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A recent Supreme Court of Canada decision serves as a helpful reminder to workers and businesses about the importance of honesty in their contractual dealings. C.M. Callow Inc. v. Zollinger involved condo maintenance contracts. The plaintiff, C.M. Callow performed summer and winter maintenance for the defendant Zollinger, who managed maintenance contracts for several condos (referred to as Baycrest). 

The Deception

Baycrest and Callow entered into a two-year winter maintenance contract in 2012. In the Spring of 2013, Baycrest decided they wanted to end the winter contract. The contract allowed for early termination, for any reason, by way of 10 days notice. They did not provide that notice until September of 2013, allowing Callow to act on his impression that the winter contract would be renewed all through the summer of 2013.

Through the summer of 2013 Callow performed the summer maintenance contract and also did additional work for free, in the hopes and under the impression that the winter contract would be renewed.

The issue at the Supreme Court was Baycrest’s conduct once they had decided they wanted to end the winter contract – they didn’t tell Callow right away and they acted like they were going to renew it. 

The trial judge found that Baycrest had “actively deceived” Callow, during the period after they had decided to end the winter contract until they actually gave notice to end it. Baycrest’s acts of active deception included: expressing satisfaction with Callow’s work, discussing the potential renewal of the winter contract and acting as though it would continue, allowing Callow to perform extra work for free knowing of his hope of a renewal of the winter contract. 

Baycrest did all this because they did not want to jeopardize Callow’s work during the summer contract. But as a result, Callow acted on the mistaken belief to his own detriment. He did not see the non-renewal of the winter contract coming.

The Duty to Act Honestly

The Supreme Court found that Baycrest did not act in accordance with their good faith duty to act honestly when they actively deceived Callow regarding the renewal of the winter contract. The court found that Baycrest “positively misled” Callow. They knew that Callow thought the renewal was secure and they fueled this misapprehension. 

Callow was awarded damages for the value of the winter contract he did not get to perform. The Court reasoned that had Baycrest not misled Callow, he would have pursued other opportunities which he forwent under the false sense of security created by Baycrest. 

Beware of Misleading Conduct

Engaging in knowingly misleading conduct under a contract may amount to a breach of the duty of good faith, which requires honesty. The court stressed that whether or not “a party has ‘knowingly misled’ its counterparty is a highly fact-specific determination, and can include lies, half-truths, omissions, and even silence, depending on the circumstances” but that this list is not closed.

Takeaways

Be honest in your contractual dealings! This ruling and this message is significant, especially given all the turmoil in the last year and the uncertainty it has created in contractual relationships of all types. 

Parties, of course, should not lie and in addition, it seems that parties should also correct misunderstandings so as not to allow another party to act on that misunderstanding to their detriment. This seems to be the case even where correcting the misunderstanding could be detrimental to the party in the know. For example, Baycrest could have suffered damages itself had Callow not performed the summer contract once he knew the winter contract would not be renewed. 

The damages here were also significant, considering the contractual term that the parties could end the contract on 10 days notice. Given the finding of active deception, the court did not allow Baycrest to rely on this. 

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