I. Introduction

This paper explores the concept of good faith in contract performance through the lens of the jurisprudential conversation that is occurring on this subject between common law Canada and the civilian jurisdiction of Québec. This conversation began in the 2014 Supreme Court decision of Bhasin v Hrynew when Cromwell J referred extensively to Québec law, both codal and jurisprudential, as inspiration for the creation of a general principle of good faith in common law Canada, as well as for purposes of what he called “comfort”.^[1] There was, after all, much to draw upon in Québec law as common law Canada attempted to open the door to this contractual principle, one to which it had previously been quite hostile.^[2]

Focusing on key appellate decisions in Québec, as well as those in common law Canada, the paper will first demonstrate how broadly the doctrine of good faith has been used in Québec law and contrast it with the more limited iteration of good faith that has resulted, thus far, from post-Bhasin cases in Canadian common law. This part will question how fruitful the dialogue Cromwell J began in Bhasin with Québec law has been for common law Canada.

As befits conversations, they are rarely one-sided. The paper will go on to explore the continuation of the judicial dialogue on good faith between Canada’s legal traditions, the influence of this conversation now moving from common law Canada back to Québec. Here, the focus will be on the Québec decision in Churchill Falls v Hydro-Québec and the extensive reference the Québec Court of Appeal makes to the Bhasin decision.^[3] As the conversation and inspiration move in the opposite direction, we see the Québec Court of Appeal, somewhat ironically, using Bhasin, which had attempted to expand good faith in common law Canada, to do precisely the reverse in Québec, namely, to narrow its ambit and, seemingly, to limit its previously broad application. The question analyzed here is why did the Québec Court of Appeal look to Bhasin and how influential will the Bhasin decision prove to be in Québec law? This paper will attempt to decipher the impact of this judicial dialogue.

II. Beginning the Judicial Dialogue

Justice Cromwell began the judicial dialogue on good faith in Bhasin v Hrynew when he looked to Québec law for inspiration, and for “comfort”, in his attempt to open the door to a unified good faith principle in common law Canada.^[4] He noted that, “[e]xperience in Québec and the United States shows that even very broad conceptions of the duty of good faith have not impeded contractual activity or contractual stability.”^[5] That Cromwell J looked to Québec law is unsurprising. Unlike Canadian common law jurisdictions, the civil law in Québec had developed a robust doctrine of good faith over a period of approximately thirty-five years prior to the Bhasin decision.^[6] In particular, a “trilogy” of Supreme Court cases, described briefly below, illustrates the creation of good faith in Québec: National Bank v Soucisse ^[7], Houle v Canadian National Bank ^[8], and Bank of Montreal v Bail Ltée ^[9].

In 1981, the Supreme Court rendered Soucisse, a landmark decision that used the concept of the “implied” obligation to introduce good faith into Québec law. At the time, the Civil Code of Lower Canada (CCLC) was in force in Québec and despite there being no explicit good faith codal provision at the time, the Court used article 1024 CCLC, reproduced in substance today in article 1434 of the Civil Code of Québec (CCQ), to buttress its decision. This codal provision specifies that contractual obligations extend beyond those that are expressed by the parties and include those implied by a variety of mechanisms including law, the nature of the contract, usage, and equity.^[10] Justice Beetz, writing for the Supreme Court in Soucisse, interpreted this notion of equity as importing an implied obligation of good faith in the performance of every contract.^[11]

The Soucisse case concerned a contract of suretyship (or guarantee), whereby the guarantor had expressly stipulated that the guarantee would cover debts incurred by the debtor even after the guarantor’s death and the guarantee was expressly made binding on his heirs.^[12] However, the guarantee was also stipulated to be revocable. After the guarantor’s death, when the Bank attempted to collect from the heirs, the issue arose as to whether the heirs were obliged to repay debts incurred after the death of the guarantor when they had never been made aware of the guarantee and were thus unable to revoke it. The Supreme Court held that pursuant to the implied obligation of good faith, the Bank had an obligation to inform the heirs of the existence of the guarantee and its revocable character before it advanced money to the debtor for which such heirs would potentially be liable.^[13] Notably, the obligation to inform was nowhere expressed in the contract between the Bank and the surety, nor could it be construed as part of the contract using ordinary rules of contract interpretation.^[14] However, the Bank’s failure to meet this implied obligation to inform gave the heirs the remedy of a fin de non-recevoir which effectively prevented the Bank from being able to claim the debts from them.^[15]

