callow’s work, she observed that “a significant portion related to the clearing of parking stalls, which was the fault of owners/tenants who did not move their vehicles”. “Was the quality of Callow’s work below standard?” asked the trial judge, “The evidence leads me”, she wrote, “to answer no” (para. 55). [ 20 ] Second, the trial judge held that this was not a simple contractual

interpretation case. In her view, the organizing principle of good faith performance and the duty of honest performance were engaged. The trial judge explained that, as Cromwell J. noted in Bhasin , the duty of honest performance should not be confused with a duty of disclosure. “However,” she wrote, “contracting parties must be able to rely on a minimum standard of honesty” to ensure “that parties will have a fair opportunity to protect their interests if the contract does not work out” (para. 60, citing Bhasin , at para. 86).

For the purposes of drawing a distinction between the failure to disclose a material fact and active dishonesty, the trial judge observed that “[u]nless there is active deception, there is no unilateral duty to disclose information before the notice period” (para. 61). [ 21 ] The trial judge was satisfied that Baycrest “actively deceived” Callow from the time the termination decision was made in March or April 2013 to the time when notice was given on September 12, 2013.

Specifically, she found that Baycrest “acted in bad faith by (1) withholding the information to ensure Callow performed the summer maintenance services contract; and (2) continuing to represent that the contract was not in danger despite [Baycrest’s] knowledge that Callow was taking on extra tasks to bolster the chances of renewing the winter maintenance services contract” (para. 65).

Given the active communications between the parties during the summer of 2013, “which deceived Callow”, the trial judge “[did] not accept [Baycrest’s] argument that no duty was owed to disclose the decision to terminate the contract before the notice” (para. 66). “The minimum standard of honesty”, she concluded, “would have been to address the alleged performance issues, to provide prompt notice, or to refrain from any representations in anticipation of the notice period” (para. 67). [ 22 ] The trial judge tied Baycrest’s dishonesty to the way in which it delayed invocation of the 10-day notice period set out in clause 9, while it actively deceived Callow that the contract was not in jeopardy.

Her reasons relied upon, by analogy, the law recognizing a duty to exercise good faith in the manner of dismissal when terminating an employee. She noted that Baycrest “intentionally withheld the information in bad faith” (para. 69). She expressly acknowledged that exercising a termination clause is not, in itself, evidence of a breach of good faith.

However, in this case, Baycrest deliberately deceived Callow about termination, which was a breach of the duty of honest performance. [ 23 ] By reason of this contractual breach, the trial judge awarded damages to Callow, in order to place it in the same position as if the breach had not occurred.

These damages amounted to $64,306.96, a sum equivalent to the value of the winter maintenance agreement for one year, minus expenses that Callow would typically incur; a further amount of $14,835.14, representing the value of one year of a lease of equipment that Callow would not have leased if it had known the winter maintenance was to be terminated; and $1,600.00 for the final invoice for the summer work, which Baycrest had failed to pay to Callow.

Costs were awarded to Callow. [ 24 ] The trial judge was also satisfied that Baycrest was unjustly enriched due to the “freebie” work performed by Callow during the summer of 2013. She declined, however, to award damages for the unjust enrichment since Callow failed to provide evidence of its expenses. B. Court of Appeal for Ontario (Lauwers, Huscroft and Trotter JJ.A.), 2018 ONCA 896 , 429 D.L.R. (4th) 704 [ 25 ] Baycrest appealed, arguing that the trial judge erred in two respects.

First, it alleged she erred by improperly expanding the duty of honest performance beyond the terms of the winter maintenance agreement. Second, it argued the trial judge erred in assessing damages. [ 26 ] The Court of Appeal unanimously agreed with Baycrest on the first point, and set aside the judgment at first instance. The Court of Appeal recognized, as the trial judge had found, that the “[d]irectors of two of the condominium corporations and members

of the JUC were aware that Mr. Callow was performing ‘freebie’ work, and knew he was under the impression that the contracts were likely to be renewed” (para. 5). Nonetheless, the court stressed that Bhasin was a modest, incremental step, and good faith is to be applied in a manner so as to avoid commercial uncertainty. As such, the duty of honesty “does not impose a duty of loyalty or of disclosure or to require a party to forego advantages flowing from the contract” (para. 12, citing Bhasin , at para. 73). [ 27 ] The Court of Appeal further emphasized that Callow had made two concessions in its factum.

