Bhasin V. Hrynew

BHASIN V. HRYNEW

A 2014 Supreme Court of Canada (SCC) decision established a general principle of good faith in Canadian contract law.  This decision outlined a new general duty of honesty in contractual performance.

Case Facts:

Bhasin was an enrollment director with Canadian American Financial Corp (Can-Am) from 1989 through 2001. Can-Am marketed education savings plans to investors through retail dealers, called Enrollment Directors (ER). Bhasin was on a 3-year automatic renewal contract with Can-Am, with a written notice period of 6 months should either group choose not to renew.

In 1999, the Alberta Securities Commission (ASC) raised concerns about compliance issues among Can-Am’s Enrollment Directors. To address their concerns, Can-Am created a Provincial Trading Officer (PTO) role and appointed Hrynew who was an ER with Can-Am and Bhasin’s direct competitor.

Hrynew’s new role was not well received by Bhasin. Hrynew had attempted to merge agencies with Bhasin on several occasions, which Bhasin had refused. As PTO, Hrynew also needed to review Bhasin’s confidential client information. Bhasin viewed this as a conflict of interest.  

The focus of the court case was Can-Am’s dishonesty with Bhasin. Can-Am was planning to merge Bhasin’s and Hrynew’s agencies based on documents submitted to the ASC; however, these plans were never shared with Bhasin. When Bhasin inquired about the merger, he was told by Can-Am that no merger was planned. Can-Am also misinformed Bhasin regarding Hrynew’s new appointment. Can-Am claimed Hrynew was bound by a confidentiality contract, and that his duties were segregated; however, no such contracts were in place, furthermore that external PTO’s were not allowed by the ASC, which was also untrue.  

Can-Am gave Bhansin notice of the contract termination in May 2001 after Bhasin continued to deny Hrynew’s access to his client information. Hrynew’s agency recruited most of Bhasin’s sales force after termination and Bhasin subsequently pursued legal action.

Case Issues:

Two questions were considered: “Does Canadian common law impose a duty on parties to perform their contractual obligations honestly? If yes, did either of the respondents breach that duty?”  

The SCC reviewed existing good faith contractual common law and found it unclear and “piecemeal”. Thus, the SCC imposed a new duty of honesty regarding contractual performance under the organizing principle of good faith. This enabled the SCC to address the above questions and reach their decision.

Court Decision and Rationale:

The SCC decision recognized an “organizing principle” of good faith, and a duty to act honestly in performing contractual obligations.

The SCC found that Can-Am was liable for breaching good faith, and knowingly misled Bhasin prior to contract termination with Bhasin being awarded damages of $87,000. The SCC found Hrynew not liable to Bhasin as there was no direct contract between them, thus no inducement of breach of contract could have occurred.

Business Impact of the Decision: