CM Callow Inc. v Zollinger: The Relevance of Good Faith in Terminating Construction Contracts

  • 27 novembre 2019
  • Bruce Reynolds and Nicholas Reynolds, Singleton Urquhart Reynolds Vogel LLP

The Ontario Court of Appeal in CM Callow Inc. v Zollinger, 2018 ONCA 896 (“Callow”) recently rendered a decision that could have important consequences for parties seeking to terminate commercial agreements. Specifically, Callow may have significant ramifications for the law of good faith in Ontario, and in particular with respect to the duty of honest performance first recognized in Bhasin v Hrynew, 2014 SCC 71.

The Facts

In Callow, the defendant condominium corporations entered into two separate two-year maintenance contracts with the plaintiff Callow (a landscaping and property maintenance contractor). One contract covered summer maintenance, while the other covered winter maintenance. The winter contract contained a provision allowing for early termination by the defendants on 10 days’ notice. In early 2013, the defendants ultimately decided to terminate the winter contract, but did not provide Callow with notice of termination until September of that year.

During the summer of 2013, Callow – unaware of the defendants’ intention to terminate the contract – performed additional “freebie” landscaping work in the hope of incentivizing the defendants to enter into additional maintenance contracts. The defendants were aware of the “freebie” services, and knew Callow was under the mistaken impression that additional contracts were forthcoming, but did not disclose their intention to terminate. After the defendants ultimately gave notice of termination, Callow sued for breach of contract. The dispute centred on the defendants’ delay in informing Callow of the decision to terminate.

At trial, the court found that the defendants had breached the contractual duty of honest performance by withholding their intention to terminate the winter contract and in continuing to represent that the parties' contractual relationship was not in danger of coming to an end. The trial judge held that the standard of honesty required the defendants to address alleged performance issues with Callow, provide prompt notice, or refrain from any representations in anticipation of the notice period.