First, Callow acknowledged that Baycrest was not contractually required to disclose its decision to terminate the winter maintenance agreement prior to the 10-day notice period. Second, Callow acknowledged that the failure to provide notice on a more timely basis was not, in and of itself, evidence of bad faith. Because there is “no unilateral duty to disclose information relevant to termination”, the court reasoned Baycrest “[was] free to terminate the winter contract with [Callow] provided only that [it] informed him of [its] intention to do so and gave the required notice.

That is all that [Callow] bargained for, and all that he was entitled to” (para. 17). While the trial judge’s findings “may well suggest a failure to act honourably,” the Court of Appeal expressed its view that the findings “do not rise to the high level required to establish a breach of the duty of honest performance” (para. 16). [ 28 ] In any event, the Court of Appeal said that any deception in the communications during the summer of 2013 related to a new contract not yet in existence, namely the renewal that Callow hoped to negotiate.

Accordingly, in its view, any deception could not be said to be directly linked to the performance of the winter contract (para. 18). [ 29 ] Given the Court of Appeal’s conclusion, it did not address damages. IV. Analysis A. Overview of the Appeal [ 30 ] This appeal presents this Court with an opportunity to clarify what constitutes a breach of the duty of honest performance where it manifests itself in connection with the exercise of a seemingly unfettered, unilateral termination clause.

Pointing to what it calls Baycrest’s active deception in the exercise of the clause, Callow says this conduct was a breach of the duty of honest performance recognized in Bhasin . [ 31 ] Before this Court, Callow does not dispute the meaning of clause 9. Nor does Callow’s argument on appeal concern the adequacy of the bargain struck with Baycrest or whether the termination was unjustified. Callow is not saying, for instance, that it should have been afforded more notice because the 10-day period was unfair in the circumstances.

I recognize that, at trial, there was some question as to whether the termination was fitting given Callow’s work record. Indeed, the trial judge found in Callow’s favour on this point, concluding that it had provided satisfactory services. But the suggestions that Callow was terminated for some improper purpose or motive, or even that the termination was unreasonable, need not be determined on this appeal.

The narrow question addressed here is whether Baycrest failed to satisfy its duty not to lie or knowingly deceive Callow about matters directly linked to the performance of the winter maintenance agreement, specifically by exercising the termination clause as it did. [ 32 ] In the present circumstances, Callow says Baycrest misled Mr. Callow about the possible renewal of the winter maintenance agreement and, as a result, it knowingly deceived him into thinking it was satisfied with Callow’s performance of the agreement then in force for the upcoming winter season.

Callow says it mistakenly inferred, as a consequence of this dishonesty, that there was no danger of the existing winter contract being terminated pursuant to clause 9 of the contract. This, Callow submits, was to the full knowledge of Baycrest, who failed to correct its false impression which amounted to a breach of the duty of honest performance. In short, Callow says this deceitful conduct meant the exercise of the termination clause was wrongful in that it was breached even if, strictly speaking, the required notice was given.

This should give rise, claims Callow, to compensatory damages on the ordinary measure as the trial judge had ordered: damages for lost profits, wasted expenditures and an unpaid invoice. [ 33 ] In addition to the duty of honest performance, Callow invokes a free-standing duty to exercise contractual discretionary powers in good faith, which, it argues, Cromwell J. also recognized in Bhasin and which would justify the same award in damages.

Furthermore, in the event the Court disagrees that there has been a breach of one or another of those existing duties, Callow submits, alternatively, that this Court should recognize a new duty of good faith, which would prohibit “active non-disclosure”. [ 34 ] In answer, Baycrest notes the concessions made by Callow before the Court of Appeal, specifically that clause 9 on its face did not require it to give more notice.

