C.M. Callow Inc. v. Zollinger2020 SCC 45 (38463) 2018 ONCA 896 

“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”). Pursuant to clause 9 of the winter maintenance contract, Baycrest was entitled to terminate that agreement if Callow failed to give satisfactory service in accordance with its terms. Clause 9 also provided that if, for any other reason, Callow’s services were no longer required, Baycrest could terminate the contract upon giving 10 days’ written notice.

In early 2013, Baycrest decided to terminate the winter maintenance agreement but chose not to inform Callow of its decision at that time. Throughout the spring and summer of 2013, Callow had discussions with Baycrest regarding a renewal of the winter maintenance agreement. Following those discussions, Callow thought that it was likely to get a two‑year renewal of the winter maintenance contract and that Baycrest was satisfied with its services. During the summer of 2013, Callow performed work above and beyond the summer maintenance contract at no charge, which it hoped would act as an incentive for Baycrest to renew the winter maintenance agreement.

Baycrest informed Callow of its decision to terminate the winter maintenance agreement in September 2013. Callow filed a statement of claim for breach of contract, alleging that Baycrest acted in bad faith. The trial judge held that the organizing principle of good faith performance and the duty of honest performance were engaged. She was satisfied that Baycrest actively deceived Callow from the time the termination decision was made to September 2013, and found that Baycrest acted in bad faith by withholding that information to ensure Callow performed the summer maintenance contract and by continuing to represent that the contract was not in danger despite knowing that Callow was taking on extra tasks to bolster the chances of the winter maintenance contract being renewed. She awarded damages to Callow in order to place it in the same position as if the breach had not occurred. The Court of Appeal set aside the judgment at first instance, holding that the trial judge erred by improperly expanding the duty of honest performance beyond the terms of the winter maintenance agreement. Further, it held that any deception in the communications during the summer of 2013 related to a new contract not yet in existence, namely the renewal that Callow hoped to negotiate, and therefore was not directly linked to the performance of the winter contract.”

The SCC (8:1, with 3 judges writing concurring reasons) allowed the appeal and reinstated the judgment of the trial judge.

Justice Kasirer wrote as follows (at paras. 5, 104):

“I respectfully disagree with the Court of Appeal on whether the manner in which the termination clause was exercised ran afoul of the minimum standard of honesty. The duty to act honestly in the performance of the contract precludes active deception. Baycrest breached its duty by knowingly misleading Callow into believing the winter maintenance agreement would not be terminated. By exercising the termination clause dishonestly, it breached the duty of honesty on a matter directly linked to the performance of the contract, even if the 10-day notice period was satisfied and irrespective of their motive for termination. For the reasons that follow, I would allow the appeal and restore the judgment of the Ontario Superior Court of Justice.

I would note, however, that I do agree in part with the Court of Appeal’s observation that the trial judge went too far in concluding that “[t]he minimum standard of honesty would have been to address the alleged performance issues, to provide prompt notice, or to refrain from any representations in anticipation of the notice period” (trial reasons, at para. 67). In my respectful view, to impute these first two requirements would amount to altering the bargain struck between the parties substantively, a conclusion not sought by Callow before this Court. That said, I agree with the trial judge that, at a minimum, Baycrest had to refrain from false representations in anticipation of the notice period. Having failed to correct Mr. Callow’s misapprehension that arose due to these false representations, I too would recognize a contractual breach on the part of Baycrest in the exercise of its right of termination in clause 9. Damages thus flow for the consequential loss of opportunity, a matter to which I now turn.”

Justice Brown (with which Justices Moldaver and Rowe agreed) wrote concurring reasons as follows (at paras. 122-125, 159-161, 169, 173):

“Given that Baycrest did not identify any palpable and overriding errors in the trial judge’s findings, I agree with the majority that the appeal should be allowed and the trial judge’s award restored. Regrettably, however, I am compelled to express my respectful objection to the majority’s view that the doctrine of abuse of right in the civil law of Quebec is “useful” and “helpful” in understanding the application of Bhasin to this appeal (para. 57). Again respectfully, I see this digression as neither “useful” nor “helpful” to the judges and lawyers who must try to understand the common law principles of good faith as developed in this judgment. Indeed, it will only inject uncertainty and confusion into the law.
This is not to suggest that comparative legal analysis is not an important tool or that its use should somehow be unduly limited at this Court. As the majority’s reasons amply document, the Court has a longstanding tradition of looking to Quebec’s civil law in developing the common law ⸺ whether to answer a question that the common law does not answer (that is, to fill a “gap”) or where it is necessary to modify or otherwise develop existing rules. In addition, where concerns are raised about the effects of moving the common law in one direction or another, this Court has considered the experience in Quebec and elsewhere, often for reassurance that the posited concerns are unfounded or overstated. What this Court has refrained from doing, however, is deploying comparative legal analysis that serves none of these purposes or, even worse, renders the law obscure to those who must know and apply it. But by invoking the civilian abuse of right framework to clarify when “[d]ishonesty is directly linked to the performance of a given contract” (para. 73) — a question requiring no “clarification” — the majority does exactly that.

