Developments in Contract Law: The 2020-2021 Term

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Developments in Contract Law: The 2020-2021 Term – Appeals to Developments in Contract Law: The 2020-2021 Term – Appeals to

Fairness Fairness

Marcus Moore

Allard School of Law at the University of British Columbia

, [email protected]

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Marcus Moore, "Developments in Contract Law: The 2020-2021 Term – Appeals to Fairness" (2022) 106

Sup. Ct. L. Rev. (2d) 3.

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Table of Contents

General Table of Contents ..........................................................................................v

Supreme Court of Canada Judges ........................................................................... vii

Abstracts ................................................................................................................... ix

Contributors ........................................................................................................... xvii

Table of Contents .................................................................................................. xxiii

Table of Cases ...................................................................................................... TC-1

Part I: Articles and Special Essays

Articles

Marcus Moore — Developments in Contract Law: The 2020-2021 Term –

Appeals to Fairness

Introduction ....................................................................................................... 3

II.

Fairness in the Making of Contracts .................................................................. 3

1. Control of Unfair Terms in Standard Form Contracts ............................. 4

2. Unconscionability ................................................................................... 10

3. Public Policy .......................................................................................... 18

III.

Fairness in the Performance of Contracts ....................................................... 23

1. Good Faith .............................................................................................. 23

(a) The Good Faith Duty of Honest Performance ............................... 25

(b) The Duty to Exercise Discretion in Good Faith ............................ 34

IV.

Conclusion ...................................................................................................... 48

Abstracts

Articles

Developments in Contract Law: The 2020-2021 Term – Appeals to Fairness

Marcus Moore

This article analyzes important developments in Contract Law stemming from

consideration by the Supreme Court of Canada in 2020-2021. Due to the large

number of Contracts cases during this period, the article focuses on prominent

appeals occupied with issues of fairness in Canadian Contract Law. Fairness in

contracts emerges as an important concern of the SCC at this juncture. This

appropriately reflects the constellation of some long-unsolved problems (e.g.,

control of unfair terms in standard form contracts), confusion around key concepts

associated with protection of contractual fairness (e.g., unconscionability and good

faith), and judicial disagreement over the merits of general versus context-specific

approaches to policing fairness in contracts (e.g., unconscionability versus public

policy, and whether to consolidate or differentiate how the concepts of

unconscionability and good faith apply to different contexts falling within each’s

overall jurisdiction).

xxiii

Developments in Contract Law: The

2020-2021 Term – Appeals to Fairness

Marcus Moore

I. INTRODUCTION

This paper analyzes important developments in Contract Law stemming from

consideration by the Supreme Court of Canada (“SCC”) during the 2020-2021 term.

Due to the large number of cases during this period, I focus here on prominent

appeals occupied with issues of fairness in Contract Law. Fairness in contracts

emerges — appropriately — as an important concern of the SCC at this juncture.

This reﬂects in part some longstanding problems of unfairness in the market, notably

unfair terms in standard form contracts. As well, it reﬂects continuing confusion

around the parameters of some judicial heads of fairness supervision, in particular

unconscionability and good faith. And it reﬂects in part judicial policy choices

around how to approach the regulation of fairness in contracts. These are inherent,

for example, in whether to use unconscionability or public policy, and in whether to

differentiate or consolidate how unconscionability and good faith each deal with

quite different contexts of contractual unfairness falling within their respective

jurisdictions. I will review noteworthy recent developments in Contract Law

relating to other matters in next year’s volume.

II. FAIRNESS IN THE MAKING OF CONTRACTS

I begin by looking at developments relating to laws governing fairness in the

making of contracts. These developments arise from the Supreme Court’s judgment

in Uber Technologies v. Heller.

The underlying dispute in that case concerned the

enforceability of an arbitration clause in a standard form contract between gig

economy colossus Uber and its drivers in Ontario, which included the plaintiff

Heller. The clause was not enforced. Justices Abella and Rowe, writing for a

majority of seven justices, invalidated the clause as unconscionable. Justice Brown,

concurring, relied instead on public policy to ﬁnd it unenforceable. Justice Côté,

dissenting, would have enforced the clause (with some judicial winnowing). In the

following sections, I discuss the signiﬁcance of developments relating to control of

unfair terms in standard form contracts, unconscionability, and public policy, all of

which concern fairness in the making of contracts.

Faculty of Law, University of British Columbia; Centre for Socio-Legal Studies,

Regulation Discussion Group, University of Oxford. The author thanks Hugh Collins for his

helpful comments on an earlier draft, as well as Jenny Lu, YiFei Yang, Jason Sug and Alexa

Redford for their research assistance.

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16 (S.C.C.)

[hereinafter “Uber”].

1. Control of Unfair Terms in Standard Form Contracts

One of the most intractable problems of Contract Law has been unfair terms in

standard form contracts.

The sharply contrasting roles of form-drafter and

form-recipient that crystallize in the form-contracting process allow the drafting

party to decide, beyond the few “core” terms actually discussed and agreed, the

remaining terms. And they have often abused this power to include among these

form terms some which are “clauses of oppression and outrage”.

Courts have found

it necessary to enforce these contracts, recognizing that they are “a pervasive and

indispensable feature of modern commercial life. It is simply not feasible to

negotiate . . . the terms of many of the transactions entered into in the course of

daily life.”

Historically, common law judges sometimes tried to deal with unfair standard

form terms by manipulating processes like interpretation, implication or incorpora-

tion to cut the unfair term down or out of the form.

However this could only be

done occasionally and thus inconsistently without discrediting those processes and

thereby detracting from their ordinary functions.

As a result, many jurisdictions in

the common law and beyond, including civilian Quebec and Europe, moved to

legislate controls of substantively unfair standard form terms.

There is some

variation by jurisdiction in whether controls cover only consumer forms, or also

include small-business, commercial forms, or all forms.

The United States has a

I use the phrase “standard form contract” throughout this publication in its narrow/

precise sense (a.k.a. “contract of adhesion”). Some writings use “standard form contract” to

refer to a broader array of standard contracts. But the word form was added by Karl Llewellyn

to distinguish those standard contracts which are preformulated and simply agreed to by the

recipient. For an expanded discussion of the issues in this section, see Marcus Moore,

“Controlling Fairness in Standard Form Contracts: What Can Courts Do, and What Should

They Do?” (2022) 55:2 U.B.C. L. Rev. (forthcoming).

Karl N. Llewellyn, The Common Law Tradition: Deciding Appeals (Boston; Toronto:

Little, Brown, 1960), at 366.

John McCamus, The Law of Contracts, 2d ed. (Toronto: Irwin Law, 2012), at 185.

Uniform Commercial Code, § 2-302 Cmt 1.

Karl Llewellyn, “Book Review” (1939) 52 Harv. L. Rev. 700, at 702-703.

See, e.g., Council Directive 93/13/EC of 5 April 1993 on unfair terms in consumer

contracts [1993] O.J. L095/29 [hereinafter “UCTD”]; Consumer Rights Act 2015 Part 2

(U.K.); Unfair Contract Terms Act 1977 (U.K.); Fair Trading Act 1986 No. 121, ss. 26A,

46H-M (New Zealand); Australian Consumer Law, ss. 23-28; Civil Code of Québec,

CCQ-1991, arts. 1437-1438.

Council Directive 93/13/EC of 5 April 1993 on unfair terms in consumer contracts

[1993] O.J. L095/29; Consumer Rights Act 2015 Part 2 (U.K.); Unfair Contract Terms Act

1977 (U.K.); Fair Trading Act 1986 No. 121, ss. 26A, 46H-M (New Zealand); Australian

Consumer Law, ss. 23-28; Civil Code of Québec, CCQ-1991, arts. 1437-1438. Australia

covers small business. Quebec covers all forms. Germany, the Netherlands and France cover

SUPREME COURT LAW REVIEW

judicial control, inspired by the unconscionability section of the Uniform Commer-

cial Code chapter on Sale, which American courts drew upon “either by analogy or

as an expression of a general doctrine” to fashion a judicial control applicable to any

form.

All of the above control regimes assess unfairness based essentially on

notions of considerable imbalance in favour of the form-drafter at the expense of the

form-recipient.

With this as context, the absence of a control of somewhat general scope in

Canadian common law has been both notable and regrettable. Some specialized

controls exist, but general controls of the types found elsewhere have been a glaring

omission as far as protecting fairness in contracts in common law Canada.

After

all, belied by the continued focus of Contracts treatises and law school courses on

the classical negotiated contract, standard form contracts overwhelmingly dominate

contracting practice.

The scale across which this unfairness projects is thus

immense. And it has been ampliﬁed in recent years by factors such as globalization,

privatization and digitization assigning more and more of the governance of formal

social activity to standard form contracts.

In short, unfair terms in standard form

contracts are a major systemic contributor to the unprecedented inequalities of

wealth in contemporary society, and thus to the wide-ranging and increasingly

worrisome social consequences that ﬂow from such disparities.

In my view, the most welcome development in Canadian Contract Law in the

term reviewed by this paper was the Supreme Court’s assertion, supported by a

seven-justice majority in Uber Technologies Inc. v. Heller, that judges in Canadian

common law are justiﬁed in exercising control of unfair terms in standard form

contracts.

The method by which the Uber judgment pursued control, and the parameters

around this potentiality, were more uneven in their impact on realizing the desired

aim, as I will explain.

all commercial forms per the UCTD, under which consumer forms are just the minimum that

states are directed to include.

E. Allan Farnsworth, Contracts, 4th ed. (New York: Aspen, 2004) § 4.28, at 298-99;

Uniform Commercial Code, § 2-302; Williams v. Walker-Thomas Furniture Co., 350 F.2d

445 (D.C. Cir. 1965).

Text to note 6.

For a partial inventory of specialized controls in Canadian provinces, see Stephen

Waddams, The Law of Contracts, 7th ed. (Toronto: Canada Law Book, 2017), at para. 545.

Friedrich Kessler, “Contracts of Adhesion—Some Thoughts about Freedom of Con-

tract” (1943) 43:5 Colum. L. Rev. 629; W. David Slawson, “Standard Form Contracts and

Democratic Control of Lawmaking Power” (1971) 84(3) Harv. L. Rev. 529.

Marcus Moore, Regulating Boilerplate: Resolving the Problems of Imposition and

Unfairness in Standard Form Contracts (Bloomsbury, forthcoming 2022).

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at paras. 56-59,

85, 87, 89-91 (S.C.C.).

EVELOPMENTS IN CONTRACT LAW: THE 2020-2021 TERM – APPEALS TO FAIRNESS

Following the case’s handling in the lower courts, the majority relied on the

unconscionability doctrine of English origin as a basis for interrogating the fairness

of the arbitration clause at issue.

Traditionally, that doctrine had not been used to

deal with standard form terms; rather, it had been concerned with unusual situations

of bargains entered into through the exploitation of a party under a special

disability.

But in Uber, Abella and Rowe JJ. counted the form-contracting process

towards the required procedural element of the doctrine.

This was signiﬁcant in

that, if the procedural element is met, what remains is the inquiry into substantive

fairness — thus establishing control.

However, the judgment left it unclear whether form-contracting by itself does

suffice. Also cited were factors particular to the circumstances of the case, such as

the plaintiff driver’s lack of sophistication, limited ﬁnancial means, and deception in

the sense that unexpected implications of the arbitration agreement were effectively

concealed.

If these factors were necessary parts of establishing the doctrine’s

procedural condition, then it will not apply absent similar particularized sources of

disparate bargaining power, and thus will not provide a general fairness control of

standard form contract terms. Also, the majority expressed the reservation that “we

do not mean to suggest that a standard form contract, by itself, establishes” the

doctrine’s procedural condition.

Examples given of cases where it was suggested

that control would not apply included where “sufficient explanations or advice . . .

offset uncertainty about the terms” or where the drafting party “clearly and

effectively communicate[s] the meaning of clauses with unusual or onerous

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at para. 55

(S.C.C.); Heller v. Uber Technologies Inc., [2019] O.J. No. 1, 2019 ONCA 1, at paras. 60-62

(Ont. C.A.); Heller v. Uber Technologies Inc., [2018] O.J. No. 502, 2018 ONSC 718, at paras.

68, 75 (Ont. S.C.J.). On the genealogy of the doctrine, see Mitchell McInnes, The Canadian

Law of Unjust Enrichment and Restitution (Toronto: LexisNexis, 2014), at 520ff.

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at paras. 54-55,

173 (S.C.C.); Mitchell McInnes, The Canadian Law of Unjust Enrichment and Restitution

(Toronto: LexisNexis, 2014), at 520ff; Rick Bigwood, “Antipodean Reﬂections on the

Canadian Unconscionability Doctrine” (2005) 84 Can. Bar Rev. 171; Rick Bigwood,

Exploitative Contracts (Oxford: Oxford, 2004), s. 6.4.

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at paras. 87-93

(S.C.C.).

On the depiction of the doctrine as divided into procedural and substantive elements,

see, e.g., Stephen Smith, Contract Theory (Oxford: Oxford, 2004), at 343.

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at paras. 93-94

(S.C.C.).

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at para. 88

(S.C.C.).

SUPREME COURT LAW REVIEW

effects”.

Thus, control does not apply where enhanced information is provided.

This reﬂects the thesis that with that, the form-recipient could better protect itself in

the bargaining process. But this thesis has been thoroughly discredited in the

standard form context.

It ignores the fact that whether or not the recipient is

informed, the contract is take-it-or-leave-it in a context where leaving it likely just

means having to take a similar form from a rival ﬁrm. This is because there is

insufficient competition over form terms in modern society, where contracting is a

near-constant activity and parties have no time to negotiate every term.

Also, the

warning-based exception above resembles long-existent “red-hand” rules requiring

special notice for incorporation of onerous terms, which drafting parties often

manage to satisfy in continuing to include such terms.

Of note, unfair terms

regulations — including legislated regimes and the American judicial control —

apply even if the adherent is well informed. Generally, they only make exceptions

for the “core” terms (typically subject matter and price) actually negotiated.

Another way in which Uber sought to shift the doctrine towards providing a

control of fairness in standard form contracts was its term-speciﬁc invalidation of

just the impugned arbitration clause.

Traditionally, the doctrine’s effect was to

rescind a transaction as a whole.

A term-speciﬁc effect, leaving the rest of the

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at para. 88

(S.C.C.).

Omri Ben-Shahar & Carl E. Schneider, More Than You Wanted to Know: The Failure

of Mandated Disclosure (Princeton, NJ: Princeton University Press, 2014), ch 2; Yannis

Bakos, Florencia Marotta-Wurgler & David Trossen, “Does Anyone Read the Fine Print?

Consumer Attention to Standard-Form Contracts” (2014) 43:1 J.L.S. 1; American Law

Institute, Restatement on Consumer Contracts - Tentative Draft (ALI, 2019), at 35.

Omri Ben-Shahar & Carl E. Schneider, More Than You Wanted to Know: The Failure

of Mandated Disclosure (Princeton, NJ: Princeton University Press, 2014), ch 2; Yannis

Bakos, Florencia Marotta-Wurgler & David Trossen, “Does Anyone Read the Fine Print?

Consumer Attention to Standard-Form Contracts” (2014) 43:1 J.L.S. 1; American Law

Institute, Restatement on Consumer Contracts - Tentative Draft (ALI, 2019), at 35; Marcus

Moore, Regulating Boilerplate: Resolving the Problems of Imposition and Unfairness in

Standard Form Contracts (Bloomsbury, forthcoming 2022).

Thornton v. Shoe Lane Parking, [1971] 2 Q.B. 163; Tilden Rent-a-Car Co v.

Clendenning, [1978] O.J. No. 3260, 18 O.R. (2d) 601 (Ont. C.A.).

See notes 7 and 9.

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at paras. 96-99

(S.C.C.).

