It’s now been over seven and a half years since the Supreme Court of Canada released its decision in Bhasin v. Hrynew (13 November 2014). Basically, it’s been cited in well over 1,200 reported cases and literally thousands of unreported cases. In addition, two more cases right on point reached the Supreme Court namely, Callow, and Wastech
The Decision
The case stands for the following proposition:
All contracts include:
- an obligation of good faith contractual performance, and
- a duty to act honestly in the performance of contractual obligations.
Here is a summary of the principles:
- There is a general organizing principle of good faith that underlies many facets of contract law.
- In general, the particular implications of the broad principle for particular cases are determined by resorting to the body of doctrine that has developed which gives effect to aspects of that principle in particular types of situations and relationships.
- It is appropriate to recognize a new common law duty that applies to all contracts as a manifestation of the general organizing principle of good faith: a duty of honest performance, which requires the parties to be honest with each other in relation to the performance of their contractual obligations.
Absolute Discretion
Many contracts will include references to “sole and absolute discretion”, or “sole, absolute and unfettered discretion”.
It used to be that that type of clause or condition provided a “free look” or a “complete walk away”. That was before Bhasin v. Hrynew, but not now!
Buyers would interpret the clause “literally” and say that this absolute discretion clause gave them an out, whether it came to mortgage financing or inspection.
Since, the Bhasin case, Courts will evaluate and consider whether the Buyer exercised their rights honestly and in good faith with a view to contractual performance. The evaluation, once undertaken on a “subjective” basis, is now considered on an “objective” basis. The test question is:
What would a reasonable person in the Buyer’s position do in all of the circumstances?
If the Court concludes “firm up and proceed with the deal”, then the Buyer loses his deposit and may be responsible for losses sustained by the Seller.
Good Faith Negotiating
Some now say that this case stands for the proposition that one must negotiate in good faith. No, that’s not what the case says. You have to have a contract first, that’s the trigger for “good faith”.
Application of the Decision
So, how long has this been the case? Fairness and honesty have been around for quite a while. It just never reached the Supreme Court of Canada. The actual breach in the Bhasin case took place in June 2000. That means that the Court, roughly, 14 and one half years later, made a decision to the effect that it was the “law” in June 2000. The only problem was that no one knew about it, until the matter went entirely through the judicial system and the Court released its decision on 13 November 2014.
The only real problem is that more people need to know about this case, from lawyers to real estate agents, everyone should be made aware that the Supreme Court of Canada changed the common law, after hundreds of years.
Brian Madigan LL.B., Broker