Since the Supreme Court of Canada's leading 2014 decision in Bhasin v. Hrynew, 2014 SCC 71, all Canadian contracts are subject to a duty of good faith.
This includes both the duty to perform the contract honestly and a requirement to exercise any contractual discretion under the contract reasonably: C.M. Callow Inc. v. Zollinger, 2020 SCC 45; Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7.
Canadian contract law restricts the application of good faith to binding and enforceable agreements - or so it would seem.
Ostensibly, good faith applies to the performance of agreements, not to the parties' conduct that precedes them.
The negotiation process, which could theoretically be fraught with misrepresentations, lies, or arbitrary and capricious conduct, does not attract contract law scrutiny - at least not until the parties formally enter into a binding agreement.
Two recent decisions of the British Columbia Court of Appeal and the Supreme Court of Canada offer apparently conflicting views on whether contractual negotiations are subject to a duty of good faith.
While adjudicated in very different contexts, it is possible to reconcile their application and discern the scope of good faith applicable to both pre- and post-contractual conduct.
A. No General Duty of Good Faith Applicable to Contract NegotiationsIn Lee v. Ocean Pacific Hotels Ltd., 2025 BCCA 57, the British Columbia Court of Appeal established the general principle that parties to a contract do not have a duty to bargain in good faith.
Lee involved the negotiation of casual employment agreements between the defendant hotel operator and its employees. Following the COVID-19 pandemic, the operator was unable to offer regular shifts to certain of its employees and instead offered them the option to change their employment status from regular to casual.
The former employees commenced a class action against the hotel operator, alleging...