Baycrest agrees with the Court of Appeal that whatever communications took place between the parties, those communications concerned a future contract and were not directly related to the performance of the winter contract then in force. The agreement granted Baycrest an unqualified right to terminate the contract on notice for any reason, which is precisely what occurred.

Recalling that the duty to act honestly in performance is not a duty of disclosure and does not impose a duty of loyalty akin to that of a fiduciary, Baycrest says that Callow seeks to have it subvert its own interest by requiring it to inform Callow of its intention to end the winter maintenance agreement before the stipulated 10 days’ notice. The Court of Appeal was thus correct in concluding that the bargain struck by the parties entitled Baycrest to end the contract as it did.

In a similar vein, with respect to the duty to exercise discretionary powers in good faith, Baycrest says that because it respected the terms of the contract, the issue of abuse of contractual discretion does not arise on the facts of this case. [ 35 ] In any event, Baycrest emphasizes the conclusion reached by the Court of Appeal that any discussions in the spring and summer of 2013 that may have misled Callow were connected to pre-contractual negotiations. Thus, any dishonesty cannot be said to be directly linked to the performance of the winter maintenance agreement. [ 36 ] The appeal should be allowed.

I respectfully disagree with the Court of Appeal on two main points. [ 37 ] First, Bhasin is clear that even though Baycrest had what was, on its face, an unfettered right to terminate the winter maintenance agreement on 10 days’ notice, the right had to be exercised in keeping with the duty to act honestly, i.e. Baycrest could not “lie or otherwise knowingly mislead” Callow “about matters directly linked to the performance of the contract”.

According to the Court of Appeal, any dishonesty was about a renewal, which was in turn connected to pre-contractual negotiations to which the duty as stated in Bhasin does not apply. I respectfully disagree. In my view, the Court of Appeal may have erroneously framed the trial judge’s findings at

para. 6, writing that she found that Baycrest had represented “that the winter contract was not in danger of non-renewal ” (emphasis added). Referring instead to the ongoing winter services agreement, the trial judge had found Baycrest misrepresented “that the contract was not in danger despite [Baycrest’s] knowledge that Callow was taking on extra tasks to bolster the chances of renewing the winter maintenance services contract” (para. 65).

In determining whether dishonesty is connected to a given contract, the relevant question is generally whether a right under that contract was exercised, or an obligation under that contract was performed, dishonestly. As I understand it, the trial judge’s finding was that the dishonesty in this case was related not to a future contract but to the termination of the winter maintenance agreement.

If someone is led to believe that their counterparty is content with their work and their ongoing contract is likely to be renewed, it is reasonable for that person to infer that the ongoing contract is in good standing and will not be terminated early. This is what the trial judge found. Simply said, Baycrest’s alleged deception was directly linked to this contract because its exercise of the termination clause in this contract was dishonest. [ 38 ] Second, the Court of Appeal erred when it concluded that the trial judge’s findings did not amount to a breach of the duty of honest performance.

While the duty of honest performance is not to be equated with a positive obligation of disclosure, this too does not exhaust the question as to whether Baycrest’s conduct constituted, as a breach of the duty of honesty, a wrongful exercise of the termination clause. Baycrest may not have had a free-standing obligation to disclose its intention to terminate the contract before the mandated 10 days’ notice, but it nonetheless had an obligation to refrain from misleading Callow in the exercise of that clause.

In circumstances where a party lies to or knowingly misleads another, a lack of a positive obligation of disclosure does not preclude an obligation to correct the false impression created through its own actions. [ 39 ] In light of these points, it is my view that this is not a simple contractual

interpretation case bearing on the meaning to be given to clause 9. Nor is this a case involving passive failure to disclose a material fact. Instead, as recognized by the Court of Appeal, “[n]ot only did [Baycrest] fail to inform [Callow] of [its] decision to terminate, . . . [it] actively deceived Callow as to [its] intentions and accepted the ‘freebie’ work [it] performed, in the knowledge that this extra work was performed with the intention/hope of persuading [Baycrest] to award [Callow] additional contracts once the present contracts expired” (para. 15 (emphasis added)).