S.M. Waddams, “Unconscionability in Canadian Contract Law” (1992) 14 Loy. LA

Int’l & Comp. L. Rev. 541, at 543; John McCamus, The Law of Contracts, 2d ed. (Toronto:

Irwin Law, 2012), at 440; Mitchell McInnes, The Canadian Law of Unjust Enrichment and

Restitution (Toronto: LexisNexis, 2014), at 523; Morrison v. Coast Finance Ltd., [1965]

B.C.J. No. 178, 55 D.L.R. (2d) 710, at 713 (B.C.C.A.); Downer v. Pitcher, [2017] N.J. No.

64, [2017] NLCA 13, at para. 21 (N.L.C.A.); Uber Technologies Inc. v. Heller, [2020] S.C.J.

DEVELOPMENTS IN CONTRACT LAW: THE 2020-2021 TERM – APPEALS TO FAIRNESS

contract intact, is typical of controls elsewhere.

This is seen as necessary, because

in an economy where many goods are only available via standard form, rescinding

the transaction over an unfair term would deprive people of their exchange needs —

or at the risk of that, induce them not to take action over the unfair term.

Left

unclear is whether the term-speciﬁc application in Uber is generalizable to other

cases of complaints of an unfair standard form term. Notably, the majority cast the

arbitration clause as “a self-contained contract collateral or ancillary to the [main]

agreement”, which brings the application in Uber in line with the doctrine’s normal

application to whole agreements.

But elsewhere, the majority said that unfair standard form choice of law, forum

selection and arbitration clauses were “precisely the kind of situation in which the

unconscionability doctrine is meant to apply”.

And Abella and Rowe JJ. added that

“a ﬁnding of unconscionability can be directed at a contract as a whole or against

any severable provisions of it”.

The latter claim is momentous, in that if it does

represent the state of the law, it signiﬁcantly increases the doctrine’s utility as a

control of unfair standard form terms. However, remarkably, the claim appears only

in a footnote, and the citations are to a different usage of the equitable concept of

“unconscionability”, suggesting possible conﬂation of the different uses of that

concept.

As well, not all terms are severable, and the Supreme Court’s approach

to severability is strict.

Thus, in any case, this stops short of the unencumbered

term-speciﬁc application of unfair terms regulations.

Furthermore, the uncertainty of the effect is itself problematic. For example, if the

court ﬁnds the term not severable, the result then of avoiding the whole transaction

will often be contrary to the interests of the complainant for the reasons explained

above. As the footnoted claim was about what a ﬁnding of unconscionability may be

directed at, this suggests it is up to the court, not the complainant. Given the

uncertainty of the remedy, and the possibility of a “remedy” that does more harm

No. 16, [2020] SCC 16, at para. 172 (S.C.C.).

See notes 6 and 8.

Marcus Moore, Regulating Boilerplate: Resolving the Problems of Imposition and

Unfairness in Standard Form Contracts (Bloomsbury, forthcoming 2022).

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at para. 96

(S.C.C.).

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at para. 89

(S.C.C.).

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, fn 8 (S.C.C.).

Discussed in the next section. Justice Brown indeed reads this as a product of

conﬂation: Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at para.

173 (S.C.C.).

Shafron v. KRG Insurance Brokers (Western) Inc., [2009] S.C.J. No. 6, 2009 SCC 6,

at para. 32 (S.C.C.).

UPREME COURT LAW REVIEW

than good to the overall interests of a complainant, form-recipients may be reluctant

to bring claims.

Even in cases where an unfair term had a severe impact on a particular

form-recipient such that ex post it is willing to pursue a claim despite the risk of the

whole contract being rescinded, arguably in going beyond what is necessary to

redress the unfairness to the form-recipient, the remedy itself becomes unfair to the

drafting party. Findings of substantive unfairness, of the remedy being to avoid the

whole contract, and perhaps also of the satisfaction of the doctrine’s procedural

condition (discussed above), are precedents applicable to other instances of the

standard form contract’s use on the market. Hence, whether via a class action or

otherwise, this could mean retroactive cancellation of mass transactions, with the

resultant market disruption. Foreseeing this risk, Abella and Rowe JJ. submitted that

it will help, as it will encourage ﬁrms to draft fair terms. No expert testimony was

cited in support of this as the calculated effect. If the doctrine’s uncertain effect

deters form-recipients from bringing claims for the reasons noted earlier, then ﬁrms

will rather be encouraged to do nothing. But if form-recipients do bring forth claims,

ﬁrms face a problem that is more difficult to solve: assessments of substantive

fairness are often subjective, and elsewhere the majority lowered the threshold of

unfairness to be controlled from the high bar typically found in regimes controlling

unfair standard form terms to a standard of unfairness simpliciter.

As a result, to

avert the whole transaction-type being jeopardized, a ﬁrm would have to draft every

term in the form so obviously fair as to be free from the risk of any subjective

opinion ﬁnding it unfair. Because ﬁrms invest in drafting forms where the

transaction-type is especially important to their interests, this is a fraught business

proposition. Where it is not possible for a ﬁrm to draft every form term as obviously

fair, this may alternately encourage an increased number of negotiated terms (with

the added burdens in cost, time and convenience mostly borne by form-recipients).

In other cases, it could result in ﬁrms’ abandonment of the Canadian market as

problematic in regard to use of standard forms.

In sum, Uber brought common law Canada closer to a long-needed control of

unfair terms in standard form contracts, but the way it pursued this aim came with

signiﬁcant complications and drawbacks. A judicial control on the American model

(whose core features are shared with the legislated regimes elsewhere, including in

Quebec) would avoid all these problems.

Rather than deforming the traditional

doctrine of unconscionability into something somewhat “relevant” to standard form

contracts,

it would be vastly preferable to follow the well-trodden path of

See text to note 9. Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC

16, at paras. 80-82 (S.C.C.).

See notes 7 and 9.

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16 at paras. 85, 87

(S.C.C.).

EVELOPMENTS IN CONTRACT LAW: THE 2020-2021 TERM – APPEALS TO FAIRNESS

dedicated controls widely found elsewhere.

2. Unconscionability

As mentioned in the prior section, the way in which the majority in Uber sought

to pursue a control of unfair terms in standard form contracts was through

unconscionability. Unconscionability is a topic of importance in discussions of

fairness in Contract Law. And the developments in Uber with regard to it are

certainly worthy of separate but related consideration under that rubric, as I pursue

in this section.

The starting point for any useful discussion of unconscionability in Canada must

be a recognition that it has been a subject of considerable confusion in Canadian

contract law for some time. In order to avoid perpetuating that confusion, some

preliminary remarks are apposite, before surveying the developments in regard to

unconscionability that took place in Uber.

Unconscionability refers, primarily, to a concept. Most writers understand the

concept to refer to an unconscientious abuse of power in private law. Some envision

it more broadly. Notably, Stephen Waddams, whose inﬂuence on Canadian Contract

Law may be unsurpassed, has long espoused a very broad view of unconscionabil-

ity.

Indeed, he has used the term “as a synonym for . . . unfairness”.

It truly is

vital that lawyers working in the area of Contract Law be aware when differing uses

of this term are being made. But on any view of its breadth, what I refer to in this

paragraph is the idea or concept of unconscionability.

There are, secondarily, rules and doctrines which are said to give effect to the idea

of unconscionability. Reﬂecting his broad conception, Waddams places very many

items in this category, including the rules on forfeitures, penalties, deposits, judicial

and legislative controls on limitation clauses, red-hand rules of incorporation, covert

use of interpretation or implication or consideration to control fairness, good faith,

duress, inequality of bargaining power, undue inﬂuence, ﬁduciary relationships, the

withholding of discretionary remedies, restraint of trade, and legislative provisions

See notes 7 and 9. For an expanded discussion of issues in the section below, see

Marcus Moore, “The Flaws of Magic Bullet Theory: Retraining Unconscionability to

Discretely Target Different Contexts of Unfairness in Contracts” (2022) 45:2 Dalhousie L.J.

(forthcoming).

S.M. Waddams, “Unconscionability in Contracts” (1976) 39:4 M.L.R. 369; Stephen

Waddams, The Law of Contracts, 7th ed. (Toronto: Canada Law Book, 2017), c. 14; Marcus

Moore, “Why Does Lord Denning’s Lead Balloon Intrigue Us Still? The Prospects of Finding

a Unifying Principle for Duress, Undue Inﬂuence and Unconscionability” (2018) 134 L.Q.R.

257, at 267-69.

Stephen Waddams, The Law of Contracts, 7th ed. (Toronto: Canada Law Book, 2017),

at ¶ 550.

UPREME COURT LAW REVIEW

aiming at fairness.

On anyone’s list would also be doctrines referred to using the

underlying concept’s very name of “unconscionability”. These include the uncon-

scionability doctrines of English descent, mentioned earlier, which provide for the

rescission of transactions whose formation was defective, due to the bargaining

process being tainted by exploitation of a party under a special disability.

As well,

they include the American doctrine of unconscionability, referenced in the prior

section, which is distinct from those of English origin,

and notably was crafted

with an eye to judicial control of unfair terms in standard form contracts.

Prior to Uber, unconscionability doctrines of both of these general types existed

in Canada. A doctrine of the English type had long been used in Canada,

its

leading cases including Morrison v. Coast Finance Ltd., Cain v. Clarica Life

Insurance Co., Titus v. William F. Cooke Enterprises Inc. and Downer v. Pitcher.

The SCC’s judgment in Norberg v. Wynrib (itself not a Contracts case) recognized

this doctrine, quoting Morrison v. Coast Finance Ltd. as authority on it.

Meanwhile, an unconscionability doctrine sharing several deﬁning features with the

American doctrine was invoked in Canada in a line of cases headlined by the SCC’s

decisions in Hunter Engineering Co. v. Syncrude Canada Ltd. and Tercon Contrac-

tors Ltd. v. British Columbia (Transportation and Highways).

There were

questions whether it applied only to exclusion clauses, which would distinguish it

from the American doctrine, or whether like the American doctrine it applied also

Stephen Waddams, The Law of Contracts, 7th ed. (Toronto: Canada Law Book, 2017),

c. 14.

Text to notes 15-16.

David Capper, “The Unconscionable Bargain in the Common Law World” (2010) 126

L.Q.R. 403.

Text to note 9.

Waters v. Donnelly, [1884] O.J. No. 294, 9 O.R. 391 (Ont. H.C.J.).

Morrison v. Coast Finance Ltd., [1965] B.C.J. No. 178, 55 D.L.R. (2d) 710 (B.C.C.A.);

Cain v. Clarica Life Insurance Co., [2005] A.J. No. 1743, 2005 ABCA 437 (Alta. C.A.); Titus

v. William F. Cooke Enterprises Inc., [2007] O.J. No. 3148, 2007 ONCA 573 (Ont. C.A.);

Downer v. Pitcher, [2017] N.J. No. 64, 2017 NLCA 13 (N.L.C.A.).

Norberg v. Wynrib, [1992] S.C.J. No. 60, [1992] 2 S.C.R. 226, at 248 (S.C.C.).

Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] S.C.J. No. 23, [1989] 1

S.C.R. 426 (S.C.C.); Tercon Contractors Ltd. v. British Columbia (Transportation and

Highways), [2010] S.C.J. No. 4, [2010] 1 S.C.R. 69 (S.C.C.); see also ABB Inc. v. Domtar

Inc., [2007] S.C.J. No. 50, [2007] 3 S.C.R. 461 (S.C.C.); Guarantee Co. of North America v.

Gordon Capital Corp., [1999] S.C.J. No. 60, [1999] 3 S.C.R. 423 (S.C.C.); Plas-Tex Canada

Ltd. v. Dow Chemical of Canada Ltd., [2004] A.J. No. 1098, [2004] ABCA 309 (Alta. C.A.);

Douez v. Facebook Inc., [2017] S.C.J. No. 33, [2017] 1 S.C.R. 751 (S.C.C.) (Abella J.);

TELUS Communications Inc. v. Wellman, [2019] S.C.J. No. 19, [2019] 2 S.C.R. 144 (S.C.C.).

DEVELOPMENTS IN CONTRACT LAW: THE 2020-2021 TERM – APPEALS TO FAIRNESS

to other types of unfair terms.

But Chief Justice Dickson was explicit in Hunter

Engineering Co. v. Syncrude Canada Ltd.: “exclusion clauses are not the only

contractual provisions which may lead to unfairness. There appears to be no sound

reason for applying special rules in the case of clauses excluding liability than for

other clauses producing harsh results.”

That the doctrine from this line of cases

could apply to an unfair clause of any type was also the conclusion of some leading

Contracts scholars, including Waddams, who wrote that “the implication of” the

SCC using the term unconscionability is “that other kinds of unfair clauses may be

disallowed if they are unconscionable”,

as well as John McCamus, who saw that

it could thus provide “a common law device long awaited by some, to ameliorate the

harsh impact of unfair terms in boilerplate” (a statement quoted with approval in

Douez v. Facebook Inc.).

The initial cases’ focus on exclusion clauses likely just

reﬂected that those cases simultaneously retired the doctrine of fundamental

breach.

The unconscionability doctrine from this case-line has since been held to

apply for instance to standard form limitation clauses (not just exclusion), forum

selection clauses and arbitration clauses.

Unfortunately, as a result of the confusion over whether it applied only to

exclusion clauses, and the elusive discussion in those cases more generally, this

doctrine had not yet developed into an established judicial control of unfair terms by

the time of Uber. With two doctrines sharing the name unconscionability and

perhaps lack of awareness that this simply reﬂected a broad equitable concept said

to animate them (and in the view of some authors, many other doctrines and rules

known under other names, as noted), the lower courts in Uber conﬂated the two

doctrines.

This contaminated the case record, so that either the conﬂation

continued, or the SCC was induced to try to fuse or harmonize the two doctrines to

See, e.g., John McCamus, The Law of Contracts, 2d ed. (Toronto: Irwin Law, 2012),

at 440 ff.

Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] S.C.J. No. 23, [1989] 1

S.C.R. 426, at 461 (S.C.C.).

S.M. Waddams, “Abusive or Unconscionable Clauses from a Common Law Perspec-

tive” (2010) 49 Can. Bus. L.J. 378, at 391.

John McCamus, The Law of Contracts, 2d ed. (Toronto: Irwin Law, 2012), at 444.

Douez v. Facebook Inc., [2017] S.C.J. No. 33, [2017] 1 S.C.R. 751, at paras. 113-114 (S.C.C.)

(Abella J.).

Karsales (Harrow) Ltd. v. Wallis, [1956] 1 W.L.R. 936.

ABB Inc. v. Domtar Inc., [2007] S.C.J. No. 50, [2007] 3 S.C.R. 461, at para. 82

(S.C.C.); Douez v. Facebook Inc., [2017] S.C.J. No. 33, [2017] 1 S.C.R. 751, at para. 112

(S.C.C.) (Abella J.); TELUS Communications Inc. v. Wellman, [2019] S.C.J. No. 19, [2019]

2 S.C.R. 144, at para. 85 (S.C.C.).

Heller v. Uber Technologies Inc., [2019] O.J. No. 1, [2019] ONCA 1, at paras. 60-62

(Ont. C.A.); Heller v. Uber Technologies Inc., [2018] O.J. No. 502, 2018 ONSC 718, at paras.

68, 75 (Ont. S.C.J.).

SUPREME COURT LAW REVIEW

prevent ongoing similar confusion in future cases. The troubles overviewed in the

last section regarding the means by which the Court sought to establish judicial

control of standard form terms all stem from this conﬂation.

The surest way to rectify this, and achieve the desired standard form term control,

would be to simply disambiguate the two doctrines, and use as the control the one

from the Hunter Engineering Co. v. Syncrude Canada Ltd. and Tercon Contractors

Ltd. v. British Columbia (Transportation and Highways) case-line designed for that

purpose on the model of controls elsewhere, including the judicial control in the

U.S. and the legislated control in Quebec.