Soucisse is an example of where the obligation of good faith had the effect of adding a contractual obligation, one to inform, on the part of the Bank. The next case in the trilogy, Houle, which was decided by the Supreme Court almost a decade later in 1990, took the obligation of good faith in contract performance even further, expanding the doctrine to include the concept of abuse of rights. Houle concerned a commercial loan between a Bank and a family-held company that was expressly stipulated to be a demand loan. However, when the Bank called the loan and proceeded to realize on its security without any notice, which seemingly the contract terms allowed it to do, it caused great damage to the borrower.^[16] In particular, the shareholders of the company were negotiating its sale and the Bank’s precipitous actions resulted in a significantly lower purchase price. The Supreme Court found the Bank’s recall of its loan without reasonable notice to be a breach of good faith affirming, in the process, the doctrine of abuse of rights, a notion that essentially makes a party potentially liable in damages even if that party performed a contractual term to its letter. Thus, while the doctrine of good faith had added a contractual term to the parties’ contract in the Soucisse case, in Houle, the problem lay more in the manner that the contracting party had performed an explicit clause. The abusive performance by the Bank of its contractual right to call the loan on demand had the effect of overriding, or at least mitigating the terms of, an express contractual provision, effectively converting a demand loan into one that requires reasonable notice. The result was a damage award compensating the shareholders for the lower sale price they ultimately obtained for the company. Very importantly, the Houle decision confirmed that good faith goes beyond merely intentional bad faith and that it also requires the reasonable exercise of contractual rights.^[17] The Supreme Court thus clarified that the doctrine of good faith creates an objective normative standard of behaviour in contract performance in Québec.^[18]

In Bail, the final case in the trilogy decided in 1992, the Supreme Court extended the duty of good faith to the formation of a contract and held that a party can be liable extra-contractually for such a breach. Although this paper focuses on good faith in contract performance, it is worth noting how this entire trilogy of cases shaped the obligation of good faith in Québec, both in contract formation and performance, and how the civilian obligation of good faith stands in stark contrast to that of its common law neighbours, which have refused to recognize a duty of good faith in contract formation.^[19]

The development of good faith in Québec is interesting from a methodological perspective. In the civil law tradition, it is more typical for legal developments to take root in legislation, notably in the Code.^[20] Civilian judges are meant to follow and interpret the Code and not to create law.^[21] Breaking with such tradition, in Québec, good faith developed in the reverse order: it was first introduced jurisprudentially and then subsequently incorporated by the legislator into three provisions in the new Civil Code of Québec which came into force in 1994.^[22] The CCQ introduced article 6, mandating that everyone exercise their civil rights in good faith; article 7, which makes it clear that acting in an intentionally injurious manner, or in an excessive and unreasonable one, can be a breach of good faith; and article 1375, which states that there is an obligation of good faith during contract formation, performance, and extinction.^[23] These provisions, coupled with their jurisprudential evolution, exemplify the robust and extensive doctrine of good faith that has developed in Québec.

III. The Far-Reaching Nature of Good Faith in Québec Law

Good faith in Québec may be described as a robust doctrine. Unlike the case in common law Canada, its application has been recognized in all contractual contexts, as opposed to a list of specific contracts such as franchise, insurance and employment.^[24] It is also not restricted to particular types of contracting parties, namely vulnerable ones, as it applies, and does so quite often, in the most commercial of cases. This is unusual for protective contractual doctrines which are often restricted to contracts entered into between parties with unequal bargaining power or to those that can be classified as adhesion or consumer contracts.^[25] Moreover, in Québec law, there is no closed list of attributes to the duty of good faith, such as honesty, the characteristic highlighted in the common law case of Bhasin. Good faith is like a “chameleon” – it manifests itself in different obligations depending on the context. For example, it can take the form of a duty to disclose, a duty to give notice, or a duty to cooperate. In short, good faith in Québec law is not perceived of as “some kind of embarrassing social disease” – a phrase coined by Angela Swan to describe the common law’s reaction to this doctrine.^[26]

The broad nature of good faith in Québec can be demonstrated by reference to several appellate decisions. In Hydro-Québec v Construction Kiewit Cie, for example, Hydro-Québec was found to have breached its obligation of good faith by creating false expectations to its contractor.^[27] Hydro-Québec had hired Kiewit to build a hydroelectric dam and, during the project, Kiewit faced delays and extra costs. Hydro-Québec assured Kiewit that it would be compensated for the additional expenses and urged it to continue with construction, stating it would deal with the expenses later. This suggestion actually contradicted the procedure dictated by the contract that Kiewit needed to follow for reimbursement of additional expenses, a fact that Hydro-Québec later used to justify its ultimate refusal to pay Kiewit for these extra costs.^[28]

There are several things of interest in this decision. First, in finding against Hydro-Québec, the Court of Appeal confirmed that it is possible for an institution to breach the obligation of good faith and that it was not necessary to find a particular individual within the corporation who had acted in bad faith in order to trigger its contractual responsibility. Moreover, the Court affirmed that the test of good faith in Québec is not merely subjective, namely to act without malice, but also objective, namely to act reasonably.^[29] Given that Hydro-Québec had created false expectations to its contracting partner, it could not turn to the text of the contract as a reason to avoid paying Kiewit.^[30]

