New Duty of Good Faith

How many times have you signed long documents which are required to complete a transaction and you did not read the terms. Such as, opening a bank account or signing loan documents. Reading and understanding such long documents is difficult and not feasible in many consumer transactions. Or while using a computer, have you recently clicked on “accepted” or “agree” in an internet transaction, again without reading the several pages of terms.

When you sign documents without reading the terms, can the terms be relied upon by a seller or provider to overcome deception or dishonesty by the seller or provider. Regardless of the terms, does a seller or provider have a duty to act honestly or to act in good faith?

Recently the Supreme Court of Canada said that such a seller or provider has a new duty to act honestly.

See Bhasin v. Hrynew et al., 2014 SCC 71.

In a unanimous decision the court held that a franchisor was liable in damages to Bhasin when the franchisor acted dishonestly, when the franchisor opted not to renew Bhasin’s contract to sell education savings plans. The contract allowed the franchisor to terminate the contract. The court stated that regardless of the contract terms “it is appropriate to recognize a new common law duty that applies to all contracts …. a duty of honest performance, which requires the parties to be honest with each other in relation to the performance of their contractual obligations” see paras. 92 and 93.

The court stated that the general principle of good faith, which underlies “many facets of contract law”, applies in this case.

Good faith defined: “A thing is deemed to done in good faith if it is done honestly” see The Dictionary of English Law by Earl Jowitt.

What can we expect from this case? We cannot expect a bank or a lender or a seller to act only in the interests of the customer or buyer. Such loyalty is only required of a fiduciary. A fiduciary duty is required by a trustee and a trustee must subordinate his personal interests to that of the other person.

The Bhasin case does not require a subordination of a provider’s interests but it does require that a seller or provider act honestly and without deception.

The Bhasin case does require a bank or seller or provider to act honestly in the performance of a contract.

My conclusion. More protection for the consumer. Namely, if a seller or provider acts dishonestly, and a consumer has agreed to terms without reading them, then the seller or provider may be precluded from relying on the terms to escape a claim by a consumer.


  1. I don’t think the case gives parties an opportunity to avoid obligations by not reading contracts. All it says is the obligations that are written have to be performed honestly. This applies regardless of whether or not a party has knowledge of them. The concepts of mistake, misrepresentation, or unconscionability are different issues altogether.

    That said, it’s agreed that a party can’t perform his/her obligations dishonestly then escape that dishonesty by way of a disclaimer or limitation of liability.

  2. Even prior to this case, when dealing with contracts of adhesion as in the initial examples given in this post, the situation was rather different from freely-negotiated contracts.

    I do wonder if this decision may affect future interpretation of e.g. shrinkwrap licenses to protect the end purchaser – excuse me, licensee – moreso than has been the case until now?