While Baycrest was not required to subvert its legitimate contractual interests to those of Callow in respect of the existing winter services agreement, it could not, as it did, “undermine those interests in bad faith” ( Bhasin , at para. 65). [ 40 ] For the reasons that follow, this dispute can be resolved on the basis of the first ground of appeal relating to the duty of honest performance. Baycrest knowingly misled Callow in the manner in which it exercised clause 9 of the agreement and this wrongful exercise of the termination clause amounts to a breach of contract under Bhasin .

In the circumstances, I find it unnecessary to answer Callow’s argument that, irrespective of the question of honesty, Baycrest breached a duty to exercise a discretionary power in good faith. Nor is it necessary to extend Bhasin to recognize a new duty of good faith relating to what Callow has described as “active non-disclosure” of information germane to performance. B. The Duty of Honest Performance

(1) The Dishonesty Is Directly Linked to the Performance of the Contract [ 41 ] I turn first to Callow’s submission that the Court of Appeal erred in concluding that the dishonesty was not connected to the contract “then in effect” (C.A. reasons, at para. 18). As I will endeavour to explain, while Baycrest had the right to terminate, it breached the duty of honest performance in exercising the right as it did. [ 42 ] Callow relies on the duty of honest performance in contract formulated in Bhasin .

This duty, which applies to all contracts, “requires the parties to be honest with each other in relation to the performance of their contractual obligations” (para. 93). While this formulation of the duty refers explicitly to the performance of contractual obligations, it applies, of course, both to the performance of one’s obligations and to the exercise of one’s rights under the contract.

Cromwell J. concluded, at paras. 94 and 103, that the finding that the non-renewal clause had been exercised dishonestly made out a breach of the duty: The trial judge made a clear finding of fact that Can-Am “acted dishonestly toward Bhasin in exercising the non-renewal clause ”: para. 261; see also para. 271. There is no basis to interfere with that finding on appeal. It follows that Can-Am breached its duty to perform the Agreement honestly. . . . As the trial judge found, this dishonesty on the part of Can-Am was directly and intimately connected to Can-Am ’s performance of the Agreement with Mr.

Bhasin and its exercise of the non-renewal provision . I conclude that Can-Am breached the 1998 Agreement when it failed to act honestly with Mr. Bhasin in exercising the non-renewal clause . [Emphasis added.] This same framework for analysis applies to this appeal. The trial judge here made a clear finding of fact that Baycrest acted dishonestly toward Callow by representing that the contract was not in danger even though a decision to terminate the contract had already been made (paras. 65 and 67). There is no basis to interfere with that finding on appeal.

As I will explain, it follows that Baycrest deceived Callow and thereby breached its duty of honest performance. [ 43 ] I begin by recognizing the debate as to the extent to which good faith, beyond the duty of honesty, should substantively constrain a right to terminate, in particular one found in a contract (see, e.g., W. Courtney, “Good Faith and Termination: The English and Australian Experience” (2019), 1 Journal of Commonwealth Law 185, at p. 189; M. Bridge, “The Exercise of Contractual Discretion” (2019), 135 L.Q.R. 227, at p. 247).

For some, the right to terminate is in the nature of an “absolute right” insulated from judicial oversight, unlike the exercise of contractual discretion (see E. Peel, The Law of Contract (15th ed. 2020), at para. 18-088). To this end, I recall that Cromwell J. observed that “[c]lassifying the decision not to renew the contract as a contractual discretion would constitute a significant expansion of the decided cases under that type of situation” ( Bhasin , at para. 72). I need not and do not seek to resolve this debate in this case.

I emphasize that Cromwell J. himself recognized that, regardless of this debate, the non-renewal clause could not be exercised dishonestly (para. 94). Whatever the full range of circumstances to which good faith is relevant to contract law in common law Canada, it is beyond question that the duty of honesty is germane to the performance of this contract, in particular to the way in which the unilateral right to terminate for convenience set forth in clause 9 was exercised.

