



COURT OF APPEAL FOR ONTARIO

CITATION: CM Callow Inc. v. Zollinger, 2018 ONCA 896

DATE: 20181109

DOCKET: C64791

Lauwers, Huscroft and Trotter JJ.A.

BETWEEN

CM Callow Inc.

Plaintiff (Respondent)

and

Tammy Zollinger, Condominium Management Group, Carleton
    Condominium Corporation No. 703, Carleton Condominium Corporation No. 726,
    Carleton Condominium Corporation No. 742, Carleton Condominium Corporation No.
    765, Carleton Condominium Corporation No. 783, Carleton Condominium Corporation
    No. 791, Carleton Condominium Corporation No. 806, Carleton Condominium
    Corporation No. 826, Carleton Condominium Corporation No. 839, and Carleton
    Condominium Corporation No. 877

Defendants (Appellants)

Anne Tardif, Jocelyn Duquette and Rodrigue Escayola, for
    the appellants

Miriam Vale Peters, for the respondent

Heard: October 29, 2018

On appeal from the judgment of Justice Michelle
    O'Bonsawin of the Superior Court of Justice, dated November 27, 2017, with
    reasons reported at 2017 ONSC 7095.

REASONS FOR DECISION

[1]

The respondent provided maintenance services to ten
    condominium corporations managed by Condominium Management Group (CMG) and a
    designated property manager. The appellant corporations formed a Joint Use
    Committee (JUC) to make decisions regarding joint and shared assets of the
    corporations and, in April 2012, entered into two two-year maintenance
    contracts with the respondent through its principal, Mr. Callow. One contract
    covered summer maintenance work and the other covered winter maintenance. The
    winter contract, which ran from November 2012 to April 2014, contained a
    provision allowing for early termination by the appellants on 10 days notice.

[2]

In March or April of 2013, the JUC decided to terminate
    the winter contract, but did not provide the respondent with notice of
    termination of the agreement until September 12, 2013.

[3]

The respondent sued for breach of contract.

[4]

The issue at trial was not whether the
    appellants had the right to unilaterally terminate the contract. Instead, the
    issue concerned the timing of the communication of the termination decision to
    the respondent. The appellants delayed informing the respondent that they were
    terminating the contract in order to avoid jeopardizing completion of the
    respondents work under the summer contract, which ran from May 2012 to October
    2013.

[5]

During the summer of 2013, Mr. Callow of his own
    initiative performed extra freebie landscaping work in the hope that this
    would act as an incentive for the appellants to renew the contracts when their
    terms expired. Directors of two of the condominium corporations and members of
    the JUC were aware that Mr. Callow was performing freebie work, and knew he
    was under the impression that the contracts were likely to be renewed.

[6]

The trial judge concluded that the appellants
    breached their contractual duty of honest performance by acting in bad faith,
    in particular 1) by withholding the fact that they intended to terminate the
    winter contract to ensure that the respondent performed the summer contract,
    and 2) by continuing to represent to Mr. Callow that the winter contract was not
    in danger of non-renewal. She held that meeting the minimum standard of honesty
    would have required the appellants to address the alleged performance issues
    with the respondent, provide prompt notice, or refrain from any representations
    in anticipation of the notice period.

[7]

The trial judge awarded damages based on the
    profit the respondent would have made from performing the remaining period of
    the winter contract. In addition, she awarded the respondent expenses it
    incurred in leasing machinery to perform the winter contract, as well as the
    value of an unpaid invoice.

[8]

The appellants argue that the trial judge erred
    by improperly expanding the duty of honest performance in a manner that went
    beyond the terms of the winter contract. They argue, further, that the trial
    judge erred in calculating damages.

[9]

We agree. Given our conclusion that the contract
    was not breached, it is not necessary to address the damages issue.

The duty of good faith and honest performance

[10]

The Supreme Court held in
Bhasin v. Hrynew
, 2014 SCC 71, [2014] 3 S.C.R. 494,

at para. 33, 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 addition, the Court held that there is a duty of honest performance which
    requires the parties to be honest with each other in relation to the
    performance of their contractual obligations: at para. 93.

