The Supreme Court Clarifies the Duty of Good Faith

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The Supreme Court of Canada expanded and provided more clarity and direction to the duty of good faith and the duty of honesty in contractual performance. More specifically, the duty of honest performance includes knowingly misleading the other party. It does not include a positive duty to disclose and the appropriate remedy is damages for breach of contractual performance (expectation damages).

The implications of this decision result in more expansion and clarity from the Supreme Court regarding the duty of good faith, since its Bhasin decision in 2014. Specifically, the duty of honesty in performance is not solely construed as not lying to the other party. Courts must analyze whether either party was misled by actions or by half-truths or omissions. However, the Supreme Court reaffirmed Bhasin’s stance of no positive duty to disclose.

On a practical level, parties must ensure that the other party is not misled. This is especially the case when one of the parties have made an internal decision and the other party has asked about it. While there is no positive duty to disclose, it can be a breach of the duty of honest performance if one gives an answer that misleads the other party.

Read full article here.

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