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Contracting parties may have to disclose an intention to
terminate the contract, despite the existence of a clear
contractual provision allowing for unilateral termination. Under
the duty of honesty in contract performance, this obligation arises
where non-disclosure would constitute knowingly misleading the
counterparty. This result will surprise many who would not expect
to be in breach despite strict compliance with a clear and valid
termination clause in a written agreement, particularly when
providing earlier notice could damage their own interests.
This was the holding of the recent decision by the Supreme Court
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Don t mislead your contracting counterparties about
matters linked to the performance of a contract. That is the
apparently simple message from the Supreme Court of Canada in
CM Callow Inc v Zollinger. Applying
the organizing principle of good faith and, specifically, the duty
of honest contractual performance (recognized in
Bhasin v Hrynew) to a case involving a right to
terminate an agreement on notice for convenience,
Callow
seeks to clarify the circumstances in which the duty of honest
performance may require a contracting party to provide information
Bhasin”).
Many had hoped that the decision would shed light on the scope
of the duty of good faith and honest performance recognized in
Bhasin, and provide clear guidance to lower courts and
commercial parties on their contractual obligations.
However, the decision which resulted in a 5-3-1 split across the
court (Kasirer J writing for the majority, Brown J concurring, and
Côté J in dissent) may add further uncertainty to the
jurisprudence around obligations of good faith.
While the majority of the Court agreed that the respondent, a
group of condominium corporations known as Baycrest
(“Baycrest”), had breached its duty of honest