If you own a small business that enters into lots of contracts, "duty of good faith" applies to you. Duty of good faith requires you and the party entering into a contract with you to abide by a basic level of honesty. It prevents you and the other party from lying to or knowingly misleading each another about any matters related to your contract.
Traditionally, Canadian courts didn’t recognize the duty of good faith. That all changed in November 2014 when the Supreme Court of Canada weighed in on Bhasin v. Hrynew. The case involved Bhasin’s employment selling education savings plans for Can-Am. When Can-Am tried to force Bhasin to merge his business with that of Hrynew, Bhasin’s competitor, Bhasin refused. Can-Am subsequently refused to renew Bhasin’s contract, and Bhasin sued Can-Am and Hrynew, alleging bad faith and conspiracy.
The Supreme Court of Canada, in its ruling, acknowledged that the concept of "good faith" underpins all contract law and that contracting parties must have "appropriate regard" for each other’s legitimate interests. As part of the "duty of honest contractual performance" created by the Supreme Court, the parties to a contract must not actively mislead or deceive each other. However, this duty doesn’t mean that you have to disclose private information to someone you have a contract with.
What does this fairly recent decision mean for you? It’s likely to require you to spell out in any contracts what the scope of your duty of good faith is, since, as the Supreme Court pointed out, the specifics of that duty vary according to circumstances. The ruling certainly means that you, as well as anyone you enter into a contract with, must be on good behaviour, since your intentions, not just your conduct, may be questioned if the business relationship goes sour. Acting with candour and transparency in all dealings is now the law of the land.
You might talk to your attorney before drawing up any contracts to understand how Bhasin v. Hrynew and the duty of good faith ruling affects your future deals.