One of the most persistent sources of confusion about the duty of honest performance concerns its temporal scope. Must the dishonesty occur while the contract is in existence in order for the duty to be violated? What of dishonesty that precedes the contract, but takes place during the formation of it? How about dishonesty that occurs after the contract is terminated?
Two recent appellate decisions address this issue at different contractual points. The first, Ocean Pacific Hotels Ltd. v. Lee, 2025 BCCA 57, considers if the duty can apply prior to the existence of a contract, while the negotiations for it take place. The second, Heritage Property Corporation v. Triovest Inc., 2025 ABCA 64, examines whether the duty may operate after the contract has ceased to exist. Taken together, the two decisions serve as important bookends for the duty of honest performance, and help to clarify its temporal boundaries.
Background
In Bhasin v. Hrynew, 2014 SCC 71, the Supreme Court of Canada recognized "a general duty of honesty in contractual performance". It held this duty "means simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract". Subsequently, in C.M. Callow Inc. v. Zollinger, 2020 SCC 45, the Court clarified that "[d]ishonesty is directly linked to the performance of a given contract where it can be said that the exercise of a right or the performance of an obligation under that contract has been dishonest".
The strong implication from this is that the duty can only be engaged by dishonesty that takes place during the life of the contract, at least absent contractual rights or obligations that continue after its termination. Otherwise, no contractual right or obligation will exist to be exercised or performed. While, as Callow holds, "[i]t is not enough to say that, temporally speaking, dishonesty occurred while both parties were performing their obligations under the contract" - since "the dishonest or misleading conduct must be directly linked to performance", rather than "take place in the abstract" - dishonesty that occurs prior to or after the time when the contract exists should generally not attract the duty. Nevertheless, the issue continues to be litigated before the courts.
Ocean Pacific: No Duty During Pre-Contractual Negotiations
The Ocean Pacific case provided the British Columbia Court of Appeal with the opportunity to consider whether the duty of honest performance applies at the stage of pre-contractual negotiations. The dispute arose when the plaintiffs, while employees of the defendant, signed casual agreements of employment during the...
