I. Introduction

Good faith worries contract law. It poses the challenge of how to reconcile — if indeed reconciliation is possible — private ordering with contract’s public, institutional role. This raises worries about the source of good faith—is it imposed on the parties by the court or always to be found implicit in an agreement? — and interpretation — what are the limits of this implication? The rhetoric that surrounds good faith engages deeper values. Does contract law respect hard-nosed rational businessmen, or does it enable cut-throats who will lie and cheat whenever they can? Does it promote ethical and socially responsible commercial citizenship, or does it infantilize contractors by protecting them from themselves?

This article wades through some of the rhetoric to clarify the stakes of the good faith challenge. The challenge has been met with three strategies: avoidance (“there is no principle of good faith”); containment (“good faith is just respecting the parties’ agreement”); and embrace (“the common law should move toward a good faith regime”). These strategies are idealized models of rhetorical reaction that shed light on the common law of contract. I investigate the three strategies and evaluate their chances for success in Canada—with the odd feint at other Commonwealth jurisdictions.

Before I get into the strategies, I should perhaps say something about what good faith is. While I will give in to this temptation momentarily, I first want to say that what good faith is is perhaps not so important a question as it might seem for this article. Certainly from a practical perspective the details of a good faith-related doctrine will sometimes need arguing and will help in deciding a case. But in legal theory, avoidance, containment, and embrace have arisen in response to good faith regardless of variations in good faith’s form and substance. In different times and places different specifications of good faith have been put forward, yet the same three strategies predictably occur. Thus my interest here is not in good faith itself, whatever that means, but in the rhetorical and legal responses to good faith—and these responses tell us something about the common law of contract.

Stephen Waddams writes:

Good faith has been used in different senses to address several distinct questions in contract law. These questions include, among others, whether pre-contractual negotiations can be broken off, whether material facts known to one party must be disclosed to the other in pre-contractual negotiations, whether contracts are enforceable if induced by misrepresentation or mistake, whether and to what extent the courts should imply terms into contracts, whether terms that are very unfair can be enforced, whether non-performance by one party excuses the other, whether deliberate breaches of contract justify punitive damages and whether the exercise of contractual rights may in some circumstances be precluded.[1]

In such varied doctrinal instances, “good faith” is used in an almost colloquial sense. Finding good faith or lack thereof is merely part of another test. No grand theory is needed to understand these instances of good faith, and so Waddams does not provide any. As other authors have done,[2] he divides the treatment of good faith among the particular doctrines to which it happens to relate without attempting to form them together into some kind of whole. In some of these doctrines, the (alleged) role played by good faith is entirely implicit. This gives rise to what Gerard McMeel calls the “functional equivalence approach” to good faith in the common law of contract: there is no general rule of good faith akin to that found in civilian jurisdictions, but there are doctrines that add up to much the same thing.[3]

It is easy to lose sight of the common sense of good faith in the legal context, but this sense is important to the common-sensical common law’s ad hoc use of the term throughout doctrine. Oxford puts it thus: good faith means “faithfulness, loyalty, truthfulness; esp. honesty or sincerity of intention”.[4] The trick lies in noticing that honesty can take on a special meaning in the pursuit of joint projects. When you say “let’s do it”, being honest about the content of the statement might mean intending to co-operate to work toward a common goal. Requiring honesty can mean holding people to the meanings of their statements, and in contract this can entail imposing forward- looking obligations to pursue an agreed goal. Thus in contract honesty can mean co-operation and loyalty—whether loyalty to the deal or to one’s counterparty.[5] This is the basic intuition behind another approach to good faith, that it is a part of the interpretation of contracts,[6] or relatedly helps define the reasonable expectations of parties that contract aims to effect.[7]

This points up other of the common distinctions. Good faith as just described does not really “require” honesty of the parties; rather it dings them if and when they are dishonest. Depending on whom you ask, this can be ascertained subjectively (did they mean what they said?) or objectively (did they act as a reasonable person who meant what they said would act?). The dinging can take the form of an expectation measure of damages based on objectively honest performance or can result in the loss of reliance costs in the form of estopped enforcement. The effect of this dinging is a subject of controversy. At base it might “protect” people through compensation when their trust proves misplaced.[8] Some suppose that the dinging will have an incentive effect on parties and promote actual honesty.[9] Others have argued that “requiring” honesty robs it of some of its power. First, it is not clear that such a requirement will encourage trust. People might come to question whether their counterparty is just playing honest where the law requires it but will cut and run when an opportunity arises that the law does not exclude.[10] Second, putting a price on dishonesty might be taken to suggest that it is for sale. Where once social and reputational sanctions discouraged certain conduct, now one feels free to do it so long as one compensates one’s counterparty in the appropriate amount. Market norms crowd out social norms.[11] We might suppose though that the contumelious aspect of a finding of bad faith keeps something of the social in the sanction.

