{"id":244155,"date":"2021-02-20T09:51:25","date_gmt":"2021-02-20T04:21:25","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=244155"},"modified":"2021-03-12T11:55:26","modified_gmt":"2021-03-12T06:25:26","slug":"contract","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2021\/02\/20\/contract\/","title":{"rendered":"\u201cImplied Obligations\u201d; Canada SC evaluates contours of duty to exercise contractual discretion in good faith"},"content":{"rendered":"

Supreme Court of Canada: <\/strong>In an interesting case regarding interpretation of implied contractual obligations the 9-Judge Bench comprising of Wagner C.J. and Abella, Moldaver, Karakatsanis, C\u00f4t\u00e9, Brown, Rowe, Martin and Kasirer JJ., held that,<\/p>\n

\n

\u00a0<\/strong>\u201cThe purpose of good faith is to secure the performance and enforcement of the contract made by the parties. It cannot be used as a device to create new, unbargained rights and obligations or to alter the express terms of the contract.\u201d <\/strong><\/span><\/p>\n<\/blockquote>\n

Background<\/strong><\/span><\/h3>\n

Wastech, a waste transportation and disposal company, had a long\u2011standing contractual relationship with (Greater Vancouver Sewerage and Drainage District) Metro, a statutory corporation responsible for the administration of waste disposal for the Metro Vancouver Regional. The said contract contemplated removal and transportation of waste by Wastech to three disposal facilities for which Wastech was to be paid at a differing rate depending on which disposal facility the waste was directed to and how far away the facility was located.<\/p>\n

Also, the contract stipulated Wastech\u2019s compensation to be structured around a \u201cTarget Operating Ratio\u201d (Target OR) as a ratio of 0.890, where Wastech\u2019s operating costs were 89 percent of its total revenues, resulting in an operating profit of 11 percent.<\/p>\n

\n

The contract did not guarantee that Wastech would achieve a certain profit in any given year and it gave Metro absolute discretion to allocate waste as it so chose. <\/strong><\/p>\n<\/blockquote>\n

In 2011, Metro, while exercising discretion re-allocated waste to a closer disposal facility, resulting in Wastech failing to reach the target operating ratio. Wastech alleged that Metro breached the contract by allocating waste among the facilities in a manner that deprived Wastech of the possibility of achieving the target profit.<\/p>\n

Wastech referred the dispute to arbitration and sought compensatory damages. The arbitrator found that a duty of good faith applied, that Metro had breached that duty, and that Wastech was therefore entitled to compensation. The Court allowed Metro\u2019s appeal and set aside the arbitrator\u2019s award.<\/p>\n

Analysis by the Court<\/strong><\/span><\/h3>\n

The majority opined that where a party to a contract exercise its discretion unreasonably, in a manner not connected to the underlying purposes of the discretion granted by the contract, its conduct would amount to a breach of the duty to exercise contractual discretionary powers in good faith. The Bench observed Wastech asked the Court to had Metro subvert its own interest in name of accommodating Wastech\u2019s interest. However,<\/p>\n

\n

\u201cMetro was Wastech\u2019s contracting partner, not it’s fiduciary. The loyalty required of it in the exercise of this discretion was loyalty to the bargain, not loyalty to Wastech.\u201d<\/strong><\/p>\n<\/blockquote>\n

The Bench stated duty to exercise contractual discretion in good faith requires the parties to exercise their discretion in a manner consistent with the purposes for which it was granted in the contract. But where the exercise stand outside the compass set by contractual purpose, the exercise becomes unreasonable in light of the agreement for which the parties bargained.<\/p>\n

While analysing the case of Bhasin v. Hrynew<\/em>, 2014 SCC OnLine Can SC 55<\/a>, \u00a0<\/em>as relied by the appellant the Bench expressed, <\/em>the good faith doctrine did not represent an abandonment of commercial certainty by requiring contracting parties to place their counterparty\u2019s interests ahead of their own.<\/p>\n