[ 44 ] As a further preliminary matter, I recall that the organizing principle of good faith recognized by Cromwell J. is not a free-standing rule, but instead manifests itself through existing good faith doctrines, and that this list may be incrementally expanded where appropriate. In this case, Callow invokes two existing doctrines: the duty of honest performance and the duty to exercise discretionary powers in good faith.

In my view, properly understood, the duty to act honestly about matters directly linked to the performance of the contract — the exercise of the termination clause — is sufficient to dispose of this appeal. No expansion of the law set forth in Bhasin is necessary to find in favour of Callow.

Rather, this appeal provides an opportunity to illustrate this existing doctrine that, I say respectfully, was misconstrued by the Court of Appeal. [ 45 ] While these two existing doctrines are indeed distinct, like each of the different manifestations of the organizing principle, they should not be thought of as disconnected from one another. Cromwell J. explained that good faith contractual performance is a shared “requirement of justice” that underpins and informs the various rules recognized by the common law on obligations of good faith contractual performance ( Bhasin , at para. 64).

The organizing principle of good faith was intended to correct the “piecemeal” approach to good faith in the common law, which too often failed to take a consistent or principled approach to similar problems and, instead, develop the law in this area in a “coherent and principled way” (paras. 59 and 64). [ 46 ] By insisting upon the thread that ties the good faith doctrines together — expressed through the organizing principle — courts will put an end to the very piecemeal and incoherent development of good faith doctrine in the common law against which Cromwell J. sought to guard.

While the duty of honest performance might bear some resemblance to the law of misrepresentation, for example, in a way that good faith in other settings may not, Bhasin encourages us to examine how other existing good faith doctrines, distinct but nonetheless connected, can be used as helpful analytical tools in understanding how the relatively new duty of honest performance operates in practice. [ 47 ] The specific legal doctrines derived from the organizing principle rest on a “requirement of justice” that a contracting party, like Baycrest here in respect of the contractual duty of honest performance, have appropriate regard to the legitimate contractual interests of their counterparty ( Bhasin , at paras. 63-64).

It need not, according to Bhasin , subvert its own interests to those of Callow by acting as a fiduciary or in a selfless manner that would confer a benefit on Callow. To be sure, this requirement of justice reflects the notion that the bargain, the rights and obligations agreed to, is the first source of fairness between parties to a contract. But by the same token, those rights and obligations must be exercised and performed, as stated by the organizing principle, honestly and reasonably and not capriciously or arbitrarily where recognized by law.

This requirement of justice, rooted in a contractual ideal of corrective justice, ties the existing doctrines of good faith, including the duty to act honestly, together. The duty of honest performance is but an exemplification of this ideal.

Here, based on its failure to perform clause 9 honestly, Baycrest committed a breach of contract, a civil wrong, for which it has to answer. [ 48 ] When, in Bhasin , Cromwell J. recognized a duty to act honestly in the performance of contracts, he explained that this duty “should not be thought of as an implied term, but a general doctrine of contract law that imposes as a contractual duty a minimum standard of honest contractual performance” (para. 74).

Characterizing this new duty as a matter of contractual doctrine was appropriate, Cromwell J. wrote, “since parties will rarely expect that their contracts permit dishonest performance of their obligations” (para. 76). The duty therefore applies even where — as in our case — the parties have expressly provided for the modalities of termination given that the duty of good faith “operates irrespective of the intentions of the parties” (para. 74).

No contractual right, including a termination right, can be exercised dishonestly and, as such, contrary to the requirements of good faith. [ 49 ] Cromwell J.’s choice of language is telling. It is not enough to say that, temporally speaking, dishonesty occurred while both parties were performing their obligations under the contract; rather, the dishonest or misleading conduct must be directly linked to performance.

Otherwise, there would simply be a duty not to tell a lie, with little to limit the potentially wide scope of liability. [ 50 ] The duty of honest performance is a contract law doctrine, setting it apart from other areas of the law that address the legal consequences of deceit with which it may share certain similarities. One could imagine analyzing the facts giving rise to a duty of honest performance claim through the lens of other existing legal doctrines, such as fraudulent misrepresentation giving rise to rescission of the contract or the tort of civil fraud (see, e.g., B.