Enterprising weavers have taken the common law good faith doctrines and loomed them into a whole. This raises the issue of whether this whole is best conceived of as a duty that attaches to all contracts, an interpretive presumption, or as a general or organizing principle that shapes contract law. Canada, after Bhasin v Hrynew,[12] has taken the organizing principle route.[13] Good faith “states in general terms a requirement of justice from which more specific legal doctrines may be derived”.[14] The court is clear that this refers to some doctrines of contract law, but not all.[15] The doctrines it refers to include some terms implied by law[16] and in fact,[17] in contract interpretation generally since “[p]arties may generally be assumed to intend certain minimum standards of conduct”,[18] and in a newly enunciated “duty of honest performance”, a general duty (not unlike the duty of good faith in other jurisdictions) that applies to all contracts “irrespective of the intentions of the parties”.[19] The court has been bounteous: Canadian contract law now has just about every kind of good faith there is.[20]

Given the scope of good faith it is remarkable we suppose anything general can be said about it at all. Good faith arguments only arrive before courts in discrete instances. Courts are never faced with elaborating a full notion of good faith because they only have to consider the issue when faced with particular (alleged) naughtiness. This no doubt spurred Summers’ famous “excluder” definition, that good faith only excludes bad faith behaviour, defined with a long list of examples.[21] Angela Swan puts it succinctly: good faith means don’t be a scumbag.[22] And yet there is a lot of general work on good faith (just look at all my foot-notes[23]) and there are many shared tendencies between responses to, for instance, good faith as an organizing principle and good faith as a specific duty.[24] This is one reason that much of the import of good faith is in what we say about it rather than its doctrinal specifics. Good faith is largely a theoretical rather than a practical concept for the common law of contract: so far it is a mess of attempts to bring coherence to a list of discrete examples.[25] I am now ready to turn to the three strategies that have been used in response to good faith.

II. Avoidance

First, we find arguments that the common law of contract doesn’t and shouldn’t involve good faith.[26] Civilian softies might need such a pampering concept; Englishmen need certainty and a hard nose. We are all big boys here. Good faith is nothing but a clumsy intruder into the Commonwealth. Need we discuss it further? In Walford v Miles, Lord Ackner said:

[T]he concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiations. Each party to the negotiations is entitled to pursue his (or her) own interest, so long as he avoids making misrepresentations. … A duty to negotiate in good faith is as unworkable in practice as it is inherently inconsistent with the position of a negotiating party.[27]

This is a popular contemporary statement of the idea that the common law is about individualism, good faith is about fellow-feeling, and thus the two shan’t meet.[28] In Canada, speaking on the related issue of whether a good faith-like duty of care should be imposed on negotiating parties, Iacobucci and Major JJ put it perhaps more strongly though with an economic twist:

It would defeat the essence of negotiation and hobble the marketplace to extend a duty of care to the conduct of negotiations, and to label a party’s failure to disclose its bottom line, its motives or its final position as negligent. Such a conclusion would of necessity force the disclosure of privately acquired information and the dissipation of any competitive advantage derived from it, all of which is incompatible with the activity of negotiating and bargaining.[29]

The adversarial ethic posited here has multiple beginnings and multiple ends. Its roots include the instrumental value of competitive markets as well as the inherent value of freedom from obligation. Its ends include the notion that contract law should a) facilitate business and b) allow the certain ordering of affairs. Both are furthered, it is argued, by keeping a degree of fit between business practice and contract doctrine.[30] This lets businesspersons order their affairs as they wish and have that order reflected in the law. It conduces to certainty because the law is what businesspersons expect it to be. A general notion of good faith, the argument goes, is out of keeping with competitive business practice, uncertain in its application, and would amount to imposing some kind of obligation on parties to which they did not agree. This kind of imposition is out of keeping with the very structure of the common law of contract.[31]

The success of the avoidance strategy largely depends on the winds of different jurisdictions. I do not want to (nor am I in any position to) make a broad claim about whether “the common law of contract” can avoid recognizing good faith, or whether in those jurisdictions where it is not explicitly recognized it is already there implicitly.[32] There are jurisdictions where avoidance is impossible in the face of explicit statutory and judicial pronouncements like that in Bhasin v Hrynew or, in the USA, the Uniform Commercial Code.[33] In the rest avoidance might still be tenable, though partisans of good faith like to talk about opponents “swimming against the tide”[34] or the “perverted pride”[35] that can be the only explanation for refusal to accept a good faith. Canada at least has averted from perversion with Bhasin.

A more extreme avoidance manœuvre is to take decisions that rely explicitly on “good faith” and show them to be nothing of the kind. The avoider demonstrates that the court could have achieved the same result using more mundane doctrinal tools. This happened when one of Leggatt J’s decisions went up to the Court of Appeal;[36] it has happened also in Canada and Australia.[37] Not only does this stem the spread of good faith, it is of a piece with the incremental nature of the common law in that it shows the re-characterised decision to fit existing doctrine. It also preserves judicial harmony: we can all agree on the outcome, so let us not trouble ourselves with the semantics. Judges and commentators who re-interpret good faith decisions in this way are saving the common law from the uncertainty, inefficiency, or calamitous confusion[38] threatened by good faith.

