In 2014, the Supreme Court of Canada delivered a seminal decision, Bhasin v Hrynew (Bhasin), on common law duties of contractual performance. Earlier discussions on the case can be found here and here. In the Bhasin decision, the Court established a general obligation of good faith in the performance of contracts, and a duty of “honest performance”, which applies to all contracts and requires parties to act honestly with one another in relation to the performance of their contractual obligations.
In a more recent case, Lavrijsen Campgrounds Ltd. v Reville (Lavrijsen), the Ontario Superior Court of Justice held that parties should exercise caution when they choose to withhold certain information in the context of contractual performance. In Lavrijsen, a decision which concerned the sale of campground property and operation, the parties entered into a share purchase agreement whereby the vendor provided a warranty to prepaid rentals and deposits and agreed to credit the purchaser post closing if the actual number of prepaid deposits fell below the warranty. The transaction closed and an adjustment was made upon closing for prepaid deposits. The document provided by the vendor was inadequate and did not disclose enough information for the purchaser to compute the adjustment accurately. It was not until a year after the closing, upon closer review of the company data that the purchaser realized she was entitled to a much higher adjustment than credited based on the warranty.
At trial, the vendor admitted that he had withheld customer balance details to the purchaser, but claimed that he would have disclosed the pertinent information had the purchaser asked. Counsel for the defendant vendor argued that this is not a case of intentional misrepresentation.
Relying on the principles established in Bhasin, Justice Kent found that the active non-disclosure of the vendor to be intentional misrepresentation and thus the vendor breached the duty of honesty.
Lavrijsen arguably extended the duty of honesty established under Bhasin; when carrying out contractual obligations, parties must not withhold material information or selectively disclose information on top of their obligations not to lie or knowingly mislead each other.
The author would like to thank Lucy Lui, articling student, for her assistance in preparing this legal update.
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