It could be distinguished as the doctrine

of “unconscionable clauses”,

from the English-type doctrine of “unconscionable

bargains”.

The latter is still needed to deal with the different sorts of situations it

has traditionally been occupied with: enabling in exceptional circumstances for the

avoidance of transactions entered into through exploitation of a party under a special

disability.

With this in mind, it might be expected that the conﬂation of the two

unconscionability doctrines in Uber could result also in signiﬁcant changes to how

the conglomerate doctrine applies to situations other than unfair terms in standard

form contracts. Several elements of the judgment support that hypothesis.

Prior to Uber, the unconscionable bargains doctrine required that the complainant

suffered from a special disability such as “ignorance, need or distress”, “blindness,

deafness, illness, senility, or similar disability”.

Uber generalized and liberalized

the procedural condition to require only inequality of bargaining power.

This

change vastly expands the circumstances in which the doctrine can apply — as was

clearly intended.

The doctrine might then become of central signiﬁcance in

practice, supervising substantive unfairness where freedom of contract otherwise

invites unfairness in cases where there is inequality of bargaining power.

See notes 7 and 9.

From the title of UCC § 2-302, which inspired it: see note 9.

A name commonly used for it in England and other common law jurisdictions.

See note 16.

Morrison v. Coast Finance Ltd., [1965] B.C.J. No. 178, 55 D.L.R. (2d) 710, at 713

(B.C.C.A.); Cain v. Clarica Life Insurance Co., [2005] A.J. No. 1743, [2005] ABCA 437, at

para. 32 (Alta. C.A.).

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at paras. 62-68,

72 (S.C.C.). This was said to follow Norberg v. Wynrib, [1992] S.C.J. No. 60, [1992] 2 S.C.R.

226 (S.C.C.); however, Norberg used this merely to label the procedural condition, on whose

requirements it quoted Morrison v. Coast Finance Ltd., [1965] B.C.J. No. 178, 55 D.L.R. (2d)

710, at 713 (B.C.C.A.), which said the inequality had to “aris[e] out of” the special disabilities

quoted.

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at paras. 60,

82 (S.C.C.).

EVELOPMENTS IN CONTRACT LAW: THE 2020-2021 TERM – APPEALS TO FAIRNESS

It would greatly advance fairness in contracts if we could distinguish the normal

and appropriate use of bargaining power from its abuse — especially abuse to

systemically amplify pre-existing socio-economic disparities — and counter this.

The difficulty is that the doctrine’s effect is not to somehow make a contract more

fair. Rather, as one of Contract Law’s vitiating doctrines, it operates to rescind

transactions.

This effect is suitable for the doctrine’s traditional scope of application to

exceptional situations of exploitation of a special disability — quintessential cases

cited by Uber including “rescue at sea”, “ﬁnancial desperation” or cognitive

impairment.

Not exceptional in this way is inequality of bargaining power; indeed,

courts have observed that inequality of bargaining power attends almost every

contract.

It has been said, for instance, that “any individual wanting to borrow

money from a bank, building society or other ﬁnancial institution in order to pay his

liabilities or buy some property he urgently wants to acquire will have virtually no

bargaining power”.

As far as sources of inequality, the Uber majority added that

“differences in wealth, knowledge, or experience may be relevant, but inequality

encompasses more than just those attributes . . . There are no ‘rigid limitations’ on

the types of inequality that ﬁt this description.”

Hence, expansive is the scope of

contracts potentially meeting the procedural condition of the doctrine as modiﬁed by

Uber — and thus at risk of rescission. This signiﬁcantly reduces stability of contract.

And that is a foundational problem, for just as order is a precondition of justice,

stability of contract is a precondition of fairness and other virtues we might wish to

see reﬂected in markets or their regulation. Moreover, any disruption that occurs will

likely not be limited to exchange, as business arrangements of all kinds are planned

around the contracts that parties make and assume to be valid.

Reinforcing the points just made was another change in Uber, alluded to earlier:

the lowering of the bar of substantive unfairness required to trigger unconsciona-

bility.

Previously, qualiﬁers such as “gross” or “substantial” unfairness conveyed

this high bar.

Abella and Rowe JJ.’s rejection of the high bar, and endorsement of

Text to note 27.

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at paras. 69-71

(S.C.C.).

See, e.g., Floyd v. Couture, [2004] A.J. No. 377, [2004] ABQB 238, at para. 146 (Alta.

C.A.); Alec Lobb (Garages) Ltd. & Ors v. Total Oil (GB) Ltd., [1985] 1 W.L.R. 173, at 183

(Dillon L.J.).

Alec Lobb (Garages) Ltd. & Ors v. Total Oil (GB) Ltd., [1985] 1 W.L.R. 173, at 183

(Dillon L.J.).

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at para. 67

(S.C.C.).

Text to note 35.

Cain v. Clarica Life Insurance Co., [2005] A.J. No. 1743, [2005] ABCA 437, at para.

SUPREME COURT LAW REVIEW

the doctrine applying to unfairness simpliciter, further expands the number of

contracts subject to being rescinded as unconscionable.

The thinking behind the

adoption of this new position seems to have been that the rationales for deferring to

freedom of contract are absent where there has already been found to be an

inequality of bargaining power.

An inclination to see its value as attenuated in

circumstances where, in practice, freedom of contract substantially means the

freedom of one party to impose its will on the other, is understandable. But that

leaves the key question of what is the alternative? In some civil law jurisdictions,

including Quebec, prodigious use of legislated terms for nominate contracts

effectively circumscribes freedom of contract.

But this is not necessarily limited to

situations of inequality of bargaining power. And this approach’s cost in lost

freedom outside those situations, and the resulting constraints on market experi-

mentation and potential innovation, have never been welcomed in the common

law.

In the present context, the alternative in question is that courts condition the

validity of more contracts on an assessment of their substantive fairness, measured

to a ﬁne degree of precision. It is doubtful that courts have the institutional capacity

to accommodate a burden as onerous as that would be. And the subjectiveness of

fairness assessments at that degree of precision would invite opportunistic litigation,

which would exacerbate the burden on courts. All of this would come again at the

expense of the foundational interest in stability of contract. The traditional high bar

of substantive unfairness for unconscionability reﬂected the thinking that disrupting

stability of contract was unworkable other than exceptionally where the unfairness

was intolerable. Hence, even Lord Denning suggested that relief be restricted to

where the inequality of bargaining power was “grievous” and the substance “very”

unfair.

Another development in Uber with respect to unconscionable bargains was

elimination of the doctrine’s knowledge requirement. Traditionally, the doctrine

required that the defendant of the unconscionability claim knew, or perhaps ought

32 (Alta. C.A.); Morrison v. Coast Finance Ltd., [1965] B.C.J. No. 178, 55 D.L.R. (2d) 710,

at 713 (B.C.C.A.); Floyd v. Couture, [2004] A.J. No. 377, [2004] ABQB 238, at para. 150

(Alta. Q.B.); Rick Bigwood, “Antipodean Reﬂections on the Canadian Unconscionability

Doctrine” (2005) 84 Can. Bar Rev. 171, at 192, 194.

Text to note 35.

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at para. 59

(S.C.C.).

Civil Code of Québec, CCQ-1991, Book V, Title II.

Marcus Moore, Regulating Boilerplate: Resolving the Problems of Imposition and

Unfairness in Standard Form Contracts (Bloomsbury, forthcoming 2022).

Lloyds Bank Ltd. v. Bundy, [1975] 1 Q.B. 326, at 339; Marcus Moore, “Why Does Lord

Denning’s Lead Balloon Intrigue Us Still? The Prospects of Finding a Unifying Principle for

Duress, Undue Inﬂuence and Unconscionability” (2018) 134 L.Q.R. 257, at 274.

DEVELOPMENTS IN CONTRACT LAW: THE 2020-2021 TERM – APPEALS TO FAIRNESS

to have known, of its counterpart’s impairment.

But the majority in Uber found

such a requirement to be both unnecessary and improper.

Notably, a knowledge

requirement conﬂicted with Abella and Rowe JJ.’s reconception of unconscionabil-

ity as about protecting vulnerability, regardless of whether the other party had acted

unconscientiously or innocently.

As they wrote:

The purpose of unconscionability [is] the protection of vulnerable persons in

transactions with others . . . Unconscionability, in our view, is meant to protect

those who are vulnerable in the contracting process from loss or improvidence . . .

A weaker party, after all, is as disadvantaged by inadvertent exploitation as by

deliberate exploitation.

The signiﬁcance of a knowledge requirement had been to establish a minimum

level of wrongdoing by the party seeking to uphold the contract: even without a

more active form of exploitation, to conclude the contract knowing that its

counterpart was impaired, or perhaps knowing of circumstances that should have led

it to take steps that would have revealed that, was an unconscientious advantage-

taking.

Without this element, it comprised “strict liability”, as Brown J. put it, or

perhaps strict unenforceability.

In the view of Brown J., this change represented a

Mitchell McInnes, The Canadian Law of Unjust Enrichment and Restitution (Toronto:

LexisNexis, 2014), at 537, 544-548; John McCamus, The Law of Contracts, 2d ed. (Toronto:

Irwin Law, 2012), at 431; Rick Bigwood, “Antipodean Reﬂections on the Canadian

Unconscionability Doctrine” (2005) 84 Can. Bar Rev. 171, at 195; Marcus Moore, “Why

Does Lord Denning’s Lead Balloon Intrigue Us Still? The Prospects of Finding a Unifying

Principle for Duress, Undue Inﬂuence and Unconscionability” (2018) 134 L.Q.R. 257, at

273-78; Morrison v. Coast Finance Ltd., [1965] B.C.J. No. 178, 55 D.L.R. (2d) 710, at 714

(B.C.C.A.); Cain v. Clarica Life Insurance Co., [2005] A.J. No. 1743, [2005] ABCA 437, at

para. 32 (Alta. C.A.); Waters v. Donnelly, [1884] O.J. No. 294, 9 O.R. 391, at para. 59 (Ont.

H.C.J.); Downer v. Pitcher, [2017] N.J. No. 64, [2017] NLCA 13, at paras. 44-49 (N.L.C.A.);

Hart v. O’Connor, [1985] UKPC 17; Earl of Chesterﬁeld v. Janssen, [1751] 2 Ves. Sen. 125,

at 155; Earl of Aylesford v. Morris, [1873] L.R. 8 Ch. App. 484, at 490-91; Ayres v.

Hazelgrove, unreported, 1984; Charles Rickett, “Unconscionability and Commercial Law”

(2005) 24 U.Q.L.J. 73, at 78.

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at paras. 84-85

(S.C.C.). For an expanded discussion of this and related developments, see Marcus Moore,

“The Doctrine of Contractual Absolution” (2022) 59:4 Alta. L. Rev. (forthcoming).

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at paras. 60,

85 (S.C.C.).

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at paras. 60,

85 (S.C.C.).

See note 75.

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at para. 165

(S.C.C.).

UPREME COURT LAW REVIEW

“wholesale shift in the law”.

Theoretically, this seems hard to dispute: while there had been debate about how

much knowledge was required, and whether unconscionability required a more

active form of exploitation than knowledge, there was little suggestion the doctrine

omitted at least a requirement of knowledge in some form.

As there can be no

“inadvertent exploitation”, the dispensing of this requirement reestablishes the

Canadian doctrine of unconscionable bargains on a novel footing, outside the sphere

of exploitation inhabited by its sister doctrines found in other Commonwealth

jurisdictions.

Meanwhile, practical implications of the change include that parties will be at risk

of having contracts rescinded that the law agrees they had no reason to doubt the

validity of when they were made, and upon whose validity they have subsequently

relied.

As was colourfully stated long ago, “to make inadequacy of consideration

of itself a distinct principle of relief in equity . . . Courts of Equity . . . would

throw everything into confusion and set aﬂoat all the contracts of mankind.”

Indeed, a party that knows it is impaired could enter a contract, see how things go,

and later get a court to cancel it, despite the innocent reliance of its contracting

partner. That seems unfair.

For the reason just discussed, parties may even be

incentivized to conceal impairments. If so, it will increase the frequency with which

these problematic — indeed unconscionable — contracts will be made, and

unpredictably, rescinded.

In short, as a vitiating doctrine, unconscionable bargains is best suited to play a

vital but limited role in protecting fairness in contracts. To greatly expand its scope

of application, as happened in Uber, is worrisome on account of its detrimental

impact on stability of contract. Freedom of contract often must be abridged for the

sake of fairness. Certainty also frequently gives way to other considerations, which

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at para. 167

(S.C.C.).

Mitchell McInnes, The Canadian Law of Unjust Enrichment and Restitution (Toronto:

LexisNexis, 2014), at 544. McInnes cites Marshall v. Canada Permanent Trust Co., [1968]

A.J. No. 81, 69 D.L.R. (2d) 260 (Alta. S.C.) as one of the few cases possibly suggesting

otherwise.

See, e.g., Rick Bigwood, “Antipodean Reﬂections on the Canadian Unconscionability

Doctrine” (2005) 84 Can. Bar Rev. 171.

As noted by Brown J.: Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020]

SCC 16, at paras 166-167 (S.C.C.).

Griffıth v. Spratley (1787), 1 Cox. Eq. Cas. 383, at 388, 29 E.R. 1213, at 1215.

See, e.g., Peter Birks & Catherine Mitchell, “Unjust Enrichment” in Peter Birks, ed.,

English Private Law (Oxford: Oxford, 2000); Rick Bigwood, “Antipodean Reﬂections on the

Canadian Unconscionability Doctrine” (2005) 84 Can. Bar Rev. 171; Rick Bigwood,

Exploitative Contracts (Oxford: Oxford, 2004).

DEVELOPMENTS IN CONTRACT LAW: THE 2020-2021 TERM – APPEALS TO FAIRNESS

overall is manageable because departures from the parties’ reasonable expectations

are limited. But stability of contract cannot routinely be put in question. What good

to parties are contracts, if they might often, and unpredictably, be found unenforce-

able? What use is Contract Law if it fails to establish conditions allowing parties to

know when contracts they make will be enforced, and to plan accordingly? As

suggested earlier, regulations with a more measured effect are better suited than

vitiating doctrines to the routine protection of fairness in contracts.

3. Public Policy

As mentioned above, Brown J. preferred to address the fairness of the arbitration

clause in Uber not under unconscionability but as a matter of public policy.

The

doctrine of public policy, he submitted, is “fundamental” to Canadian Contract

Law.

Thus, although the parties had not argued it in the appeal, courts will

consider public policy of their own motion.

While parties generally enjoy freedom

of contract, there are limits on what they can bind themselves to; in such cases,

freedom of contract is overridden by public policy.

Courts can decline to enforce

contractual provisions that are contrary to public policy.

Dealing with the fairness of the arbitration clause using the doctrine of public

policy has contrasting effects in terms of how broad or narrow an approach it

represents to regulating the fairness of contracts. On one hand, as Côté J. argued,

public policy is vague and open-ended as a ground of exception to the general rule

of contract enforcement.

Justice Brown having criticized the majority’s approach

as harming stability of contract, he was keen to emphasize that courts have

cautioned against expanding the doctrine of public policy, that its existing

applications are well established, and that his reasons in Uber were a straightforward

application of existing law.

Whether public policy is itself circumscribed as an

See notes 7 and 72.

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at paras. 101,

106 (S.C.C.).

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, 2020 SCC 16, at para. 109

(S.C.C.), quoting Tercon Contractors Ltd. v. British Columbia (Transportation and Highways),

[2010] S.C.J. No. 4, [2010] 1 S.C.R. 69, at para. 116 (S.C.C.) (Binnie J.).

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at para. 106

(S.C.C.), citing Pro Swing Inc. v. Elta Golf Inc., [2006] S.C.J. No. 52, [2006] 2 S.C.R. 612,

at para. 59 (S.C.C.).

