Good Faith in Contractual Performance - The Implications of Recent SCC Decisions for the Franchise Relationship

  • March 23, 2021
  • Andrew MacIver, Siskinds

The Supreme Court of Canada recently released two decisions that revisit and clarify the principle of good faith contractual performance previously formulated in Bhasin v. Hrynew.[1] The first decision, C.M. Callow Inc. v. Zollinger,[2] involved a dispute between a property maintenance company (“Callow”), and a group of condominium corporations and their representatives (collectively, “Baycrest”) over the early termination of a winter maintenance contract with a two-year term. The second decision, Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District,[3] involved a dispute between a waste transportation and disposal company (“Wastech”) and a statutory company responsible for the administration of waste removal (“Metro”) over the exercise of contractual discretion by Metro resulting in Wastech achieving lower than expected operating revenue. These two cases were heard alongside one another in December 2019, with the decisions being released in December 2020 and February 2021, respectively.

Although neither case involves a franchise relationship, good faith contractual performance, as recognized by the SCC in Bhasin, is a general organizing principal of the common law of contract. Both the duty of honest performance and the duty to exercise discretionary power in good faith encompassed therein are general doctrines of contract law. Accordingly, the law developed by the SCC in this line of cases applies to the contractual relationship between the parties to a franchise agreement. Whether these developments in the common law of contracts render irrelevant the statutory duty of good faith and fair dealing found in the franchise legislation of certain Canadian provinces remains to be seen. For now, the parties to a franchise relationship must be cognizant of these developing common law principles and doctrines in addition to the specific content of the duty of good faith and fair dealing which has developed under franchise statutes.