While, as mentioned, these avoidance strategies seem non-starters in jurisdictions where good faith is firmly established, they have another more general problem when they rely on a quite specific image of how businesspersons operate. Are we sure this picture is accurate? Are business deals “jungle place encounters”[39] where every man is for himself and the strong lunch upon the weak? On occasion, legal researchers have been so possessed by the greed for knowledge that they have gone and talked to businesspersons,[40] or even acted as their solicitors.[41] The results have not been uniform. You might well find a confirmation of something like the stereotypical picture just posed;[42] but you might also find what has for decades been emphasised in relational theories of contract: businesspersons working together and trusting each other in the furtherance of mutual goals.[43] It seems to depend on which businesspersons one talks to and when. Claims to have discovered the Platonic essence of business practice may have been over-stated.[44]

III. Containment

Michael Bridge’s classic article, “Does Anglo-Canadian Contract Law Need a Doctrine of Good Faith?”, is a masterpiece of containment.[45] In it, Bridge argues that bringing a general duty of good faith into the common law would “wreak[] practical mischief”[46]—an avoidance manœuvre—but also that we do not need it anyway because the common law already does what people want such a duty to do through the construction of contracts[47]—containment. If we are to admit good faith into the china shop of the common law of contract, we should ensure that it does a minimum of damage.[48] Thus one containment strategy is to show that good faith is redundant with the rest of contract law. The court in Bhasin was anxious to show that recognizing an organizing principle of good faith and attendant duty of honest performance were merely incremental steps that “acknowledged” the state of the law as it already was.[49] Now that good faith has been unleashed in Canada, a wash of containment strategies will be close behind. These responses will tend to show that we should not be worried about good faith: it does not have much effect on contract law.

For some good faith is just a word for the reasonable interpretation of contracts against background norms, implied terms controlling discretion, or even just performing one’s contractual obligations otherwise agreed.[50] Related is the functional equivalence approach: adopting a principle of good faith is just recognizing what already (functionally at least) exists in the common law.[51] These containment strategies aim to maintain the place of the reasonable expectations of business parties at the heart of contract law by showing good faith to effect just those.

Such containment strategies are probably inevitable because they are of a piece with the incremental nature of common law development.[52] No matter how revolutionary the proposed change, a good common judge or lawyer will demonstrate how it is really no change at all. This containment strategy is used even by proponents of good faith, aiming to assuage the avoiders’ fears that it will wreak mischief and calamity.[53] Thus Leggatt managed to make waves with a duty of good faith imposed, as he said, simply by “following the established methodology of English law for the implication of terms”.[54] This line was played up in Flynn v Breccia in Ireland to justify not recognizing some good faith, which may for now be the final word there.[55] Promoters of good faith must find a balance: it must matter enough that it is worth the trouble to adopt it, but not so much that it would bring intolerable instability.

However there is a basic problem this containment strategy must surmount in those situations where good faith appears to be not disclaimable—terms implied by law, statutory duties, or contractual duties like that in Bhasin. If the goal of good faith is to effect parties’ expectations, why can’t they disclaim it? Enforcing some kind of good faith obligation against parties who have attempted to disclaim it would seem a subversion rather than a fulfilment of their aims.

The most interesting response to this difficulty, raised by the containers, reflects and flips this paradox through what is sometimes called “the nature of contract”.[56] It might be shown that whenever people contract to do something they are contracting to do it in good faith—that this is just what contract means. To include a term saying “we disclaim good faith” would be to fail to understand good faith, or contract, or probably both.[57] To really intend such a term would be to fail to intend to make a contract at all. Thus responsibility for the apparent paradox of a good faith norm that is at once found in parties’ agreements and non-disclaimable by those parties is smoothly shifted from the contract theorists to the contractors. The good faith found in the nature of contract can range from limited business efficacy notions to an expansive business morality, the normative background against which businesspersons deal. In general “moral” norms are seen as more broad, uncertain, and dangerous and less likely to form a background assumption common to every pair of commercial parties.[58] This moral/amoral business norms dichotomy is one of many raised by good faith that is difficult to maintain.[59]

There is a parallel USA line of thought.[60] This has arisen to contain the good faith obligations described in the Uniform Commercial Code and the Restatement (Second) of Contract. The American containment strategy has a distinctly libertarian flavour. While it shares the general form of finding good faith in the parties’ agreement (and does the same gymnastics around the paradoxical identity of an interpretive standard and an imposed obligation) it is more skeptical that moral norms are ever a part of the interpretive background of a contract. For some, “good faith” reduces to almost nothing. It is just another word for performing one’s contract.[61] As one writer put it, “[g]ood faith in performance just is the attitude of taking contractual obligation appropriately seriously.”[62]

This containment strategy raises three problems. First, it seems to rely on a view of what it means to contract that, like the avoidance strategy purporting the adversarial ethic of contracting discussed above,[63] is in question. At some level such a view of the nature of contract must always be external to the parties, proposed by the theorist and perhaps implicit in the law or in our social order. And so there will always be people, perhaps odd people, who do not think that the word contract means what you think it does. Now they might misunderstand contract, but this will not necessarily stop them from making offers and acceptances.[64] What happens if we disclaim “the nature of contract”? This relates to the second problem.

Recall the hypothetical contract term disclaiming good faith.[65] The argument is that because good faith is a necessary element of what it means to contract, this term cannot be enforced. Why, in this example, is the term disclaiming good faith ignored when it seems we could equally conclude no contract had been formed? If it seems obvious that a contract has been formed, does that not undermine the claim that good faith is of essence to contract? Whatever reasons we might point to to suggest that it is clear that the contract was meant and the disclaimer was not, rather than the other way around, are reasons that might suggest that good faith is not key to contract. A clause disclaiming good faith, if taken seriously on this model, would perhaps result in only reliance rather than expectation damages being available.

There is a third problem with the containment strategy of finding good faith in the nature of contract: a mismatch between what good faith proponents seem to wish it to accomplish and the pedestrian nature of “protecting reasonable expectations” and “the nature of contract”. Good faith sounds like more than that; it sounds moral.[66] And indeed some proponents of good faith, those who embrace it, seem to believe that good faith will lead to something more, even a culture shift toward a more moral market (discussed in the next section). But perhaps for some this is a feature rather than a bug in that it allows good faith to develop organically, beginning with a small but fertile seed.

