Bhasin v. Hrynew (2014), 464 N.R. 254 (SCC)

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Temp. Cite: [2014] N.R. TBEd. NO.014

Harish Bhasin, carrying on business as Bhasin & Associates (appellant) v. Larry Hrynew and Heritage Education Funds Inc. (formerly known as Allianz Education Funds Inc., formerly known as Canadian American Financial Corp. (Canada) Limited) (respondents)

(35380; 2014 SCC 71; 2014 CSC 71)

Indexed As: Bhasin v. Hrynew et al.

Supreme Court of Canada

McLachlin, C.J.C., LeBel, Abella, Rothstein, Cromwell, Karakatsanis and Wagner, JJ.

November 13, 2014.


Canadian American Financial Corp. (Can-Am) was in the business of selling education savings plans. To do so, it contracted with “Enrollment Directors” across the country, two of whom were Bhasin and Hrynew, a competitor of Bhasin. The term of the contract between Can-Am and Bhasin was three years. Clause 3.3 provided that the contract would automatically renew at the end of the three-year term unless one of the parties gave six months’ written notice to the contrary. Can-Am gave such notice to Bhasin. Bhasin sued Can-Am and Hrynew, claiming several causes of action, including breach of contract.

The Alberta Court of Queen’s Bench, in a decision reported at (2011), 526 A.R. 1, found that it was an implied term of the contract that decisions about whether to renew the contract would be made in good faith. The court held that Can-Am was in breach of the implied term of good faith, that Hrynew had intentionally induced breach of contract, and that both were liable for civil conspiracy. The court determined Bhasin’s claim for loss of income and loss of his business. Can-Am and Hrynew appealed.

The Alberta Court of Appeal, in a decision reported at (2013), 544 A.R. 28; 567 W.A.C. 28, allowed the appeal and dismissed Bhasin’s lawsuit. The court found his pleadings to be insufficient and held that the lower court erred by implying a term of good faith in the context of an unambiguous contract containing an entire agreement clause. Bhasin appealed.

The Supreme Court of Canada allowed the appeal with respect to Can-Am and dismissed the appeal with respect to Hrynew. The Court varied the trial judge’s assessment of damages. Can-Am was liable for damages calculated on the basis of what Bhasin’s economic position would have been had Can-Am fulfilled its duty. If Can-Am had performed the contract honestly, Bhasin would have been able to retain the value of his business, worth $87,000.

Contracts – Topic 2051

Terms – Implied terms – General – [See second
Contracts – Topic 3502

Contracts – Topic 2109

Terms – Express terms – Renewal clauses – [See fourth
Contracts – Topic 3502

Contracts – Topic 3502

Performance or breach – Obligation to perform – Good faith – Exercise of – The Supreme Court of Canada examined whether there was a general duty of good faith contractual performance – “Anglo-Canadian common law has resisted acknowledging any generalized and independent doctrine of good faith performance of contracts. The result is an ‘unsettled and incoherent body of law’ that has developed ‘piecemeal’ and which is ‘difficult to analyze’ … This approach is out of step with the civil law of Quebec and most jurisdictions in the United States and produces results that are not consistent with the reasonable expectations of commercial parties. In my view, it is time to take two incremental steps in order to make the common law less unsettled and piecemeal, more coherent and more just. The first step is to acknowledge that good faith contractual performance is a general organizing principle of the common law of contract which underpins and informs the various rules in which the common law, in various situations and types of relationships, recognizes obligations of good faith contractual performance. The second is to recognize, as a further manifestation of this organizing principle of good faith, that there is a common law duty which applies to all contracts to act honestly in the performance of contractual obligations. In my view, taking these two steps is perfectly consistent with the Court’s responsibility to make incremental changes in the common law when appropriate. Doing so will put in place a duty that is just, that accords with the reasonable expectations of commercial parties and that is sufficiently precise that it will enhance rather than detract from commercial certainty.” – See paragraphs 32 to 34.

Contracts – Topic 3502

Performance or breach – Obligation to perform – Good faith – Exercise of – The Supreme Court of Canada stated that the objection to the corporate defendant’s conduct in this case did not fit within any of the existing situations or relationships in which duties of good faith had been found to exist – “The key question before the Court, therefore, is whether we ought to create a new common law duty under the broad umbrella of the organizing principle of good faith performance of contracts. In my view, we should. I would hold that there is a general duty of honesty in contractual performance. This means simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. … I am at this point concerned only with a new duty of honest performance and, as I see it, this should not be thought of as an implied term, but a general doctrine of contract law that imposes as a contractual duty a minimum standard of honest contractual performance.” – See paragraphs 72 to 74.

Contracts – Topic 3502

Performance or breach – Obligation to perform – Good faith – Exercise of – The Supreme Court of Canada concluded that “at this point in the development of Canadian common law, adding a general duty of honest contractual performance is an appropriate incremental step, recognizing that the implications of the broader, organizing principle of good faith must be allowed to evolve according to the same incremental judicial approach. A summary of the principles is in order: (1) There is a general organizing principle of good faith that underlies many facets of contract law. (2) In general, the particular implications of the broad principle for particular cases are determined by resorting to the body of doctrine that has developed which gives effect to aspects of that principle in particular types of situations and relationships. (3) It is appropriate to recognize a new common law duty that applies to all contracts as a manifestation of the general organizing principle of good faith: a duty of honest performance, which requires the parties to be honest with each other in relation to the performance of their contractual obligations.” – See paragraphs 92 and 93.