Another notable example is Provigo Distribution Inc v Supermarché ARG Inc.^[31] Provigo, a supermarket chain, operated its business, in part, through franchises.^[32] The franchisees paid royalties and otherwise obligated themselves to Provigo in exchange for Provigo’s trademark, experience, and technical support.^[33] However, in order to meet increasing competition in the food industry, Provigo decided to develop its own corporate discount stores.^[34] Not surprisingly, the effect of this strategy was that the Provigo-owned discount stores came into competition with the franchised stores, causing the latter to lose money. What’s more, the franchisees found themselves unable to deal with this new competition because they could not advertise without Provigo’s approval and, as they were forced to purchase nearly all of their merchandise from Provigo, they were obliged to maintain higher prices to preserve profits.^[35] Consequently, the franchisees sued Provigo in damages.

The Court of Appeal found that Provigo failed in its duty to cooperate and provide technical assistance to its franchisees in order to counter the competition its own discount stores had created.^[36] The Court noted that while there was nothing in the contract that explicitly barred the franchisor from competing with its own franchisees, it had an implied obligation to cooperate with them, which, in the circumstances, required it to provide technical assistance and marketing support.^[37] This obligation of cooperation flowed from the nature of the franchise agreement as well as the franchisor’s duty of good faith and loyalty towards its franchisees.^[38]

Perhaps the most illuminating example, however, of how far the duty of good faith has gone in Québec is the case of Dunkin’ Brands Canada Ltd v Bertico Inc, in which a group of Dunkin’ Donuts franchisees sued the franchisor for breach of contract.^[39] Until the mid-1990s, Dunkin’ Donuts had been the leader in the fast-food industry in Québec.^[40] Their control of the quick-service coffee and doughnut market was challenged when Tim Hortons began to assert its presence in the province. Tim Hortons successfully captured the lion’s share of the Québec market, while Dunkin Donuts’ presence literally shrank to a handful of locations.^[41]

The franchisees claimed that the franchisor had failed to protect and enhance the Dunkin’ Donuts brand in Québec.^[42] The franchisees had voiced their concerns over the “Tim Hortons’ phenomenon”, demanding action from the franchisor who, they argued, failed to take effective steps to deal with the competition.^[43] Basing itself on implied obligations flowing both from the nature of the contract and the duty of good faith, the Superior Court held in favour of the franchisees, awarding them significant damages for the breach of the obligation to protect and enhance the brand. At the Court of Appeal, the franchisor argued that the trial judge had held it to a standard “that would force it to guarantee profits to the Franchisees.”^[44] Asserting that it had never assumed an obligation to protect and enhance the brand, the franchisor argued that the use of good faith to supplement the clear terms of the contract was “unwarranted and unjustified in the circumstances.”^[45] Although the final sum awarded was reduced on appeal, the Court upheld the trial judgment finding that the franchisor had a duty to assist the franchisees “in staving off competition in order to promote the on-going prosperity of the network as an inherent feature of the relational franchise contract.”^[46] The Court of Appeal noted that the implied duty of good faith served “to reinforce and confirm the duties of assistance and cooperation for the Franchisor associated with the nature of the contract.”^[47] The nature of the franchise contract and equity, both bases of implying obligations under article 1434 CCQ, justified this implied obligation of good faith.^[48] The Supreme Court denied the franchisor’s application for leave to appeal, making this decision final.

While Kasirer JA, who penned the Court of Appeal decision, states that this case is not “an extension of Provigo but merely an application of established law to a new set of facts,” it may be argued Dunkin’ Brands, in fact, extends the duty of good faith beyond what was laid down in Provigo.^[49] In Provigo, the franchisor itself was the cause of the competition confronting its franchisees, whereas in Dunkin’ Brands, the competition was driven by an external source beyond the franchisor’s control. Nor did the franchisor in Dunkin’ Brands benefit from the new competition, another factor that distinguishes it from Provigo.

The fact that franchise contracts demand elevated duties is not new to modern contract law. Franchise agreements “are imbued with vulnerability, dependency, inequality, as well as the necessity of trust and cooperation.”^[50] They represent the quintessential relational contract, where the parties have obligations over time and are connected by relational norms.^[51] The need for particular protection for franchisees has also been recognized outside Canada. In Australia, for example, where the doctrine of good faith is still developing, there is both jurisprudential and legislative support recognizing the need for good faith in franchise contracts.^[52] Moreover, South Africa has gone so far as to recognize franchisees as consumers under its Consumer Protection Act.^[53] However, despite franchise agreements being a natural habitat for the implication of good faith duties, the obligation created in Dunkin’ Brands, which effectively required the franchisor to protect franchisees from external competition in the marketplace, is significant and far-reaching. Dunkin’ Brands can indeed be seen as the high-water mark of the duty of good faith in Québec, and recognizing it as such is useful when contrasting the development of good faith in civil law Canada with that of the common law provinces in the post-Bhasin world.