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, 2020 SCC 16, at para. 108

(S.C.C.), citing Millar Estate (Re), [1938] S.C.J. No. 41, [1938] S.C.R. 1, at 4 (S.C.C.).

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at para. 105

(S.C.C.).

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at paras. 307,

312, 316 (S.C.C.).

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16 at paras. 109,

UPREME COURT LAW REVIEW

exception to the rule of contractual enforcement may be doubted: on another

occasion, the Court remarked that public policy was “memorably described as an

unruly horse”.

That said, in my view Brown J. was correct in noting that in the

contexts where it does apply, it tends to furnish a “narrowly framed solution”.

Take for example the issue of unfair terms in standard form contracts, discussed

earlier. An approach based on public policy may be conﬁned to speciﬁc types of

clause. For example, previously, the Court had dealt in this way with exemption

clauses in Tercon Contractors Ltd. v. British Columbia (Transportation and

Highways), and forum selection clauses in Douez v. Facebook Inc.; in Uber, Brown

J. applied it to the arbitration clause, and the majority saw part of that clause’s

unfairness as its incorporation of a foreign choice of law provision.

Even if one

takes these instances as jointly embodying a common principle, the principle could

be drawn narrowly as a concern with impeding access to justice — which is indeed

how Brown J. describes the principle upon which he relied (as detailed below). This

framing corresponds with a special focus, in Margaret Radin’s recent work, on those

standard form terms whose effect is to impede access to justice.

But terms which

have that effect represent only a narrow subset of the term-types typically covered

by legislative and judicial controls addressing unfair standard form terms outside of

Canadian common law.

Presumably, a reason Abella J. argued in Douez v.

Facebook Inc. and a unanimous Court signalled in TELUS Communications Inc. v.

Wellman that it would move towards relying on unconscionability to control unfair

terms

100

— as the majority then did in Uber

101

— was to have a more general

fairness control for standard form terms, consistent with the more general approach

137 (S.C.C), citing Millar Estate (Re), [1938] S.C.J. No. 41, [1938] S.C.R. 1, at 4-7 (S.C.C.)

(see B. Kain & D.T. Yoshida, “The Doctrine of Public Policy in Canadian Contract Law” in

T.L. Archibald & R.S. Echlin, eds., Annual Review of Civil Litigation 2007 (2007) 1, at 17

and fn. 85).

Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), [2010]

S.C.J. No. 4, [2010] 1 S.C.R. 69, at para. 116 (S.C.C.).

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at para. 109

(S.C.C.).

Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), [2010]

S.C.J. No. 4, [2010] 1 S.C.R. 69 (S.C.C.); Douez v. Facebook Inc., [2017] S.C.J. No. 33,

[2017] 1 S.C.R. 751 (S.C.C.); Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020]

SCC 16, at para. 89 (S.C.C.).

Margaret Radin, Boilerplate: The Fine Print, Vanishing Rights, and the Rule of Law

(Princeton: Princeton, 2014).

Note 7.

100

Douez v. Facebook Inc., [2017] S.C.J. No. 33, [2017] 1 S.C.R. 751 (S.C.C.); TELUS

Communications Inc. v. Wellman, [2019] S.C.J. No. 19, [2019] 2 S.C.R. 144, at para. 85

(S.C.C.).

101

Putting aside its unfortunate conﬂation of the unconscionable clauses doctrine

EVELOPMENTS IN CONTRACT LAW: THE 2020-2021 TERM – APPEALS TO FAIRNESS

typical in other jurisdictions. By contrast, Brown J.’s approach of dealing with

unfairness discretely clause-type by clause-type through a series of speciﬁc

applications of public policy, is a narrower approach than unconscionability (as it

also was precedingly in Douez v. Facebook Inc. and Tercon Contractors Ltd. v.

British Columbia (Transportation and Highways)).

The previous paragraph alluded to the public policy principle upon which Brown

J. based his approach in Uber. In arriving at that principle, he started by asserting

that the right to a legal recourse is “inalienable even by the concurrent will of the

parties”.

102

Unless one could enforce one’s contractual rights, a contract was

self-evidently of no value.

103

To protect the integrity of the legal system and the

market, public policy therefore will not enforce terms which bar access to

dispute-resolution according to law.

104

To enforce such terms would enable the

denial of access to justice, which would in turn violate the rule of law.

105

Although at times the principles were stated in terms of court access, after

reviewing the history of the movement toward acceptance of arbitration, Brown J.

conﬁrmed that alternative dispute resolution (“ADR”) mechanisms may qualify,

provided they afford a comparable measure of justice.

106

This was the case for

arbitration under legislation that provides for a legally determined outcome, fair and

equal treatment of parties, and court oversight.

107

While the contract in Uber did not purport to exclude access to civil justice, that

was its effect, and there was no reason to distinguish between these.

108

Speciﬁcally,

the issue in Brown J.’s view — and the crux of his disagreement with Côté J. — was

applicable to these with the unconscionable bargains doctrine dealing with different

situations.

102

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at para. 110

(S.C.C.), quoting Scott v. Avery (1856), 5 H.L.C. 811, 10 E.R. 1121, at 1133.

103

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at para. 112

(S.C.C.).

104

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at paras.

110-112 (S.C.C.).

105

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at para. 111

(S.C.C.), citing B.C.G.E.U. v. British Columbia (Attorney General), [1988] S.C.J. No. 76,

[1988] 2 S.C.R. 214, at 230 (S.C.C.).

106

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at paras.

115-118 (S.C.C.); Desputeaux v. Éditions Chouette (1987) inc., [2003] S.C.J. No. 15, 2003

SCC 17, at para. 38 (S.C.C.); Hryniak v. Mauldin, [2014] S.C.J. No. 14, 2014 SCC 14, at para.

2 (S.C.C.); Sport Maska Inc. v. Zittrer, [1988] S.C.J. No. 19, [1988] 1 S.C.R. 564, at 581

(S.C.C.).

107

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at para. 118

(S.C.C.).

108

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at para. 113

(S.C.C.).

UPREME COURT LAW REVIEW

that he saw the arbitration clause in the case as in practice operating not to provide

for arbitration but to preclude it; as he wrote, “a measure intended to enhance access

to justice is now to be used as a tool for cutting off access to justice. That cannot be

right.”

109

The reason the clause had the effect of barring access to justice was because it

required an upfront fee that was substantial in proportion to the plaintiff driver’s

annual earnings under the contract, and grossly disproportionate to the amount of

any dispute reasonably likely under it.

110

Analogously to the court fees ruled an

unconstitutional barrier to access to justice in Trial Lawyers Assn. of British

Columbia v. British Columbia (Attorney General), the arbitration fees in Uber were

such a deterrent to initiating proceedings as to be indistinguishable from precluding

access altogether.

111

On this point, Brown J. noted that “during the hearing of this

appeal, Uber’s counsel would not concede that a clause requiring an upfront

payment of 10 billion dollars to commence a civil claim would necessarily be

equivalent to a brick wall standing in the way of dispute resolution.”

112

This deﬁant

stance surely boosted the plaintiff in respect of the outcome, by rendering the

difficult question of at what point costs become a barrier irrelevant to Uber’s

position.

113

To offer some general guidance, useful in other contexts regarding the question of

when costs become an unfair barrier, Brown J drew again on Trial Lawyers Assn. of

British Columbia v. British Columbia (Attorney General) to suggest that the test

would be whether the clause at issue would cause undue hardship for the party

wishing to bring a claim.

114

Further, he elaborated factors to consider in assessing

whether undue hardship is caused. These include: (1) whether the cost to pursue a

claim is disproportionate to the value of disputes likely to arise under the contract;

(2) whether there is compensation elsewhere in the contract for a term which

discourages access to low-value claims; (3) whether there was a disparity in

109

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at paras. 119,

138 (S.C.C.).

110

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at para. 132

(S.C.C.).

111

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, paras. 114,

120, 132 (S.C.C.); Novamaze Pty Ltd. v. Cut Price Deli Pty Ltd. (1995), 128 A.L.R. 540

(F.C.A.); Trial Lawyers Assn. of British Columbia v. British Columbia (Attorney General),

[2014] S.C.J. No. 59, 2014 SCC 59 (S.C.C.).

112

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at para. 114

(S.C.C.).

113

Indeed, Brown J. chided: “It is the rule of law, not the rule of Uber”: Uber

Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at para. 137 (S.C.C.).

114

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at para. 129

(S.C.C.). Trial Lawyers Assn. of British Columbia v. British Columbia (Attorney General),

[2014] S.C.J. No. 59, 2014 SCC 59, at para. 45 (S.C.C.).

EVELOPMENTS IN CONTRACT LAW: THE 2020-2021 TERM – APPEALS TO FAIRNESS

bargaining power between the parties; (4) whether the clause in issue is an

unnegotiated standard form clause; (5) whether the restrictions on access are tailored

to limit or offset prejudicial effects.

115

While these factors were seen to clearly line up behind the conclusion that the

clause in Uber was contrary to public policy, the analysis called for is complex and

its outcome harder to predict in less extreme cases. Elsewhere in his reasons, Brown

J. supported the view that certainty is important with regard to the validity of

arbitration clauses.

116

He submitted that his approach furthers certainty because it

only applies where the arbitration provided for is “arguably inaccessible”.

117

One

might question this, however: after all, the test is not inaccessibility, but hardship.

Precisely when hardship becomes undue, considering multiple factors, is not so

obviously certain. Further, Brown J. allowed that arbitration may justiﬁably require

signiﬁcant upfront costs, where warranted based on the context.

118

Thus, even

where it is accepted that a clause creates signiﬁcant impediments on access, a careful

contextual analysis may reveal that this hardship is not undue. At least in standard

form contracts, greater certainty might be achieved by a bright-line rule that

arbitration clauses are unenforceable. The provision along these lines for consumer

contracts in Ontario’s Consumer Protection Act reﬂects concerns of inequality of

bargaining power and information.

119

Taking this further, standard form terms are

not bargained and typically not even known. Dealing in this way with standard form

contracts would leave far fewer contracts in need of the more complex, less

predictable analysis above. And presumably, in the remaining cases consisting of

negotiated contracts, rarely would courts ﬁnd arbitration clauses (including ones

carrying signiﬁcant upfront fees) unenforceable. Such an approach would be more

conducive to certainty and better reﬂect contracting parties’ reasonable expectations

in each situation.

As to the remedy for a violation of public policy, Brown J. held that the only

appropriate remedy is to ﬁnd the clause unenforceable.

120

In particular, he rejected

Côté J.’s suggestion of blue pencil severance, noting that this is only permitted

where excising the illegal portion of the clause would not alter the meaning of the

115

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at paras. 131,

134-135 (S.C.C.).

116

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at paras.

126-128 (S.C.C.).

117

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at para. 126

(S.C.C.).

118

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at para. 130

(S.C.C.).

119

Consumer Protection Act, 2002, S.O. 2002, c. 30, Sched. A, s. 7(2).

120

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at para. 146

(S.C.C.).

UPREME COURT LAW REVIEW

portion left over, or distort the original intentions of the parties.

121

In this case, he

argued that it was the total effect of the clause that made it illegal, and moreover the

intention was illegal in that it was to dissuade the very claims likely to arise under

the agreement.

122

This completes the section of this article dealing with issues of fairness related to

the making of contracts. I now turn to fairness issues in the performance of

contracts.

III. FAIRNESS IN THE PERFORMANCE OF CONTRACTS

Playing a central role in supervising fairness in contractual performance is good

faith. During the 2020-2021 period, the Supreme Court released some prominent

decisions dealing with good faith. The good faith duty of honest performance was

clariﬁed in C.M. Callow Inc. v. Zollinger.

123

Shortly thereafter, the meaning and

contours of the duty to exercise contractual discretion in good faith were elaborated

by the SCC for the ﬁrst time in Wastech Services Ltd. v. Greater Vancouver

Sewerage and Drainage District.

124

A third case in which good faith was raised,

Matthews v. Ocean Nutrition Canada Ltd., is principally of signiﬁcance to

Employment Law, and is not discussed in detail in this article.

125

With respect to the

Law of Contract, I would simply note that the Court held in Matthews that the duty

to provide reasonable notice of dismissal is not in itself a matter of good faith, but

a free-standing duty. Good faith’s relevance was on the manner of dismissal, for

example, if done in a callous or insensitive way that would foreseeably cause harm,

in which case there could be separate damages on that basis.

126

1. Good Faith

The aforementioned SCC judgments in the 2020-2021 term dealt with good faith

in the common law context, where good faith was fairly recently substantially

121

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at paras. 140,

142 (S.C.C.); Shafron v. KRG Insurance Brokers (Western) Inc., [2009] S.C.J. No. 6, [2009]

SCC 6, at paras. 29, 32 (S.C.C.); Transport North American Express Inc. v. New Solutions

Financial Corp., [2004] S.C.J. No. 9, 2004 SCC 7, at para. 57 (S.C.C.), per Bastarache J.,

dissenting.

122

Uber Technologies Inc. v. Heller, [2020] S.C.J. No. 16, [2020] SCC 16, at paras.

142-146 (S.C.C.).

123

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45 (S.C.C.)

[hereinafter “Callow”].

124

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7 (S.C.C.) [hereinafter “Wastech”].

125

Matthews v. Ocean Nutrition Canada Ltd., [2020] S.C.J. No. 26, [2020] SCC 26

(S.C.C.).

126

Matthews v. Ocean Nutrition Canada Ltd., [2020] S.C.J. No. 26, [2020] SCC 26

(S.C.C.).

EVELOPMENTS IN CONTRACT LAW: THE 2020-2021 TERM – APPEALS TO FAIRNESS

reorganized in in Bhasin v. Hrynew.

127

The Court’s unanimous decision in Bhasin

continues to provide the overarching framework for good faith in Canadian common

law. As a major component of judicial supervision of fairness in the performance of

contracts, I now explain aspects of that superstructure relevant to the particular

developments that occurred in the term reviewed here.

Bhasin accepted “that there is an organizing principle of good faith that underlies

and manifests itself in various more speciﬁc doctrines governing contractual

performance”.

128

Good faith is therefore not itself a doctrine or rule of direct

application, but a broader principle that animates speciﬁc doctrines applicable in

different contexts. As Cromwell J. explained, good faith “is not a free-standing rule,

but rather a standard that underpins . . . more speciﬁc legal doctrines . . . in

different situations . . . Good faith may be invoked in widely varying contexts and

this calls for a highly context-speciﬁc understanding”.

129

As an underlying

principle, the role of good faith in Canadian common law, then, is that it “states in

general terms a requirement of justice from which more speciﬁc legal doctrines may

be derived”.

130

Speciﬁcally, it “exempliﬁes the notion that, in carrying out [one’s]

own performance of the contract, a contracting party should have appropriate regard

to the legitimate contractual interests of the contracting partner”.

131

Fairness in this

sense was distinguished from the ﬁduciary principle through the observation that

good faith “does not require acting to serve . . . interests” of the counterpart in

every case; “it merely requires that a party not seek to undermine those interests in

bad faith . . . Unlike ﬁduciary duties, good faith performance does not engage

duties of loyalty . . . or a duty to put the interests of the other contracting party

ﬁrst.”

132

The difference between good faith and bad faith was explained by the

observation that “parties generally must perform their contractual duties honestly

and reasonably and not capriciously or arbitrarily”.

133

It therefore serves to help

ensure that parties adhere to a basic standard of fairness in contractual performance.

Underpinned by this organizing principle of good faith, Bhasin recognized four

actual doctrines applicable to contracts generally: a duty of cooperation to achieve

the objects of a contract; a duty to exercise discretionary powers under a contract in

good faith; a duty not to evade one’s contractual duties; and a duty of honest

127

Bhasin v. Hrynew, [2014] S.C.J. No. 71, [2014] 3 S.C.R. 494 [hereinafter “Bhasin”].

