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Civil Litigation

OCA qualifies breach of contractual duty of good faith claims

A recent Ontario Court of Appeal (OCA) decision is "interesting" because it galvanizes the very high threshold required to succeed with a breach of contractual duty of good faith claim in Ontario, Toronto civil litigator Bruce Baron tells AdvocateDaily.com. 

“Clearly, the province’s highest court is very mindful of the ostensibly generic and all-purpose applicability of this highly versatile and new cause of action, conceived by the Supreme Court of Canada in 2014,” says Baron, principal of Gaertner Baron Professional Corporation.

He says this is the second time this year that the appeal court has addressed this new cause of action head-on.

The first time was a matter wherein the court addressed an employer’s decision to terminate a contractor on the basis that he had a criminal record, notwithstanding that this information was disclosed at the outset and the worker complied with all the requirements of the security check prior to entering into the contract.

“Understandably, the court found in favour of the contractor on the basis that the employer’s purported decision to terminate because of his criminal record was not made in good faith,” Baron says.

In the second matter, perhaps being mindful of Ontario’s overburdened courts, the OCA took the opportunity to clarify the high threshold that it considers to exist when making out this cause of action, he says.

In the recent case, the OCA addressed the appellant condominium management group’s decision to terminate the respondent maintenance worker’s contract. In particular, the respondent had two contracts with the appellants — one for summer and one for winter.

The winter contract ran from 2012 to 2014 but had an early termination provision exercisable on 10 days' notice. Of significance, the appellants had a meeting in April 2013 and decided to terminate the winter contract early. However, the respondent was busy performing his summer contract, including providing a considerable number of “freebie” services, the decision states.

The appellants were pleased to receive these freebie services and encouraged the respondent to continue doing so, but the condo group not only declined to advise the worker that his contract would not be renewed but they also wilfully elected not to advise him until September 2013 of their decision to terminate his winter contract.

“The respondent succeeded at trial on the basis that the appellants breached their contractual duty of honest performance by acting in bad faith, in particular, 1) by withholding the fact that they intended to terminate the winter contract to ensure that the respondent performed the summer contract, and 2) by continuing to represent that the winter contract was not in danger of non-renewal,” says Baron, who was not involved in either matter and comments generally.

“The trial judge held that meeting the minimum standard of honesty would have required the appellants to address the alleged performance issues with the respondent, provide prompt notice or refrain from any representations in anticipation of the notice period,” he says.

The OCA acknowledged that the appellants failed to inform the respondent of their decision to terminate, and even went so far as to indicate that they actively deceived him as to its intentions and accepting the “freebie” work.

However, the panel of judges ultimately found that while these actions may well suggest a failure to act honourably, they do not rise to the high level required to establish a breach of the duty of honest performance, Baron notes.

He says some key takeaways from this decision include:

  1. There is no unilateral duty to disclose information relevant to termination. The appellants were free to terminate the winter contract with the respondent provided only that they informed him of their intention to do so and gave the required notice.
  2. The duty of honest performance in this matter required that the parties be honest with each other concerning matters directly linked to the performance of the contract. Communications between the parties may have led the respondent to believe that there would be a new contract, but those communications did not preclude the appellants from exercising their right to terminate the winter contract.
  3. The trial judge’s decision that the minimum standard of honesty included a requirement to address performance issues, provide prompt notice, or to refrain from representations in anticipation of the notice period had the effect of substantially modifying the appellants’ right to terminate the contract. This goes beyond what the duty of honest performance requires or permits.

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