Obligation of Good Faith in Contracting
By Kent Burnham
The Supreme Court of Canada changed the legal landscape for contracts in the decision of Bhasin v. Hrynew, [2014] SCC 71. This decision created a new common law obligation of good faith that applies to all commercial contracts.
It imposes an obligation on parties to a contract to perform their contractual duties honestly and reasonably, and it further imposes a requirement not to lie or otherwise mislead the other party about matters directly linked to the performance of the contract. It is important to note that the duty of good faith does not require a person to put the interests of other parties before their own, nor does it require a duty of loyalty, but it cannot be contracted out. In other words, you cannot make a term in your construction contract where there is no duty of good faith.
This will have implications on contractual interpretation when disputes arise.
Special attention should be paid to contracts that do not define the scope of work to be done. Issues of undefined scope where the owner may be considered less sophisticated will be analyzed in the rubric of good faith rather than a strict contractual analysis. Previously, if it wasn’t provided for in the contract, it was not included. Now, however, if the contract would otherwise indicate to an unsophisticated party that the project would be built for a certain price, it may well impose an obligation to do all the work that was implied on the face of the contract and not just what was specifically named.
In this regard, we are seeing more contracts that spell out specifically what is not included. Similarly, hiding the use of materials that are less expensive than specified — while still considered structurally adequate — is a breach of the duty of good faith and would result in damages.
Homeowners who enter into build contracts will likewise be impressed with the duties of good faith and may be liable for making insufficient arrangements for things such as financing arrangements, refusing to sign change orders, or paying for extras.
The duty of good faith goes both ways. It will require carefully prepared contracts and attention to detail. Further, it will require that details given about the building contract in order to get the job, or about the scope of the project in order to attract bidders be reasonable and accurate and that exceptions or omissions from the project being contracted for be spelled out clearly.
On the other hand, it may also give teeth to collection efforts against defaulting owners. A breach of a duty of good faith may well be sufficient to pierce the corporate veil to get at an individual where the company is contracting for the build.
Careful contractors will review and follow the terms of their contracts and be careful not to engage in conduct or representations that may be misleading. Failure to do so could result in significant liability.
Kent Burnham is a partner at Nixon Wenger LLP in Vernon, B.C and is the head of the Civil Litigation practice group. Kent practises a wide range of civil litigation with an emphasis on construction, contract, employment, and land disputes.
This article first appeared in the Fall 2016 issue of SICA's Construction Review Magazine. To read the entire magazine click here.
BC Budget 2024
Revolutionizing Canada's Construction Industry: The Federal Prompt Payment Legislation
Young Builders Launch Party Wrap Up
CCO Workshop 2024
Membership Appreciation Evening Wrap Up 2023
CCA Hill Day 2023
EBT Flu Clinic Dates
SICA Golf Tournament September 2023
Long Term Members 2022/2023
Trap & Skeet 2023 Wrap-up
SICA Golf Tournament June 23rd 2023
Industry Awards of Excellence
BC Land Title & Survey Online Filing Process
Join the Virtual Webinar
The SICA September Golf Tournament was a hit!
Farewell to our Education Admin and Hello to our new SICA staff 2022
CCO Workshop 2022
MOTI and Infrastructure BC Seeking Interest From Qualified Firms For BC Highway Reinstatement Program RFQ
Prompt Payment Included in ‘Report on the Budget 2022 Consultation’
Regional Construction Associations Partner with BCCA Employee Benefit Trust to Provide Flu Shots for Industry
B.C. associations call on province to practice fair, transparent procurement
SICA announces 2020/2021 Industry Awards of Excellence Finalists
2021 Annual Report
Kelowna Crane Incident Legacy Education Fund
#Hangahighvisoutside
Brooklyn Site Crane Accident Statement
Construction Fast Lanes for COVID-19 Vaccine
Every Child Matters - Indigenous History Month
Latest Construction Industry Statistics Reveal Strength Despite Pandemic Challenges
BCCA Response to BC Budget 2021
CCA Responds to 2021 Federal Budget
Construction Month 2021
BuildForce Canada releases annual 10-year forecast
SICA training courses prove practical and meaningful to students
2021 Gold Seal Program Changes
Building Forward: Virtual Conference 2021
Nomination Period Opens for SICA’s Industry Awards of Excellence
Meet SICA's 2020 New Board Members
SICA's 2020 Annual Report
COVID-19 Update
2019 Industry Awards of Excellence Winners
SICA announces 2019 Industry Awards of Excellence Finalists
Nominations sought for SICA’s Industry Awards of Excellence
The 19th Annual CCO Workshop
2018: Year in Review
The SICA Fund in Action at Peter Greer Elementary
Membership Benefits
As a Member you are a part of a collective voice, the SICA voice. Together, our voice is changing the construction community and helping your business grow through advocacy, networking events, affinity programs, direct business leads and more. Our voices promotes fairness, transparency and open communication in the construction industry. Join SICA to grow your business today and be a voice for our industry tomorrow.
JOIN NOW