128

Bhasin v. Hrynew, [2014] S.C.J. No. 71, [2014] 3 S.C.R. 494, at para. 63 (S.C.C.).

129

Bhasin v. Hrynew, [2014] S.C.J. No. 71, [2014] 3 S.C.R. 494, at paras. 64, 69 (S.C.C.).

See also John McCamus, The Law of Contracts, 3d ed. (Toronto: Irwin Law, 2020), at 923,

discussing the distinction between organizing principle and speciﬁc legal doctrine.

130

Bhasin v. Hrynew, [2014] S.C.J. No. 71, [2014] 3 S.C.R. 494, at para. 64 (S.C.C.).

131

Bhasin v. Hrynew, [2014] S.C.J. No. 71, [2014] 3 S.C.R. 494, at para. 65 (S.C.C.).

132

Bhasin v. Hrynew, [2014] S.C.J. No. 71, [2014] 3 S.C.R. 494, at para. 65 (S.C.C.).

133

Bhasin v. Hrynew, [2014] S.C.J. No. 71, [2014] 3 S.C.R. 494, at para. 63 (S.C.C.).

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performance.

134

The possibility of recognizing additional rules in the future,

applicable to contracts generally, was also left open for situations where “the

existing law is found to be wanting and where the development may occur

incrementally in a way that is consistent with the structure of the common law of

contract and giv[ing] due weight to the importance of private ordering and certainty

in commercial affairs”.

135

Bhasin also acknowledged the existence of duties of good

faith in special classes of contractual relation, in particular employment, insurance

and tendering.

136

The framework for good faith in Canadian common law set out in Bhasin, then,

was the background for the Court’s decisions in Callow, rendered in December

2020, and Wastech, rendered in February 2021.

(a) The Good Faith Duty of Honest Performance

Callow concerned the termination of a commercial services contract allegedly in

bad faith. Callow was under contract to the Baycrest condominium complex to

provide maintenance services. Callow wished to procure a renewal for a further

term, and discussions were held about this during which Baycrest actively misled

Callow that this was likely and Callow provided free extra services in hopes of

sealing the deal.

137

In fact, several months prior to this, Baycrest had become

unhappy with the services and had decided to terminate the existing contract early,

under a clause which allowed it do so on 10 days’ notice. But awaiting a more

opportune time to provide the notice, it withheld this information for many months

while deceiving Callow about the latter’s standing. As a result of the deception,

Callow had lost the opportunity to bid on other work for the period after the contract

with Baycrest was terminated, and had incurred expenses for maintenance equip-

ment needed for the work expected to be performed for Baycrest during that period.

Justice Kasirer, writing for a ﬁve-justice majority, and Brown J., in a concurring

opinion representing three justices, both held that Baycrest’s conduct breached the

good faith duty of honest performance. Justice Côté dissented, objecting to the trial

judge’s ﬁnding that Baycrest actively misled Callow.

Although the majority and concurring opinions in Callow agreed that the dispute

134

Bhasin v. Hrynew, [2014] S.C.J. No. 71, [2014] 3 S.C.R. 494, at paras. 47-48, 92

(S.C.C.).

135

Bhasin v. Hrynew, [2014] S.C.J. No. 71, [2014] 3 S.C.R. 494, at para. 66 (S.C.C.).

136

Bhasin v. Hrynew, [2014] S.C.J. No. 71, [2014] 3 S.C.R. 494, at paras. 54-56 (S.C.C.).

For more on these classes, see John McCamus, The Law of Contracts, 3d ed. (Toronto: Irwin

Law, 2020), at 922-23.

137

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at para. 39

(S.C.C.).

EVELOPMENTS IN CONTRACT LAW: THE 2020-2021 TERM – APPEALS TO FAIRNESS

could be resolved on the basis of the law as already established in Bhasin,

138

opportunity was seen to exist to clarify certain points pertaining to the duty of honest

performance.

139

This duty serves to protect parties against being unfairly deceived

or misled by their contracting partner about the performance of their contract.

Unlike in Bhasin, there were no outright lies in Callow. Thus, it was conﬁrmed (as

already stated in Bhasin) that other forms of conduct that actively mislead or deceive

a contracting partner qualify as dishonesty for purposes of the duty.

140

What all

counts as actively misleading or deceiving could not be comprehensively stated in

the abstract, as it is a “highly fact-speciﬁc determination”.

141

However, the

deception must be done knowingly, and may include half-truths, omissions, and

even silence where communication is necessary to correct a misapprehension by the

other party caused by one’s own prior misleading conduct.

142

Beyond this, it was

affirmed as earlier stated in Bhasin that the duty of honesty should not be taken to

impose a general duty of disclosure.

143

Justice Côté expressed concern that the

distinction between conduct that is actively misleading versus permissible non-

disclosure was “far from” clear, and argued that parties’ interests in contractual

certainty called for a duty of honesty that is clear and easy to apply.

144

To that end,

Brown J. suggested that courts use the well-established jurisprudence on misrepre-

sentation in drawing the same distinction. In his opinion, the standard for when

communication is necessary to correct a counterpart’s misapprehension is when the

party’s own conduct contributed to that misapprehension; Côté J. favoured an

apparently higher standard of materially contributing to the misapprehension.

145

Although Bhasin concerned dishonesty in relation to a contractual right (a right

of renewal), the duty of honesty had been described there as in relation to

contractual obligations. Hence, Kasirer J. also clariﬁed in Callow that the duty

138

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at paras. 44, 129

(S.C.C.).

139

See, e.g., C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at

paras. 30, 64, 121 (S.C.C.).

140

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at paras. 81, 121

(S.C.C.); Bhasin v. Hrynew, [2014] S.C.J. No. 71, [2014] 3 S.C.R. 494, at para. 87 (S.C.C.).

141

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at para. 91

(S.C.C.).

142

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at paras. 90-91,

130, 133 (S.C.C.).

143

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at paras. 81-82,

131-133 (S.C.C.); Bhasin v. Hrynew, [2014] S.C.J. No. 71, [2014] 3 S.C.R. 494, at paras. 73,

86 (S.C.C.).

144

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at paras. 197-199

(S.C.C.).

145

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at paras. 133, 201

(S.C.C.).

SUPREME COURT LAW REVIEW

equally applies to contractual rights (in this case, a right to terminate).

146

A related concern for the Court in Callow was to clarify the necessary link

between the dishonesty and performance of the contract, under the duty. On this, the

Court emphasized that the dishonesty and the performance must be “directly

linked”.

147

Here, Baycrest misled Callow into believing that the contract would be

renewed, and Callow inferred from this that the existing contract would not be

terminated. The justices seem not to have treated this inference as encompassed by

the requirement of a direct link between the dishonesty and the exercise of the

termination clause; however, because Callow’s inference was reasonable, it then fell

upon Baycrest to correct it — failing which its silence was dishonesty that did bear

directly on its exercise of the termination clause.

148

The above clariﬁcations of the duty of honesty pursued by the SCC in Callow also

spoke to questions about its scope and limits: the border between fair non-disclosure

and unfair silence that actively misleads; and the requirement that the dishonesty be

directly linked to exercise of a right or performance of an obligation under the

contract.

149

In the absence of such limits, as Kasirer J. acknowledged, “there would

simply be a duty not to tell a lie, with little to limit the potentially wide scope of

liability”.

150

The proper measure of damages for breach of the duty of honesty was disputed

between the majority and concurring opinions. Justice Kasirer held that breach of

the duty of honest performance gives rise to damages according to the usual

contractual measure of expectancy damages. These put the innocent party in the

position it would have been in had the contract been performed without being

breached — in such cases by breaching the duty of honesty imposed by the common

law.

151

Justice Brown, on the other hand, submitted that the damages to be awarded

are reliance damages compensating the innocent party for loss it suffered as a result

of detrimental reliance on the wrongful party’s dishonest representations about its

146

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at para. 42

(S.C.C.).

147

See, e.g., C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at

paras. 49, 51, 130 (S.C.C.).

148

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at paras. 37, 135

(S.C.C.). If in general the duty covers omitting to correct false but reasonable inferences about

performance drawn from misleading communication, one might question whether in practice

the duty is limited to dishonesty “directly” linked to performance.

149

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at paras. 49, 51

76-77, 121 (S.C.C.).

150

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at para. 49

(S.C.C.).

151

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at para. 109

(S.C.C.).

EVELOPMENTS IN CONTRACT LAW: THE 2020-2021 TERM – APPEALS TO FAIRNESS

performance. This followed from Brown J.’s conceptualization of the dishonesty not

as a defect in contractual performance but as an extra-contractual misrepresentation

concerning its performance.

152

The two justices agreed that in many cases the

damages would be the same by either measure.

153

Justice Kasirer further conceded

that there could be cases in which reliance damages would be necessary or

preferable, for example, in cases “where it would be difficult for the plaintiff to

prove the position they would have been in had the contract been performed”.

154

According to Brown J., in Bhasin itself, although what were spoken of were

expectancy damages, what were actually awarded were reliance damages: the

contract was fully performed and concluded. An expectancy interest in its renewal

was rejected by the Court, with Cromwell J. explaining that “it is a considerable

stretch, as I see it, to turn even a broadly conceived duty of good faith exercise of

the non-renewal provision into what is, in effect, a contract of indeﬁnite dura-

tion.”

155

The Bhasin Court noted the unfairness of this manner of contractual

performance, in that were it not for the dishonesty, the innocent party “would have

been able to retain the value of his business rather than see it, in effect,

expropriated”; thus, it awarded damages for the lost value of the business.

156

might be added that this also appears to be what the majority actually did in Callow:

the “expectation” damages awarded were from a hypothetical contract with a third

party, representing Callow’s “lost opportunity” to procure such a contract as a result

of its reliance on the dishonest statements by Baycrest.

157

Given Callow’s

affirmation of Bhasin’s position that breach of the duty of honesty in relation to the

date of renewal or termination does not allow a court to treat the contract as if its

term were extended beyond its point of termination according to the terms the

contract provides, it is difficult to see how such cases could be compensated by

expectancy damages. A meaningful damage award, commensurate with the fore-

seeable consequences of the breach, would be reliance damages based on the

deception unfairly causing a lost opportunity of a contract with some other party.

Presumably, for the Court to give effect rather to expectancy damages, it would have

to treat the contract indeed as if its term was extended — that the dishonesty created

152

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at para. 142

(S.C.C.).

153

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at paras. 108, 139

(S.C.C.).

154

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at para. 108

(S.C.C.).

155

Bhasin v. Hrynew, [2014] S.C.J. No. 71, [2014] 3 S.C.R. 494, at para. 90 (S.C.C.).

156

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at para. 143

(S.C.C.); Bhasin v. Hrynew, [2014] S.C.J. No. 71, [2014] 3 S.C.R. 494, at para. 109 (S.C.C.).

157

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at paras. 116-117

(S.C.C.). See also Bruce MacDougall, Misrepresentation and (Dis)Honest Performance in

Contracts, 2d ed. (Toronto: LexisNexis Canada, 2021), at 558-60.

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such an expectation, notwithstanding what the contract otherwise provided regard-

ing termination.

In Callow, the Court also considered the relationship between the duty of honesty

and the duty to exercise discretionary powers in good faith. Justice Kasirer cast them

as closely connected, explaining that both concern the unfair exercise of a

“contractual prerogative”.

158

To explain this, he drew on the civilian doctrine of

abuse of right, which provides that no right can be exercised in an abusive

manner.

159

Accordingly, he noted, “it is no answer to say that, because a right is

unfettered on its face, it is insulated from review as to the manner in which it was

exercised.”

160

Hence, although a contractual right may be drafted in a way that

depicts it as absolute, it is still constrained by the duty to exercise it honestly. The

duty of honesty fulﬁls a “limiting function” on how rights may be exercised,

subjecting them to a basic standard of fairness that they be exercised honestly.

161

Justice Brown disagreed that the duty of honesty concerns the manner in which

rights are exercised, describing it rather as consisting in dishonest representations

about contractual performance.

162

He observed that in the case at bar, for instance,

the dishonesty occurred at a time prior to the exercise of the termination clause.

163

In his view, what was to be emphasized was not a connection between the duty of

honesty and the duty to exercise discretionary powers in good faith, but their

distinction.

164

He noted that the duty of honesty may arise in other contexts not

involving the manner of a right’s exercise.

165

Of this debate, it seems to me that at least in cases where the dishonesty lies (no

pun intended) in representations about one’s performance, the view of Brown J. is

preferable. Consider the situation where a party misrepresents its performance to its

counterpart. For example, suppose a water leak damages premises. Anxious to have

remediation completed as soon as possible so it can move onto repairs, thus enabling

158

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at para. 51

(S.C.C.).

159

Civil Code of Québec, CCQ-1991, art. 7.

160

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at para. 68

(S.C.C.).

161

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at para. 68

(S.C.C.).

162

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at para. 177

(S.C.C.).

163

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at para. 177

(S.C.C.).

164

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at paras. 176-181

(S.C.C.).

165

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at para. 179

(S.C.C.).

EVELOPMENTS IN CONTRACT LAW: THE 2020-2021 TERM – APPEALS TO FAIRNESS

the tenant to return, the insurer regularly asks for updates from the remediator.

Anxious to get more work from the insurer by completing the work quickly, and

thinking it unlikely that there is mould, the remediator replies that remediation is

completed of water damage in the ﬂooring and walls, and that only the ﬁxtures

remain. The insurer then proceeds with the repairs to the walls and ﬂoor, and advises

the tenant that they can return. But the samples that the remediator had sent off for

mould testing at the outset then come back positive. The remediator tells the insurer

that there is mould, and that sections of the underﬂooring and walls will need to be

removed. As a result, the newly reﬁnished walls and ﬂoor will need to be cut out and

redone. It seems odd to describe the situation as that the remediator’s contractual

obligation — to remediate the ﬂoor and walls — was performed in a dishonest

manner. One could perhaps conceive of there being an implied term granting the

remediator a right to choose what updates to give the insurer prior to completing its

work, and hold this implied term to have been exercised dishonestly. Indeed, one

could say in every case that there is an implied term granting a party the right

(except as otherwise speciﬁed by the written contract) to choose what representa-

tions to make regarding its performance, and say that the duty of dishonesty

therefore concerns the manner in which that right is exercised. But Bhasin held that

the duty of honesty did not depend on an implied term; it was a rule of the common

law.

166

Either way, this is a convoluted and unintuitive way of describing the

unfairness.

There may be concern not to be seen as imposing obligations on the parties

outside the terms of their contract. But this is what Contract Law normally does

where it is regulating in any respect parties’ performance of contracts. For example,

the parties’ agreement may say nothing of the consequences of breach. But the

common law imposes a secondary obligation on a party found to be in breach to

remedy the breach, by paying expectancy damages or what other remedy the court

may order. The same is true of the obligation to compensate the innocent party for

consequential loss according to the principle in Hadley v. Baxendale. The parties’

agreement also may say nothing of frustration. But if the conditions for that

doctrine’s application are met, even if the parties speciﬁed what damages would be

paid in the event of breach, the party that did not receive the performance it was

promised may be obliged to forego those damages. Hence, concern about imposing

obligations not chosen by the parties would not seem to provide a compelling reason

for casting the duty of honesty as a wrongful exercise of a contractual right.

Relatedly, this way of depicting it might reﬂect concern about ensuring an

ascertainable scope to the duty of honesty’s expansion of potential contractual

liability. Characterizing it as contained within the rights and obligations agreed and

established by the contract gives it the appearance of being bounded — merely a

matter of how the already established rights are exercised and obligations dis-

charged. But substantively, characterizing the duty this way does not make it any

166

Bhasin v. Hrynew, [2014] S.C.J. No. 71, [2014] 3 S.C.R. 494, at para. 74 (S.C.C.).

