In 2014, the supreme court of Canada introduced the ‘duty of honest performance’ in contract. Beyond being a convenient tool of the moment to allow the court to alter Bhasin’s contract so that the court could grant significant damages to the weaker contract party (Bhasin), it remained to be seen how this ‘honest performance’ would actually alter the common law of contract.
It was only a matter of time before another fact situation similar to Bhasin’s came along. In C.M Callow v Zollinger, O’Bonsawin J. applied Bhasin to effectively set aside the 10 day termination clause and grant Callow one year net-revenue for the dominant party’s breach (para 81).
Callow cleared snow for 10 condominium buildings owned by Ottawa condo corporation Baycrest. Zollinger was the property manager. Callow was the little guy.
Callow had a two-year contract (2010-2012) with Zollinger’s predecessor as property manager. That contract was renewed in 2012.
Why is the renewal important?
Because Bhasin was on a three year contract which had been renewed twice. Even though Bhasin had a 60 day termination clause, the supreme court effectively set aside the termination clause, called Bhasin a ‘relational’ contract and granted him damages equal to the value of his business. In effect the dominant party in Bhasin was required to buy Bhasin’s business.
In Callow we have a snow-clearer, whose two-year contract has been renewed once. He was given his ten day notice and termination after the summer of the next contract period.
What does summer have to do with it?
Callow had a separate summer contract in which he did more than was required in order to keep the dominant party interested in renewing his contract. O’Bonsawin J. determined that it was dishonest for Baycrest to let Callow go forward with the summer contract, including the ‘free extras’ when Baycrest knew they were not going to renew.
Callow was in all material aspects equivalent to Bhasin so it is interesting to watch its development.
Even though the supreme court of Canada did not state its position in employment law terms, the essence of the position is this: the little guy, being approximated to a dependent contractor in labour law, his independent status is effectively ignored by the court, as is the contract. He is analogized to an employee and the decision is made implicitly upon employment law dimensions of reasonable notice.
But what about the ten day termination clause: is it irrelevant?
Baycrest argued this this was strictly a case on contract interpretation. There was a ten-day termination clause. End of story.
O’Bonsawin said No!:
58 The problem for CMG is that this is not a simple contract interpretation case. As per Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494, good faith performance is a general organizing principle of common law contract. In addition, parties to a contract have a duty to act honestly in performing their contractual obligations (Bhasin, at paras. 33-34).
What this mean in application was:
65 In Callow’s case, CMG actively deceived Callow from the time the decision was made to terminate the winter maintenance services contract in either March or April to September 12, 2013. More specifically, CMG acted in bad faith by (1) withholding the information to ensure Callow performed the summer maintenance services contract; and (2) continuing to represent that the contract was not in danger despite CMG’s knowledge that Callow was taking on extra tasks to bolster the chances of renewing the winter maintenance services contract.
67 CMG did not perform the contract pursuant to the minimum standard of honesty. CMG’s delay to provide notice to Callow failed to provide a fair opportunity for the latter to protect its interests. The minimum standard of honesty would have been to address the alleged performance issues, to provide prompt notice, or to refrain from any representations in anticipation of the notice period
The interesting thing about this is that the Court of Appeal reversed!
