A. Introduction

• Author: John D. McCamus
• Profession: Professor of Law. Osgoode Hall Law School, York University
• Pages: 137-140

Page 137

In a leading Canadian decision¹on the subject of fiduciary obligation, La Forest J. observed: "The institution of bargaining in good faith is one that is worthy of legal protection in those circumstances where that protection accords with the expectations of the parties."²This chapter examines the extent to which the common law of contract provides legal protection to the institution of bargaining in good faith. One possible 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 common 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

Page 138

One possible candidate might be the withholding of information that 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,⁴it might be argued that a duty to bargain in good faith 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. Whether any of these or other tactics might be considered to constitute bad faith might well depend, in the particular circumstances, 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 negotiating 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,⁵a case of reneging on a promise. The parties were negotiating a supermarket franchise. The prospective franchisor told the prospective franchisee that an eighteen-thousand-dollar cash contribution would be...