\n

\u201cWastech is asking for an advantage for which it did not bargain: it asks that Metro confer a benefit upon it that was not contemplated, expressly or impliedly, under the contract.\u201d<\/strong><\/p>\n<\/blockquote>\n

After reading the contract as a whole, which stated, to allow Metro the flexibility necessary to maximize efficiency and minimize costs of the operation, <\/em>the majority expressed that Metro\u2019s exercise of discretion was not unreasonable with regard to the purposes for which the discretion was granted. The contract gives Metro the absolute discretion to determine how the waste was to be allocated. There was no guaranteed minimum volume of waste allocated in a given year.<\/p>\n

Verdict<\/strong><\/span><\/h3>\n

\u00a0<\/strong>Hence, it had been held that the parties foresaw this risk \u2014 and chose to leave the discretion in place. The Bench expressed wonder on, how the exercise of an apparently unfettered contractual discretion could ever constitute a breach of contract since one could argue that a party, in exercising such a discretionary power, even opportunistically, is merely doing what the other party agreed it could do in the contract?<\/em><\/p>\n

Consequently, the instant appeal was dismissed. [Wastech v. G.V. Sewerage and Drainage,\u00a0 2021 SCC OnLine Can SC 1<\/b><\/a>, decided on 05-02-2021]<\/p>\n

\n

Kamini Sharma, Editorial Assistant has put this story together.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Supreme Court of Canada: In an interesting case regarding interpretation of implied contractual obligations the 9-Judge Bench comprising of Wagner C.J. and <\/p>\n","protected":false},"author":67011,"featured_media":32072,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,12],"tags":[3174,45243,29785],"class_list":["post-244155","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-casebriefs","category-foreigncourts","tag-contract","tag-contractual-discretion","tag-law"],"yoast_head":"\n\u201cImplied Obligations\u201d; Canada SC evaluates contours of duty to exercise contractual discretion in good faith | SCC Times<\/title>\n<meta name=\"description\" content=\"Contract\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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Bajanthri J., dismissed the petition for regularisation of the service on the ground that statutory rule recognizing such right was not in their favor. A petition was made to quash the endorsement issued to the petitioner and to seek respondent to regularize their services in the\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":320456,"url":"https:\/\/www.scconline.com\/blog\/post\/2024\/04\/22\/raj-hc-waives-of-contractual-fees-payable-to-gram-panchayat-during-covid-19-due-to-force-majeure-scc-times\/","url_meta":{"origin":244155,"position":4},"title":"Force Majeure | Rajasthan High Court waives contractual fees payable to Gram Panchayat during \u201cunforeseen\u201d COVID-19","author":"Ritu","date":"April 22, 2024","format":false,"excerpt":"Rajasthan High Court held that the Court must consider Unforeseen Circumstances in Contract Disputes, thereby, balancing equity for a just decision.","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"Rajasthan High Court","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Rajasthan-High-Court.webp?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Rajasthan-High-Court.webp?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Rajasthan-High-Court.webp?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2024\/02\/Rajasthan-High-Court.webp?resize=700%2C400&ssl=1 2x"},"classes":[]},{"id":258010,"url":"https:\/\/www.scconline.com\/blog\/post\/2021\/12\/02\/state-cant-use-mere-possibility-of-more-money-in-the-public-coffers-to-forgo-contractual-obligations-supreme-court\/","url_meta":{"origin":244155,"position":5},"title":"State can’t use mere possibility of more money in the public coffers to forgo contractual obligations: Supreme Court\u00a0","author":"Prachi Bhardwaj","date":"December 2, 2021","format":false,"excerpt":"\u201cEquity demands that when the State failed to produce an iota of evidence of either financial loss or any other public interest that has been affected, it should be compelled to fulfill its promises.\u201d","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/02\/sc-2-7.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/02\/sc-2-7.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/02\/sc-2-7.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/02\/sc-2-7.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/02\/sc-2-7.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]}],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/244155","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/users\/67011"}],"replies":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/comments?post=244155"}],"version-history":[{"count":0,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/244155\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media\/32072"}],"wp:attachment":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media?parent=244155"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/categories?post=244155"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/tags?post=244155"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}