UPREME COURT LAW REVIEW

more circumscribed; meanwhile, the artiﬁciality of this representation of it makes

the duty’s scope (and application) more uncertain. It seems more straightforward

just to say that the dishonesty must be about contractual performance. This suffices

to convey the point that dishonesty about other matters, or in general, is not covered

by the duty — that it does not amount simply to a “duty not to lie”.

Further delimiting the scope of the duty of honesty does not depend on whether

the dishonesty is framed as “in the exercise of” or as “about” a contractual

performance. A way of further delimiting its scope — and using an approach typical

of Contract Law (indeed an approach recently relied on by the SCC in a very

different context, in Ethiopian Orthodox Tewahedo Church of Canada St. Mary

Cathedral v. Aga

167

) — would be to focus on the intent to be legally bound.

168

The

question would then be: was it reasonable for the receiver of the statement to

interpret it as one the maker would intend that the recipient could legally rely on?

This question would also be asked in the case of misrepresentation. Here, there is a

potential problem in that Bhasin had said that “breach of the duty of honest

contractual performance does not require the defendant to intend that the false

statement be relied on”.

169

The meaning of this statement from Bhasin is not entirely

clear. If it means that the representor need not intend that the false statement could

be relied on, then this would conﬂict with the suggestion above that the intention to

be legally bound play a role in delimiting the duty. However, it would be surprising

if that were the meaning. One would expect, for instance, that a false statement that

is obviously a “puff” or said in jest would not breach the duty of honesty. A better

reading of the statement (and perhaps the more grammatical one) is that it means

that the representor need not intend that the false statement should be relied on. In

that case, it makes sense in referring to the inducement element of misrepresentation

that is not required of conduct which breaches the duty of honesty.

170

Given that Brown J. disagreed that the duty of honest performance concerns the

manner in which a right is exercised, it is hardly surprising that he further objected

to the recourse made by Kasirer J. to the civilian concept of abuse of right.

171

The

167

Ethiopian Orthodox Tewahedo Church of Canada St. Mary Cathedral v. Aga, [2021]

S.C.J. No. 22, 2021 SCC 22 (S.C.C.).

168

Objectively determined, as usual, by a reasonable person in the position of the party

to whom the statement is communicated.

169

Bhasin v. Hrynew, [2014] S.C.J. No. 71, [2014] 3 S.C.R. 494, at para. 88 (S.C.C.).

170

More problematic is Bhasin’s repetition of this statement as supposedly helping

distinguish the duty of honesty from estoppel. As estoppel does not require inducement, this

statement would seem to be an error. As it appears in the same paragraph as the virtually

identical statement distinguishing misrepresentation which, as just discussed, is more

understandable, perhaps it was reproduced twice (i.e., again regarding estoppel) accidentally.

171

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45 (S.C.C.): see the

reasons of Brown J. generally. He objected to a second recourse to Quebec civil law in

Wastech, in his concurring opinion co-authored with Rowe J. (Côté J. concurring).

DEVELOPMENTS IN CONTRACT LAW: THE 2020-2021 TERM – APPEALS TO FAIRNESS

present article on developments in Contract Law is not the place to discuss these

broader “methodological” questions on use of comparative law or of cross-

fertilization between Canada’s two systems of private law. However, it is possible

to address the more limited question of the utility of the reference made to the

doctrine of abuse of right in Quebec in illuminating the common law’s good faith

duty of honesty. As I hold a civil law degree besides a common law degree, and have

a comparative law formation as an alumnus of McGill’s trans-systemic law program,

it may be that I am not among the group of “unijural” common lawyers Brown J.

had in mind for whom he felt the reference to Quebec law was least useful.

172

Still,

for the reasons stated above, I did not ﬁnd the reference helpful in clarifying the duty

of honesty. That said, I did ﬁnd it helpful in relation to the duty to exercise discretion

in good faith. Breach of that good faith duty had been argued as an alternative claim

in Callow,

173

and thus was part of the record. Also, that good faith duty was at issue

in the Wastech case that was under reserve concurrently with Callow, and whose

release would shortly follow it. Thus, the discussion of abuse of right in Callow

likely had, in part, these factors in mind. Indeed, the civilian doctrine of abuse of

right was discussed again in Wastech by Kasirer J., writing there too for the majority.

In that case, he seemed to suggest that it was superﬂuous, as the duty to exercise

contractual discretion in good faith was already “uncontroversial[ly]” conceptual-

ized in common law jurisdictions as an abuse of a right (the right to exercise the

discretion).

174

However, I found the references useful with regard to the duty to

exercise discretion in good faith in supporting the more speciﬁc — and contentious

— claim (disputed by the concurring justices in Wastech) that even a discretion

which is cast as absolute is still subject to limitations if abused in bad faith. The civil

law-backed argument in Callow that any right (including ones not consisting in

exercise of discretion) can be unfairly exercised served to lay or soften the ground

in advance for the subsequent claim in Wastech that a discretion billed as unfettered

is in fact subject to limitations and can be unfairly exercised.

175

In terms of

non-discretionary rights, one general example would be taking advantage of

necessitous circumstances of a counterpart to extort a modiﬁcation.

176

This brings me to the proposition in Callow and Bhasin that damages are to be

measured by comparison to the “least onerous” means of good faith performance by

172

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at para. 163

(S.C.C.).

173

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at para. 33

(S.C.C.).

174

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 108 (S.C.C.).

175

Discussed in the next section.

176

American Law Institute, Restatement (Second) of Contracts (ALI, 1981) § 205 cmt

[e].

UPREME COURT LAW REVIEW

the party in breach.

177

This common law rule applies where there is a contractual

prerogative — that is, where the contract provides a party “alternative ways of

performing a contract at his option”.

178

Above, it was argued that breach of the duty

of honesty is not best understood as necessarily consisting in misuse of a contractual

prerogative. From this suggestion, it follows that the rule of measuring damages by

comparison to the least onerous means of good faith performance is not always

relevant to the duty of honesty. Callow is an example of where this rule is of dubious

application. Justice Kasirer reasoned that “[w]hile damages are to be measured

against a defendant’s least onerous means of performance, the least onerous means

of performance in this case would have been to correct the misrepresentation once

Baycrest knew Callow had drawn a false inference.”

179

The position of Brown J.

was similar.

180

However, the defendant correcting a misapprehension that it caused

through dishonesty is not a less onerous means of honest performance. By then, the

duty of honesty has already been breached. What Kasirer J. and Brown J. reference

is simply a way in which the defendant could have mitigated its liability by making

it unreasonable for the plaintiff to continue to rely on the prior dishonest

representation. Justice Kasirer observes that had Baycrest made the correction,

“Callow would have had the opportunity to secure another contract for the

upcoming winter.”

181

But suppose, for example, that the industry was characterized

by a short window of time in which maintenance contracts for the following season

are bid on and awarded. It may not have reduced Callow’s loss if Baycrest had

corrected its deception quickly, but the window of opportunity was already

closed.

182

Surely, Baycrest would still be liable for the full damages of Callow’s

unfairly lost opportunity.

183

It seems to me that the question of the least onerous means of performance is only

relevant under two cumulative conditions. First, the breach of the duty of honesty

must have been one that gives rise to expectancy damages. In cases like Bhasin and

177

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at paras. 114, 148

(S.C.C.); Bhasin v. Hrynew, [2014] S.C.J. No. 71, [2014] 3 S.C.R. 494, at para. 90 (S.C.C.).

178

Hamilton v. Open Window Bakery Ltd., [2003] S.C.J. No. 72, [2004] 1 S.C.R. 303, at

paras. 11-13 (S.C.C.).

179

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at para. 114

(S.C.C.).

180

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at para. 148

(S.C.C.).

181

C.M. Callow Inc. v. Zollinger, [2020] S.C.J. No. 45, [2020] SCC 45, at para. 114

(S.C.C.).

182

This may be particularly relevant in fast-moving markets like securities trading or in

situations where the dishonesty induces the other party past a point-of-no-return in relation to

some risk or opportunity (such as missing the annual window to bid on contracts with third

parties, in this example).

183

This, again, shows why in my view the damages to be awarded are reliance damages.

EVELOPMENTS IN CONTRACT LAW: THE 2020-2021 TERM – APPEALS TO FAIRNESS

Callow where the breach gives rise rather to reliance damages, the damages are

simply the loss unfairly caused to the innocent party in relying to its detriment on

the dishonest representation. It is irrelevant what the least onerous means of honest

performance was. Second, the contract had to be one where, as mentioned above, the

“defendant ha[d] alternative ways of performing a contract at his option”. In such

cases, the rule is needed in order to determine which of them supplies the benchmark

for measuring the expectancy against which the defendant’s performance fell short.

The classic discussion is that of Scrutton L.J. in Withers v. General Theatre Corp.

184

He gives two examples: (1) where a seller had an option to supply 800 to 1,200 tons

of a certain commodity — in this case, the damages will be measured by the

difference between his performance versus if he supplied 800 tons; and (2) where

the landlord who could determine a lease after seven, 14, or 21 years wrongfully

terminated it after ﬁve years — the damages assume the tenant had only two more

years of the lease to run.

185

Thus, in Bhasin, had the Court awarded expectancy

damages, this rule would have dictated that the damages be based on the agreement

ending at the three-year point, which would have resulted in no damages. In Callow,

it would have been based on the agreement ending in 10 days, again resulting in no

damages.

Next I turn to the duty to exercise contractual discretion in good faith, elaborated

in Wastech.

(b) The Duty to Exercise Discretion in Good Faith

The dispute in Wastech centred around whether a discretionary power in a

long-term contract had been exercised in bad faith. The corporation responsible for

waste disposal in Metro Vancouver (“Metro”) had a 20-year contract with Wastech

for waste hauling and disposal. By its terms, Wastech would be paid at different rates

depending on the volumes of waste sent to different disposal sites. The contract

provided that the allocation among the disposal sites was at Metro’s discretion.

Wastech had limited protection through provisions for adjustments in certain events,

such as compensation for small departures from a target annual proﬁt margin, and

prospective adjustments in case of larger or more sustained deviations.

186

Notably,

the contract did not guarantee Wastech its annual target proﬁt margin,

187

and the

parties had considered but failed to agree an additional mechanism that would

provide compensation for the impact of a large variance in one year’s waste

allocation.

188

In 2011, a sharp reallocation of waste ﬂows by Metro caused Wastech

184

Withers v. General Theatre Corp., [1933] 2 K.B. 536, at 548-50.

185

Withers v. General Theatre Corp., [1933] 2 K.B. 536, at 548–50.

186

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 124 (S.C.C.).

187

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 11 (S.C.C.).

188

Greater Vancouver Sewerage and Drainage District v. Wastech Services Ltd., [2018]

UPREME COURT LAW REVIEW

to fall well short of its target annual proﬁt margin.

189

Wastech argued that Metro

used its discretion unfairly to the prejudice of Wastech’s legitimate interests under

the contract.

Unanimously, the Supreme Court held that Metro’s exercise of its discretion over

the waste allocation was not in bad faith. Justice Kasirer again authored the majority

judgment, for six justices. Brown and Rowe JJ. (Côté J. concurring) agreed in the

result. However, they excepted to the treatment by Kasirer J. of certain issues,

including the scope of the duty to exercise contractual discretion in good faith, and

the relative authority of the terms of the contract in establishing the standard

according to which a breach of that duty should be assessed.

The existence of a duty to exercise contractual discretionary powers in good faith

had been recognized earlier in Bhasin.

190

However, prior to Wastech, the meaning

and content of that duty had yet to be elaborated.

191

The overarching signiﬁcance of

the Supreme Court’s judgment in Wastech is in ﬂeshing out the essential features of

what that duty requires in terms of fair treatment of one’s contracting partner.

Elaborating the meaning and content of the duty to exercise contractual discretion

in good faith ﬁrstly required settling on a basis for assessing what fairness in this

context required. Prior to Wastech, this was unclear.

192

For example, there was

authority for the proposition that the discretion had to be exercised reasonably.

193

B.C.J. No. 684, 2018 BCSC 605, at para. 56 (B.C.S.C.).

189

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at paras. 15-18 (S.C.C.).

190

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at paras. 47-50, 89 (S.C.C.).

191

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7 at paras. 59, 129.

192

John McCamus, The Law of Contracts, 3d ed. (Toronto: Irwin Law, 2020), at 932-42.

193

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at paras. 65-67, 129 (S.C.C.); Bhasin v. Hrynew, [2014] S.C.J. No.

71, [2014] 3 S.C.R. 494, at para. 50 (S.C.C.); Mitsui & Co. (Canada) Ltd. v. Royal Bank of

Canada, [1995] S.C.J. No. 37, [1995] 2 S.C.R. 187 (S.C.C.); Greenberg v. Meffert, [1985]

O.J. No. 2539, 50 O.R. (2d) 755, at 763 (Ont. C.A.); 2123201 Ontario Inc. v. Israel Estate,

[2016] O.J. No. 2756, 2016 ONCA 409, at para. 28 (Ont. C.A.); LeMesurier v. Andrus, [1986]

O.J. No. 2371, 54 O.R. (2d) 1, at 7 (Ont. C.A.); Jack Wookey Hldg. Ltd. v. Tanizul Timber

Ltd., [1988] B.C.J. No. 534, 27 B.C.L.R. (2d) 221, at 225 (B.C.C.A.); Canadian National

Railway Co. v. Inglis Ltd., [1997] O.J. No. 4728, 36 O.R. (3d) 410, at 415-16 (Ont. C.A.);

Marshall v. Bernard Place Corp., [2002] O.J. No. 463, 58 O.R. (3d) 97, at para. 26 (Ont.

C.A.); Shelanu Inc. v. Print Three Franchising Corp., [2003] O.J. No. 1919, 64 O.R. (3d)

533, at para. 96 (Ont. C.A.); Filice v. Complex Services Inc., [2018] O.J. No. 3642, 2018

ONCA 625, at para. 38 (Ont. C.A.); Abu Dhabi National Tanker Co. v. Product Star Shipping

Ltd. (The “Product Star”) (No. 2), [1993] 1 Lloyd’s Rep. 397, at 404 (Eng. C.A.), per Leggatt

L.J.; Renard Constructions (ME) Pty Ltd. v. Minister for Public Works (1992), 26 N.S.W.L.R.

DEVELOPMENTS IN CONTRACT LAW: THE 2020-2021 TERM – APPEALS TO FAIRNESS

However, the meaning of reasonableness in this context was itself undetermined.

194

Meanwhile, there was also precedent that the duty called for the discretion not to be

exercised “arbitrarily or capriciously”.

195

Some support existed for the claim that

the discretion had to be exercised “honestly” — including as part of the case history

in Wastech, in the approach of the arbitrator.

196

Another common take on the duty

was that it meant that the holder of the discretion was to be restrained from

exercising it for an improper purpose.

197

In a different vein, a number of cases had

held that a contractual discretionary power is exercised in bad faith where it is used

to nullify the beneﬁt of the bargain for the other party.

198

Also, the duty had been

said to target abuse of contractual discretion “contrary to community standards” of

fairness.

199

Faced with this variety of ways of understanding the meaning of the duty to

exercise contractual discretion in good faith, the Supreme Court unanimously

234, at 258 (C.A.), per Priestley J.A.; A. Mason, “Contract, Good Faith and Equitable

Standards in Fair Dealing” (2000) 116 L.Q.R. 66, at 76; J.D. McCamus, “Abuse of

Discretion, Failure to Cooperate and Evasion of Duty: Unpacking the Common Law Duty of

Good Faith Contractual Performance” (2005) 29 Adv. Q. 72, at 80; John McCamus, The Law

of Contracts, 3d ed. (Toronto: Irwin Law, 2020), at 937; J.M. Paterson, “Good Faith Duties

in Contract Performance” (2014) 14 O.U.C.L.J. 283, at 284, 299 and 302; A. Gray,

“Development of Good Faith in Canada, Australia and Great Britain” (2015) 57 Can. Bus.