A better approach might be to forswear any intimacy with “the nature of contract” and instead make a pragmatic point: if parties almost always mean to commit themselves in good faith but might sometimes not, there is little point in admitting a legal exception. It will only allow deceitful parties to claim they did not mean to deal in good faith after the fact when really they did all along, wasting time and resulting in the occasional judicial error. The only problem with not allowing the exception is that the very few people who would have correctly benefitted by it will miss out. Better not to allow the argument at all and face the occasional false positive than to have to argue over false negatives in every case.

Another containment strategy deserves mention. Sometimes it is suggested that good faith can be confined to particular classes of contract. While this is already often the position on eg employment, franchise or insurance contracts, some have suggested that good faith should be extended to something called “relational contracts” more broadly. This is a fuzzily-drawn group of contracts that are longer term, with more interdependence and trust between the parties and perhaps more normative baggage built up between the parties over time. A difficulty here is that, as Ian Macneil told us long ago, all contracts are to some extent relational.[67] So again this containment strategy will have trouble containing good faith. In Bhasin, the court recognized this:

The growth of longer term, relational contracts that depend on an element of trust and cooperation clearly call for a basic element of honesty in performance, but, even in transactional exchanges, misleading or deceitful conduct will fly in the face of the expectations of the parties.[68]

Hugh Collins has recently demonstrated this containment strategy.[69] He argues that good faith is “the true ground for implying terms into contracts”, implying that good faith has lurked in the English common law for at least a century.[70] He also argues for “a class of contracts that require more intense obligations of co-operation and loyalty, which nevertheless fall short of fiduciary obligations”.[71] Properly contained to such a class, good faith is nothing to worry about.

Containment is treated with skepticism on both sides. The embracers see it as an attempt to stifle common law progress by minimizing good faith’s potential. The avoiders worry that containment will be unsuccessful and good faith will grow like a snowball down a slippery slope. They are of course right to worry because there is no clear line to be drawn around good faith obligations. Where does business efficacy end and morality begin? They seem to inform each other.[72] Morality will often be part of reasonable expectations and businesses often must trust each other. This inability to draw a clear line is reflected in the eternal swaying of the common law between more and less textual approaches to interpretation.[73] This connexion was made explicit in one of the knock-downs of Leggatt J’s reaching at the Court of Appeal, when Moore-Bick LJ wrote:

There is in my view a real danger that if a general principle of good faith were established it would be invoked as often to undermine as to support the terms in which the parties have reached agreement. The danger is not dissimilar to that posed by too liberal an approach to construction, against which the Supreme Court warned in Arnold v Britton.[74]

The avoiders are right to be skeptical of the motivation behind the containment approach. If good faith is just a name for part of objective interpretation, why all the hullabaloo about whether or not the common law includes it? Why belabour a label? We are left wondering whether some of those who have advanced a containment strategy are using it as a rhetorical device to smuggle in a more substantial good faith. Thus both practically and, perhaps, in motive, the containment strategy bleeds into embrace.

IV. Embrace

Now we enter the Age of Aquarius. Raphael Powell, like others discussed above, sought to ground good faith in “the common usages of the common man”.[75]

The common man, however much he may pray for miracles, does not really expect them to happen. If the judge gives him more than he expects, he can do so only by taking away more from the other party. To justify that action he is driven to exaggerate the standards of conduct which can be expected from the parties.[76]

Powell of course could not have accounted for the great spiritual awakening that was to follow his 1956 lecture. What standards of conduct can we expect from each other now? Perhaps people trust each other more than they used to? And perhaps the law should reflect, or enhance, or even initiate this change? Embrace strategies see good faith as part of a social shift to a more trusting market. If businesspersons can rely on each other more, more productive deals are possible. As it happens we do not really have good reason to believe that people across the Commonwealth are more trusting now than they were in 1956.[77] But perhaps they should be and perhaps good faith in contracts could be a part of that. Roger Brownsword advocates a “good faith regime” that “systematically endeavours to encourage a disposition to co-operate and to shield contractors who are so disposed against exploitation and opportunism”.[78] In this way, good faith makes “a useful background contribution”[79] to contract law. Arguably Bhasin wrote good faith in this form.[80] Good faith might then be part of a culture shift toward a friendlier market by gradually massaging contract rules into that mould.

We see in the Powell quotation the notion that contract disputes are a zero-sum game. Giving one party more means taking away from the other. This returns us to a previous theme: some people look at the market and see largely positive-sum co-operative behaviour rather than adversarial divisions of surplus—even though these may be the same thing.[81] All contracts include elements of both co-operative and adversarial behaviour[82] and this limits the use of these categories. All contracts involve parties co-operating to make a pie and then competing over how to divide it. In the simplest transaction, say I pay a dollar for a chocolate bar, the pie can be seen as the net utility gain of the parties. Presumably I value the chocolate bar at over a dollar (say $1.10) and the shop values it at less (say ¢90). By making this trade we’ve made a (twenty cent) pie and divided it (equally). This example is meant to show the minimal co-operative content of every contract, but many contracts will involve much more extensive co-operation in the pursuit of potentially incommensurable gains that cannot be competed over. An example is the satisfaction or fulfilment that a career can provide, or that running a business can provide. Employees and employers regularly co-operate to produce these kinds of “contractual surplus”.

