The Duty of Good Faith in Ontario Contracts

For a long time, Canadian contract law didn’t clearly say whether parties owed each other any general obligation of good faith while performing their agreements. That changed in 2014, when the Supreme Court of Canada decided Bhasin v. Hrynew. The case involved a retail dealer who sold education savings plans under a renewable agency agreement. The dealer later discovered that the company it worked with had been dishonest with him about its plans to merge his role with a competitor, before ultimately declining to renew his agreement.

The Supreme Court held that the company had breached a duty it owed the dealer — not because declining to renew was improper on its own, but because of the dishonesty that surrounded that decision. In reaching that conclusion, the Court did something broader than resolve one dispute: it recognized, for the first time at that level, that good faith operates as a general organizing principle across Canadian contract law, and that this principle supports a specific, enforceable duty of honest performance.

It’s worth being precise about what Bhasin did and didn’t establish, since the decision is often summarized loosely. It did not create a broad, open-ended obligation for contracting parties to be fair to each other in every sense. It created a narrower, more specific legal duty — discussed in detail below — grounded in honesty rather than loyalty or fairness generally.

An “organizing principle” is a general value that underlies and informs more specific legal rules, without itself being a stand-alone basis for a lawsuit. The Supreme Court described good faith this way: it’s not a new cause of action you can sue on directly, but a principle that should guide how courts interpret and apply the more specific doctrines that already exist in contract law — things like the rules around interpreting ambiguous terms, exercising contractual discretion, and now, the duty of honest performance.

Practically, this means the organizing principle itself rarely appears on its own in a successful claim. What usually matters in an actual dispute is the specific duty it gave rise to — honest performance — and how that duty applies to the facts at hand.

The concrete legal duty that came out of Bhasin is the duty of honest performance. In plain terms, it means that parties to a contract generally cannot lie to each other or knowingly mislead each other about matters directly linked to the performance of the contract. This applies to every contract in Canada, regardless of what the contract itself says, and the Supreme Court was explicit that the parties cannot contract out of it.

The Supreme Court’s later decision in C.M. Callow v. Zollinger (2020) clarified that this duty isn’t limited to outright false statements. A party can also breach it through half-truths, deceptive conduct, or actions that create a false impression about its intentions — even if it never technically states something untrue in words. In Callow, a condominium corporation group was found to have breached the duty by actively creating the impression that a maintenance contract would likely be renewed, while already having decided internally to terminate it.

Because “good faith” sounds broad, it’s easy to assume it means more than it does. The duty recognized in Bhasin is deliberately narrower than several related concepts it’s often confused with.

It is not a fiduciary duty. A fiduciary is generally required to put the other party’s interests ahead of its own and to act in that party’s best interests. The duty of honest performance does nothing like that — each party can still pursue its own commercial interests, negotiate hard, and make decisions that disadvantage the other side, as long as it isn’t dishonest about matters tied to performing the contract.

It is also not a duty of loyalty, and it is not a general duty of proactive disclosure. A party generally isn’t required to volunteer every fact the other side might want to know, point out unfavourable terms, or warn the other party that it’s making a bad decision. The line the Supreme Court drew is between active dishonesty on one side, and simply not going out of one’s way to help the other party on the other — the duty sits on the former side of that line, not the latter.

In practice, good-faith disputes in Ontario tend to cluster around two situations: ending an ongoing contractual relationship, and exercising a decision-making power the contract hands to one party.

On termination, a party generally retains the right to end a contract on whatever terms the agreement actually allows — including declining to renew, as in Bhasin itself. What the duty of honest performance adds is a check on how that right is exercised. A party cannot actively mislead the other side about its intentions in the lead-up to termination, string the other party along with false assurances, or create a false impression to gain an advantage before pulling the plug. Our guide to ending a contract in Ontario covers the general mechanics of lawful termination separately from this honesty requirement.

On discretion, many contracts give one party a decision-making power — approving a transfer, calculating a bonus, deciding whether a milestone has been met, or approving an assignment. Canadian courts have recognized that this kind of discretion generally can’t be exercised dishonestly, capriciously, or for a purpose entirely unconnected to why the discretion was granted in the first place. That doesn’t mean every exercise of discretion the other party dislikes is a breach — only that honesty and a reasonable connection to the contract’s purpose are expected.

The Bhasin organizing principle sits alongside several other, more specific doctrines that use similar language but aren’t identical to it. Some relationships carry additional obligations layered on top of the general duty of honest performance — for example, Ontario’s Arthur Wishart Act imposes a specific statutory duty of fair dealing on franchise relationships, which goes further than the common law baseline. Insurance contracts have long been treated as requiring an especially high degree of good faith given the imbalance of information between insurer and insured.

These specific doctrines are worth identifying correctly, because the remedy and the standard applied can differ. The organizing principle from Bhasin is best understood as a baseline that runs underneath Ontario contract law generally, with particular relationships sometimes building additional, more demanding obligations on top of it.

A good-faith dispute usually starts the same way most contract disputes do: with the documentation. Emails, texts, meeting notes, and any written assurances that were given around the time of a termination or a discretionary decision are often what actually decides whether conduct crosses the line into dishonesty, as opposed to ordinary hard bargaining. Our guide to breach of contract and our guide to demand letters cover the general process that typically follows once a potential breach has been identified.

Because the line between tough, self-interested bargaining and dishonest conduct can be fine, and fact-specific, a lawyer is often well placed to assess whether a particular pattern of statements or conduct is likely to meet the legal standard set out in Bhasin and Callow. If you aren’t sure where to start, our contact page and our contract disputes hub have more general resources on related topics.