The Legal Duty to Speak Up

The Supreme Court of Canada updated the law on honesty and good faith in contracts in Callow v. Zollinger released on 18 December 2020.

This case is an expansion of the rule in Bhasin v. Hrynew. No longer is “silence golden”. There is a positive duty to speak up and correct any possible misapprehension by the other party to a contract about your words and deeds, actions and inactions.

This does force you to become somewhat of a “mind reader”, but, that’s precisely what the Supreme Court of Canada wants you to do, from now on.

Going forward, we can discuss the implications of this case in different scenarios.

A property maintenance company claimed that a condominium group had acted in bad faith when it terminated an agreement for work during the winter.

Ten condominium corporations, signed a two‑year winter maintenance contract, and a separate summer maintenance contract, with C.M. Callow Inc.

The winter agreement had a clause which said the group of Condominiums known collectively as “Baycrest” was entitled to terminate the agreement by giving 10 days’ written notice.

Baycrest decided to end the agreement due to complaints about the contractor’s performance but chose not to inform Callow. In the summer, Callow spoke with Baycrest and thought that it was going to get a two-year renewal of the winter contract, That being the case they did extra maintenance work in the summer without charge.

But, Baycrest informed Callow of its decision to terminate the winter maintenance agreement in September 2013, leading Callow to take it to court by claiming breach of contract. The Ontario Superior Court of Justice sided with Callow and ruled Baycrest had acted in bad faith, but the Ontario Court of Appeal overturned that decision by saying the trial judge improperly expanded the duty of honest performance .

The Supreme Court of Canada released its decision in Callow v. Zollinger on 18 December 2020: Justice Nicholas Kasirer stated:

That duty, as outlined in Bhasin v. Hrynew 2014 SCC 71, requires that parties to a contract must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract.

Justice Kasirer stated:

“the requirements of honesty in performance can, and often do, go further than prohibiting outright lies. Indeed, the concept of ‘misleading’ one’s counterparty… will in some circumstances capture forms of silence or omissions.”

And further, he stated:

“One can mislead through action, for example, by saying something directly to its counterparty, or through inaction, by failing to correct a misapprehension caused by one’s own misleading conduct,”

Justice Kasirer said:

“Even though Baycrest had what was, on its face, an unfettered right to terminate the winter maintenance agreement on 10 days’ notice, the right had to be exercised in keeping with the duty to act honestly — i.e., Baycrest could not lie or otherwise knowingly mislead Callow about matters directly linked to the performance of the contract,” he wrote. “Having failed to correct Callow’s misapprehension that arose due to these false representations, Baycrest breached its duty of good faith in the exercise of its right of termination.”

Justice  Kairer also made reference to the Quebec Civil Code:


“Authorities from Quebec serve as persuasive authority and comparison between the common law and civil law as they evolve in Canada is a particularly useful and familiar exercise for the court,” he wrote. “Like in the Quebec civil law, no contractual right may be exercised dishonestly and therefore contrary to the requirements of good faith. The direct link exists when the party performs their obligation or exercises their right under the contract dishonestly.”

COMMENT

This case is an expansion of the rule in Bhasin v. Hrynew. No longer is “silence golden”. There is a positive duty to speak up and correct any possible misapprehension by the other party to a contract about your words and deeds, actions and inactions.

Yes, this does force you to become somewhat of a “mind reader”, but, that’s precisely what the Supreme Court of Canada wants you to do, from now on.

How will this affect real estate? We will just have to wait and see! However, we must remember that the Supreme Court of Canada changed the rules on 18 December 2020 in C.M. Callow Inc. v. Zollinger.

Brian Madigan LL.B., Broker

www.OntarioRealEstateSource.com

Comments 2

  1. That is good to know, I am trying to apply this in day to day real estate relationships. ie mls listings, buyer agreements (without contracts etc.
    Best regards Brian, Joe

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