Once a dispute erupts, we might suppose that what was once a partly co-operative venture becomes zero sum. This is not obvious, particularly in situations where negotiation or even a court can salvage a relationship.[83] But to the extent it is true, it is not clear that contract disputes should be decided by reference to the adversarial norms of the dispute stage rather than the co-operative norms of the earlier stage.[84] In so far as contracts are defined at the moment of formation, or perhaps at later moments of quasi-formation, the final moment of break-down seems the least relevant. So perhaps embrace has it right, that contracting is best characterised as basically co-operative. But whether or not that is so, the arguments of the embracers go well beyond an attempt to fit onto contemporary market behaviour.

There are both economic and moral arguments for a good faith culture shift. On the economic side, it is suggested that more good faith means more trust means more deals. People will be able to share more information and rely on each other’s promises ever more. More will be invested into valuable but risky future projects with the comfort of knowing one will not be taken advantage of. Bigger pies for everyone. But perhaps good faith would also allow a different kind of pie—tastier or more nutritious. In the employment example just given, I suggested that a substantial part of what economists obliquely call the contractual surplus can lie in the sense of satisfaction that some lucky employees and employers get out of their careers and businesses. I posit that mutual trust and fellow-feeling between the players in one’s working life are essential to this kind of satisfaction.

The chief difficulty with the economic argument is that it is drastically uncertain. To give one example, good faith is supposed to encourage information sharing because parties will be able to trust that counterparties will not take the information and run. Information sharing can allow parties to come to more productive deals. Good information is essential to optimal contracting because only when properly informed will a party’s deals reflect their preferences.[85] However there is another question about how much is invested into producing information in the first place. Consider the classic issue: if I wish to buy your property must I disclose my secret knowledge that your property is unusually valuable?[86] If I need not disclose it, you will get bilked. If I need disclose it (without some additional compensatory mechanism) I will have lost the value of the information and an underproduction of that sort of information might result. Or, I might fail to disclose it despite the requirement and hope you never notice, exploiting the very trust that good faith was to create. Where does the efficient answer lie?

On the moral side, one person’s utopia of fellow feeling is another’s totalitarian nightmare. Let us imagine a science fictional market of the future where everyone trusts each other and shares information and lives happily together. There is much that is attractive in this model. It might even, in some sense, be a fuller ethical community than what we have now. But not everyone agrees. Some business people no doubt get satisfaction from competing and besting the competition. Putting the graspers aside, does this market vision not ask too much of its participants? There is something invasive about having to put so much of yourself into your public life. No one can be at arm’s length, and perhaps the bourgeois virtues of tolerance, prudence, enterprise, and justice would suffer.[87] The stereotypical dark-side of communitarian sf is after all an oppressive and lack-lustre homogeneity.

There is irony in the contrast between the zeal of some good faith proponents and the pedestrian nature of the doctrinal proposals at issue. After Bhasin, the Hrynews of this world must now be a little more careful with their termination notice periods—and this is going to lead us to a more trusting society? Containers often advance similar notions of good faith with wildly different expectations of what will result. Avoiders say doom though again similar notions of good faith might be at play. All this seems to argue nothing but that the far-flung consequences of good faith are totally unclear. The avoiders, containers, and embracers cannot agree whether good faith will enervate or exalt the market, or simply leave it as it is. Perhaps each response is in touch with a different part of the elephant.[88] Or perhaps there is no elephant at all.

V. Conclusion

The long-standing, flip-flopping nature of good faith debates make them ripe for a dialectical approach.[89] Perhaps the reason we have so many theorists arguing for deeply opposed positions is that they are responding to an underlying tension that will always pervade the law. Perhaps “good faith” is just the stage-setting for debates about communitarianism against individualism, rational self-interest against altruism, private against public, contract’s facilitative against its regulative aspects, and on. In some sense this must be right. My review of the rhetorical strategies brought to bear on this subject unearthed some of the deep values at play, notions about how people and markets are and how they should be. These are perhaps most evident in the strategies’ weaknesses. And so as long as there are people who think that contract law is too individualist or too communitarian, there will be people arguing about good faith’s place within it. We can also posit a dialectic dialectic. In the past describing things in terms of underlying irreconcilable tensions has been cool, and it might be coming back into vogue now.[90] The pendulum is ever swinging.

For years Commonwealth contract law has moved between avoidance and containment strategies. With Bhasin, avoidance is no longer an option in Canada—here there is an organizing principle of good faith in the common law of contract. In a global market where many jurisdictions recognize some kind of good faith, avoidance is becoming less attractive in general. As such we should expect an influx of containment strategies. The rhetoric of the Bhasin decision includes elements of both embrace and containment, and time will tell which becomes the mode in Canadian jurisprudence. In my own view, containment fails to really engage with the substance of good faith. It seems to be missing the good question, the drama that good faith holds for so many. Serious embrace on the other hand is not incremental. It thus raises rule-of-law concerns about the reckonability of court outcomes and a lack of fit with commercial expectations that may be based on present law. In Canada we will likely get what we need: an admixture of both embrace and containment of good faith from different legal actors.

According to the Supreme Court of Canada in Bhasin, good faith is already an organizing principle of the common law of contract, just waiting to be acknowledged. [91] On top of everything else, good faith is an opportunity for us to reflect on our views on the common law; it is important not only for what it might do in court but for what we say about it. It is a subject of constant controversy not because the ship of commerce is ever at risk of running up on its rocks, but because we have bulked it up with the all the conflicting values that contract should express.

