If the Supreme Court releases a decision and no one follows it, is it still the law?

Six years ago, the Supreme Court of Canada released a case that was meant to clarify the law of contract.  The case was called Bhasin v Hrynew and, at the time, it was viewed as a bombshell in Canadian law.  Everyone in the legal industry was talking about this landmark case.  And then, something very peculiar happened: just as quickly, everyone stopped talking about.  They went back to carrying on as though this case had never been released.  No one seemed to notice that a case, which everybody agreed was a game-changer when it was released, was not changing any games.

The Supreme Court must have been frustrated that the Bhasin case was not having the impact that was intended.  So frustrated, that they decided to hand down the same judgment a second time, just to drive the point home.  The most recent case released by the Supreme Court is called C. M. Callow Inc. v Zollinger, but it might as well be called Bhasin: Redux.

The similarities between Bhasin and Zollinger are striking and the differences inconsequential.  Both cases involved a small business which had a contract with a larger entity.  In both cases, the larger entity could terminate the contract early by giving written notice (six months’ notice in the Bhasin case, ten days’ notice in the Zollinger case). 

In both cases, the larger entity misled the small business about its intention to terminate the contract.  In both cases, the small business was led to believe that the contract would be continued, and even renewed, when that was not so.  And in both cases, the larger entity terminated the contract by giving the required written notice in accordance with the terms of the contract. 

Bhasin

In Bhasin, the Court set out to resolve an ambiguity in the common law.  They stated for the first time, clearly and unequivocally, that there was, in Canadian law, a duty of good faith contractual performance.  This duty of good faith means that parties to a contract cannot lie or actively mislead each other about matters directly linked to the performance of the contract.  This duty applies whether it is written as a term of the contract or not.  The parties cannot mutually agree that this duty does not apply to their contract.  They held that the larger entity had breached the duty of good faith contractual performance when it misled Mr. Bhasin into thinking his contract would be renewed, when in fact they had already decided to terminate it. 

The Court described this duty as “a general duty of honesty in contractual performance.”  This case made a big splash when it was released, but in the years following, it didn’t really change the way the lower courts decided contract disputes.  It turned into the legal equivalent of the waffle iron you got for your wedding: you were really excited when you got it, and you even talk about it from time to time, but you never really use it. 

Zollinger at the Ontario Court of Appeal

The Zollinger case came up from the Ontario Court of Appeal.  The plaintiff provided maintenance services for a condominium complex.  Just like in Bhasin, the plaintiff’s contract had a term which allowed for early termination on notice. 

The condo complex decided in the Spring that they were not going to renew the contract, but they didn’t tell the plaintiff until September.  At trial, the Superior Court found that they had basically misled the plaintiff about the renewal so that it would do extra work outside the scope of the contract for free over the summer, to try and convince the condo complex to renew the contract. 

The Court of Appeal considered Zollinger in light of Bhasin.  And yet, the Court of Appeal still held that the condo complex’s actions did not constitute a breach of the duty of good faith contractual performance.  They distinguished Zollinger by pointing out that Bhasin dealt with a contract that was set to renew automatically unless cancelled, while the contract in Zollinger did not automatically renew.  By granting leave, and the appeal, the Supreme Court seems to be saying that the similarities between these two cases were far more important than their differences. 

Zollinger at the Supreme Court of Canada

It seems that the Supreme Court granted leave to appeal in this case at least in part because they were frustrated with the way that the Ontario Court of Appeal applied the Bhasin precedent.  They took this case to send the message that the lower courts have not been taking the Bhasin precedent seriously enough. 

The Supreme Court’s legal analysis in Zollinger is, in large part, a repetition of the analysis from Bhasin.  The decision is not written as though it is meant to expand the law in the area: more like it is meant to remind the bar and the lower courts of the law.  The Supreme Court concluded that the condo complex had the right to terminate the contract on notice, but that it was not permitted to be dishonest in the way that it exercised that right.  In other words, the exact same conclusion they reached in the Bhasin case.

There is no legal innovation in Zollinger: just a restatement of a previous precedent which, it seems, the Supreme Court would like to see applied more rigorously.  We didn’t see a major change in the jurisprudence after Bhasin – maybe Zollinger will end up having that effect.