Source: http://hodderbarristers.com/author/bsterndesigngmail-com/
Timestamp: 2019-04-26 13:35:43+00:00

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The Supreme Court of Canada held that good faith contractual performance is a general organizing principle of the common law of contract and that there is a common law duty of good faith contractual performance. This decision is significant for all parties to commercial contracts in Canada and is the first time the Supreme Court has addressed the duty of good faith in contractual performance between parties.
This case arose as a result of Hyrnew’s attempt to capture the niche market of Bhasin, his competitor. First, Hyrnew suggested a merger, which Bhasin rejected. Hrynew then pressured Can-Am to force a merger with Bhasin, all the while denying to Bhasin that any such plans had been made. In the end, Can-Am did not renew its dealership agreement with Bhasin, Bhasin lost of the value in his business and most of Bhasin’s sales agents were solicited by Hrynew. Bhasin sued both parties claiming conspiracy and a failure to act in good faith.
In a unanimous decision the Supreme Court of Canada established a new good faith doctrine and a duty of honesty between contracting parties.
The Supreme Court held that a basic level of honest conduct between commercial parties is necessary to the proper functioning of commerce. A general duty of honesty in contractual performance means simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. Parties must be able to rely on a minimum standard of honesty from their contracting partner in relation to performing the contract as a reassurance that if the contract does not work out, they will have a fair opportunity to protect their interests.
The Court emphasized that a rule of honest performance would promote certainty in commercial dealings. However, good faith as an organizing principle is a “highly context-specific” standard and will be applied differently to each situation. It is not a free-standing rule wherein a breach would be enforceable in and of itself. As a general doctrine, parties are not able to contract out of honest performance, however the Court recognized that parties should be free to relax the standards by which the performance is measured provided they meet the minimum requirements of the duty of good faith.
The Court of Appeal recently reaffirmed when a court will imply terms into commercial contracts.
Energy Fundamentals Group Inc. (“EFG”) provided investment banking services to Veresen pursuant to a letter agreement. The letter agreement was not comprehensive, but it provided for an option for EFG to acquire up to a 20% interest in a limited partnership, the Jordan Cove energy project.
Veresen appealed from the decision of the application judge who ordered Veresen to disclose information to EGC so that it could determine the price of the option and the value of its 20% stake in the project.
The Court of Appeal upheld the application judge’s decision of the existence of an implied term that EFG would be entitled to certain confidential pricing and dismissed the appeal.
The business efficacy test considers how the law can give effect to a transaction that both parties must have intended at the time the contract was formed. This is to be measured based on the what the reasonable person with knowledge of the relevant background would have viewed the transaction. Courts should consider what circumstances would frustrate the apparent business purpose of the parties.
The officious bystander test is based on the intentions of the actual parties at the time the contract was formed. A term can be implied in circumstances where both parties would have obviously agreed that it be included as part of the agreement.
The Court of Appeal held that with respect to both the business efficacy test and the officious bystander test, it is important to consider the intention of the actual parties, rather than determining the intentions of reasonable parties. However, the court held that reasonableness is an inescapable part of determining whether to imply a contractual term. The Court held that the analysis must be based on the actual relationship between the parties and the specific contractual context, rather than an abstract analysis of what in general, a reasonable person might have agreed. Therefore the reasonableness of an implied term in a specific context should be assessed.
This decision is consistent with the recent trend to afford greater deference to trial judges regarding their interpretation of contracts. The implication of terms is becoming increasingly prevalent in contract law in order to achieve justice between the parties. Notably, the court recognized that the implication of a contractual term does not require a finding that a party actually thought about a term or expressly agreed to it. Often terms are implied to fill gaps to which the parties did not turn their minds. However, terms will not be implied that are unreasonable or contradict the express language of the contract.
Up until this decision, conflicting caselaw existed about when a trier of fact should consider the independence and impartiality of an expert. Some courts ruled that it should be considered at the threshold admissibility stage, while others held that it should only be considered in the weight given to the evidence stage. In April, 2015, the Supreme Court of Canada clarified that when determining the admissibility of expert evidence, the independence and impartiality of an expert witness should be addressed at the threshold admissibility stage, thereby providing guidance to the legal framework for expert opinion evidence established by the Supreme Court in R. v. Mohan  2 S.C.R. 9.
This action was one of professional negligence brought by a group of shareholders against their former auditors. The shareholders had hired a new accounting firm (Grant Thornton) who identified problems with the work of the former auditors. The shareholders retained an expert, who also worked at Grant Thornton, although in a different office. The defendant challenged the independence of the plaintiffs’ expert on the basis that her firm would be vulnerable to litigation if her evidence was not accepted by the court and so she lacked independence.
Concerns about an expert’s independence and impartiality should be addressed at the threshold admissibility stage. This standard is not onerous; is the expert aware of his/her primary duty to the court and able and willing to carry it out? The expert’s testimony or attestation in a report or otherwise will be sufficient to meet this threshold. The onus then shifts to the other party to show there is a realistic concern that the expert is unwilling or unable to comply with his or her duties.
The Supreme Court provided some guidance about what could render evidence inadmissible. For example, more than an appearance of bias or the existence of an employment relationship is necessary for expert evidence to be inadmissible. The Court noted that factors that cause concern to be if the expert has a direct financial interest in the outcome of the litigation or if there is a familial relationship between the expert and a party.
