GOOD FAITH NOT GOOD FOR CONSISTENCY: IRRECONCILABLE RESULTS IN WASTECH AND CALLOW.

• Author: Maharaj, Krish

1. INTRODUCTION

   In 2019, the Supreme Court of Canada concurrently heard appeals in two separate cases, Wastech Services Ltd v Greater Vancouver Sewerage and Drainage District (1) and CM Callow Inc v Zollinger. (2) The cause for combining the cases was the commonality of the issues raised between them--specifically, extra-contractual obligations said to arise from the general organizing principle of good faith in Canadian contract law. To the surprise and consternation of many, the release of the Court's reasons was unusually delayed after its hearing, and furthermore, the reasons--ultimately released in late 2020--covered only Callow. There was no mention of Wastech, and no explanation for the disjuncture of the two judgments. However, this decoupling has turned out to be somewhat fitting, as it augured the sharp divergence in the underlying rationale of the decisions that became readily apparent when Wastech was released in early 2021.

   The underlying difference between the two decisions relates to the implicit understanding reflected in each case with regard to what "good faith" is, and what kind of conduct will contravene the requirements good faith imposes. In this article, I will demonstrate why this is highly problematic in three steps: first, by reiterating that establishing an underlying rationale for good faith is a fundamental prerequisite for the imposition of good faith obligations; second, by identifying and explaining the divergent underlying rationales apparent in Wastech and Callow; and finally, by comparing the two different rationales apparent in each set of reasons to demonstrate their inconsistency and thus, the alarming incoherency of the Court's approach to good faith.

2. WHAT IS THE RAISON FOR A RATIONALE?

   Historically, the common law has treated contracts akin to laws that parties make unto themselves. (3) Courts' interference in this practice of private legislating has by and large been very limited. (4) There are proscriptions as to what parties may not contract for--such as gambling and slavery--but these remain scarce and tend to pertain to matters that are more obviously obnoxious or abhorrent. (5) Positive prescription is perhaps rarer still, or at least has been historically. (6) Such prescriptions--whether implied in custom, fact or law--have only prevailed where they are not inconsistent with the expressed will of the parties. (7) As such, historically it has arguably been unnecessary for courts or the common law to commit to a theory as to why courts ought to recognize and enforce contracts, or to elucidate some particular purpose in doing so, because only the parties' purposes appeared to matter. Today, we can no longer realistically say this--not as a matter of principle, nor as a matter of practice--in light of the increasing importance of extra-contractual obligations said to emanate from the general organizing principle of good faith. (8) This is because such good faith-type obligations clearly cannot derive their legitimacy or their content from parties' agreements as a teleological extension of the same, given that their function is to impose standards or requirements that the parties have not agreed to, and in some respects, to override the terms to which the parties themselves have decided to agree. (9) Instead, such obligations must be said to reflect some other purpose--a purpose of contract law's own.

   Unfortunately, if there is a unifying purpose behind good faith obligations and by extension contract law, it has not been identified. More unfortunate still, as I will explain in the following section, it is likely that the good faith decisions rendered to date do not reflect a single coherent purpose at all. Readers may wonder why or whether identifying such a purpose is important if it has not already occurred. To understand why it matters and why it is important, I ask the reader to reflect on what exactly good faith is responding to and why it has arisen in the first place. In short, the answer lies in the kind of behaviour that courts characterize as misfeasance in the context of a particular contractual relationship, but which does not amount to a breach. Such "non-breach misfeasance" poses a quandary for courts who acknowledge that a defendant's conduct does not violate the parties' agreement, contract law, or the law generally, yet whose conduct seems to contravene the spirit of the game. Ordinarily, there might not be much that a court can do in response to such conduct, but good faith-type obligations--including the duty of honest performance, and now also the duty to exercise contractual discretion in good faith--have arisen to redress some such non-breach wrongs. Readers may further wonder how this is problematic, lack or not of apparent purpose. Of concern is how to determine which behaviour counts as bad if we are given no definition of the spirit of the game and thus, no clear understanding of the limits to good faith obligations.