L.J. 84, at 113; Stephen Waddams, The Law of Contracts, 7th ed. (Toronto: Canada Law

Book, 2017), at para. 503.

194

John McCamus, The Law of Contracts, 3d ed. (Toronto: Irwin Law, 2020).

195

Greenberg v. Meffert, [1985] O.J. No. 2539, 50 O.R. (2d) 755, at 763 (Ont. C.A.);

Bhasin v. Hrynew, [2014] S.C.J. No. 71, [2014] 3 S.C.R. 494, at para. 63 (S.C.C.); British

Telecommunications Plc. v. Telefónica O2 UK Ltd., [2014] UKSC 42, at para. 37.

196

John McCamus, The Law of Contracts, 3d ed. (Toronto: Irwin Law, 2020), at 942;

Canada Egg Products Ltd. v. Canadian Doughnut Co., [1955] S.C.J. No. 25, [1955] S.C.R.

398 (S.C.C.); Shelanu Inc. v. Print Three Franchising Corp., [2003] O.J. No. 1919, 64 O.R.

(3d) 533 (Ont. C.A.); Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage

District, [2021] S.C.J. No. 7, 2021 SCC 7, at para. 55 (S.C.C.).

197

John McCamus, The Law of Contracts, 3d ed. (Toronto: Irwin Law, 2020), at 943.

Aleyn v. Belchier (1758), 1 Eden 132, 28 E.R. 634; Mesa Operating Limited Partnership v.

Amoco Canada Resources Ltd., [1994] A.J. No. 201, 149 A.R. 187 (Alta. C.A.); Greenberg

v. Meffert, [1985] O.J. No. 2539, 50 O.R. (2d) 755 (Ont. C.A.).

198

Gateway Realty Ltd. v. Arton Holdings Ltd., [1991] N.S.J. No. 362, 106 N.S.R. (2d)

180, at paras. 38, 58 and 60 (N.S.S.C.-T.D.); Mesa Operating Limited Partnership v. Amoco

Canada Resources Ltd., [1994] A.J. No. 201, 149 A.R. 187, at para. 22 (Alta. C.A.);

Klewchuk v. Switzer, [2003] A.J. No. 785, 2003 ABCA 187, at para. 33 (Alta. C.A.); G.H.L.

Fridman, The Law of Contract in Canada, 6th ed. (Toronto: Carswell, 2011), at 530.

199

Gateway Realty Ltd. v. Arton Holdings Ltd., [1991] N.S.J. No. 362, 106 N.S.R. (2d)

180 (N.S.S.C.-T.D.).

UPREME COURT LAW REVIEW

endorsed the improper purpose conception.

200

In arriving at this conclusion, Kasirer J. explained that nulliﬁcation of a beneﬁt

describes a result, and does not in itself speak to whether that result was necessarily

caused by action that was in breach of the duty to exercise contractual discretion in

good faith — or of any other contractual duty.

201

Hence, this was not the measure

of breach of the duty to exercise discretion in good faith, nor a prerequisite for

ﬁnding that the duty was breached.

202

I add that the Court’s disfavour of that focus

appears consistent with its earlier move away from the doctrine of fundamental

breach, which was likewise focused on whether the plaintiff was substantially

deprived of the beneﬁt of a bargain.

203

The Court did not overtly respond to the “community standards” of fairness

theory of exercising discretion in good faith. However, a deﬁnite rejection of that

approach is perhaps implicit in Kasirer J.’s concern to avoid “ad hoc judicial

moralism”.

204

More broadly, the Court emphasized that the duty “does not reﬂect

the imposition of external standards on the exercise of discretion, but rather giving

effect to the standards inherent in the parties’ own bargain.”

205

And Kasirer J. added

that the duty — and the organizing principle of good faith more broadly — are

“anchored” by the notion of corrective justice,

206

not by principles of distributive

justice such as what the court would ﬁnd to be “morally opportune or wise . . . from

a business perspective”.

207

The implicit rejection of the community standards of

fairness approach can be seen as consistent with the Court’s avoidance in Uber of

the “community standards of commercial morality” approach to unconscionability

200

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at paras. 4, 68-71, 115 (S.C.C.).

201

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 83 (S.C.C.), citing A. Swan, J. Adamski & A.Y. Na,

Canadian Contract Law, 4th ed. (Toronto: LexisNexis, 2018), at § 7.73.

202

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at paras. 82, 84 (S.C.C.).

203

Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), [2010]

S.C.J. No. 4, [2010] 1 S.C.R. 69 (S.C.C.); Hunter Engineering Co. v. Syncrude Canada Ltd,

[1989] S.C.J. No. 23, [1989] 1 S.C.R. 426 (S.C.C.).

204

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 74 (S.C.C.), quoting Bhasin v. Hrynew, [2014] S.C.J. No.

71, [2014] 3 S.C.R. 494, at para. 70 (S.C.C.).

205

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at paras. 131, 75 (S.C.C.).

206

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at paras. 111-112 (S.C.C.).

207

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 73 (S.C.C.).

EVELOPMENTS IN CONTRACT LAW: THE 2020-2021 TERM – APPEALS TO FAIRNESS

from Harry v. Kreutziger.

208

On the need to exercise contractual discretion honestly, the Court seemed to take

the view that this was a matter for the duty of honest performance that was the good

faith doctrine at issue in Callow.

209

A discretionary power, like any other contractual

right, was by that duty bound to be exercised honestly.

210

The concurring opinion

read the majority as holding that courts should assess whether the duty of honesty

has been breached as a “preliminary step” to analyzing potential breach of the duty

to exercise discretion in good faith. Brown and Rowe JJ. objected to that

proposition, worried that it conﬂated the two duties.

211

However, this is not my

reading of what the majority was saying: where in the passage complained of,

Kasirer J. had written “beyond the requirement of honest performance, to determine

whether a party failed in its duty to exercise discretionary power in good faith

. . .”,

212

he probably did not intend to prescribe a sequential analysis of the two

duties. Instead, it is likely that he simply meant that it already having been discussed

that exercising a discretionary power dishonestly would breach the duty of honesty,

there are other ways a discretionary power could be exercised that will breach the

duty to exercise discretion in good faith. It is true that in his opinion, Kasirer J. did

ﬁrst assess whether Metro breached the duty of honesty before assessing whether it

breached the duty to exercise discretion in good faith. However, this is readily

explained by the fact that the arbitrator had found Metro’s conduct to be

“dishonest”.

213

If Kasirer J. had meant to direct courts to analyze the duties

sequentially, one would expect the judgment to have said so more plainly and

directly, as generally his opinion is clearly written and shows no hesitation to

underline points of potential signiﬁcance.

As with the need to exercise discretion honestly, the Court in Wastech agreed that

good faith required that discretion be exercised in a way that is not arbitrary or

capricious.

214

This implies that there must be some mode of exercising the

208

Harry v. Kreutziger, [1978] B.C.J. No. 1318, 95 D.L.R. (3d) 231, at paras 27-28

(B.C.C.A.), per Lambert J.A.

209

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at paras. 54, 137 (S.C.C.).

210

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 54 (S.C.C.).

211

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 115 (S.C.C.).

212

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 69 (S.C.C.).

213

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 26 (S.C.C.). For a different reading of these comments of

Kasirer J., see Bruce MacDougall, Misrepresentation and (Dis)Honest Performance in

Contracts, 2d ed. (Toronto: LexisNexis Canada, 2021), at 524.

214

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

UPREME COURT LAW REVIEW

discretion that would not be arbitrary or capricious. And that in turn suggests that

there existed some guidelines for the exercise of the discretion. In that regard, the

Court endorsed the view of the UKSC in British Telecommunications Plc. v.

Telefónica O2 UK Ltd. that the purpose of the discretion provides these guidelines:

Although capriciousness and arbitrariness have sometimes been referred to inde-

pendently of improper purpose, I agree with the Supreme Court in Telefónica that

a capricious or arbitrary exercise of a discretionary power is an example of such a

power being exercised contrary to that standard. When seeking to demonstrate that

discretion was exercised capriciously or arbitrarily, one necessarily considers

contractual purposes by showing that discretion was exercised in a manner

unconnected to the underlying contractual purposes for which the power was

conferred.

215

Thus, also citing the views of John McCamus, Hugh Collins, Lord Sales (writing

extrajudicially) and others, the majority decisively held the duty to exercise

contractual discretion in good faith to mean that the discretion be exercised

consistently with the purposes for which it was conferred.

216

This was the

“touchstone” for assessing fairness in this context.

217

The test is whether the

exercise of the discretion fell “outside the range of choices” connected to “the

purpose for which the contract granted discretion . . . If so, the party has not

exercised the contractual power in good faith.”

218

The stated conceptualization of

the meaning and content of the duty is also consistent with the American position.

219

And it was supported by the concurring opinion in Wastech: “we agree that the

purpose of a discretion is the proper focus of the good faith analysis.”

220

That said,

likely in order to underscore that analogies should not be drawn to construction of

purpose in Public Law,

221

Brown and Rowe JJ. preferred in lieu of the word

S.C.J. No. 7, 2021 SCC 7, at para. 86 (S.C.C.).

215

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 87 (S.C.C.).

216

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at paras. 68-72 (S.C.C.).

217

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 70 (S.C.C.).

218

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at paras. 71, 69 (S.C.C.).

219

S.J. Burton & E. Andersen, Contractual Good Faith: Formation, Performance,

Breach and Enforcement (Boston: Little, Brown and Co., 1995), at 57.

220

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 115 (S.C.C.).

221

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para 68 (S.C.C.). On construction of purpose in Public Law, see

Marcus Moore, “R. v. Safarzadeh-Markhali: Elements and Implications of the Supreme

DEVELOPMENTS IN CONTRACT LAW: THE 2020-2021 TERM – APPEALS TO FAIRNESS

“purpose” the phrase “shared reasonable expectation” of the parties.

222

Moreover,

they suggested that one cannot always reliably interpret the purpose of a contractual

discretion (a point to be discussed further below).

223

Having decided that the duty to exercise contractual discretion in good faith

meant that the holder of the discretion should not abuse it for an improper purpose,

it remained for the Court to specify how the purpose of a contractual discretionary

power should be ascertained. The Court explained that this was a matter of

interpreting the contract. Where the purpose emerged from applying the ordinary

principles of contractual interpretation, the majority and concurring opinions agreed

that this supplied the answer.

224

But where the purpose is not evident from this, as

the discretion is simply cast as general, the majority held that the court itself must

ascertain the limits of the power. The majority presented this as still a matter of

construction: in those cases, “it is necessary . . . to form a broad view of the

purposes of the venture to which the contract gives effect, and of what loyalty to that

venture might involve for a party to it, and to take those broad purposes as providing

the inherent limits for the exercise of the power.”

225

The concurring opinion

objected. In its view, this went beyond construction, and represented “the imposi-

tion, post facto, of a judicial view”. This, they said, distorted the bargain and

infringed on freedom of contract.

226

The dispute among the opinions on this point can perhaps be illuminated by

looking by analogy at different elements of the law on terms implied-in-fact: The

guidance given by Kasirer J. can be compared with the business efficacy test for

terms implied-in-fact, wherein courts decide whether an obligation unmentioned by

Court’s New Rigorous Approach to Construction of Statutory Purpose” (2017) 77 S.C.L.R.

(2d) 223.

222

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 131 (S.C.C.), citing Mesa Operating Limited Partnership

v. Amoco Canada Resources Ltd., [1994] A.J. No. 201, 149 A.R. 187, at para. 19 (Alta. C.A.);

J.T. Robertson, “Good Faith as an Organizing Principle in Contract Law: Bhasin v. Hrynew

— Two Steps Forward and One Look Back” (2015) 93 Can. Bar Rev. 809, at 839; J. Steyn,

“Contract Law: Fulﬁlling the Reasonable Expectations of Honest Men” (1997) 113 L.Q.R.

433, at 434.

223

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at paras. 131-133 (S.C.C.).

224

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at paras. 76, 131 (S.C.C.).

225

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 72 (S.C.C.), quoting Philip Sales, “Use of Powers for

Proper Purposes in Private Law” (2020) 136 L.Q.R. 384, at 393. See also Hugh Collins,

“Employment as a Relational Contract” (2021) 137 L.Q.R. 426, at 435-36.

226

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 132 (S.C.C.).

SUPREME COURT LAW REVIEW

the parties might be necessary to give effect to the purpose of the contract.

227

Drawing this analogy is far from strained, as Kasirer J. himself observed that “on the

facts of this case, a duty on Metro to exercise its discretion in good faith”, had it not

been applicable as a general common law duty, would have been “necessary to give

business efficacy to the Contract”.

228

And similarly to Kasirer J. characterizing the

majority’s approach to ascertaining the content of the duty as a matter of

construction, terms implied-in-fact under the business efficacy test are said to arise

from the “presumed intention of the parties”.

229

The law presumes that the parties

intended that their agreement should be effective for the purposes for which they

created it, and if a term unexpressed by the parties is necessary to that, the court will

treat the term as implied. One assumes that Brown and Rowe JJ. accept this settled

position of the common law on terms implied-in-fact. Thus I wonder whether their

concern was perhaps misidentiﬁed in casting it as merely about construing broad

purposes tied to the objectives of a contract.

230

Indeed, they themselves state that

where a contract “reﬂects a shared reasonable expectation as to the manner in which

a discretion may be exercised, that expectation will be enforced”.

231

This is a

similarly broad assessment, and whether framed in reliance-terms as about the

parties’ expectations of the contract or in voluntarist-terms as about the parties’

contractual intentions, either way the judge is bound to draw inferences about what

the contract was to do, and how that relates to whether a certain exercise of

discretion was contemplated. This is reinforced by their later statement, this time

using the voluntarist language preferred by Kasirer J., that “the purpose of a

discretion is . . . deﬁned by the parties’ intentions, as revealed by the contract”.

232

Continuing with the implied terms analogy, a separate rule provides that a term

will not be implied if it conﬂicts with the express terms of the contract.

233

In the

context of terms implied-in-fact, this rule protects against the concerns voiced by

Brown and Rowe JJ. about a court’s construction of a contract’s broad purposes and

associated presumption of party intention being permitted to distort a bargain or

227

Moorcock (The), [1889] 14 P.D. 64.

228

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 92 (S.C.C.).

229

Moorcock (The), [1889] 14 P.D. 64.

230

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 132 (S.C.C.).

231

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 131 (S.C.C.). See in another context of contracts requiring

cooperation Hugh Collins, “Employment as a Relational Contract” (2021) 137 L.Q.R. 426, at

435.

232

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 133 (S.C.C.).

233

Marks and Spencer plc v. BNP Paribas Securities Services Trust Company (Jersey)

Ltd. & Anor, [2015] UKSC 72, at para. 28.

DEVELOPMENTS IN CONTRACT LAW: THE 2020-2021 TERM – APPEALS TO FAIRNESS

override freedom of contract. What Brown and Rowe JJ. seem keen to ensure is that

“where a contract discloses a clear intention to grant a discretion that can be

exercised for any purpose, courts . . . must give effect to that intention”, and

likewise that if parties “choose to specify the purpose for which a discretion has

been granted . . . their intention should be given effect and not subverted”.

234

In my

view, what this calls for is a rule, like that constraining implication of terms, that no

limitation on a contractual discretion be held to exist that conﬂicts with a clear

intention by the parties to exclude such a limitation.