Ultimately, the test is “whether the expert’s opinion would not change regardless of which party retained him or her.” Any peripheral concerns about an expert’s impartiality can be addressed at cost-benefit stage.
In this case, the expert testified that she understood and was able to comply with her duty to the Court, thereby satisfying the threshold qualification. The opposing party was unable to provide a satisfactory basis to exclude her evidence. As such, the Court concluded that the expert’s evidence was admissible.
This decision emphasized the importance of experts knowing their duty to the Court to give fair, objective and non-partisan opinion evidence. If a Court is not satisfied that an expert has discharged this duty, then their evidence becomes inadmissible.
The Court of Appeal’s decision in Royal Bank of Canada v. Trang demonstrates how the Personal Information Protection and Electronic Documents Act (“PIPEDA”) is affecting the enforcement of judgments and has important implications for debtors and creditors. In a 3-2 decision, the Court strengthened debtor’s privacy rights and held that creditors are required to obtain a court order to bypass the consent requirements of PIPEDA.
This case arose as a result of the Royal Bank of Canada’s (“RBC”) attempts to obtain a mortgage discharge statement in order to enforce a judgment it obtained against the Trangs. RBC registered a writ of seizure and sale to enforce the judgment and directed the Sheriff to seize and sell the Trang’s property. The Sheriff refused to sell the property unless the Bank of Nova Scotia (“Scotiabank”), who held a first mortgage on the property, provided a mortgage discharge statement. Scotiabank refused to provide the statement on the basis that PIPEDA restricted it from disclosure as it contained sensitive personal information that required the Trangs’ explicit consent to disclose to a third party. The Court of Appeal agreed that the mortgage discharge statement was protected by PIPEDA.
2. A creditor can seek production through a motion under Rule 60.18(6)(a) of the Rules of Civil Procedure. This Rule is the judgment debtor exam rule which requires a third party to attend an examination and bring the discharge statement examination.
Justice Hoy, writing for the dissent, expressed concern that not all creditors have the same resources as RBC to protect their interests through court proceedings, and this may create access to justice issues. They were of the view that strict compliance with rule 60.18(6)(a) was unnecessary since RBC had already brought two motions to obtain the discharge statement from Scotiabank. The dissent further stated that a rule 60.18(6)(a) motion was unnecessary in the circumstances because the mortgage discharge statement contained “less sensitive” information for the purposes of s. 4.3.6 of Schedule 1 to PIPEDA, and that the Trangs had implicitly consented to disclose this information.
The law, however, is that a mortgage statement is protected under PIPEDA unless a court order or the debtor’s express consent in obtained. The Court of Appeal effectively upheld its previous decision in Citi Cards Canada Inc. v. Plaisance, wherein it refused to order production of a bank customer’s mortgage statement to Citi Cards Canada Inc. so that it could enforce its judgment on a credit card debt.
Creditors may wish to consider the inclusion of an express term in its loan agreements so as to avoid the time and expense of a motion under Rule 60.18(6)(a) for production a mortgage discharge statement, or other relevant document.
In Arseneault (Succession de) c. École Sacré-Coeur de Montréal, the Quebec Court of Appeal awarded a dismissed employee $5,000 in damages on account of the defendant employer’s refusal to give her a letter of reference, following dismissal. The court seems to have implied a term in the contract of employment by way of a double negative: that is, that a refusal to provide a letter of reference must not be contrary to good faith requirements, particularly because a curriculum vitae is an integral component of a person’s reputation. Query: whether this principle will be picked up in Ontario courts.
Some six years ago, I expressed relief that Pearson v. Inco had been finally certified as a class proceeding (see below).
I recorded my thoughts that environmental class actions were the subject of judicial flinching because of general reluctance to let plaintiffs threaten the existence of an entire industry, no matter what the merits of their claim. Pearson v. Inco (now renamed Smith v. Inco) has now crashed and burned as our court of appeal has overturned a $36 million trial judgment. See the court’s reasons. I have to imagine that our courts keep a close eye not only on the case in front of them but all other cases that might be inspired by substantial damage awards.
I have long advised clients that contracts of employment have essentially two speeds: on and off.
Our courts do not want to judicialize the workplace, and they are determined not to have their attention shifted away from circumstances of dismissal.
This is most apparent in Piresferreira v. Ayotte. There, the Ontario Court of Appeal overturned a half million dollar damage award granted by a highly respected trial judge, Justice Catherine Aitken, for an employer’s alleged negligent infliction of mental suffering during the course of employment. The court held that the parties had a relationship of proximity and that the damages suffered were reasonably foreseeable. However, for policy reasons, the court would not impose a general duty on employers to “shield an employee during the entire course of his or her employment from acts in the workplace that might cause mental suffering.” The court held therefore that the tort of negligent infliction of mental suffering is not available in the employment context.
This leaves the possibility of intentional infliction of mental suffering, but the court narrowed the applicability of this intentional tort to the “sort of glaring and notorious false communication that has been the basis of the classic application of the tort,” referring to century-old cases where defendants falsely communicated to plaintiffs deliberate lies calculated specifically to cause distress.
Implicit in the court’s decision is that if your boss is making you crazy, you should talk to your lawyer about suing for constructive dismissal, as that is likely your only reasonable remedy.
Olivieri v. Sherman, released July 3, 2007 by the Ontario Court of Appeal, gives a succinct answer to a dispute that comes up far more often than it should. Contractual intention must be decided solely on the basis of what a party says and does. Actual intention is irrelevant. The point is made clear in this case, on simple facts.

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