Contracts – Topic 3502

Performance or breach – Obligation to perform – Good faith – Exercise of – The dispute concerned the non-renewal of a contract – The trial judge accepted the plaintiff’s position that there was a duty of good faith in this case and that it had been breached by the corporate defendant (“Can-Am”) when it failed to act honestly in exercising the non-renewal clause – The Court of Appeal reversed and held that there had been no breach of contract – The Supreme Court of Canada allowed the appeal in part – The dishonesty on the part of Can-Am was directly and intimately connected to its performance of the agreement and its exercise of the non-renewal provision – Can-Am breached the agreement when it failed to act honestly with the plaintiff in exercising the non-renewal clause – In light of that conclusion, the Court agreed with the Court of Appeal’s rejection of the claims based on the torts of inducing breach of contract and unlawful means conspiracy – The trial judge found that the defendant Hrynew did not encourage Can-Am to act dishonestly in its dealings with Bhasin and that Can-Am’s dishonest conduct was not fairly attributable to Hrynew – It followed that Hrynew did not induce Can-Am’s breach of its contractual duty of honest performance – The trial judge held the defendants liable for unlawful means conspiracy – In light of the Court’s conclusions, the only relevant unlawful means pertained to Can-Am alone – Accordingly, there could be no liability for civil conspiracy – It followed that the claims against Hrynew were rightly dismissed – See paragraphs 94 to 107.

Contracts – Topic 7415.1

Interpretation – General principles – Good faith – [See all
Contracts – Topic 3502

Courts – Topic 587

Judges – Duties – To decide according to evidence and pleadings – The Supreme Court of Canada held that the trial judge did not make a reversible error by adjudicating the issue of good faith – “The allegations in the statement of claim clearly put the questions of improper purpose and dishonesty in issue. These facts are sufficient to put [the defendant’s] good faith in issue. The question of whether this conduct amounted to a breach of the duty of good faith is a legal conclusion that did not need to be pleaded separately. The defendants did not move to strike the pleadings or seek particulars of the allegation of wrongful termination in the statement of claim. Good faith was a live issue that was fully canvassed in a lengthy trial … Written submissions by both parties at trial referred to the good faith issue and even in his opening at trial, [plaintiff’s] counsel raised the issue of good faith. The trial judge held that any deficiency in the pleadings did not cause prejudice to the [defendants] … This is an assessment she was uniquely positioned to make and her conclusion ought to be treated with deference on appeal.” – See paragraphs 18 to 21.

Damages – Topic 5715

Contracts – Breach of contract – Loss of business – The Supreme Court of Canada concluded that the corporate defendant’s breach of contract consisted of its failure to be honest with the plaintiff about its contractual performance and, in particular, with respect to its settled intentions with respect to renewal – It was therefore liable for damages calculated on the basis of what the plaintiff’s economic position would have been had the defendant fulfilled that duty – While the trial judge did not assess damages on that basis, she made findings that permitted the Court to do so – If the defendant had performed the contract honestly, the plaintiff would have been able to retain the value of his business – It was clear from the findings of the trial judge and from the record that the value of the business around the time of non-renewal was $87,000 – The plaintiff was therefore entitled to damages in that amount – See paragraphs 108 to 111.

Practice – Topic 1335

Pleadings – The issues – Issues to be raised must be pleaded – [See
Courts – Topic 587

Cases Noticed:

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Neil Finkelstein, Brandon Kain, John McCamus and Stephen Moreau, for the appellant;

Eli S. Lederman, Jon Laxer and Constanza Pauchulo, for the respondents.

Solicitors of Record:

McCarthy Tétrault, Toronto, Ontario, for the appellant;

Lenczner Slaght Royce Smith Griffin, Toronto, Ontario, for the respondents.

This appeal was heard on February 12, 2014, before McLachlin, C.J.C., LeBel, Abella, Rothstein, Cromwell, Karakatsanis and Wagner, JJ., of the Supreme Court of Canada. The following judgment of the Court was delivered by Cromwell, J., on November 13, 2014.


Bhasin v. Hrynew et al.

(2014), 464 N.R. 254 (SCC)

Supreme Court of Canada
Reading Time:
52 minutes
Abella, Cromwell, Karakatsanis, LeBel, McLachlin, Rothstein, Wagner 

Cromwell, J.
: The key issues on this appeal come down to two, straightforward questions: Does Canadian common law impose a duty on parties to perform their contractual obligations honestly? And, if so, did either of the respondents breach that duty? I would answer both questions in the affirmative. Finding that there is a duty to perform contracts honestly will make the law more certain, more just and more in tune with reasonable commercial expectations. It will also bring a measure of justice to the appellant, Mr. Bhasin, who was misled and lost the value of his business as a result.

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