IV. How Fruitful has the Comparative Dialogue Been for Common Law Canada?

As we know, Cromwell J relied on Québec civil law in his attempt to open the door to good faith in the rest of Canada. The question we must ask, however, is how fruitful has this dialogue been for common law Canada? The answer requires an analysis of how Canadian common law courts have defined the ambit of good faith, and how it has been applied to individual cases, since Bhasin.

At the time of the Bhasin decision, scholarly opinion was divided as to its actual significance. The upshot of the decision was to hold a contracting party liable in damages for having misled the co-contractant as to its intention to exercise a termination clause in a distributorship agreement. The decision in fact did two things. First, it enunciated a general organizing principle of good faith, although Cromwell J is not very clear as to its import. Second, it established that parties cannot perform their contracts in a dishonest manner, which was the case in Bhasin. While some jurists lauded the ground-breaking nature of the decision, the majority felt that, notwithstanding sweeping statements favouring a general good faith principle, the decision was destined to be of limited utility, in particular because the requirement of dishonesty to trigger the duty of good faith effectively restricted its potential impact.^[54] Arguably, the duty of honest performance created by the decision was redundant given that the common law already dealt with dishonesty through such doctrines as fraud, misrepresentation, and deceit.^[55] It is fairly evident that, whatever the nature of the good faith obligation created by Bhasin, it is a far cry from the concept of good faith that has developed in Québec law. By Cromwell J’s own admission, he only intended to take “incremental” steps in developing a good faith doctrine in Canadian common law.^[56] For the most part, however, it seems he only added a duty of honest performance to the existing law on good faith in Canada.

It is often only possible to measure the impact of a Supreme Court decision by examining its application by subsequent courts. While only four years have elapsed since the decision, it is safe to say that there has not yet been an explosion of cases in common law Canada eager to use Bhasin to import robust duties of good faith in contract performance. Admittedly, there are some cases, many decided on preliminary issues, that seem to be receptive to a broader interpretation of Bhasin. For example, in GlaxoSmithKline Inc v Apotex Inc, the plaintiffs claimed Apotex had breached the duty of good faith in the performance of a settlement agreement.^[57] Apotex had agreed to withdraw its drug from the market over a period of six months but during the withdrawal period, it worked aggressively to sell more than twenty-one times the usual volume of the drug in question. Justice Perell denied Apotex’s motion to dismiss the plaintiff’s action, finding that the duty of good faith could require the defendant not to act in a manner which would eviscerate the objective of the contract and that, therefore, the case needed to be tried on the merits.^[58]

However, despite this case and a handful of others, the general trend in common law Canada shows courts to be relatively conservative in their approach, largely restricting their use of Bhasin as precedent to situations involving dishonesty. This circumscribed approach to Bhasin is clear, for example, in Angus Partnership Inc v Salvation Army, where the Alberta Court of Appeal summarily dismissed a good faith claim on the basis that there was no evidence of lies, and found the trial judge’s broader understanding of good faith, which encompassed a duty to disclose, to be an “extension [that] conflicts with established contractual principles.”^[59] A similarly narrow approach to good faith is evident in Greater Vancouver Sewerage and Drainage District v Wastech Services Ltd, where, in overturning an arbitrator’s decision, the Supreme Court of British Columbia refused to find a breach of good faith where a party had acted without appropriate regard for its partner’s interests.^[60] The following quote by Dunphy J of the Ontario Superior Court in Addison Chevrolet Buick GMC Ltd v General Motors of Canada encapsulates many common law judges’ sentiments regarding good faith: “Bhasin is no authority for unbridled creativity in the creation from whole cloth of obligations in a contractual context which the parties have not provided for or have addressed in a fashion which one party regrets in hindsight.”^[61] In short, many trial and appellate judges have used Bhasin in a narrow manner and have not seized the opportunity, provided by Cromwell J’s dicta, to open the door to a broader duty of good faith.^[62] A notable example of this trend is the 2017 Alberta Court of Appeal decision, Styles v Alberta Investment Management Corp.^[63]

The case concerned an employment contract in which remuneration took the form of a base salary and significant bonus opportunities. Under what the contract called a “long term incentive plan”, employees would “accrue” annual bonuses each year, but these bonuses would only vest after the employee worked at the company for four years.^[64] The plan also required employees to be actively employed on the vesting date in order to receive their bonuses.^[65] Mr. Styles accrued significant bonuses for three consecutive years but his employment was terminated, admittedly without cause, prior to the four-year mark. He received severance pay for his termination, but not the bonuses.

