CM Callow Inc. Zollinger 2018 ONCA 896
A maintenance corporation had two contracts with a condominium. The first covered summer maintenance work and the second covered winter maintenance. The winter contract, which ran from November 2012 to April 2014, contained a provision allowing for early termination on 10 days’ notice. In April 2013, the condo decided to terminate the winter contract, but, to avoid jeopardising completion of the corporation’s work under the summer contract, waited until just after that work had been completed in October 2013 to terminate the winter contract. The trial judge concluded that the condo breached its duty of honest performance by acting in bad faith. The court noted that the concept of good faith was not to be applied to undermine long-standing contract law principles and thereby create commercial uncertainty. There is no unilateral duty to disclose information relevant to termination. The corporation bargained for 10 days’ notice and that was all it was entitled to. The duty of honest performance requires a party to be honest concerning matters directly linked to the performance of that contract, not some other contract. The court noted that the condo may have failed to act honourably, but it was not dishonest.
The Supreme Court of Canada reversed. The majority (and the trial judge) said that the condo was dishonest about the winter contract. It pretended as if the contract was to be renewed and represented it was not in danger (when it had already decided to end it) and misled the corporation. The dishonesty was directly linked to the performance of the winter contract because the condo’s exercise of the termination right provided to it under the contract was dishonest. The condo did not have to tell the corporation of its decision, but could not actively mislead the corporation about it.
Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.