  1. SM Waddams, The Law of Contracts (7th edn, Thomson Reuters 2017) 17. See also Raphael Powell, “Good Faith in Contracts” (1956) 9 CLP 16, 23-25; Woo Pei Yee’s “pockets of good faith” in “Protecting Parties’ Reasonable Expectations: A General Principle of Good Faith” (2001) 1 OUCLJ 195, 199-208.

  2. HG Beale et al, eds, Chitty on Contracts: General Principles, vol 1 (31st edn, Sweet & Maxwell 2012) [1-044] – [1-055] (a menu of good faith-inflected topics that are covered later in different parts of Chitty); Angela Swan & Jakub Adamski, Canadian Contract Law (3rd edn, LexisNexis 2012); GHL Fridman, The Law of Contract in Canada (6th edn, Carswell 2011) (compare eg 471 against 530-531). Of the Canadian treatise writers before Bhasin v Hrynew, 2014 SCC 71, [2014] 3 SCR 494, announced an organizing principle of good faith, only John D McCamus attempted to draw doctrines together into “the implied duty to perform in good faith”. The Law of Contracts (2d edn, Irwin Law 2012) ch 21.

  3. Gerard McMeel, “Foucault’s Pendulum: Text, Context and Good Faith in Contract Law” (2017) 70 CLP 1. McMeel attributes this approach to Lord Justice Bingham in Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1987] EWCA Civ 6. Swan, looking at the issue from the other direction, calls this “a ‘distributed concept’ of good faith — ie, giving instances of good faith special names”: Swan & Adamski (n 2) [8.140]. See also Roger Brownsword, “Positive, Negative, Neutral: the Reception of Good Faith in English Contract Law” in Roger Brownsword, Norma J Hird, and Geraint Howells (eds), Good Faith in Contract: Concept and Context (Ashgate 1999) 13, 22.

  4. “Good faith A”, Oxford English Dictionary (3d edn, OUP 2018) http://www.oed.com/view/Entry/363783 accessed 28 April 2019.

  5. Charles Fried, Contract As Promise (2d edn, OUP 2015) 88 (or at least, I suspect this is what he was getting at when he wrote “loyalty to the promise itself … closes the gap between good faith as sincerity and good faith as loyalty”).

  6. Waddams (n 1) [502] – [514]; Leggatt J in Yam Seng PTE Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB); Elisabeth Peden, Good Faith in the Performance of Contracts (LexisNexis Butterworths 2003); Marilyn Warren, “Good Faith: Where Are We At?” (2010) 34 Melb U L Rev 344, 349: “Good faith as a doctrine does not exist independently of the rules surrounding the construction and interpretation of contracts, or the rules of implication”. Note that there are several roles good faith can play in contract interpretation, most carefully distinguished in Peden’s work. Good faith obligations can be implied in fact or in law, or good faith can inform the construction of contracts at a more general level—Peden’s preferred approach. See Peden supra 1.5-1.10.

  7. Michael G Bridge, “Does Anglo-Canadian Contract Law Need a Doctrine of Good Faith?” (1984) 9 Can Bus LJ 385, 416-425; Johan Steyn, “The Role of Good Faith and Fair Dealing in Contract Law: A Hair-Shirt Philosophy?” (1991) 6 Denning LJ 131; David Campbell, “Good faith and the ubiquity of the ‘relational’ contract” (2014) 77 MLR 475; Nicholas Reynolds, “The New Neighbour Principle: Reasonable Expectations, Relationality, and Good Faith in Pre-Contractual Negotiations” (2017) 61 Can Bus LJ 94; Swan & Adamski (n 2); Jeannie Marie Paterson, “The standard of good faith performance: reasonable expectations or community standards?” in Michael Bryan (ed), Private Law in Theory and Practice (Routledge-Cavendish 2007) 166 (Answer: reasonable expectations); Pei Yee (n 1); Jay M Feinman, “Good Faith and Reasonable Expectations” (2014) 67 Arkansas L Rev 525.

  8. Brownsword generally describes his “good faith regime” as protective. Brownsword, “Reception” (n 3) 36-37; Roger Brownsword, “‘Good Faith in Contracts’ Revisited” (1996) 49 CLP 111, 139.

  9. Swan & Adamski (n 2) 405. Brownsword also describes good faith as encouraging co-operative behaviour though he is never clear on the mechanism. Brownsword, “Revisited” (n 8) 139.

  10. John Enman-Beech, “The Subjects of Bhasin: Good Faith and Relational Theory” (2017) 13 J of Law and Equality 1, 28, fn 112.

  11. Uri Gneezy & Aldo Rustichini, “A Fine is a Price” (2000) 29 J Legal Stud 1, 13-14; Paul MacMahon, “Good Faith and Fair Dealing as an Underenforced Legal Norm” (2015) 99 Minnesota L Rev 2051, 2102.

  12. 2014 SCC 71, [2014] 3 SCR 494.

  13. Daniele Bertolini, “Decomposing Bhasin v Hrynew: Towards an Institutional Understanding of the General Organizing Principle of Good Faith in Contractual Performance” (2017) 67 U Toronto LJ 348.

  14. Bhasin (n 12) [64].

  15. John Enman-Beech, “Good Faith Between Public and Private” (2018) 84 SCLR (2d) 353, 358-362.

  16. Bhasin (n 12) [44].

  17. Ibid [56] Note here the court, while explicitly using the phrase “implied in fact”, is characteristically blurring the line between implication in fact and by law. Enman-Beech (n 15) 382.

