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Contract - Duty of Good Faith - General. Derenzis v. Ontario
In Derenzis v. Ontario (Ont CA, 2025) the Ontario Court of Appeal partially allowed an appeal, this brought against a number of different R21 striking pleading grounds in an MVA tort context.
The court considers the contractual 'duty of good faith', insofar as the SABS rules form part of the insurance contract:4. Did the motion judge err in striking Derenzis’ claim for breach of good faith?
[26] The motion judge struck the breach of good faith claims for three reasons: (1) the appellants do not claim damages for breach of contract, and since breach of good faith is not “a freestanding cause of action,” it is “untethered” and cannot proceed; (2) the SABS do not form part of the contract of insurance; and (3) there was no contractual relationship pleaded between the appellants and the respondent Gore employees.
[27] While the motion judge correctly noted that there was no contractual relationship between the appellants and the employees of Gore, she erred when she found that the appellants had not claimed that there were breaches of contract by Gore. Although lacking particulars, the alleged breaches of contract are contained in the amended statement of claim. It is pleaded that there was a contract of automobile insurance with Gore with various terms, including the requirement to provide payments pursuant to the SABS. It is pleaded that Gore breached its contractual obligations to provide medical records to the assessors (para. 33), that it altered reports (paras. 36-37), and that it “breached its contractual and good faith obligation to provide assessors all relevant information and documentation” (para. 38). The obligation to provide relevant information to assessors is set out in s. 44(9)(1) of the SABS.
[28] Further, it is pleaded that when Gore received the appellant Derenzis’ application for a determination of catastrophic impairment, it breached its good faith obligation to comply with the SABS and instead, arranged further examinations (paras. 81, 82). The appellants specifically claim damages for breaching the SABS, inducing breaches of contractual terms and for breaching their duty of good faith obligations to reasonably adjust benefit claims (para. 117).
[29] The motion judge erred when she determined that the appellant Derenzis is not claiming damages for breach of contract. While the particulars are lacking at times, read generously in favour of the plaintiff with allowances for drafting deficiencies, it is clear that the appellants are claiming breaches of the contract of insurance: see McCreight v. Canada (Attorney General), 2013 ONCA 483, 116 O.R. (3d) 429, at para. 39. The motion judge’s conclusion that the breach of good faith allegations could not stand in the absence of claims for breach of contract was therefore incorrect. Furthermore, an insurer has an independent contractual obligation to deal with all claims in good faith: Fidler v. Sun Life Assurance Co. of Canada, 2006 SCC 30, [2006] 2 S.C.R. 3, at para. 63; Stegenga v. Economical Mutual Insurance Co., 2019 ONCA 615, 147 O.R. (3d) 65, at para. 55. The pleading, if amended to include particulars, would be sufficient to ground the claims against Gore rooted in alleged breaches of good faith.
[30] The motion judge’s error was compounded by her finding that the SABS do not form part of the contract of insurance. That is incorrect in law: see Insurance Act, s. 268(1); Warwick v. Gore Mutual Insurance Co. (1997), 1997 CanLII 1732 (ON CA), 32 O.R. (3d) 76 (C.A.) at pp. 80-83. The motion judge relied on Yang v. Co-operators General Insurance Company, 2021 ONSC 1540, aff’d 2022 ONCA 178, leave to appeal refused, [2022] S.C.C.A. No. 141, for the proposition that the SABS do not form part of the contract of insurance. Without deciding the question of which portions of the SABS form part of the insurance contract — an issue not adequately addressed or argued by the parties — it is clear that every motor vehicle liability policy is deemed to provide for the benefits included in the SABS, per s. 268 of the Insurance Act; see also Yang, at para. 29. To the extent Derenzis’ claims arise from a breach of the contractual obligation to provide those benefits, the motion judge erred in relying on Yang to strike that part of the claim. Moreover, the facts of Yang were very different because in that case, the plaintiff had settled her claims with the defendant insurer and was pursuing other individuals with whom she had no contractual relationship. There was therefore no claim against the insurer for alleged breaches of the duty of good faith. Ordinarily, claims for breach of the SABS including claims for breach of the duty of good faith would lie within the LAT’s exclusive jurisdiction: Stegenga, at para. 54. Since the constitutional challenge to s. 280 of the Insurance Act was not struck, however, it is not plain and obvious that these claims are doomed to fail. Derenzis should be granted leave to amend to properly plead her breach of contract and breach of good faith claims against Gore. . Icetrading Inc. v. Trayanov
In Icetrading Inc. v. Trayanov (Ont CA, 2025) the Ontario Court of Appeal allowed an appeal, here brought against "orders arising from a motion for summary judgment in favour of the respondents".
Here the court considers the contractual 'duty of good faith', finding that courts must specify which aspect of that broad duty they rely upon (here, it was 'honesty'):[20] The motion judge grounded that duty in the appellants’ promise to “proceed expeditiously with an application to convert the property”, by applying the authorities of Dynamic Transport Ltd. v. O.K. Detailing Ltd., 1978 CanLII 215 (SCC), [1978] 2 S.C.R. 1072, at p. 1084, and John E. Dodge Holdings Ltd. v. 805062 Ontario Ltd. (2003), 2003 CanLII 52131 (ON CA), 63 O.R. (3d) 304 (C.A.), at para. 23. Those cases held that such obligations may be implied in appropriate cases where a party promises to bring about an event.
