Can Honest and Reasonable Contractual Performance Still Breach A Duty of Good Faith?  – Bhasin Revisited

The Supreme Court of Canada (SCC) recently granted leave to appeal a decision from the BC Court of Appeal: Greater Vancouver Sewerage and Drainage District v Wastech Services Ltd., 2019 BCCA 66 (Greater Vancouver). In deciding Greater Vancouver, the SCC will attempt to settle the ambiguities surrounding the exercise and application of the duty of good faith in contractual obligations, as established in Bhasin v Hyrnew, 2014 SCC 71.

In Greater Vancouver, Wastech Services Ltd. (Wastech), had a long-standing arrangement to dispose of waste on behalf of Greater Vancouver Sewerage and Drainage District (Metro). Metro relocated waste disposal locations, which was in accordance with the agreement. Wastech’s operating costs greatly increased as a result. Did Metro breach its duty of good faith in carrying out the terms of the agreement? The BCCA held that no such duty was breached by Metro. The BCCA supported the reasoning of the lower court, that the decision in Bhasin did not create a freestanding obligation on one party to consider the interests of their counterparty. What will the SCC say?

We can expect the SCC to address the following questions:

  • If a party executes their contractual obligations in an honest and reasonable manner, but their conduct undermines the interests of their counterparty, did they nonetheless breach their duty of good faith?
  • Must a contravention to the duty of good faith have at least a subjective element of improper motive or dishonesty, or is merely a negative impact on the counterparty sufficient?
  • Are implied terms in a contract, also subject to the duty of good faith?
  • Does the duty of good faith encompass conduct that must show appropriate regard for legitimate expectations of the contracting parties?
  • Must parties’ legitimate expectation arise out of express terms in the contract?
  • Does Bhasin stand as authority for the premise that contracts should be adjusted to accommodate situations where parties regret the contract in hindsight?

The highly anticipated decision in this case will be instructive of the scope of the duty of good faith.