Finding Good Faith in Basic Contract Law

Good faith is a key aspect of contract law, as noted in a recent British Columbia Court of Appeal ruling.

In Amacon Alaska Development Partnership v ARC Digital Canada Corp (2023 BCCA 34) the court considered the application of the duty of honesty and fair dealing as initially adopted by the Supreme Court of Canada in Bhasin v Hrynew (2014 SCC 71) to a commercial lease.

The facts of the case involved a landlord who at first reneged on an agreement for an early termination of the lease, then after the early termination date had passed, reversed its position and claimed that the tenant was wrongfully overholding, and not entitled to part of the early termination compensation.

At trial, the landlord had been found, among other things, to have acted in bad faith. One of the issues raised by the landlord on appeal was that the trial judge had abandoned traditional principles of contract law, and had instead used good faith principles to “leap over contract law in a single bound”.

The British Columbia Court of Appeal disagreed with this characterization. Rather, the court found that the principles of good faith form part of basic contract law. Applying these principles to the conduct of the landlord, the trial judge correctly found that the landlord had failed to perform its contractual obligations in an honest and reasonable manner.

One “take-away” from this decision is that the duty of honesty and fair dealing is a not a principle which exists outside of contract law, but is rather an underlying principle which forms part of every contract. As such, in a commercial lease dispute the court will review the actions of the parties in light of this underlying principle.

For more information about commercial leasing, please contact Peter J. Anderson.