[21] The law relating to good faith in contract law has evolved since these decisions were rendered, as a result of the Supreme Court of Canada’s decision in Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494. In Bhasin, at para. 33, Cromwell J. explained that “good faith contractual performance is a general organizing principle of the common law of contract which underpins and informs the various rules in which the common law, in various situations and types of relationships, recognizes obligations of good faith contractual performance”. In para. 64, Cromwell J. clarified that the organizing principle is “not a free-standing rule”. Therefore, it is inaccurate for judges to speak generally about the “duty of good faith.” They must instead identify the legal rule derived from the organizing principle of good faith that they are relying upon.
[22] Bhasin recognized that one of the rules that derives from the good faith principle imposes “a common law duty which applies to all contracts to act honestly in the performance of contractual obligations”: Bhasin, at para. 33. Based on the motion judge’s analysis, I understand him to have found that by not making timely disclosure that the conversion plan was futile, the appellants breached their duty to act honestly in the performance of their contractual obligations. . 6844987 Canada Inc. v. The United People of Canada/Les Peuple Unis du Canada [good faith versus express terms]
In 6844987 Canada Inc. v. The United People of Canada/Les Peuple Unis du Canada (Sup Ct, 2022) the court considered the interaction between a contractual 'time is of the essence' provision and the duty of good faith:[53] In Deangelis v. Weldan Properties (Haig) Inc., 2017 ONSC 4155, at paras. 41 to 43, Justice Ricchetti explained why the enforcement of “time is of the essence” clauses in commercial agreement of purchase and sale does not violate the principle that a contracting party must act in good faith:It would be tempting to let principles of fairness and equity direct a finding that a three day delay in the closing in the four year history of the Agreement, is a minor breach resulting in a financial windfall to the builder and, therefore, the Agreement should be upheld.
However, in my view, it would be wrong in law to find that insisting on compliance with a term of the agreement, agreed to by both parties with the assistance of counsel, amounts to bad faith depriving a party of the ability to strictly enforce an agreement where time is of the essence. Such a determination would mean that no party could insist on strict compliance of the term of an agreement because to do so would or might amount to bad faith. This would throw the law of contract into chaos by creating uncertainty in the enforcement of contracts.
Such a decision would also be contrary to numerous authorities which provide that, when a party fails to comply with its obligation to complete the transaction at a specified time and there is a time of the essence clause, the other party has the right to terminate the agreement. . Stericycle ULC v. HealthPRO Procurement
In Stericycle ULC v. HealthPRO Procurement (Ont CA, 2021) the Court of Appeal considered the contractual duties of good faith and honesty:[43] The organizing principle of good faith in contractual dealings was addressed in Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494 and expanded upon in C.M. Callow Inc. v. Zollinger, 2020 SCC 45, 452 D.L.R. (4th) 44 and Wastech Services Ltd. v. Greater Vancouver Sewage and Drainage District, 2021 SCC 7, 454 D.L.R. (4th) 1. In these decisions, the Supreme Court recognized two existing doctrines as manifestations of the principle of good faith – the duty to exercise a contractual discretion in good faith and the duty of honest performance of a contract.
[44] The duty to exercise a contractual discretion in good faith will be breached where the exercise of discretion is unreasonable, in the sense that it is unconnected to the purposes for which the discretion was granted: Wastech, at para. 88. The duty of honesty in contractual performance was explained by Cromwell J. in Bhasin as meaning “simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract”: at para. 73. . Pinto v. Regan and White v. Regan
In Pinto v. Regan and White v. Regan (Div Ct, 2021) the Divisional Court considered issues of duress and the contractual duty of good faith in ordering a new hearing based on an RTA agreement to terminate a tenancy:[38] The facts on each appeal suggest that the respondent’s intention to obtain vacant possession of each unit on a permanent basis without having to give notice to each appellant under s. 50 was behind each transaction. The real substance of those transactions was not considered by the Member on either motion. Nor did the Member consider if the respondent was acting in good faith when he interacted with each appellant to obtain their signatures on the N11.
[39] The Supreme Court of Canada in Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494, established the organizing principle of good faith applicable to all contracts. This principle requires the performance of contractual duties and obligations honestly, not capriciously or arbitrarily, and with regard to the legitimate contractual interests of the other party: see Bhasin, at paras. 63 and 65. The relationship between a tenant and a landlord is contractual in nature and requires that they discharge the obligations they owe to one another in good faith. This duty of good faith includes how the parties conducted themselves toward each other at the end of that relationship.
[40] Section 202 of the RTA imposed a statutory duty on the Member to determine questions of fact and to apply governing principles of law to ascertain the real substance of the transactions and activities regarding the rental units at issue, and the good faith of the parties to the N11. The Member did not consider all the evidence to determine the element of good faith on the part of the respondent other than making a passing reference in the Reasons. The Member did not take the totality of the evidence into account when he applied the substantive law. This amounted to an error of law. . Royal Bank of Canada v. Peace Bridge Duty Free Inc.