Relying on Bhasin, Styles argued that his employer’s actions of denying him an integral part of his income contravened the obligation of good faith and the duty of honest performance.^[66] The trial judge agreed, finding in favour of Styles and holding that, as a manifestation of the general organizing principle of good faith, there was a common law duty that required discretionary powers granted under a contract to be exercised fairly and reasonably.^[67] The first instance court found two discretionary contractual powers: the employer’s discretion to deny employees their bonuses, and the employer’s discretion to terminate the employee without cause. As a result, Styles was awarded $444,205 for unpaid bonuses.^[68] This decision was, however, overturned by the Alberta Court of Appeal on the grounds that the contract terms were clear and that, per the Bhasin test of good faith, there was no dishonesty on the part of the employer.^[69] The Court of Appeal disagreed that there was any exercise of discretion involved, stating that active employment was a clearly stated precondition for entitlement to any bonus and that an employer’s decision to terminate an employee without cause did not constitute the exercise of discretionary power.^[70] Moreover, despite it being fairly uncontroversial in Canadian common law, the Court rejected the existence of any duty to exercise discretionary powers reasonably.^[71] It went further, calling the lower decision a “radical extension of the law […] unsupported by authority, and contrary to the principles of the law of contract.”^[72] The Court devotes approximately twenty paragraphs of its judgment to laying out its narrow view of “what Bhasin actually says”, concluding that Bhasin does not permit a party to ignore a provision in the contract because they wish they had struck a different bargain in hindsight.^[73]

The Styles decision compels us to ask how Québec courts would react when faced with similar facts. In a nutshell, Québec judges would most likely have dealt with Styles’ case very differently on two possible grounds. One approach would be to classify the bonus provision, requiring a four-year vesting period with active employment during that period, as an abusive clause pursuant to article 1437 CCQ. The abusive clause provision gives courts the ability to declare a contractual clause in a consumer or adhesion contract null if it is “excessively and unreasonably detrimental.”^[74] Québec courts have indeed used this provision to invalidate clauses similar to the one in Styles. For example, they have invalidated both a clause stipulating that employees would forfeit their bonuses if they left the company before the completion of a five-year term, as well as a clause requiring that employees be actively employed in order to receive payment for commissions already earned.^[75] In Styles’ case, it is likely that the long-term incentive plan would be classified as an adhesion contract given that it was part of a company-wide program and was expressly noted to be in a standard form document.^[76] That would open the door to an abusive clause argument which, given the outcome in similar cases in Québec, would likely have provided a strong argument for his case.

A second approach in Québec would be to find that the employer’s exercise of this bonus clause was an abuse of right and, therefore, contrary to the duty of good faith in articles 7 and 1375 CCQ. Under the abuse of rights doctrine, introduced by the Supreme Court in Houle, the obligation of good faith requires that parties exercise their contractual rights reasonably, a principle the Alberta Court of Appeal patently rejected. Québec courts have held that employers who do not act fairly or equitably in the context of ending a worker’s employ will be held liable for an abuse of their right to terminate. Terminating an employee without cause where it results in the employee losing an accrued benefit has been held to be contrary to good faith, as termination in this context may evidence an unreasonable exercise of contractual rights.^[77] This longstanding requirement in Québec civil law that parties exercise their contractual rights in accordance with an objective standard of reasonableness could indeed have yielded a different result in Styles’ case.^[78]

As the preceding discussion demonstrates, a wide gap exists between the conception of good faith in Québec and in post-Bhasin common law Canada. Of course, there are factual instances where the civil and common law conceptions of good faith will overlap. For example, in Hydro-Québec v Kiewit, discussed above, it is possible that similar facts would lead to the same outcome in a common law court and that, per Bhasin, the creation of false expectations to a contracting party would be considered a breach of the duty of honest performance. Nonetheless, this is perhaps one of the few Québec cases that would be caught in the restrictive net of the duty of honest performance. The other Québec cases thus far canvassed evidence a much broader conception of good faith and the post-Bhasin common law cases demonstrate that neither the “not new”^[79] duty of honesty, nor the general organizing principle of good faith, have begun to approach the breadth of the civilian counterpart. In comparing the approach Québec courts have used when applying good faith with that of common law Canada since Bhasin, it seems that Cromwell J’s conversation with Québec has not been that fruitful for common law Canada.

V. The Judicial Conversation Continues: Bhasin’s Potential Influence on Québec Law

While Canadian common law is still grappling with the upshot of Bhasin and how far good faith in contract law should go, Québec law has not stood still. Issues of good faith continue to be explored by Québec courts and an important case on the extent of the good faith obligation in Québec law is the highly publicized one of Churchill Falls v Hydro-Québec.

