Faith-based, as in “good faith”, that is.

Not that long ago the Supreme Court installed “good faith” as core to the fabric of contractual relations in Canada whether commercial or employment, whether ostensibly arms-length as “independent contractor” or employment per se. Implying a duty to act fairly in contract is not foreign to other jurisdictions— it is foundational to EU legal principals and long-since present in the Restatements of US law.

Here, not so much. In the 60s Ontario Justice Goodman enthused about incorporation of “good faith” as a distinct implied term of contract; alas conservative sentiment rendered that distillation jurisprudential ‘moonshine’. Some 50 years on Bhasin v. Hrynew (2014) refined that elixir into single malt: the SCC aspirationally confirmed that we all gotta have ‘faith’.

While it remains difficult to be ‘sort-of pregnant’, good faith became operational but not as an independent “cause of action”. But as an influencer of import in contractual relations, it has certainly come of age: Mohamed v. Information Systems Architects Inc., 2018 ONCA 428.

Mohamed had a somewhat ancient minor criminal conviction. Prior to engagement with ISA under an employee-like independent consulting contract he disclosed this youthful indiscretion. His ‘hiring’ was to provide services through ISA to Major Canadian retailer, a corporation which is compellingly risk-adverse, therefore reserving as an express prohibition of individuals with a record from the provision of services to it. One month after commencing services, Mohamed’s criminal record check belatedly arrived confirming the conviction previously disclosed to ISA but not to the retailer, which required ISA to honour its terms of engagement by Mohamed’s immediate removal. In so doing, ISA terminated its fixed term contract with Mohamed barely one month into a multi-year term.

While the trial decision confirms that the express provisions of the agreement between the company and Mohamed allowed it to terminate him, the Judge insinuated an implied duty to do so “in good faith”. In acting on the third party retailer’s insistence that he be removed from its premises as a vendor, the Court determined that to do so was in bad faith, leveraging the significant fact that the indiscretion had been previously disclosed and vetted, albeit not shared with the retailer.

There are lessons here. Firstly, parties would be foolhardy not to anticipate an increasing appetite on the part of the Judiciary to install good faith considerations into both the negotiations and performance of contractual relations. Secondly, Courts will not visit impossibility in performance upon the individual where as here the individual was transparent before being engaged.

And the lessons don’t stop there: the Court followed precedent that if a fixed term contract is breached during its term, it is a “liquidated” damage and the usual overarching duty to mitigate (reduce loss to the degree reasonable) does not apply. Here the individual was entitled to an unrefined pay out of the entire term of contract despite its termination only one month into it: from a remedial perspective, here the mountain of damages came to Mohamed.

In affirming the propriety of insinuating this implied term, the Court of Appeal advances the notion that “you gotta have faith”… good faith, that is.