January 30, 2024
The duty of good faith performance of contracts continues to be defined by the courts. A recent Ontario Superior Court judgment applies it to minutes of settlement in a matrimonial dispute. It also applies it more broadly to the exercise of discretion under the agreement.
THE CASE
In Bross v Bross two couples held the shares of a family farm corporation. The two husbands were brothers. One brother and his spouse proceeded to divide their assets. The agreement between the four shareholders provided for tax advice and each party undertook to cooperate to obtain tax efficiency. After the tax advice was received, one brother and his wife refused to perform their undertaking.
The court determined that their concern was about non-existent risks, and therefore they acted unreasonably and did not exercise their discretion over the tax condition in good faith. After a thorough review of the development of the duty of honest performance as a result of the Supreme Court of Canada decision in Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, the judge recognized a “duty to exercise contractual discretion in good faith.” Although Wastech discusses good faith exercise of discretion, it was not part of the core of that decision. The Bross decision gives it a name and elevates it to the central position in the reasoning that leads to the result.
TAKEAWAYS
- The breadth of the application of good faith performance of contracts is still developing.
- The trend of the development is to recognize a broader duty.
- Where a contract provides for discretion, it must be exercised in good faith.
- The duty may extend to the performance of agreements in family law.
- This makes careful drafting of contracts even more important than it was in the past.
- If your actions are considered to be unreasonable, unfair, or unconnected to the purpose of the contract, you may be required to compensate the other party.
WHAT WEILERS LLP CAN DO FOR YOU
Weilers LLP has a corporate team that, in addition to being trusted advisors and deal makers, is equipped to document your corporate activity, including key contracts, at predictable and manageable costs to give you peace of mind. Our “progressive approach” is anything but cavalier when it comes to documenting our clients’ interests properly.
Our family law team also understands that marital breakdown is stressful and that you might be tempted to make unwise exercises of your discretion. Though the decisions are always yours, we will provide insightful guidance.
If you require either corporate law or family law advice, give us a call and see if we are the right lawyers for you.