The case, in brief, centres on a contractual dispute relating to a contract signed in 1969 with a 65-year term, a contract whose fairness at formation is not disputed by the parties.^[80] Pursuant to the contract, Hydro-Québec undertook to purchase almost all the energy generated by the Churchill Falls power plant in Newfoundland and Labrador at a fixed price. However, during the life of this long-term contract, a paradigm shift occurred in the global energy market, largely precipitated by the oil embargoes of the 1970s, resulting in an exponential rise in the value of electricity. Given the fixed contract price, Hydro-Québec has been able to buy electricity at a very low price from Churchill Falls and earn substantial profits by reselling it to other regions at a significantly higher market price, approximately thirty-six times its cost.^[81] In 2010, Churchill Falls brought an action before the Superior Court of Québec arguing that, in the circumstances, Hydro-Québec should have a duty to renegotiate the contract on the basis of the implied obligation of good faith. Churchill Falls claimed that the radical change in the energy market, and the consequential meteoric rise in the price of electricity, was unforeseeable at the time of contract formation and was creating an unanticipated windfall profit for Hydro-Québec, one that countered the parties’ profit-sharing intention when they entered into the contract.

All three levels of courts have rejected Churchill Falls’ arguments on several grounds. For one, the courts have held that the absence of a price indexation clause was the result of a freely negotiated contract that reflected the intention of the parties at the time of its formation.^[82] After all, Hydro-Québec assumed significant risks regarding the project’s financing and can be seen to have bargained for protection against the increase of the price of electricity.^[83] In addition, the courts disagreed that the dramatic changes in the energy market could be characterized as “unforeseeable”, finding instead that the electricity market’s future was a “known unknown” – the parties knew the price of electricity could fluctuate, just not to what extent.^[84] Furthermore, from a philosophical standpoint, the courts clearly favoured upholding the principle of the stability of contracts and their binding nature, warning that while good faith may govern the conduct of parties, it cannot be used as a broad principle of equity that would require parties to share the unexpected benefits from a contract.^[85] Finally, the Superior Court and the Court of Appeal noted that Churchill Falls’ good faith argument, in fact, closely resembled a claim of imprévision, or hardship, a doctrine that has been rejected by the Québec legislator and is noticeably absent from the CCQ.^[86]

While the courts arrived at the same conclusion, the Court of Appeal, unlike the trial judge, did not find the exclusion of imprévision from Québec law to be “an impediment to pleading that the duty to act in good faith can be invoked to remedy a disrupted contractual equilibrium.”^[87] In other words, the Québec Court of Appeal seemed to be open, in theory, to a hardship argument. However, on the facts of the case, the Court found that such an argument was not applicable given that Churchill Falls was not suffering hardship due to a paradigm shift that had occurred in the energy market, but was merely being deprived of more significant profits.^[88] Although the focus of this paper is on the appellate court decision, and the recently rendered Supreme Court decision requires further study and comment, it is worth noting that the Supreme Court upheld the lower courts’ findings to the effect that there was no duty of good faith that had been breached. A particular emphasis of the Supreme Court’s decision, and the issue on which Justice Rowe in dissent departed from the majority, centered on the characterization of the contract, the majority of the Court choosing to characterize the contract as a regular transactional one and not a relational one, thereby precluding any heightened duties of good faith.

The significance of the appellate decision in Churchill Falls cannot be confined merely to its holding on the facts. In extending the analysis of the decision to the dicta of the Court, one finds a plethora of critical statements regarding the duty of good faith in Québec law, as well as an ostensible desire by the Court of Appeal to curtail the scope of the duty. Of key importance is that the Court uses none other than the Bhasin decision as support for its critical stance on good faith.^[89] This is, of course, somewhat ironic. The Supreme Court in Bhasin had looked to Québec law for comfort in opening the door to good faith in common law Canada. Now, as the judicial conversation moves in the other direction, the Québec Court of Appeal in Churchill Falls cites Bhasin, seemingly to close the door to good faith in Québec and to narrow its previously broad ambit.