[11]

The Court was at pains to emphasize that the
    concept of good faith was not to be applied so as to undermine longstanding
    contract law principles, thereby creating commercial uncertainty. Cromwell J. explained
    at para. 70:

The principle of good faith must be applied in
    a manner that is consistent with the fundamental commitments of the common law
    of contract which generally places great weight on the freedom of contracting
    parties to pursue their individual self-interest. 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. The development of the principle
    of good faith must be clear not to veer into a form of
ad hoc
judicial
    moralism or palm tree justice. In particular, the organizing principle of
    good faith should not be used as a pretext for scrutinizing the motives of
    contracting parties.

[12]

The same is true of the new duty the Court recognized
    as flowing from the good faith organizing principle, the duty of honesty in
    contractual performance. As Cromwell J. explained, at para. 73:

[The duty] means simply that parties must not
    lie or otherwise knowingly mislead each other about matters directly linked to
    the performance of the contract. This does not impose a duty of loyalty or of
    disclosure or require a party to forego advantages flowing from the contract;
    it is a simple requirement not to lie or mislead the other party about ones
    contractual performance.

[13]

This, he emphasized at para. 73, was a modest,
    incremental step in the development of the law of contract.

The appellants right to terminate

[14]

It is important to note that the meaning of the winter
    contract, and in particular the ability of the appellants to exercise the
    termination clause, was not in dispute at trial. Moreover, in its factum, the
    respondent acknowledged that the appellants were not contractually required to
    disclose that they had decided to terminate the contract prior to the 10-day
    formal notice period specified in the winter contract, and that the failure to
    provide notice on a more timely basis was not in and of itself evidence of bad
    faith.

[15]

Putting the case for the respondent at its
    highest, then, the appellants decided to terminate the winter contract and
    chose not to inform the respondent until some months later, in order not to
    jeopardize the respondents performance of the summer contract. Not only did
    the appellants fail to inform the respondent of their decision to terminate, but
    they actively deceived Callow as to their intentions and accepted the freebie
    work he performed, in the knowledge that this extra work was performed with the
    intention/hope of persuading them to award the respondent additional contracts
    once the present contracts expired.

[16]

In our view, these findings may well suggest a
    failure to act honourably, but they do not rise to the high level required to
    establish a breach of the duty of honest performance.

[17]

It is clear from
Bhasin
that there is
    no unilateral duty to disclose information relevant to termination: at para. 73.
    Unlike
Bhasin
, this was not a case in which the contract would renew
    automatically, nor were the parties required to maintain an ongoing
    relationship. The appellants were free to terminate the winter contract with the
    respondent provided only that they informed him of their intention to do so and
    gave the required notice. That is all that the respondent bargained for, and
    all that he was entitled to.

[18]

The duty of honest performance in this case
    required that the parties be honest with each other concerning matters
    directly linked to the performance of the contract (
Bhasin
,
at
    para. 73)  that is, linked to the winter contract then in effect. It did not
    limit the appellants freedom concerning future contracts not yet negotiated or
    entered into. Communications between the parties may have led Mr. Callow to
    believe that there would be a new contract, but those communications did not
    preclude the appellants from exercising their right to terminate the winter
    contract then in effect.

[19]

The trial judges decision that the minimum
    standard of honesty included a requirement to address performance issues,
    provide prompt notice, or to refrain from representations in anticipation of
    the notice period had the effect of substantially modifying the appellants
    right to terminate the contract  a key term of the contract. This goes beyond
    what the duty of honest performance requires or permits.

[20]

This courts recent decision in
Mohamed v.
    Information Systems Architects Inc.
,
2018 ONCA 428, 423 D.L.R.
    (4th) 174, does not alter this analysis. That case concerned a decision to
    terminate a consulting contract on the basis that the contractor had a criminal
    record, even though the contractor had disclosed that record and complied with
    all the requirements of the security check prior to entering into the contract.
    Further, the defendant in that case made no attempt to redress the problem, nor
    did it offer the plaintiff any other consulting project. These were the
    circumstances in which this court concluded that the contract, including the
    termination clause, had not been performed in good faith. The circumstances of the
    present case are very different.

[21]

The appeal is allowed.

[22]

The appellants are entitled to costs on the
    appeal, which we fix in the amount of $10,000, inclusive of taxes and
    disbursements.

[23]

The appellants are also entitled to costs at
    trial. If the parties cannot agree on trial costs, the appellants may make
    brief submissions to the Registrar of this court, no longer than 3 pages,
    within 10 days of these Reasons for Decision. The respondents brief
    submissions in response shall be delivered to the Registrar within 10 days
    thereafter.

P. Lauwers J.A.

Grant Huscroft J.A.

Gary T. Trotter J.A.


