Dec 18th, 2023
Mar 16th, 2015
By Daniel Frajman
Good faith and honesty obligations likely apply to the following three examples of possible transactional scenarios:
In my experience, there is a certain amount of uncertainty in all these examples. The best way to avoid uncertainty often is to have contractual terms that expressly address your concern, rather than hoping that a vague clause (or no clause) will play out in your favour. This is because although all contracts are subject to a general legal duty of good faith on the part of each party, good faith can sometimes be difficult to define. Therefore, it can instead be useful to expressly stipulate your expectations in the contract, which often allows the parties to operate with more certainty.
If however expectations are not expressly stated in the contract, it is important to look at the legal basis for the good faith obligation (difficult to define as it is) that relates to all contracts, especially since the good faith concept was dealt with late last year in a decision of the Supreme Court of Canada. Good faith in contracts is essentially based on the following:
Although the Bhasin case is not necessarily a precedent outside the common law provinces, the statements in the case could catch on in Quebec, and are worth looking at. The main statements made by the Supreme Court can probably be summarized as follows:
The abovementioned legislation and jurisprudence, including the recent Supreme Court case of Bhasin, underlines that rather than relying upon general notions of good faith and honesty to provide protection, transactional documents should instead be clear on all important elements of a transaction, including among other things regarding disclosure, due diligence, representations and warranties and pre-closing and post-closing conditions and obligations.
We would be pleased to help you properly prepare your transactional documents.
Daniel Frajman, a shareholder of Spiegel Sohmer, a Montreal law firm, negotiates and drafts contracts for business and real estate sales and purchase transactions, leases, debt and equity financings, shareholders’ agreements, trusts, wills, and for non-taxable non-profit and charitable businesses.