The very first paragraph in which the Court of Appeal addresses the issue of good faith is extremely revealing of its philosophical stance. The Court begins the discussion by highlighting its “fear” that the notion of good faith will become too far-reaching.^[90] Explicitly empathizing with the common law’s long-standing criticism of good faith, the Court lists “ambiguity”, “elasticity”, and “incoherence” amongst the doctrine’s negative and problematic qualities.^[91] Warning that the obligation of good faith in Québec should not be construed as “an abstract system based on some vague notion,” the Court turns to Bhasin and lauds the decision as a “salutary example of the application of the specific requirement of good faith.”^[92]

After making these principled pronouncements, the Court proceeds to ask how the requirement of good faith should be applied to the facts of the case. Here, the Court does something even more surprising in that it seems to intimate that the Bhasin benchmark of dishonesty should be used as the yardstick for good faith in Québec.^[93] It is indeed telling that the Court finds that there was no “useless, bothersome or excessive conduct” by Hydro-Québec, and that Hydro-Québec “never lied to Appellant nor knowingly [misled] it.”^[94] Noting how this “dovetails with the words of Justice Cromwell in Bhasin”, the Court endorses the idea that the obligation of good faith in this case does not require cooperation but, instead, the less onerous duty not to mislead.^[95]

The Court of Appeal’s use of Bhasin as a role model for the duty of good faith in Québec is worrisome. We must question why the Court saw fit to consider honest performance as the ideal test when this has never been the touchstone of good faith in Québec law. It is one thing to acknowledge, as the Court does, the potential dangers of an overly broad use of good faith and to urge caution in the judicial application of the duty to individual cases. This is neither radical nor unfounded, and there is no shortage of scholarly debate on good faith’s potential to introduce vagueness and uncertainty into the law.^[96] However, even if the Court’s expressed concern about the breadth of the duty of good faith is somewhat justifiable, to retreat to dishonesty as its benchmark seems to go too far. To consider Bhasin and the duty of honest performance as exemplary or “salutary”, to quote the Court, for the civilian jurisdiction of Québec is a controversial move that not only contradicts principles clearly expressed in law, but also serves to unravel thirty-five years of jurisprudence.^[97]

It is difficult to forecast the imminent future of good faith in Québec. Nonetheless, we cannot deny the tone and tenor of the current judicial conversation. Or its effect. There is already evidence of jurisprudence in Québec that has chosen to follow the narrower conception of good faith enunciated by the Court of Appeal in Churchill Falls. In the recent case of Quigley v Placements Banque Nationale Inc, former employees of an asset management firm claimed that they were unfairly bought out from an employee share program because they were forced to sell at a time when the majority shareholder was preparing to sell the company’s assets.^[98] The completion of the sale meant a considerable increase in the share price, but the company exercised its right in the Shareholders’ Agreement and forced the employees to sell a few weeks earlier. The employees alleged that as the sale was imminent, the employer had acted oppressively and had abused its contractual right to force a share buyout contrary to the dictates of the good faith obligation enunciated in articles 6, 7, and 1375 CCQ.

In rejecting the employees’ argument, the Québec Court of Appeal cited Churchill Falls, endorsing the view that good faith should not “permit a judge to exercise moral control over the performance of a contract to the point of adding an element of distributive justice into contractual relationships.”^[99] The Court went further, however, by citing Bhasin in support of its position, and did so without ever explicitly noting that Bhasin is a common law judgment.^[100] Courts may, of course, be influenced by precedent emanating from the other legal tradition. Usually, though, this is openly acknowledged, especially when the precedent in question embodies a very different approach to a legal principle, such as good faith. The 2018 Quigley decision is a clear example of the effect of the dicta in Churchill Falls and evidences what might be a new trend in Québec courts to look to the common law case of Bhasin as support for a less robust interpretation of good faith.

When it comes to good faith, Québec currently appears to be at a crossroads. In a very short period of time, the Québec Court of Appeal has endorsed two very different conceptions of this contractual obligation. The 2015 Dunkin’ Brands decision arguably took the good faith duty quite far. The obligation imposed on the franchisor to protect the brand and its franchisees from external competition is one of the more extensive forms that good faith has assumed in Québec. The 2016 Churchill Falls decision, on the other hand, took the conversation in the opposite direction, promoting a significantly more limited role for good faith. It should be clarified that this paper is not advocating that the outcomes in Churchill Falls or Quigley should necessarily be different. It may indeed be inappropriate to use good faith to redistribute the sharing of profits in these cases. A deeper analysis of the facts and context of these cases is necessary before any conclusion on their actual merits is suggested. Nor can we be ignorant of the two very different factual contexts in Dunkin’ Brands and Churchill Falls. One involves a franchise relationship, the other a commercial venture developing hydroelectric power. Nevertheless, we cannot avoid remarking that a considerable shift has occurred in the Court’s philosophical stance on good faith. Abstracting the discussion from the actual outcome of the cases, it is undeniable that in Churchill Falls, the good faith pendulum has swung very far away from the conception of the duty that was championed in Dunkin’ Brands, and that the Québec Court of Appeal now seems to demonstrate a desire to rein in the duty. And ironically, the Court uses Bhasin for inspiration, and perhaps even “comfort”, to help it retreat from the robust conception of good faith espoused by the same court only one year earlier.