In Royal Bank of Canada v. Peace Bridge Duty Free Inc. (Ont CA, 2025) the Ontario Court of Appeal dismissed an appeal, here from a commercial tenant's motion (in an application) denial of "rent adjustment or abatement" under a 'material adverse effect' negotiation lease provision, during the COVID pandemic.
The court considers whether the lease negotiation provision imposed any substantive duty of the landlord to actually reach a rent adjustment, here under the contractual doctrine of good faith:(3) Did the motion judge err in finding that the Landlord did not breach its duty of honest performance in negotiating a rent adjustment under s. 18.07?
[53] The parties acknowledge that they were required to fulfill their obligations under s. 18.07 of the lease and negotiate a rent adjustment in good faith. However, they disagree as to what constitutes compliance with that obligation.
(a) The Governing Principles
[54] In Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494, the Supreme Court recognized that good faith in contractual performance is “a general organizing principle of the common law of contract” in Canada and requires parties to act “honestly and reasonably and not capriciously or arbitrarily” in the performance of their contractual duties: Bhasin, at paras. 33, 63.
[55] Generally, good faith obliges each party to a contract: to co-operate in order to achieve the objects of the contract; to exercise discretionary power in good faith; not to evade contractual duties; and to perform contractual obligations honestly and reasonably: 2161907 Alberta Ltd. v. 11180673 Canada Inc., 2021 ONCA 590, 462 D.L.R. (4th) 291, at para. 44; Bhasin, at paras. 33, 47.
[56] This case focuses on good faith performance in the negotiations required by s. 18.07 of the lease, which engages the discretionary power of each party. A party exercising contractual discretion must do so reasonably and “in a manner consistent with the purposes for which it was granted in the contract”: Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7, [2021] 1 S.C.R. 32, at para. 63.
[57] The cases recognize and reconcile competing tensions: a party’s duty of good faith performance, on the one hand, and the party’s achievement of its legitimate economic self-interest, on the other hand. The duty of good faith in contractual performance must be balanced with other bedrock principles of contract law, such as a party’s freedom to act in its own self-interest in accordance with commercial realities. The Supreme Court noted in Bhasin, at para. 70:In commerce, a party may sometimes cause loss to another — even intentionally — in the legitimate pursuit of economic self-interest: A.I. Enterprises Ltd. v. Bram Enterprises Ltd., 2014 SCC 12, [2014] 1 S.C.R. 177, at para. 31. Doing so is not necessarily contrary to good faith and in some cases has actually been encouraged by the courts on the basis of economic efficiency: Bank of America Canada v. Mutual Trust Co., 2002 SCC 43, [2002] 2 S.C.R. 601, at para. 31. [58] The Bhasin court added an important caution, at para. 70:The development of the principle of good faith must be clear not to veer into a form of ad hoc judicial moralism or “palm treeˮ justice. In particular, the organizing principle of good faith should not be used as a pretext for scrutinizing the motives of contracting parties. [59] In other words, good faith performance “does not require that contracting parties serve each other’s interests”: 2161907 Alberta Ltd., at para. 43; see also C.M. Callow Inc. v. Zollinger, 2020 SCC 45, [2020] 3 S.C.R. 908, at para. 82. Put differently, “A contracting party can act in its own best interests, but it must not seek to undermine the legitimate interests of the other party in bad faith”: Lafarge Canada Inc v. Bilozir, 2018 ABCA 416, at para. 5, citing Bhasin, at para. 65.
[60] The duty of good faith in contractual performance will not produce mutually agreeable results in every fact situation. The duty’s purpose is to ensure a “standard that underpins” contractual performance and is afforded “different weight in different situations”: Bhasin, at para. 64. Accordingly, “The duty’s animating principle is focused on good faith performance of contracts, not the creation of a generalized duty of good behaviour”: Potash Corporation of Saskatchewan Inc. v. HB Construction Company Ltd., 2022 NBCA 39, at para. 163. . Metro 1 Development Corp. Ltd. v. Michael Garron Hospital
In Metro 1 Development Corp. Ltd. v. Michael Garron Hospital (Ont CA, 2023) the Court of Appeal notes a limit the extent of a contractual duty of good faith:[13] ... We also disagree with the submission that MGH was obliged to offer any prospective Tim Horton franchisees to Metro 1 as sublease prospects to cure its breach. The duty of good faith in contract law does not require a party to subordinate its interests to those of the other party: Wastech Services Ltd. v. Greater Vancouver Sewage and Drainage District, 2021 SCC 7, 454 D.L.R. (4th) 1 at paras. 6, 112-113. ... . Will v. Geo. A. Kelson Company Limited
In Will v. Geo. A. Kelson Company Limited (Ont CA, 2023) the Court of Appeal cited a test for contractual 'good faith':[20] She referred to the correct legal test to establish a breach of good faith, as set out in Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494 and C.M. Callow Inc. v. Zollinger, 2020 SCC 45, 452 D.L.R. (4th) 44, and she noted that the test provides that the parties must perform their contractual duties honestly and reasonably and not capriciously or arbitrarily.
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