235

As for the propriety of

construing the broad purposes of a contract, it is inevitable that there will be cases

in which it is this which shows that a certain limit on a discretion necessarily exists,

just the same as in implication it is often this which reveals the necessary existence

of an entirely unexpressed term. Indeed, it might be better to think of those limits

on a discretion ascertained by reference to the contract’s broad purposes as the result

of implication, as distinct from the limits ascertainable by straightforward interpre-

tation. However, I will leave consideration of this proposition aside here, in order to

avoid causing confusion in light of Kasirer J. stating, on the separate issue of how

the duty to exercise discretion in good faith arises, that it is not an implied term but

a common law rule.

236

A situation deserving of special attention is clauses which purport to confer

unfettered discretion. As mentioned in the preceding paragraph, Brown and Rowe

JJ. submitted that courts must give effect to that. Indeed, they said further that “with

careful drafting, parties can largely immunize the exercise of discretion from

review” as to compliance with the duty to exercise discretion in good faith.

237

contrast, the majority was of the view that “even unfettered, the discretionary power

will have purposes that reﬂects [sic] the parties’ shared interests and expectations,

which purposes help identify when an exercise is” unconnected to these and hence

breaches the duty.

238

Justice Kasirer, citing Bhasin, Angela Swan et al. and Lord

Sales, went on to explain that:

234

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 133 (S.C.C.).

235

Putting aside whether this exclusion might violate other rules of law.

236

The referenced statement of Kasirer J. pertains to what he calls the “source” of the

duty, as distinct from the “content” of the duty, which as mentioned earlier, he said was to

be determined by interpretation. I am suggesting that further consideration be given in the

future to whether those cases in which he said the limits of a discretion cannot be determined

by an ordinary exercise of interpretation, but only by looking at a contract’s broad purposes,

might be better understood as having been determined by implication (according to the

business efficacy test for terms implied-in-fact).

237

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 133 (S.C.C.).

238

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 62 (S.C.C.).

UPREME COURT LAW REVIEW

it is difficult to imagine any party wishing to confer . . . untrammelled power on

its contracting partner. For this reason, when contracting parties confer a discre-

tionary power, even without any apparent constraining criteria or conditions, courts

have long recognized that the “natural inference” is that they intend some minimum

constraints on the exercise of the discretion. . . those minimum constraints include

the expectation that the parties will not exercise their discretion in a manner

unconnected to the purposes for which it was granted, for example in a capricious

or arbitrary manner [references omitted].

239

Thus, the majority reject the suggestion, implicit in the position of the concurring

opinion, that the purpose could simply be to confer an unfettered discretion. This

would be to license limitless unfairness, including maliciously motivated. On this

question of whether there could be a fully unfettered discretion, it is perhaps of note

that in Wastech itself, the contract had framed the power conferred on Metro

regarding waste allocation as “absolute discretion”.

240

The majority, consistent with

its position just described, did not give effect to this; it said it needed to look further

at the contract as a whole, and concluded that the purpose was to allow Metro

ﬂexibility to allocate waste in a way that would be efficient and minimize costs.

241

Interestingly, Brown and Rowe JJ. seemed to agree: they took note of the contract’s

careful drafting,

242

but did not argue that Metro’s exercise of its purportedly

“absolute” discretion should be immunized from review. Nor, in enumerating their

disagreements with the majority, did they include Kasirer J.’s construction of the

discretion held by Metro in the case.

243

Indeed, similarly to Kasirer J., they held that

“the parties contemplated that Metro could exercise the discretion so as to advance

its own interests”, which were efficiency and least cost.

244

Thus, in practice they did

not treat Metro’s “absolute discretion” as simply that, and beyond review.

On this issue of absolute discretion, it seems to me that the position espoused by

the majority in principle, also adhered to by the concurring justices in practice,

239

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 92 (S.C.C.); Philip Sales, “Use of Powers for Proper

Purposes in Private Law” (2020) 136 L.Q.R. 384, at 387; see also A. Swan, J. Adamski &

A.Y. Na, Canadian Contract Law, 4th ed. (Toronto: LexisNexis, 2018), at § 8.304; Bhasin v.

Hrynew, [2014] S.C.J. No. 71, [2014] 3 S.C.R. 494, at para. 45 (S.C.C.).

240

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 13 (S.C.C.).

241

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at paras. 97-99 (S.C.C.).

242

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 134 (S.C.C.).

243

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 115 (S.C.C.).

244

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 135 (S.C.C.).

EVELOPMENTS IN CONTRACT LAW: THE 2020-2021 TERM – APPEALS TO FAIRNESS

reﬂects good sense. After all, a discretion is provided for a reason. As Ronald

Dworkin famously wrote: “Discretion, like the hole in a doughnut, does not exist

except as an area left open by a surrounding belt of restriction ... It is therefore a

relative concept. It always makes sense to ask, ‘Discretion under which standards’.”

And as Todd Rakoff argues, to say the reason was to give one party absolute power

over the other is offensive to our fundamental value of equality.

245

Indeed, to

suggest that this is the reason for a discretionary power only raises larger concerns

of possible unfair imposition — whether via standard form contracts, in which such

clauses are common

246

— or circumstances such as duress, undue inﬂuence or

unconscionability. As Kasirer J. said, “it is difficult to imagine any party” in a

contracting process not afflicted by issues such as those just mentioned agreeing to

confer “untrammelled power” on its counterpart. Reading a clause in this sort of

literalist way is not consistent with the reasonable expectations of business-

people.

247

Nor does it reﬂect a correct application of the principles of contractual

interpretation.

248

Assuming the discretion is created for some other reason, then,

that reason is — to use Brown and Rowe JJ.’s terms — what was “contemplated”

by the parties, and affects their “reasonable expectations”. Moreover, even if several

purposes are contemplated, it is unrealistic to suppose that the parties could have

contemplated every purpose conceivable, let alone approved of them all. As Collins

explains, good faith “enables a court to control discretionary decisions . . . where

the power is used for a purpose not originally expected by the subject of the

power”.

249

This provides a minimum standard of fairness in contractual perfor-

mance that courts will expect parties to adhere to, as part of the legal protections

needed around market exchange.

Justice Kasirer’s invocation of arbitrary or capricious exercises of discretion is an

apt example of unlikely reasons for which to provide for a contractual discretion.

Thus, for instance, a law faculty may want wide discretion to decide which courses

it will ask a professor to teach, so that it can factor in considerations such as course

enrolment, other available instructors, experience, workload, leaves, etc. But its

discretion should not be construed as unfettered in the sense that it could decide this

245

Ronald Dworkin, Taking Rights Seriously (London: Bloomsbury, 2013), at 48 (ﬁrst

published in 1977); Todd Rakoff, “Contracts of Adhesion: An Essay in Reconstruction”

(1983) 96 Harv. L. Rev. 1173.

246

Todd Rakoff, “Contracts of Adhesion: An Essay in Reconstruction” (1983) 96 Harv.

L. Rev. 1173.

247

Stewart Macaulay, “Non-contractual Relations in Business: A Preliminary Study”

(1963) 28 American Sociological Rev. 55.

248

Sattva Capital Corp. v. Creston Moly Corp., [2014] S.C.J. No. 53, [2014] 2 S.C.R.

633 (S.C.C.).

249

H. Collins, “Discretionary Powers in Contracts” in D. Campbell, H. Collins & J.

Wightman, eds., Implicit Dimensions of Contract: Discrete, Relational and Network

Contracts (Oxford: Hart Publishing, 2003) 219, at 223.

UPREME COURT LAW REVIEW

based on consulting a Magic 8 Ball, nor based on personal rivalry or vindictiveness.

Thus, in my view, an expressed intent to make a discretion absolute is more

realistically to be understood as an intent to exclude limitations that might otherwise

be reasonably expected to apply, such as having to make a decision based on one

prominent consideration, or the need to consult a contracting partner or take its

interests into account. In Wastech, for example, the arbitrator was persuaded that the

latter sort of expectations existed due to the long-term and cooperative aspects of the

contract; the Supreme Court explained that the “wide” discretion given to Metro

regarding the disputed waste allocation should be understood as excluding those

expectations.

250

Another question to be answered regarding the duty to exercise contractual

discretion in good faith was the status of the duty: did it exist as an implied term in

parties’ contracts, or was it a common law rule? As the Court had earlier held with

respect to the good faith duty of honest performance,

251

the duty to exercise

discretion in good faith was likewise said to be a general common law doctrine.

252

Two reasons were given for the conclusion that the duty was a common law rule:

ﬁrst, that consistency with the status of the duty of honest performance enhances the

law’s coherence; and second, that the law presumes that parties would not intend a

discretion to truly be unlimited.

253

While both of these propositions may readily be

accepted, neither provides an especially compelling reason for holding that the

status of the duty is a rule of law rather than a term. More compelling are the policy

reasons that inhere in the consequences of that determination: establishing the duty

as a general legal doctrine makes the duty applicable to discretionary powers in

every contract.

254

Its presence does not depend on whether or not the parties

provided for it in fact (expressly or by implication), nor on whether or not the

contract is a standard type in which such a term would by default be implied-by-law.

The duty simply applies by operation of law. By thus assuring its application to all

contracts, the duty creates a minimum standard of fair conduct constraining abuse

of contractual discretionary powers. As well, the duty’s status as a rule of law means

it cannot be excluded by the express terms of a contract, as it could if it were an

implied term.

255

This too is helpful, in guarding against the risk of the minimum

250

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at paras. 135, 101 (S.C.C.).

251

Bhasin v. Hrynew, [2014] S.C.J. No. 71, [2014] 3 S.C.R. 494, at para. 74 (S.C.C.).

252

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at paras. 91, 94 (S.C.C.).

253

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 94 (S.C.C.).

254

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 94 (S.C.C.).

255

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 94 (S.C.C.).

DEVELOPMENTS IN CONTRACT LAW: THE 2020-2021 TERM – APPEALS TO FAIRNESS

standard of fair conduct the duty requires in the exercise of discretionary powers

being carved out of those contracts where discretion is most likely to be abused,

through express terms excluding the duty being pushed on parties of little bargaining

power, or inserted among the form terms of contracts of adhesion.

Looming over some of the issues just discussed is the degree of party autonomy

over permissible exercises of contractual discretion. As mentioned earlier, Brown

and Rowe JJ. espoused an especially strong view of this, including that parties can

control the standard by which the exercise of a discretion is measured by specifying

its purpose, or largely immunize the exercise of a discretion from review by

specifying that it is unfettered. The majority also deferred extensively to party

autonomy, rejecting as discussed above, external measures of fairness such as

community standards, commercial morality or a judicial appraisal. As Kasirer J. saw

it, the duty gave effect to party intention by upholding their reasonable expectations

that a discretionary power would not be used for an ulterior purpose than that set by

the parties themselves.

256

Moreover, for parties who might wish to craft their

agreement in a manner that would retain the most party sovereignty over permissible

exercises of a provided discretion, Kasirer J. gave at least some guidance on how

different possible formulations would be treated by courts assessing compliance

with the duty:

the following comment [provides] a general guide. For contracts that grant

discretionary power in which the matter to be decided is readily susceptible of

objective measurement — e.g., matters relating to “operative ﬁtness, structural

completion, mechanical utility or marketability” — the range of reasonable

[exercises] will be relatively smaller. For contracts that grant discretionary power

“in which the matter to be decided or approved is not readily susceptible [to]

objective measurement — [including] matters involving taste, sensibility, personal

compatibility or judgment of the party” exercising the discretionary power — the

range of reasonable [exercises] will be relatively larger.

257

A misconception of the duty to exercise contractual discretion in good faith that

both opinions were keen to dispel was that it necessarily required that the party

holding the discretion exercise it in a way that would not harm the interests of the

other party. The arbitrator accepted this proposition,

258

which derived from the

statement in Bhasin that “a contracting party should have appropriate regard to the

legitimate contractual interests of the contracting partner.”

259

However, as the Court

emphasized in Wastech, that statement could not be read in isolation: Bhasin had

256

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at paras. 92-93 (S.C.C.).

257

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 77 (S.C.C.).

258

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at paras. 26-28 (S.C.C.).

259

Bhasin v. Hrynew, [2014] S.C.J. No. 71, [2014] 3 S.C.R. 494, at para. 65 (S.C.C.).

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gone on to say that the meaning of “appropriate regard” and “legitimate interests”

of the other party would vary with the context,

260

and “does not require acting to

serve those interests in all cases”.

261

Indeed, Cromwell J. had expressly said in

Bhasin that “a party may sometimes cause loss to another — even intentionally —

in the legitimate pursuit of economic self-interest”; what it could not do is “seek to

undermine those interests in bad faith”.

262

For this reason, Brown and Rowe JJ. had

said that the dispute in Wastech required no more than a straightforward application

of the principles from Bhasin.

263

Perhaps most importantly, Bhasin had also been clear that the principle above is

“not a free-standing rule, but rather a standard that underpins and is manifested in

more speciﬁc legal doctrines” that are what directly govern the various situations in

which arise disputes about whether parties had performed a contract in good

faith.

264

Thus far, repetition and emphasis of this point from Bhasin has not

succeeded in it being universally understood that in Canadian common law, good

faith is not a general duty, but a general concept that helps explain and inform a

number of speciﬁc and discrete doctrines. The above articulation of the principle is

not directly applicable to a dispute, but serves at most — and alongside other

statements from Bhasin, such as those above — to guide application of the actual

doctrines within their own speciﬁc terms. The confusion about this is a major factor

in the extent of litigation over good faith that has followed Bhasin, and the

uncertainty observed as surrounding it in practice. For example, Geoff Hall has

written extensively on this uncertainty. It seems to me, however, that Hall treats the

organizing principle as if it were an actual doctrine; as if there were a general duty

of good faith.

265

Inadequately attending to this distinction between a duty or

doctrine on one hand, and an organizing concept or principle on the other, in my

view contributes more than anything to the uncertainty around good faith. One

observes, for instance, that freedom of contract is more readily understood as only

a principle or value, not in itself a rule that one can raise as a defence or as an

immunity from other rules. And invocation of that principle is not seen as leading

to problematic uncertainty. The relative novelty of good faith as a general principle

in Canadian common law may therefore be a factor in this confusion. Either way, it

may serve to highlight that good faith is a way of thinking about what kind of

260

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 52 (S.C.C.).

261

Bhasin v. Hrynew, [2014] S.C.J. No. 71, [2014] 3 S.C.R. 494, at para. 65 (S.C.C.).

262

Bhasin v. Hrynew, [2014] S.C.J. No. 71, [2014] 3 S.C.R. 494, at paras. 70, 65 (S.C.C.).

263

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021]

S.C.J. No. 7, 2021 SCC 7, at para. 116 (S.C.C.).

264

Bhasin v. Hrynew, [2014] S.C.J. No. 71, [2014] 3 S.C.R. 494, at para. 64 (S.C.C.)

(emphasis added).

265

Geoff R. Hall, Canadian Contractual Interpretation Law, 3d ed. (Toronto: LexisNexis

Canada, 2016), s. 2.4.5.

EVELOPMENTS IN CONTRACT LAW: THE 2020-2021 TERM – APPEALS TO FAIRNESS

conduct is unfair in the performance of contracts.

266

IV. CONCLUSION

In conclusion, a number of signiﬁcant developments relevant to fairness in

Contract Law transpired in the 2020-2021 Supreme Court term. These included

changes in the law and/or the elaboration of details applicable to control of unfair

terms in standard form contracts, unconscionability, public policy, and the good faith

duties of honest performance and of proper exercise of contractual discretion. As

detailed here, the cases’ discussion of all these matters leave unﬁnished business,

and it will be interesting to see how the jurisprudence evolves with respect to

remaining questions and problems going forward. As well, additional issues of

fairness in contracts exist and are continually emerging; hence it is welcome to see

the Supreme Court of Canada placing a priority on this important interest in judicial

regulation of markets, with their wide-ranging and profound effects on society.

266

In certain cases, good faith might also apply at the negotiation stage. But arguably

such cases could be conceptualized as a matter of performance under an implicit contract

related to the further potential contract under negotiation.

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