In late 2014, the Supreme Court of Canada recognized a new duty to honestly perform contractual obligations in Bhasin v. Hrynew, 2014 SCC 71. In this case, Canadian American Financial Corp. (“CanAm”) marketed education savings plans to investors through retail dealers, known as enrollment directors, such as the Appellant, Harish Bhasin (“Bhasin”). A 1998 enrollment director’s agreement governed the relationship between CanAm and Bhasin. The term of the contract was three years and the applicable provision provided that the contract would automatically renew at the end of the three year term unless one of the parties gave six months written notice to the contrary. Hrynew was another enrollment director and a competitor of Bhasin. Hrynew wanted to capture Bhasin’s niche market and previously approached Bhasin to propose a merger of their agencies on numerous occasions. He also actively encouraged CanAm to force the merger. Bhasin had refused to participate in such a merger. CanAm appointed Hrynew as the provincial trading officer (“PTO”) to review its enrollment directors for compliance with securities laws after the Alberta Securities Commission (“Commission”) raised concerns about compliance issues among CanAm’s directors. The role required Hrynew to conduct audits of CanAm’s enrollment directors. Bhasin objected to having Hrynew, a competitor, review his confidential business records. CanAm was considering a restructuring of its agencies in Alberta that involved Bhasin. In June 2000, CanAm outlined its plans to the Commission, which included Bhasin working for Hrynew’s agency. None of this information was known or provided to Bhasin. CanAm repeatedly misled Bhasin by telling him that Hrynew, as PTO, was under an obligation to treat the information confidentially. It also responded equivocally when Bhasin asked in August 2000 whether the merger was a “done deal”. When Bhasin continued to refuse to allow Hrynew to audit his records, CanAm threatened to terminate the 1998 Agreement and in May 2001 gave notice of non-renewal under the Agreement. At the expiry of the contract term, Bhasin lost the value in his business in his assembled workforce. The majority of his sales agents were successfully solicited by Hrynew’s agency. The Supreme Court allowed Bhasin’s appeal with respect to CanAm and dismissed it against Hrynew as the Court held that there was no liability for inducing breach of contract or unlawful means conspiracy.  The Supreme Court found that the trial judge did not make a reversible error by adjudicating the issue of good faith nor the conclusion that CanAm acted dishonestly with Bhasin throughout the period leading up to its exercise of the non‑renewal clause, both with respect to its own intentions and with respect to Hrynew’s role as PTO.  The Supreme Court assessed damages on the basis that, if CanAm had performed the contract honestly, Bhasin would have been able to retain the value of his business rather than see it, in effect, expropriated and turned over to Hrynew. The Supreme Court noted that the Canadian common law in relation to good faith performance of contracts is piecemeal, unsettled and unclear.  Two incremental steps are necessary to make the common law more coherent and more just. The first step is to acknowledge that good faith contractual performance is a general organizing principle of the common law of contract which underpins and informs the various rules in which the common law, in various situations and types of relationships (including the manner of employment dismissal or insurance/discretionary power contracts) recognizes obligations of good faith contractual performance.  The second step is to recognize, as a further manifestation of this organizing principle of good faith, that there is a common law duty which applies to all contracts to act honestly in the performance of contractual obligations.  Recognizing a duty of honest performance flowing directly from the common law organizing principle of good faith is in the view of the Supreme Court, a modest, incremental step. 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.  While “appropriate regard” for the other party’s interests will vary depending on the context of the contractual relationship, it does not require acting to serve those interests in all cases.  It merely requires that a party not seek to undermine those interests in bad faith. Under this new general duty of honesty in contractual performance, parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract.  This does not impose a duty of loyalty, fiduciary duty, disclosure, or require a party to forego advantages flowing from the contract; it is a requirement not to lie or mislead the other party about one’s contractual performance.  Contracting parties must be able to rely on a minimum standard of honesty from their contracting partner in relation to performing the contract as a reassurance that if the contract does not work out, they will have a fair opportunity to protect their interests. The Supreme Court noted that this duty operates irrespective of the intentions of the parties, and is to this extent analogous to equitable doctrines which impose limits on the freedom of contract, such as the doctrine of unconscionability. In analyzing the fundamental nature of freedom of contract, the Supreme Court noted that the principle of good faith must be applied in a manner that is consistent with the commitments of the common law of contract which generally places great weight on the contracting parties to pursue their individual self‑interest.  A party may sometimes cause loss to another, even intentionally, in the legitimate pursuit of economic self‑interest. Doing so is not necessarily contrary to good faith and in some cases has actually been encouraged by the courts on the basis of economic efficiency.  The development of the principle of good faith must be clear not to develop into a form of ad hoc judicial moralism.  In particular, the organizing principle of good faith should not be used as a pretext for scrutinizing the motives of contracting parties. Further, the Supreme Court noted that the precise content of honest performance will vary with context and the parties should be free in some contexts to relax the requirements of the doctrine so long as they respect its minimum core requirements. The extent and efficacy of the parties ability to relax the honest performance duty in their contract, when and how the motives of a party not renewing an agreement will be considered in deciding a case, and, what limits will be placed on the freedom of contract, will certainly give rise to a host of litigation, controversy and perhaps irreconcilable decisions.  The Supreme Court notes that the creation of this new duty is a needed directive to address factual circumstances to those at hand, and analogously, where no legal doctrine squarely fits; however, one queries the new issues that this may potentially create and contrasts it with the tenet that, in fact, there may be a workable piecemeal, one-off, equitable doctrine approach that could be used to provide an innocent party with a remedy where a contracting party acts in bad faith, rather than fundamentally altering freedom of contract. One can envision a legal test for this new duty and court decisions that, at least initially, delve into the equitable considerations contained in other good faith analyses, the doctrine of unconscionability (most notably the bargaining position of the parties) and what fairness would dictate in the circumstances. It would be beneficial for all drafters of contracts to review this case in detail. About McKercher LLP: One of Saskatchewan’s oldest, largest law firms with offices in Saskatoon and Regina. Our deep roots and client-first philosophy have made us a top ranked firm by Canadian Lawyer magazine (2011, 2013). Expertise, experience and capacity provide innovative solutions for our clients’ diverse legal issues and complex business transactions