Good faith and the precedent: bhasin v. hrynew and the canadian common law

Abstract

In Canadian common law**, good faith in contracts is limited to specific areas; there is no general obligation of good faith. In Bhasin v. Hrynew, the Supreme Court of Canada, sought to remedy this shortcoming by recognising, first, a general organising principle of good faith and, secondly, an obligation to act honestly in executing a contract. It left it to the lower courts to determine how the new principle would be applied. The Court used the common law methodology to break out of the narrow analytical limits of the common law and to broaden
the scope of good faith. However, this precedent did not have the desired effect. The limited definition of good faith given by the Supreme Court of Canada led the lower courts to reduce Bhasin v. Hrynew to a case only applicable to its particular facts. Faced with the indeterminacy of the principle and its scope, the courts of appeal distinguished Bhasin v. Hrynew using a range of techniques, among others, a recourse to the rules of the common law to limit its field of application instead of a recourse to the new decision to change the rules of the common law. The Uniform Commercial Code and the Civil Code of Quebec, to which the Court referred to justify the introduction of the general organising principle in the common law provided a roadmap, which the lower courts did not adopt, for its development.