  18. Ibid [45].

  19. Ibid [74]. Thus the duty of honest performance seems to be what Peden calls a “contractual duty” (and argues does not exist). Peden (n 6) 1.5-1.10.

  20. The only notable absence now is good faith in the negotiation of contracts outside the tendering context. Arguing that this can’t be far behind: Reynolds (n 7).

  21. Robert S Summers, “‘Good Faith’ in General Contract Law and the Sales Provisions of the Uniform Commercial Code” (1968) 54 Virginia L Rev 195.

  22. This specific formulation has not yet, to my knowledge, seen print, but see Ontario Bar Association, “Lawyer, Teacher, Writer, Tinkerer - OBA Celebrates The Career Of Angela Swan” (24 May 2016), on-line: <https://www.oba.org/JUST/Archives_List/2016/May-2016/Lawyer,-Teacher,-Writer,-Tinkerer-OBA-Celebrates-t>; and Swan & Adamski (n 2) [8.134].

  23. See notes 1-22 above and 24-91 below and accompanying text.

  24. As an example, the American writers, discussed below at (n) 60, are responding to duties of good faith implied by law (by common law for the Restatement (Second) Contracts and, in the case of the Uniform Commercial Code, by statute). Many responses to Leggatt J’s and Brownsword’s attempts are responses to good faith as a duty implied in fact and/or to good faith as a general principle of contract law, yet adopt the same containment strategy. Michael Bridge, “Good Faith in Commercial Contracts” in Brownsword, Hird, & Howells, (n 3) 140.

  25. Bridge (n 7) 409, suggesting that good faith theorising “may well produce contemplative gains” (damning with faint praise), and at 412: “However much [good faith] might stimulate research or encourage inquiry into theories underlying contract law, its appropriate home is the university where it can perform these functions without wreaking practical mischief”.

  26. The nature of interpretive legal theory blurs these notions together: Stephen Smith, Contract Theory (OUP 2004) ch 1.5.

  27. Walford and others v Miles and another [1992] 2 AC 128 (HL). Ackner was working toward the conclusion that a duty to bargain in good faith would be too uncertain because of its conflict with his sense of negotiation. This is similar to the hypothetical contract disclaiming good faith posed by Swan and Adamski (n 2), discussed at (n 57).

  28. See also McMeel (n 3) 24 (contrasting the civilian approach to good faith with “the more individualistic ethic of the common law”); Reinhard Zimmermann & Simon Whittaker (eds), Good Faith in European Contract Law (CUP 2000) 698-699 (discussing “the idea of contract as being about ruthless bargaining and strict performance” and “the idea that good faith reflects a communitarian ideal rather than individualistic values”); Leggatt J in Yam Seng (n 2) [125]:

    It would be a mistake, moreover, to suppose that willingness to recognise a doctrine of good faith in the performance of contracts reflects a divide between civil law and common law systems or between continental paternalism and Anglo-Saxon individualism.

    Clearly Leggatt is referencing the idea without endorsing it.

  29. Martel Building Ltd. v Canada 2000 SCC 60, [2000] 2 SCR 860 [67]. This remarkably similar tack was apparently taken without reference to Walford v Myles (n 27).

  30. An excellent discussion of this position is by Catherine Mitchell in Contract Law and Contract Practice: Bridging the Gap between Legal Reasoning and Commercial Expectation (Hart 2013).

  31. Catherine Valcke, “Good Faith and the Common Law of Contract: Clashing Paradigms?” (2019) J Commwlth L ___.

  32. Though the conclusions of Zimmermann & Whittaker (n 28) seem to me to be about the best evidence one will be able to find. The common law treats many situations where good faith would arise in Continental systems in a functionally similar way. Of course, this is to a great degree a matter of emphasis: one can find similarities if one looks for them. It is not clear in any case what it would mean to claim that a common law system implicitly features a principle of good faith on the basis of a claim about functional outcomes: the first seems a legal claim while the second is sociological: Catherine Valcke, “Comparative Law as Comparative Jurisprudence: The Comparability of Legal Systems” (2004) 52 Am J Comp Law 713, 730 fn 95.

  33. That is, any judge bound by Bhasin will not be able to say “there is no organizing principle of good faith in the Canadian common law of contract” because the Supreme Court has decreed otherwise. Legal commentators on the other hand are free to disagree with the court. But they are more likely to succeed in stemming good faith in Canada if they, at least as a rhetorical manœuvre, adopt a containment strategy. Such strategies can be taken up by legal actors without explicitly contradicting the Supreme Court.

  34. Yam Seng (n 2) 124.

  35. Angela Swan, “Whither Contracts: A Retrospective and Prospective Overview” in Special Lectures of the Law Society of Upper Canada 1984 — Law in Transition: Contracts (1984) 125, 148, cited in Bhasin (n 12) 36.

  36. Compare MSC Mediterranean Shipping Company SA v Cottonex Anstalt [2015] EWHC 283 (QB) [97] and MSC Mediterranean Shipping Company SA v Cottonex Anstalt [2016] EWCA Civ 789 (CA) [45].

