The Supreme Court of Canada’s (SCC) unanimous and seminal decision on good faith in Bhasin v. Hrynew (Bhasin) has been subject to much commentary, including our November 2014 Blakes Bulletin: Let’s Be Honest: SCC Finds All Contracting Parties Owe Each Other a Duty of Honesty, when it was originally released, and developments since its one-year anniversary. (See our October 2015 Blakes Bulletin: Bhasin Anniversary: You Gotta Have Faith?). 

A recent Ontario Superior Court of Justice (Court) case, Data & Scientific Inc. v. Oracle Corp. (Oracle), sheds some light on how the courts may interpret and apply Bhasin in the context of an attempt to terminate a contract with little or no notice. In brief summary, Oracle Corp. was allowed to renew, on an annual basis, relationships through its Oracle Partner Network conduits. The agreement in question was clear that the annual renewal was at “Oracle’s sole discretion”.

The plaintiff was a member of Oracle’s Partner Network and Oracle Corp. had renewed the annual agreement without interruption or incident for about 20 years. The plaintiff requested another renewal and received a response in 2014 that the agreement would not be renewed. The plaintiff sued Oracle Corp. claiming damages, including punitive damages, alleging that Oracle Corp. failed to give reasonable notice of non-renewal. Despite the discretionary language in the agreement, the plaintiff argued that Oracle Corp. was somehow obliged to exercise its discretion reasonably and that Oracle Corp., in effect, terminated a 20-year relationship without purported notice, let alone reasonable notice.

Oracle Corp. moved to strike the claim for failing to disclose a reasonable cause of action. Interestingly, counsel for Oracle Corp. relied upon Bhasin at paragraph 72 of the SCC’s reasons for judgment, which states as follows:

“Classifying the decision not to renew the contract as a contractual discretion would constitute a significant expansion of the decided cases under that type of situation.”

In essence, Oracle Corp. submitted that Bhasin supported the general principle that the obligation to exercise discretionary contractual powers reasonably does not apply in contract renewal situations — ever. That submission was rejected.

The Court held that the comment in paragraph 72 must be understood in context and that the SCC’s concern and focus in Bhasin was dishonesty, not unreasonableness.

The Court also noted that in Bhasin, the SCC recognized that the list of situations and relationships that can attract good faith obligations was not closed, could be invoked in widely varying context and calls for a highly context–specific understanding of what honesty and reasonableness require in any given situation.

In short, the Court held that it was not plain and obvious that the plaintiff’s claim, relying on Bhasin, would fail. That result, particularly on a motion to strike, was not surprising given the generally high bar to strike a claim.

What this case suggests is that, in the face of an allegation of breach of good faith in the context of a renewal clause, it will be difficult to strike a claim even where, as in Oracle, the contractual agreement bestows a “sole discretion” non-renewal power and requires no notice of any kind.

The Court concluded its decision by emphasizing that it was not suggesting the plaintiff would necessarily prevail at trial nor could even survive a summary judgment motion. No doubt Bhasin will get further judicial treatment in the coming year, particularly as it relates to the non-renewal of agreements in the oil and gas industry.