Since the Supreme Court relied heavily on my arguments, spread over 30 years, I have an “interest” in the decision.  Stephen Smith misunderstands the function of good faith.  At base, it says no more than, “Don’t be a scumbag!”.  Behaving honestly and decently does not entail an obligation to disclose anything, except to the extent that disclosure is necessary to prevent that which has been disclosed from being misleading — a duty familiar to securities lawyers.

 

The case does not make the law uncertain.  My argument for years has been that there are pockets or instances of obligations where good faith standards were imposed; what Cromwell J. has done is to bring these “distributed” instances together in a general organizing principle.  Every solicitor advising a client will tell it to behave decently and, what’s even more important, it’s impossible to conceive of any contractual relation (that is not evanescent) as not being infused with obligations of good faith.  As I said, and as Cromwell J. said, obligations of good faith performance “inhere” in the parties’ relation; they are not externally imposed.  An obligation to behave decently does not make a contract vague, it does not inject some undesirable and foreign obligation; it recognizes what almost all parties accept as the way to behave in a contractual relation.

 

Angela Swan

 

 

The decision has indeed been hailed in the Canadian press as finding a general duty of good faith in contracts, but (and with all respect to my namesake down the hall) it does not exactly say that.

 

As para 33 below indicates, what it says is that good faith is a ‘general organising principle’ of Canadian contract law. So far as general duties  are concerned, the only such duty that the Court finds is a duty of ‘honesty’ (see para 73 below). The court explains this duty as one of various specific duties that are explained by the organising principle of good faith—but it does not say that the principle itself is a general duty. To the contrary, after explaining in detail the various arguments made in favour of a general duty of good faith and describing the various jurisdictions that have adopted such a duty, the Court explicitly limited itself to finding (merely) a general duty of honesty.

 

The duty of honesty, at least as understood by the Supreme Court, is much more limited than a general duty of good faith.  As noted in para 73 below, it only requires that ‘parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract’.  The existence of this duty provides plaintiffs with arguments and remedies not found within the law governing fraud and misrepresentations (primarily because reliance is neither a part of the cause of action nor the measure of the remedy—the latter is contractual), but it does not go much beyond that protection and is of course much more limited in other respects (primarily in that it requires fraud-like intent). The Court explicitly refused to find that the duty of honesty encompassed a duty of disclosure.

 

 

Steve