In a final ironic twist, the Alberta Court of Appeal in the 2017 decision of IFP Technologies (Canada) Inc v EnCana Midstream and Marketing, has continued the dialogue, this time citing the Québec case of Churchill Falls. Justice Watson, in a dissenting opinion, puts forward a narrow view of good faith and a conservative application of Bhasin. While this approach by Canadian common law judges is, as this paper has shown, not unusual, what is striking is that Watson JA cites Churchill Falls as support for the premise that “the Courts must be wary of rescuing parties from deals which turn out to be unfavourable in how the parties accepted to be their wording.”^[101] There is, thus, no doubt that this judicial dialogue on good faith is ongoing and that courts in both legal traditions are relying on each other’s precedents to support their preferred conception of good faith.

VI. Conclusion

The relationship between Canada’s two western legal traditions has varied widely over the country’s 150-year history.^[102] For most of this history, there was, in fact, little judicial dialogue between the traditions. Rather, jurists favoured either a model that sought to unify or harmonize the two traditions, seeking common outcomes in both common and civil law provinces, or, at the other extreme, a diversification model that instead emphasized Québec’s civilian tradition’s distinctiveness from the common law and the need to keep the two traditions in isolated silos.^[103] Neither of these models produced ideal results.

The harmonization or unification approach was favoured in the late 19^th and early 20^th century, prevalent during the “Taschereau years” of the Canadian Supreme Court.^[104] However, unification largely meant standardizing Canadian law by imposing common law solutions onto Québec civil law issues.^[105] While this trend was based on a philosophy of harmonizing the law across Canada, it unfolded in a markedly non-reciprocal way and ultimately became a project of making the civil law compatible with the common law and not vice versa. Had this trend continued, it is possible that the civilian tradition of Québec would have lost its distinctive character entirely or, at the very least, would not be the robust legal tradition it has become today.

At the other end of the spectrum, the diversification mentality, championed by Mignault J who served on the Canadian Supreme Court from 1918 to 1929, favoured staunch legal autonomy for Québec’s civil law tradition. This approach emphasized the distinctiveness of the civil law and its need to be developed autonomously from common law influences in order to preserve its identity, originality, and integrity.^[106] In this approach, there was, of course, no space for judicial dialogue because, as Mignault J asserted, since the two systems were so distinct, using one to inform the other was unnecessary and would only render each system less pure and coherent. Instead, answers to legal questions needed to be found internally within each legal tradition.^[107]

The situation today is more nuanced. While Québec’s civilian tradition has undoubtedly survived as a distinct legal order within Canada, the emphasis on diversity has recently been tempered by a growth in comparative law, and judicial conversation, between Canada’s legal traditions. In recent years, we have seen the Supreme Court of Canada increasingly look to Québec civil law in appeals from common law provinces, and to the common law in appeals from Québec, embracing the concept of learning from the other. This represents an emergent trend, one of inspiration, in which courts use comparative law as a tool for information and education and as a positive influence in the development of each distinct legal tradition. As Stevenson J of the Supreme Court so eloquently said:

This Court has the benefit of being the final court of appeal in a country that has two legal traditions: the English common law and the French civil law. Our two legal traditions are independent and should not be confused. Concepts and solutions found in one tradition should not be imposed on the other tradition. But this does not mean that there is no place for comparative law on this Court.^[108]

As a general proposition, the dialogue between Canada’s two legal traditions may be seen as a healthy one that most often results in a fruitful cross-fertilization of ideas and helps to advance the law and the development of new legal principles.^[109] It was in this spirit that Cromwell J first looked to Québec civil law’s position on good faith in Bhasin v Hrynew, namely as a way to advance, admittedly incrementally, the development of good faith in Canadian common law. The resulting conversation, however, has not followed in the same direction. Instead, Québec’s Court of Appeal has recently seized the common law’s more limited iteration of good faith and borrowed it to narrow what had previously been perceived as a robust doctrine.

While further reflection must now be undertaken with respect to the recently rendered Supreme Court decision in Churchill Falls, we must recognize that Churchill Falls lost its final appeal and that, with the exception of the one dissenting voice of Justice Rowe, the Supreme Court did not find a breach of a good faith duty on the part of Hydro-Québec. How ironic it would be if the dialogue started by Cromwell J to open the door to good faith in the common law would only serve to close it in civil law Québec. And even more ironic if a restrictive approach in Québec jurisprudence would then be used by common law judges to buttress their narrow approach to good faith in the rest of Canada.

VII. Acknowledgments

The author wishes to thank McGill law student Jenna Topan for her outstanding research assistance, generously funded by the Foundation for Legal Research. This paper was first presented at the “Bonne foi en matière contractuelle / Good Faith in Contract” Symposium held at the Faculté de droit, Université de Montréal, Montréal, Québec, May 10–11, 2018.