MacDougall, Misrepresentation (2016), at §§1.144-1.145). However, in Bhasin , Cromwell J. wrote explicitly that while the duty of honest performance has similarities with civil fraud and estoppel “it is not subsumed by them” (para. 88). For instance, unlike estoppel and civil fraud, the duty of honest performance does not require a defendant to intend that the plaintiff rely on their representation or false statement.

Cromwell J. explicitly defined the duty as a new and distinct doctrine of contract law, not giving rise to tort liability or tort damages but rather resulting in a breach of contract when violated (paras. 72-74, 90, 93 and 103). We are not asked by the parties to depart from this approach. [ 51 ] In light of Bhasin , then, how is the duty of honest performance appropriately limited? The breach must be directly linked to the performance of the contract. Cromwell J. observed a contractual breach because Can-Am “acted dishonestly toward Bhasin in exercising the non-renewal clause” (para. 94).

He pointed, in particular, to the trial judge’s conclusion that Can-Am “acted dishonestly with Mr. Bhasin throughout the period leading up to its exercise of the non-renewal clause” (para. 98; see also para. 103). Accordingly, it is a link to the performance of obligations under a contract, or to the exercise of rights set forth therein, that controls the scope of the duty. In a comment on Bhasin , Professor McCamus underscored this connection: “Cromwell J was of the view that the new duty of honesty could be breached in the context of the exercise of a right of non-renewal.

That was the holding in Bhasin ” (“The New General ‘Principle’ of Good Faith Performance and the New ‘Rule’ of Honesty in Performance in Canadian Contract Law” (2015), 32 J.C.L. 103, at p. 115).

While the abuse of discretion was not the basis of the damages awarded in Bhasin , the duty of honest performance shares a common methodology with the duty to exercise contractual discretionary powers in good faith by fixing, at least in circumstances like ours, on the wrongful exercise of a contractual prerogative. [ 52 ] Importantly, Callow does not seek to bar Baycrest from exercising the termination clause here; like in Bhasin , it only seeks damages flowing from the fact that the clause was exercised dishonestly.

In other words, Callow’s argument, properly framed, is that Baycrest could not exercise clause 9 in a manner that breached the duty of honesty, however absolute that right appeared on its face. [ 53 ] Good faith is thus not relied upon here to provide, by implication, a new contractual term or a guide to

interpretation of language that was somehow an unclear statement of parties’ intent. Instead, the duty of honesty as contractual doctrine has a limiting

function on the exercise of an otherwise complete and clear right because the duty, irrespective of the intention of the parties, applies tothe performance of all contracts and, by extension, to all contractual obligations and rights.

This means, simply, that instead ofconstraining the decision to terminate in and of itself, the duty of honest performance attracts damages where the manner in which theright was exercised was dishonest. [54] The issue, then, is not whether the clause was properly interpreted, or whether the bargain itself is inadequate.Moreover, what is important is not the failure to act honestly in the abstract but whether Baycrest failed to act honestly in exercisingclause 9.

Stated simply, no contractual right can be exercised in a dishonest manner because, pursuant to Bhasin, that would be contraryto an imperative requirement of good faith, i.e. not to lie or knowingly deceive one’s counterparty in a matter directly linked to theperformance of the contract. [55] This argument invites this Court to explain if and how Baycrest wrongfully exercised the termination clause, quiteapart from any notice requirement. I would add that this focus on the manner in which the termination right was exercised should not beconfused with whether the right could be exercised.

Callow does not allege that Baycrest did not have the right to terminate theagreement — this entitlement to do so on 10 days’ notice, pursuant to clause 9, is not at issue here. However, according to Callow, thatright was exercised dishonestly, in breach of the duty in Bhasin, obliging Baycrest to pay damages as a consequence of its behaviour.Accordingly, I would draw the same distinction made by Cromwell J. in Bhasin regarding the exercise of the non-renewal clause at issuein that case: Can-Am acted dishonestly towards Mr.