While, therefore, my objection is fundamentally methodological, it also speaks to the substantive consequences that follow. As the majority acknowledges, this appeal concerns the duty of honest performance, not the duty to exercise discretionary powers in good faith. And yet, its digression into the notion of “wrongful exercise of a right”, in substance, pulls it into that very territory, since it ties dishonesty to the manner in which contractual discretion is exercised. Effectively, then, the majority’s reliance on a civil law concept leads it to conflate, or at least obscure the distinction between what are distinct common law concepts. This is both unnecessary and undesirable, since the exercise of discretion ⸺ apart from being a matter of performance that may be misrepresented ⸺ has little to do with the duty of honest performance. Rather, the duty to exercise discretionary powers in good faith ⸺ or, expressed with the civilian terminology the majority adds, in a manner that is not “abusive” or “wrongful” ⸺ is a distinct concept that has no application to this appeal.

Our aim in deciding this appeal should be to develop the common law’s organizing principle of good faith carefully, and in a coherent manner, and more particularly in a manner that gives clear guidance by taking care to distinguish among the distinct doctrines identified by this Court in Bhasin. Respectfully, I say that the majority has not done so here.


It also follows from the distinct nature of Canada’s two legal traditions that drawing from one tradition to influence the other is simply an exercise in comparative legal analysis (Caisse populaire des Deux Rives v. Société mutuelle d’assurance contre l’incendie de la Vallée du Richelieu, [1990] 2 S.C.R. 995, at p. 1016). As I have already recounted, this is what the majority claims it is doing here. But while comparison is an important tool, its uses are not unlimited. In particular, comparative analysis, in the sense of using law from another legal system to elucidate or develop the domestic legal system, is generally appropriate only where domestic law does not provide an answer to the problem facing the court, or where it is necessary to otherwise develop that law. Using law from other systems in other circumstances would either be superfluous, or would (to the extent of its use) have the undesirable effect of displacing established domestic jurisprudence (J.‑L. Baudouin, “L’interprétation du Code civil québécois par la Cour suprême du Canada” (1975), 53 Can. Bar Rev. 715, at pp. 725-27; see also K. Zweigert and H. Kötz, Introduction to Comparative Law (3rd rev. ed. 1998), at pp. 17-18; T. Lundmark, Charting the Divide between Common and Civil Law (2012), at pp. 8-10). As Justice Sharpe writes extra‑judicially about the use of authority generally, which applies equally to comparative legal analysis, “[i]t is only where the case cannot readily be decided on the basis of binding authority that non‑binding sources will have a material effect on the decision” (Good Judgment: Making Judicial Decisions (2018), at p. 171).

These sources are not expressions of jurisdictional chauvinism. Rather, they express a posture of prudence and disciplined restraint in the deployment of comparative analysis in judgments. And for good reason. Seeking inspiration from external sources when it is unnecessary to do so may simply complicate a straightforward subject, thereby introducing uncertainty to a previously settled area of law (Gilles E. Néron Communication Marketing Inc. v. Chambre des notaires du Québec, 2004 SCC 53, [2004] 3 S.C.R. 95, at para. 56, citing J.‑L. Baudouin and P. Deslauriers, La responsabilité civile (6th ed. 2003), at p. 193). Even something as seemingly innocuous as changing the terminology used to describe a concept ⸺ for example, the majority’s reliance on the civil law device of abuse of right and references to the wrongful exercise of a right ⸺ can have substantive legal implications, affecting the coherence and stability of the resulting modified legal system. Language itself, after all, plays “a crucial role in the evolution of the law” (Bastarache, at p. 20; see also Lundmark, at pp. 74‑86).

This is not mere conjecture. The seemingly benign injection of civil law terminology into common law judgments has previously generated precisely that kind of instability.

These are not idle concerns, and on this point there is a certain reality that we must bear in mind. Few common law lawyers and judges in most provinces are sufficiently versed in French to read the sources of civil law concerning the abuse of right. And of those who are, fewer still will be trained in the civil law so as to understand their substance.

This is of practical concern here. Analytically jamming the civilian concept of abuse of right regarding the termination of a contract into the common law is not the tidy and discrete affair that the majority appears to suppose.”

 

Justice Côté wrote dissenting reasons, as follows (at paras. 191-192):

“Before turning to my analysis, I wish to express my substantial agreement with Justice Brown’s observations insofar as they pertain to the role of external legal concepts. Justice Kasirer states at paragraph 44 of his reasons that “[n]o expansion of the law set forth in Bhasin is necessary” to dispose of this appeal. However, he then embarks on, and I say this respectfully, an unnecessary comparative exercise between the civil law and the common law under the pretext of “dialogue”. I am perplexed by the virtues of “dialogue” in a case like this one where no gaps in the common law need to be filled and no rules need to be modified. I do not see why we should adopt such an approach, one that provides no palpable benefits and that is also arbitrary and unpredictable.
That being said, I believe that the common law as it now stands does not support the result my colleagues arrive at. I am afraid that the unnecessary debate about comparative legal exercises may have diverted attention from the facts of this case as they are.”