On Friday, the Supreme Court of Canada released its long-awaited
decision in
C.M. Callow Inc. v.
Zollinger.
1 The decision provides a
significant elaboration of the scope and implications of the
doctrine of good faith in Canadian contract law from the
Court s landmark 2014 decision in
Bhasin v.
Hyrnew.
In 2014, the Supreme Court of Canada in
Bhasin v,
Hrynew recognized a general organizing principle
of good faith to address the types of situations and relationships
where the law requires honest, candid, forthright or reasonable
contractual performance.
3 The Court s decision,
however, left important questions about the scope of this
organizing principle and the particular duty of honest contractual
The Supreme Court of Canada released its decision in
C.M.
Callow Inc. v. Zollinger
1 on December 18, 2020.
This decision is ground-breaking in the world of contracts, and can
have far-reaching repercussions to contracting parties that could
easily fall into the trap of acting outside of their duty of honest
performance as formulated in
Bhasin v Hrynew.
2 Generally, corporate compliance programs
focus on government regulation. After the decision in
Callow, compliance programs would be wise to focus on the
distinction between actively misleading conduct and innocent
non-disclosure in contractual performance as well.
Factual Background
The Appellant, C.M. Callow Inc. (“Callow”) signed a
The Supreme Court of Canada (
SCC )
recently released its much-anticipated decision in
C.M. Callow
Inc. v. Tammy Zollinger et. al ( C.M.
Callow ).
1 The decision
revisits the common law duty of honest contractual performance six
years after the SCC s seminal decision in
Bhasin v. Hrynew
(
Bhasin ).
2 The
C.M. Callow decision clarifies what constitutes a breach of the
duty of honesty in circumstances where one party does not correct
the other s mistaken belief pertaining to the agreement.
Background: Unanswered Questions following
The SCC s unanimous decision in
Bhasin described
good faith as a general organizing principle in the
Canadian common law of contracts that requires parties to perform
In
C.M. Callow Inc. v. Zollinger, 2020 SCC
45, the Supreme Court of Canada continued to gradually expand
the duty of honesty by outlining those actions that may give rise
to a breach. This decision provides important guidance on how
parties to a contract must conduct themselves when carrying out or
terminating a contract.
Background:
In 2012, a group of condominium corporations
(
Baycrest ) entered into a two year
winter maintenance contract and into a separate summer maintenance
contract with C.M. Callow Inc.
(
Callow ). The winter contract
contained a termination clause providing that if Callow s
services were no longer required, Baycrest could terminate the
In
C.M. Callow Inc. v. Zollinger, 2020 SCC 45,
the Supreme Court of Canada clarified the scope of the duty of good
faith in the performance of contracts.
This dispute arose from a contract for winter maintenance
services between the contractor and a condo complex. The contract
between them allowed the condo complex to terminate the services if
it was unsatisfied or no longer needed the services. In early 2013,
the condo complex decided it would not continue its contract with
the plaintiff for the following winter, but it did not advise the
plaintiff. The plaintiff continued to provide services for the