Bhasin in exercising the non-renewal clause as it did, and was liable for damages asa result, but it was not precluded from exercising its prerogative not to renew the contract. [56] In service of its argument that Baycrest breached the duty of honest performance in its exercise of clause 9 of thecontract, Callow points to references in Bhasin to Quebec law (at paras. 32, 35, 41, 44, 82 and 85) and in particular to Cromwell J.’sreference to the theory of the abuse of contractual rights set forth in arts. 6, 7 and 1375 of the Civil Code of Québec (“C.C.Q.” or “CivilCode”) (para. 83).

Callow observes that the requirement not to abuse contractual rights is recognized as a feature of good faithperformance in Quebec. It submits that the allusion to the doctrine of abuse of rights was an indication of the requirements of good faithin Bhasin and argues that the same framework can usefully illustrate how the common law duty of honesty constrains the terminationclause in this case. [57] I agree that looking to Quebec law is useful here.

The direct link between the dishonest conduct and the exercise ofclause 9 was not properly identified by the Court of Appeal in this case and Quebec law helps illustrate the requirement that there be sucha link from Bhasin. In my view, Baycrest’s dishonest conduct is not a wrong independent of the termination clause but a breach ofcontract that, properly understood, manifested itself upon the exercise of clause 9. Through that direct link between the dishonesty andthe exercise of the clause, the conduct is understood as contrary to the requirements of good faith.

This emerges more plainly whenconsidered in light of the civilian doctrine of contractual good faith alluded to in Bhasin, specifically the fact that, in Quebec “[t]he notionof good faith includes (but is not limited to) the requirement of honesty in performing the contract” (para. 83). Thus, like in Quebec civillaw, no contractual right may be exercised dishonestly and therefore contrary to the requirements of good faith.

Properly raised byCromwell J., this framework for connecting the exercise of a contractual clause and the requirements of good faith is helpful to illustrate,for the common law, the link made in Bhasin that the Court of Appeal failed to identify here. [58] Mindful no doubt of its unique vantage point which offers an occasion to observe developments in both the commonlaw and the civil law in its work, this Court has often drawn on this country’s bijural environment to inform its decisions, principally inprivate law appeals.

While this practice has varied over time and has been most prevalent in civil law cases in which common lawauthorities are considered, the influence of bijuralism is not and need not be confined to appeals from Quebec or to matters relating tofederal legislation (see J.-F. Gaudreault-DesBiens, Les solitudes du bijuridisme au Canada (2007), at pp. 7-22).

In its modernjurisprudence, this Court has recognized the value of looking to legal sources from Quebec in common law appeals, and has oftenobserved how these sources resolve similar legal issues to those faced by the common law (see, e.g., Canadian National Railway Co. v.Norsk Pacific Steamship Co., (SCC), [1992] 1 S.C.R. 1021, at pp. 1143-44; Deloitte & Touche v. Livent Inc. (Receiverof), 2017 SCC 63, [2017] 2 S.C.R. 855, at para. 138; see also Kingstreet Investments Ltd. v. New Brunswick (Finance), 2007 SCC 1,[2007] 1 S.C.R. 3, at para. 41).

Used in this way, authorities from Quebec do not, of course, bind this Court in its disposition of a privatelaw appeal from a common law province, but rather serve as persuasive authority, in particular, by shedding light on how thejurisdictionally applicable rules work. In my respectful view, it is uncontroversial that, when done carefully, sources of law may be usedin this way (Farber v. Royal Trust Co., (SCC), [1997] 1 S.C.R. 846, at para. 32, citing J.-L. Baudouin,“L’interprétation du Code civil québécois par la Cour suprême du Canada” (1975), 53 Can. Bar Rev. 715, at p. 726). As Robert J.

Sharpeput it, writing extra-judicially, judges “should strive to maintain the coherence and integrity of the law as defined by the bindingauthorities, using persuasive authority to elaborate and flesh out its basic structure” (Good Judgment: Making Judicial Decisions (2018),at pp. 171-72). [59] This does not mean the appropriate use of these sources is limited to cases where there is a gap in the law of thejurisdiction in which the appeal originates, in the sense that there is no answer to the legal problem in that law, or where a courtcont

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