The Duty to Perform in Good Faith

AuthorJohn D. McCamus
In its ground-breaking deci sion in Bhasin v Hryn ew,1 the Supreme
Court of Canada recogni zed the existence of a general organizing prin-
ciple underlying various existing aspects of contractual doctr ine to
the effect that part ies “generally must perform their contractual dut-
ies honestly and reasonably and not capriciously or arbitrarily.2 The
Supreme Court indicated that thi s underlying principle of good-faith
performance provided the proper foundation for three ex isting lines
of authority requiring f‌ir st, that contractual parties cooperate in order
to achieve the objects of the contract, second, that they exercise con-
tractual discretionary powers for the purpose for which they were con-
ferred, and third, that they not engage in behaviour designed to evade
contractual obligations. Further, the court indicated that although a
party relying on the good-faith principle will normally be required to
rely upon one of the existing lines of authorit y, the general principle
is nonetheless capable of generating additional more precise rules in
the future. By way of illustrat ion of this capacity, the court recognized
a new rule spawned by the organizing principle requiring par ties to
agreements to comply with a “duty of honest performance.” Many will
1 2014 SCC 71 [Bhasin].
2 Ibid at para 63.
The Duty to Perform in Go od Faith 909
consider Bhasin to con stitute an important milestone in the development
of the Canadian l aw of contract.
Before turning to an ex amination of the decision in Bhasin and
its possible implications, it wil l be useful to provide a brief sketch of
the traditional relucta nce of Anglo-Canadian jurisprudence to openly
recognize a comprehensive doctri ne of good faith and of the different
approach taken to this is sue in other systems. It will also be useful to
brief‌ly review the argument s for and against the recognition of the doc-
trine of good-faith contractual performance.
Civilian systems typically recogni ze the existence of a general duty
of this kind. Indeed, t he origins of the concept can be traced to Roman
la w.3 A doctrine of good fait h forms part of t he contract law of Quebec.4
Although one can f‌ind supportive references to concepts of good faith
in eighteent h-century English authorities,5 referred to by Cromwell J
in his opinion for the Court in Bha sin,6 the modern English common
law has been resi stant to the idea. In 1989, Bingham LJ compared the
English and civili an systems in the following term s:
In many civil l aw systems, and perhaps in most leg al systems out-
side the common law world, the law of obligat ions recognises and
enforces an overr iding principle that in mak ing and carry ing out
contracts par ties should act in good faith. . . . Engli sh law has, char-
acteristica lly, committed itself to no such overridi ng principle but
has developed piecemeal s olutions in response to demonstr ated
problems of unf airness.7
3 See R Powell, “Good Faith in C ontracts” (1956) 9 Curr Legal Probs 16.
4 See, for example, Banq ue Canadienne Nationale v Sou cisse, [1981] 2 SCR 339;
Houle v Banque Cana dienne Nationale, [1990] 3 SCR 122; Dunkin’ Brands Canada
Ltd v Bertico Inc, 2015 QCCA 624. And see Civil Code of Quebec, LQ 1991, c
64, arts 6 & 7. See also S Gra mmond, A-F Debruche & Y Campagnolo, Quebec
Contract Law (Montreal: Wilson & L af‌leur, 2011) ch 1.
5 See Aleyn v Belchier (1758), 1 Eden 132, 28 ER 634 at 637 (to the effect that “a
person hav ing a power, must execute it bona f‌ide for the end designed”) [Aleyn];
Carter v Boehm (1766), 3 Burr 1905, 97 ER 1162 at 1164 (“a good faith forbid s
either part y by concealing what he privately k nows”); Millish v Motteux (179 2),
Peake 156, 170 ER 113 (“in contract s of all kinds, it is of the hig hest importance
that court s of law should compel the observa nce of honesty and good faith”). For
a detailed hi storical study of Lord Man sf‌ield’s judgment in Carter, see S Watterson,
Carter v Boehm (1766)” in C Mitchell & P Mitchell, eds, La ndmark Cases in the
Law of Contracts (Oxford: Har t Publishing, 2008) ch 3.
