Indo Canada Chamber of Commerce organised a seminar on Good faith in commercial relationships on 11 February 2016 at the ICCC headquarter. Mr. Rahool Agarwal, litigation partner, Norton Rose Fulbright Canada LLP, was the speaker at the event. He discussed the case of Bhasin v Hrynew, the Supreme Court of Canada (SCC) established a general obligation of good faith in the performance of contracts and a duty of “honest performance”, which applies to all contracts and requires parties to act honestly with one another in relation to the performance of their contractual obligations.

The SCC's decision was greatly anticipated and its impact was recognized immediately; however, the decision leaves much to consider in terms of the contexts in which the duty of honesty will apply, its minimum requirements, and what is expected of the parties. The ruling, Bhasin v. Hrynew, involves a dispute between Harish Bhasin, a retailer, and Canadian American Financial Corp., the wholesaler. Larry Hrynew was a competitor of Bhasin’s working with CAF.

ICCC leadership with the speaker

Bhasin and CAF were engaged in a three-year contract that entitled Bhasin and his sales agents to retail CAF products. The contract would be automatically renewed unless one of the parties gave at least six months’ notice prior to the end of the period. The case outlines the rather convoluted tale of how Hrynew attempted to capture Bhasin’s clientele — at first by suggesting a merger, then by working with CAF to mislead Bhasin and pressure him into a merger. In the end, CAF terminated Bhasin’s contract and his sales agents jumped ship to work with Hrynew.

Bhasin sued both parties, claiming a conspiracy and that CAF’s conduct constituted a failure to act in good faith. The trial judge agreed, but CAF and Hrynew won at the Alberta Court of Appeal on the basis the contract renewal terms were unambiguous and no duty of good faith had been provided for in the contract.

The SCC — in a unanimous decision written by Justice Thomas Cromwell — reversed the appeal court and established a new good faith doctrine and a duty of honesty between contracting parties. The decision states: “… there is a common law duty which applies to all contracts to act honestly in the performance of contractual obligations. … The organizing principle of good faith exemplifies the notion that, in carrying out his or her own performance of the contract, a contracting party should have appropriate regard to the legitimate contractual interests of the contracting partner.”

Corporate lawyers agree that the case has “massive implications” for businesses across Canada. The ruling creates new law around an overarching doctrine of good faith from which many specific duties may extend. That overarching principle can give rise to various duties, and the court doesn’t define what the outer limits of those duties are. In this case, one of those duties is a duty of honest performance in contracting, which means basically that parties can’t lie or knowingly mislead each other with respect to the performance of their contractual obligations.

Mr. Sanjay Makkar, ICCC president welcomed the participants. In the photograph above, the ICCC President is presenting a memento to the speaker.