Editor’s Note: This post was written as a preview of an upcoming Supreme Court of Canada decision for the Fantasy Courts website and newsletter.

This Week at the SCC

On Friday, Dec. 18, 2020, the Supreme Court of Canada is releasing its decision in C.M. Callow v. Tammy Zollinger. At issue is the contractual duty of honest performance and whether there is a unilateral duty to disclose an intention to terminate a contract.

The appellant Callow provided maintenance services to ten condominium corporations. The respondent corporations entered into two two-year maintenance contracts with Callow. One contract covered summer maintenance work and the other covered winter maintenance. The winter contract, which ran from November 2012 to April 2014, contained a provision allowing for early termination by the respondents on 10 days’ notice. In the spring of 2013, the respondents decided to terminate the winter contract but did not provide the respondent with notice of termination of the agreement until September 2013. Callow sued for breach of contract.

The issue at trial was not whether the respondents had the right to unilaterally terminate the contract. Instead, the focus was on the timing of the communication of the termination decision to Callow. The respondents delayed informing Callow that they were terminating the contract in order to avoid jeopardizing completion of the respondent’s work under the summer contract, which ran from May 2012 to October 2013.

The Ontario Superior Court of Justice determined that the respondents breached their contractual duty of honest performance by acting in bad faith. The Court of Appeal allowed the appeal and determined that the trial judge improperly expanded the duty of honest performance. Relying on Bhasin v Hrynew, 2014 SCC 71, the Court of Appeal found that the respondents owed Callow nothing beyond the 10-day formal notice period and that failure to provide notice on a more timely basis was not in itself evidence of bad faith. The Court of Appeal emphasized that there is no unilateral duty to disclose.

I’m leaning towards appeal dismissed. The SCC has been very cautious in applying and expanding the principles in Bhasin v Hrynew. In Atlantic Lottery Corp. Inc. v. Babstock, 2020 SCC 19, the Court stated that “not every contract imposes actionable good faith obligations on contracting parties”. In Churchill Falls (Labrador) Corp. v. HydroQuébec, 2018 SCC 46, the majority talked about while acting in good faith a party must still be able to satisfy his or her own interests. Short of egregious conduct or a particularly vulnerable party – which isn’t present from what I can tell from the record in this case – I don’t think the Court will apply the concept of good faith or honest performance in a manner that could be seen as undermining longstanding contract law principles. The fact the Court isn’t releasing the companion case decision in Wastech at the same time may suggest that this decision is the easier one to sort out.

Last Week at the SCC

On Dec. 11, 2020, the Supreme Court of Canada released its decision in Resolute FP Canada Inc. v. HydroQuébec, 2020 SCC 43. In a 7:2 split, the Court dismissed Resolute’s appeal. The majority found that Hydro-Québec could make Resolute pay government charges based on a contract with a predecessor power company that had been transferred to it.

In 1926, the Canadian International Paper Company (“CIPC” and Resolute’s corporate predecessor) contracted with the Gatineau Power Company for electricity to run its mills. The contract said CIPC would have to cover any “taxes or charges” that Gatineau Power paid to the Quebec government. The contract also said it would apply to the “successors or assigns” of both companies. Hydro-Québec eventually bought most of Gatineau Power’s shares. Hydro-Québec supplied power to CIPC, and CIPC paid for it pursuant to the 1926 contract. CIPC concluded a contract with Hydro-Québec for more power in 1982. That contract referred to the contract with Gatineau Power in 1926.

In 2007, the Government of Quebec started making Hydro-Québec pay two yearly amounts. In 2011, Hydro-Québec sent Resolute a bill for $3 million to cover these amounts. It argued that this was provided for in the 1926 contract and Gatineau Power had assigned the contract to Hydro-Québec in 1965.

The trial judge said Gatineau Power didn’t assign the 1926 contract to Hydro-Québec. The Court of Appeal said the 1926 contract was assigned by the 1965 contract. The majority agreed with the Court of Appeal. It found that a party to a contract needs the other party’s permission to assign it to someone else. In this case, Gatineau Power had the permission in advance because the 1926 contract said it was allowed. Justices Côté and Rowe dissented on the basis that the trial judge did not make a reviewable error in finding that Gatineau Power had not assigned the 1926 contract to Hydro‑Québec.

This turned out to be a tricky decision to predict. Justice Kasirer, who wrote the majority reasons, and Justice Côté, who wrote the dissenting reasons, had dominated the questions during the hearing. But it was unclear who would get a majority. Only 43% correctly predicted it would be dismissed.

Season News

We were expecting the SCC to release Callow along with its companion case Wastech. The two were heard together. However, as of now, it seems only Callow is being released, so we should have one more decision to predict this season. Good luck and happy holidays!

-Tom Slade