6 Bhasin, above note 1 at para 35.
7 Interfoto Picture Librar y Ltd v Stiletto Visual Programmes Ltd, [1989] QB 433 at
439 (CA).
Although English interest in the civ ilian doctrine of good-faith per-
formance has been sharpened by the increasing inf‌luence of European
law on the English law of contracts,8 a general duty to perform con-
tracts in good faith h as not yet emerged in English law.9
A very different story unfolded in the United States. The recogni-
tion of a general duty of good-faith performance was g iven a substantial
impetus in Americ an law, and indeed, a statutory base, when such a duty
was explicitly provided for in the Uniform C ommercial Code,10 a model
law, in the 1950s. The Code, in turn, was enacted as state law acros s the
country. There are several references to good faith in the Code.11 In due
course, the inf‌luence of the America n Code and the vast body of c aselaw
on good faith that surrounded, and to some extent, preceded it, led to
8 See generally G Teubner, “Legal Irrita nts: Good Faith in British L aw or How
Unifyi ng Law Ends Up in New Divergences” (1998) 61 Mod L Rev 11; R
Brownsword, “‘G ood Faith in Contracts’ Rev isited” (1996) 49 Curr Legal Probs
9 MSC Mediterranean Shipping Co SA v Cottonex Anst alt, [2016] EWCA Civ 789
at para 45. But see, however, Yam Seng Pte Ltd v Inter national Trade Corp Ltd,
[2013] EWHC (QB) [Yam Se ng]. In Bhasin, ab ove note 1 at para 57, Cromwell J
referred to Yam Seng as some evidence of i ncreasing prominence of good fa ith
in English la w notwithstanding it s traditional hosti lity to the concept. He also
referred to sim ilar developments in Austra lia and more particul arly to Renard
Constructio ns (ME) Pty Ltd v Minister for Public Works (1992), 26 NSWLR 234
(CA) and Burger King Corp oration v Hungry Jack’s Pty Ltd, [2001] NSWCA
187, 69 NSWLR 558. And see E Peden, Good Faith in Performa nce of Contracts
(Sydney: Butterworth s, 2001).
10 Articles 1-203 and 2-103 [the Code]. See, generally, RS Summers, “‘ Good
Faith’ in General C ontract Law and in the Sale s Provisions of the Uniform
Commercial Co de” (1968) 54 Va L Rev 195 [Summers]; SJ Burton, “Good Faith
Performance of a Cont ract Within Article 2 of th e Uniform Commercial Code”
(1981) 67 Iowa L Rev 1. Making refer ence to a leading 1933 American deci sion,
Cromwell J noted in Bha sin, above note 1 at para 85, that Amer ican courts had
recognize d a general duty of good faith before the de velopment of the UCC. The
leading ca se referred to is Kirke La Shelle Co v Arm strong Co, 263 NY 79 (1933).
11 Article 1-203, for example, prov ides as follows: “Every contract or duty w ithin
this Act impo ses an obligation of good faith in it s performance or enforcement.”
See EA Farn sworth, “Good Faith in Contract Per formance” in J Beatson &
D Friedman n, eds, Good Faith and Fault in Contract Law (Oxford: Clare ndon
Press, 1995) 153 at 155 [Farnsworth]. See, generall y, SJ Burton & E Andersen ,
Contractual Good Faith: Form ation, Performance, Breach and Enforcem ent (Boston:
Little, Brown a nd Co, 1995) [Burton & Andersen]. For concise account s of
American e xperience, see JT Robert son, “Good Faith as an Organi zing Principle
in Contract La w: Bhasin v. Hryne w Two Steps Forward and One Step B ack”
(2015) 93 Can Bar Rev 811 at 823–29 [Robertson]; S O’Byrne & R Cohen, “The
Principle of Good Fa ith and the Duty of Honesty” (2015) 53 Alta L Rev 1 at
21–33 [O’Byrne & Cohen].

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