   Despite causing uncertainty for contracting parties, the absence of an identifiable "spirit of the game" has to date not translated into litigation on the issue. However, disagreements among the judiciary of the Supreme Court of Canada, as well as difficulties reconciling Wastech, Callow, and a third and earlier case--Bhasin--likely means more appeals are forthcoming in order to clarify the lodestar for parties to follow. As indicated above, this lodestar or spirit is equivalent to some underlying purpose behind the institution of contract as a whole, or the raison d'etre for the common law's choice to recognize and enforce contracts at all. As I will explain in the following section, this need is perhaps more pressing than it was at the time of the Supreme Court's first decision on good faith duties in 2014 (Bhasin), because the two most recent decisions on point do not appear to agree as to the purpose of good faith. (10) In fact, Wastech and Callow appear to reflect irreconcilable philosophical underpinnings. All in all, it is a situation of surprising disorder for decisions that are said to flow from an "organizing principle". (11) But if the need for clarity is still not apparent, the following discussion of the cases themselves will make it clear.

3. DIFFERENT REASONS WITH DIFFERENT REASONS

   In this section, I will review Callow and Wastech, first providing an overview of their facts and the Court's reasons, followed by an explanation of each decision's review of the underpinnings of good faith and the purpose(s) apparently pursued by the Court (or the law of contract) through the Court's approach to good faith in the particular case. Once I have established the purposes reflected in each set of reasons, I will then proceed to the final stage of my analysis, where I will compare the rationale reflected in each set of reasons and explain how they are irreconcilable.

   1. CALLOW V ZOLLINGER

      Ordinarily, the fact that Callow was decided first would perhaps have some significance for its place in the jurisprudence, given our general assumption that last in time is best in law, as far as the persuasive or jurisprudential value of authority goes. However, in these circumstances--given the combination of the appeals and the identical composition of the Court--it is unlikely that Wastech can be understood to supersede Callow despite having been decided last. As such, even though I am decidedly more sympathetic to the reasons and rationale on display in the second decision, I am compelled to consider both on equal footing, and Callow appears to be as good a place to start as any.

      1. FACTS

         Callow involved two contracts between CM Callow Inc (a landscaping and maintenance company run by a Mr. Callow) and 10 condominium corporations (with shared assets) collectively known as Baycrest. (12) Baycrest is located somewhere in Ontario, and made decisions in relation to the common property of the constituent corporations, including maintenance, through a Joint Use Committee (JUC) representing the 10 corporations. (13) In April 2012, Baycrest entered into two separate two-year maintenance agreements with Callow. (14) One of these was a winter service agreement for the provision of snow removal services that was set to run from 1 November 2012 to 30 April 2014. (15) The other was a summer service agreement for summer landscaping set to run from 1 May 2012 to 31 October 2013. (16) In March or April 2013, Baycrest decided that it would terminate the winter service agreement with Callow but did not do so immediately. (17) Instead, Baycrest delayed until 12 September 2013, when it finally exercised its right under clause 9 of the parties' contract to terminate the agreement on 10 days' notice without cause. (18) Callow was unsurprisingly displeased with this development and expressed shock that the agreement had been terminated unexpectedly given the preceding communications between the parties in the months prior. (19)

         The relevant communications between Callow and Baycrest in the months between Baycrest's decision to terminate and their delivery of notice of the same to Callow were of two kinds. (20) The first related to potential renewal of the winter services agreement beyond its expiry on 30 April 2014. (21) The second related to "freebie" work carried out during the summer that Baycrest accepted while knowing that it was performed by Callow to encourage Baycrest to renew its winter service agreement. (22) It should be noted that nothing appears to have been said explicitly about Baycrest's satisfaction with Callow's services, nor about a planned early termination of the winter services agreement. (23) Nonetheless, the majority led by Justice Kasirer, and the concurring minority led by Justice Brown, accepted Callow's submission that if someone is led to believe that a renewal of their contract is possible or likely, it is reasonable for that person to infer that their opposite is satisfied with their present performance. Both also...