Health Risk IssuesGood Faith Duty
Requires Contract Parties to Refrain From Untruth
Page last modified : December 08 2023
Is it necessary for a tenant to give the landlord information about their income or social benefits while negotiating a rent deferral?
While a tenant is not required to give a landlord information about their income or social benefits, any information they do provide must be accurate.
The impact of economic shutdowns disproportionately affects those least equipped to handle unexpected job losses or unemployment. Individuals living paycheck to paycheck were caught off guard, facing significant.
Now without income, these individuals find it challenging to meet life’s basic necessities. While Employment Insurance and the Canadian Emergency Relief Benefit offer some financial support, many find these benefits inadequate to cover their needs.
When landlords and tenants are unexpectedly faced with discussing rent payment shortfalls, it creates an inherently awkward scenario. Typically, besides receiving timely rent, landlords don’t require detailed knowledge about a tenant’s financial situation. However, amid Covid-19, when a tenant seeks rent relief, there seems to be an obligation for candid communication in these discussions.
The Law
In the 2014 case of Bhasin v. Hrynew, [2014] 3 S.C.R. 494, the Supreme Court rendered a decision addressing the duty of good faith, which includes telling the truth when carrying out a contract. The following was said in the Supreme Court’s ruling:
[73] In my opinion, we ought to acknowledge a general obligation of honesty in fulfilling contracts. This essentially means that parties should refrain from lying or deliberately misleading each other regarding matters directly connected to contract performance. It doesn’t establish a duty of allegiance or disclosure, nor does it require a party to relinquish contractual advantages. Instead, it’s a fundamental requirement to maintain truthfulness about one’s contractual obligations. Recognizing an obligation of honest performance as part of the common law principle of good faith is a gradual and modest step. Acting honestly is widely acknowledged as a crucial element of the good faith principle, as observed in various legal references. For instance, the duty of honesty has been integral to the good faith expectations concerning the termination of employment contracts, among other contexts.
[74] There’s an ongoing debate about whether the duty of good faith arises as an implied term of fact or a term implied by law. I won’t delve into fully resolving this debate, which, as previously discussed, brings uncertainty to much of the jurisprudence. My present concern focuses solely on a new obligation of honest performance, which, in my view, shouldn’t be regarded as an implied term but rather as a broad principle within contract law that mandates a minimum standard of truthful contractual fulfillment. It applies regardless of the parties’ intentions and shares similarities with equitable doctrines that limit contractual freedom, such as the doctrine of unconscionability.
According to the Supreme Court’s ruling in Bhasin, there’s now a fundamental principle in contract law mandating a minimum standard of honest performance. In the context of a landlord and tenant negotiating a rent deferral arrangement during the Covid-19 crisis, the application of this principle seems straightforward. It requires parties not to deceive or mislead each other regarding their contractual commitments.
As articulated in paragraph 73 of Bhasin, this obligation doesn’t demand absolute loyalty or complete disclosure. Therefore, while a tenant is obligated to honestly communicate the details of financial hardship, there’s no explicit requirement for full disclosure. This legal duty may present a paradox: how does one avoid misleading without sharing all information? This situation might appear contradictory, echoing the sentiment of the Yiddish proverb: “A half truth is a whole lie.”
In the recent Supreme Court case of C.M. Callow Inc. v. Zollinger, 2020 SCC 45, the duty of honesty, initially established in Bhasin, was further expanded or clarified. The Court ruled that honesty in contractual dealings involves more than just abstaining from falsehoods. It encompasses a responsibility to steer clear of partially true statements that could mislead. This expanded duty also includes the obligation to avoid staying silent, meaning a failure to rectify or clarify misunderstandings that might arise between parties in a contract. Specifically, the Court stated:
[89] I acknowledge that in cases where there’s no explicit falsehood, as is the situation here, determining whether a party “knowingly misled” its counterpart isn’t always evident. However, it’s incorrect to suggest, as Baycrest did, that nothing lies between an outright lie and silence. In other legal contexts, such as in misrepresentation law, courts have examined situations to determine whether a misrepresentation existed, irrespective of whether a direct lie was present (referenced in A. Swan, “The Obligation to Perform in Good Faith: Comment on Bhasin v. Hrynew” (2015), 56 Can. Bus. L.J. 395, at p. 402). Professor Waddams highlighted that an incomplete statement can be as misleading as a false one, and courts have often treated such partial truths as legally significant misrepresentations (The Law of Contracts (7th ed. 2017), at No. 441). Similarly, when a party makes a statement it believed to be true initially, but subsequent circumstances alter its accuracy, courts have found an obligation to rectify the misrepresentation in various contexts (refer to Xerex Exploration Ltd. v. Petro-Canada, 2005 ABCA 224, 47 Alta. L.R. (4th) 6, at para. 58; also C. Mummé, “Bhasin v. Hrynew: A New Era for Good Faith in Canadian Employment Law, or Just Tinkering at the Margins?” (2016), 32 Intl J. Comp. Lab. L. & Ind. Rel. 117, at p. 123).
[90] These instances suggest that the standards of honesty in contractual performance often extend beyond simply prohibiting direct lies. Indeed, the notion of “misleading” one’s counterpart, a term separately referenced by Cromwell J., can encompass instances of silence or omissions in certain circumstances. One can mislead through action, by explicitly saying something to their counterpart, or through inaction, by neglecting to rectify a misunderstanding caused by their own misleading behavior. To me, these instances represent closely linked deceptive practices within the spectrum of contractual dealings (refer, for example, to Yam Seng Pte Ltd. v. International Trade Corp. Ltd., [2013] E.W.H.C. 111, [2013] 1 All E.R. (Comm.) 1321 (Q.B.), at para. 141).
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