- Before this shift, Canadian courts generally held that contracting parties could act in their own self-interest — even aggressively so — as long as they didn't breach an actual term of…
- The Supreme Court of Canada recognized a general organizing principle of good faith underlying Canadian contract law, and, flowing from it, a specific and more limited duty of honest…
- At its core, the duty of honest performance means a contracting party cannot lie to, or knowingly mislead, the other party about matters directly connected to the performance of the…
For a long time, Canadian contract law didn't recognize any general duty to act in good faith when performing a contract — only specific relationships, like insurance, carried that kind of obligation. That changed with a landmark Supreme Court of Canada decision, Bhasin v. Hrynew, which recognized a general duty of honest performance running through every Canadian contract, including contracts governed by Ontario law.
This article explains what that duty actually requires, what it doesn't require, and how it shows up in everyday contract disputes.
The Old Rule: No General Duty of Good Faith
Before this shift, Canadian courts generally held that contracting parties could act in their own self-interest — even aggressively so — as long as they didn't breach an actual term of the contract. There was no broad, free-standing obligation to be honest, fair, or considerate toward the other side simply because a contract existed between them. Good faith obligations existed in pockets — certain specific relationships and contract types — but not as a general rule.
What Changed
The Supreme Court of Canada recognized a general organizing principle of good faith underlying Canadian contract law, and, flowing from it, a specific and more limited duty of honest performance. This duty applies to every contract governed by Canadian common law, including contracts in Ontario, regardless of what the parties wrote — or didn't write — about good faith.
The Duty of Honest Performance, Explained
At its core, the duty of honest performance means a contracting party cannot lie to, or knowingly mislead, the other party about matters directly connected to the performance of the contract. It doesn't ask parties to put the other side's interests first — it asks them not to be dishonest about the contract itself while carrying it out.
What the Duty Does and Doesn't Require
| It generally does require | It generally does not require |
|---|---|
| Not actively lying about matters tied to performing the contract | Prioritizing the other party's interests over your own |
| Not knowingly misleading the other party about your intentions regarding the contract | Full, unprompted disclosure of every fact relevant to the deal |
| A baseline of honesty that exists regardless of what the contract says | Acting altruistically or abandoning legitimate self-interest |
| Applying automatically, as an organizing principle, to every contract | Being excluded by a clause that simply doesn't mention good faith |
Where This Shows Up in Practice
The duty of honest performance most often comes up in disputes involving:
- Termination of ongoing commercial relationships, such as dealership, distribution, or franchise arrangements
- Employment terminations, where an employer's conduct during the dismissal process is scrutinized
- Exercise of discretionary rights under a contract — such as a right to terminate or to withhold approval — where the manner of exercising that right is called into question
- Situations where one party actively misrepresented something connected to how the contract was being carried out
Can Parties Contract Around It?
Because the duty flows from a general organizing principle rather than an implied term the parties can simply delete, contracting parties generally cannot fully exclude the duty of honest performance through contract wording. Specific, narrower good-faith-related obligations may sometimes be shaped by contract language, but the baseline duty not to actively lie about matters connected to performance is treated as a minimum standard.
Frequently asked questions
Does the duty of honest performance mean I have to disclose everything to the other party?
No. The duty is about not actively lying or knowingly misleading the other party about matters tied to the contract's performance — it isn't a general disclosure obligation requiring you to volunteer every fact that might interest the other side.
Can I sue for breach of the duty of honest performance on its own?
Yes, in appropriate circumstances — dishonesty about matters connected to performance can itself give rise to a claim, separate from whether a specific written term of the contract was also breached. Whether it applies depends heavily on the facts.
Does this duty apply to every type of contract in Ontario?
The organizing principle of good faith, and the specific duty of honest performance, apply broadly across Canadian contract law, which includes contracts governed by Ontario law. Some contract types, such as insurance, carry additional, more demanding good faith obligations on top of this baseline.
How is this different from a duty to negotiate in good faith?
They're different concepts. The duty of honest performance applies once a contract exists and is being carried out. Ontario law does not generally recognize a broad, free-standing duty to negotiate a contract in good faith before one is formed, outside of specific exceptions.
This is a litigation question
Start a file online — flat, published fees, reviewed by a licensed Ontario lawyer before a dollar is owed.