Bargaining in Good Faith

• Author: John D. McCamus
• Pages: 146-176

146

CHAPTER 5

BARGAINING IN

GOOD FAITH

A. INTRODUCTION

In a leading Canadian decision1 on the subject of f‌iduciary obligation,

La Forest J observed: “The institution of bargai ning in good faith is one

that is worthy of legal protection in those circumstances where that

protection accords with the expectations of the parties.”2 This chapter

examines the extent to which the common law of contract provides

legal protection to the institution of bargaining in good faith. One pos-

sible means of affording such protection would be to recognize and

enforce an obligation to bargain in good faith in certain circumstances.

As we shall see, the common law thus far has been reluctant to adopt

this means for encouraging good-faith negotiation. The possibility of

recognizing such a duty has, however, been considered in a variety of

doctrinal contexts. Before turning to consider existing Canadian com-

mon law on this topic, it may be useful to speculate as to the types of

conduct that might be thought to constitute bargaining in bad faith.3

One possible candidate might be the withholding of information that

1 Lac Minerals Ltd v Inter national Corona Resources Ltd (1989), 61 DLR (4th) 14

(SCC).

2 Ibid at 14 .

3 See generally M Fur mston & GJ Tolhurst, Contract Formation: Law an d Practice

(Oxford: Oxford Universit y Press, 2010) ch 12; EA Farnsworth, “Precontr actual

Liability and Preliminary Agreements: Fair Dealing and Failed Negotiations”

(1987) 87 Colum L Rev 217 [Far nsworth]; J Cassels, “Good Faith in C ontract

Bargaini ng in Good Faith 147

would disabuse the other negotiating party of a mistake concerning an

important fact. Although the common law, as we shall see, imposes no

general duty of disclosure on negotiating parties,4 it might be argued

that a duty to bargain in good fa ith would impose such an obligation, at

least in certain circumstances. Other types of breaches of such a duty

might include bargaining with no intention of reaching agreement or

otherwise misleading the other party with respect to one’s intentions,

reneging on a promise given in the course of negotiations, refusal to

make reasonable efforts to reach agreement, breaking off negotiations

in order to accept a more attractive proposal from a third party, and so

on.5 Whether any of these or other tactics might be considered to con-

stitute bad faith might well depend, in t he particular circumstance s, on

whether the parties had agreed to negotiate or, indeed, had agreed to

negotiate in good faith.

Although it is perhaps not obvious that any or all of these negoti-

ating moves ought to constitute breaches of duties owed to the other

party, there can be no doubt that conduct of this kind can visit injuries

on the other party. In the f‌irst place, the victim of such negotiating

strategies may be deprived of the possibility of entering an attractive

and prof‌itable contractual arrangement. Alternatively, a victim of bad

faith bargaining may sustain substantial out-of-pocket expenses in

the course of fruitless negotiations. Consider, for example, the facts

of the American case of Hoffman v Red Owl Stores,6 a case of reneg-

ing on a promise. The parties were negotiating a supermarket fran-

chise. The prospective franchisor told the prospective franchisee that

an eighteen-thousand-dollar cash contribution would be suff‌icient.

Extended negotiations followed. Thus encouraged, the franchisee sold

his business, moved to another tow n, and bought a small grocery store.

Negotiations then collapsed when the franchisor insisted on a substan-

tially higher contribution. At common law, the promise to accept the

lesser contribution would be unenforceable because it was not given for

good consideration.7 The franchisor’s bargaining strategy nonetheless

inf‌licted serious losses upon the prospective franchisee.

Bargaini ng: General Principles a nd Recent Developments” (1993) 15 Advocates’

Q 56.

4 See Chapter 10.

5 See 0856464 BC LtdvTimberWest Forest Corp, 2014 BCSC 2433 at para 173

(quoting this li st).

6 133 NW2d 267 (Wis 1965).

7 A different re sult is available in Americ an law on this point. The plai ntiff

succeeded in Hoffman v Red Owl Stores on the basi s of promissory estoppel

doctrine. For di scussion of promissor y estoppel, see Chapter 8.