Update on the Duty to Perform Contracts Honestly

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is a litigation lawyer practicing at Perley-Robertson, Hill & McDougall LLP in Ottawa, Ontario. He may be reached at 613.566.2823 or obourns@perlaw.ca.

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Just over a year ago the Supreme Court arrived at its decision in Bhasin v. Hrynew where the Court established that there is a free standing duty of honesty in contractual performance, which essentially means that “parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract”.  I previously wrote about that decision here.

The Bhasin decision has since been considered in over 95 decisions across Canada, over 40 of which are from Ontario.   Below is a brief summary of several recent Ontario decisions where a breach of the duty to perform honestly has been found to have occurred.

In Antunes v Limen Structures Ltd. 1 a breach of the duty of honest performance was found to have occurred where an an individual was induced to to join a company by way of several promises, including that there would be a potential option for the plaintiff to an additional 5% of the company’s shares in addition to the 5% he received when he joined the company.  Justice Browne found that subsequent to the plaintiff’s hiring it was never actually contemplated that he would be provided with the opportunity to acquire the additional 5%.

In Bray v Canadian College of Massage and Hydrotherapy,2 a Small Claims Court decision, a massage therapy clinic was found to have breached the duty of honest performance when it removed one of its massage therapists from the schedule without informing her that the removal was essentially a reprisal for her having complained to the Ministry of Labour.  This lack of disclosure denied the plaintiff the opportunity to respond and take action.  Interestingly, in this decision, the duty of honest performance was considered in the context of a successful breach of punitive damages  (see paras 75-76).

The Lavrijsen Campgrounds Ltd.v. Eileen Reville et al. 3 decision concerned the sale of campground property and operation.  In accordance with the agreement of purchase and sale, the vendor was to provide the purchaser a credit relating to prepaid rents on the campground.  Kent, J. determined that the defendant vendor “selectively disclosed partial information and actively withheld important information concerning prepaid rents” (see para 13).  In finding that a breach of the duty of honest performance had occurred, Kent J. made the following instructive observation at paragraph 16:

Any hesitation this court may have had concerning a distinction to be drawn between active non-disclosure and intentional misrepresentation is eliminated by the decision of the Supreme Court of Canada released recently, Bhasin v. Hrynew, 20014 SCC 71.

In Bank of Montreal v Gobran 4 the plaintiff BMO was seeking to collect $16,623.34 owing on the defendant’s credit card.  The defendant admitted that $5,000 was owing but denied the balance stating that the plaintiff implemented credit limit increases without his knowledge or consent.  Deputy Judge Winny held that the contract agreed to between the plaintiff and the defendant was based on a credit limit of $5,000 and, therefore, the credit limit increases were not legally binding o the defendant.  Specifically the plaintiff’s position and actions were found to be inconsistent with the duty of honest performance in that it made no attempt to obtain the defendant’s consent to these unsolicited credit limit increases, and no attempt to give notice of those increases to him specifically (see para 24).  What’s interesting about this decision is that the duty of honest performance is used successfully as a shield by a defendant rather than a sword as in most cases.

  1. Antunes v Limen Structures Ltd., (2015) ONSC 2163 (Ont. S.C.J.), <http://canlii.ca/t/gjbpt>
  2. Bray v Canadian College of Massage and Hydrotherapy, 2015 CanLII 3452 (ON SCSM), <http://canlii.ca/t/gg4s5>
  3. Lavrijsen Campgrounds Ltd.v. Eileen Reville, Steven Reville and Douglas Reville, 2015 ONSC 103 (Ont. S.C.J.) , <http://canlii.ca/t/gfxvl>
  4. Bank of Montreal v Gobran, 2015 CanLII 71782 (ON SCSM), <http://canlii.ca/t/glzsg>