  37. Geoffrey Kuehne, “Implied Obligations of Good Faith and Reasonableness in the Performance of Contracts: Old Wine in New Bottles” (2006) 33 UWA L Rev 63; Warren (n 6); Krish Maharaj, “An Action on the Equities: Re-Characterizing Bhasin as Equitable Estoppel” (2017) 55 Alberta L Rev 199. Showing that this is a two-way street, consider the implied “term to be fair and consistent in the assessment of the tender bids” in Martel, ibid [88], that was emphatically not a duty to negotiate in good faith, para 73 and Fridman, (n 2) 471. When the court in Bhasin got to it, it had somehow become “a duty of good faith, in the sense of fair dealing”: Bhasin (n 21) [56].

  38. Maharaj, note 37 above at 205: “This is not to say that DHP [the good faith-based duty of honest performance] is ultimately a negative development, but I argue that some classification other than ‘contract’ must be found for DHP, if we are to avoid having the doctrine inflict a calamity on our understanding of the law of obligations”.

  39. Bridge (n 7) 397; Leggatt, writing extra-judicially, preferred “Darwinian struggle”. George Leggatt, “Contractual Duties of Good Faith” (Lecture to the Commercial Bar Association, 18 October 2016) https://www.judiciary.gov.uk/wp-content/uploads/2016/10/mr-justice-leggatt-lecture-contractual-duties-of-faith.pdf [25].

  40. As Stewart Macaulay and Lisa Bernstein have done.

  41. As Angela Swan and Michael Bridge have done.

  42. As Lisa Bernstein and Michael Bridge have done.

  43. As Stewart Macaulay and Angela Swan have done. Of course the specifics are more complex and I do not mean to imply that the scholars I am citing here and ibid are guilty of the simplification I put in the text. See also Mark Granovetter, “Economic Action and Social Structure: The Problem of Embeddedness” (1985) 91 Am J Sociol 481.

  44. Mitchell (n 30) 45-49.

  45. Bridge (n 7).

  46. Ibid 412.

  47. Ibid 416-425. The process of contract construction Bridge discusses is precisely what some people mean by good faith—examples in note 7 above—yet this style of construction is arguably now waning. McMeel (n 3). This robs Bridge’s argument that good faith is not needed of some of its force.

  48. Hugh Collins ascribes the good faith in a china shop metaphor to Powell (n 1) 38. Hugh Collins, “Implied Terms: The Foundation in Good Faith and Fair Dealing” (2014) 67 CLP 297, 300 fn 10.

  49. Bhasin (n 12) [33], [73].

  50. Steven J Burton & Eric G Andersen, “The World of a Contract” (1990) 75 Iowa L Rev 861, 869: “In the abstract, good faith is so basic to contract that it amounts to the principle of promise keeping itself”. See also (n 60) accompanying text discussing a USA line of thought.

  51. (n 3).

  52. Gerald J Postema traces this notion back to the early modern period with Sirs Edward Coke and John Davis. Gerald J Postema, “Classical Common Law Jurisprudence (Part I)” (2002) 2 OUCLJ 155, 169.

  53. Particularly those who believe good faith reflects the relational nature of contracting, such as Leggatt, Swan, Campbell, and Reiter. See, e.g., Barry Reiter, “Good Faith in Contracts” (1983) 17 Valparaiso L Rev 705, 726.

  54. Yam Seng (n 2) [131].

  55. Flynn & Anor v Breccia & Anor [2017] IECA 74 [102].

  56. Campbell (n 7) 485 (“the relational nature of contract”); Leggatt (n 39) 24 (good faith relates to “the nature of commerce and commercial law”); Feinman (n 7) 536 (“some norms arise from the nature of exchange itself”); Swan & Adamski (n 2) [8.133]-[8.134]. Distinct from this is the view that good faith attends to the “nature” of a particular contract, a view which Collins traces to “scholastic Aristotelian philosophy”. Collins (n 48) 299. Collins treats this as a method of implying terms separate from good faith. Cf Steyn (n 7) 133.

  57. Swan & Adamski, (n 2) [8.134.1] compare such a contract to “one in which a party disclaimed any intention to adopt the usual meaning of the words used in the agreement. A court would have no difficulty and no hesitation in denying a party this latter freedom—communication is only possible because words have at least a settled core of meaning—and it should have no more difficulty or hesitation in recognizing the existence of obligations of good faith in all agreements”. See also ibid [8.145] for a similar argument.

  58. For instance Steyn warns against giving good faith “too abstract a moral content. … [T]he law ought not to set its sights too high. These notions ought to reflect not the response of a moral philosopher but the responses and usages of ordinary right thinking people.” (n 7) 140.

  59. Alan D Miller & Ronen Perry, “Good Faith Performance” (2013) 98 Iowa L Rev 689, finding “community standards” at the root of various good faiths.

  60. Fried (n 5) ch 6; Steven J Burton, “Breach of Contract and the Common Law Duty to Perform in Good Faith” (1980) 94 Harvard L Rev 36; Daniel Markovits, “Good Faith as Contract’s Core Value” in Gregory Klass, George Letsas, & Prince Saprai (eds), Philosophical Foundations of Contract Law (OUP 2015) 272.

  61. See Bridge reading Burton (n 7) 402; and Burton & Andersen (n 50).

  62. Markovits (n 60) 284.

  63. Text at n 39-44.

  64. See Enman-Beech (n 15) 365-368.

  65. See (n 57) and accompanying text.

  66. Powell saw this: “Certainly only foolhardiness or presumptuousness would permit a lawyer to trespass into the field of morals which is suggested by the title of this lecture [Good Faith in Contracts]”. (n 1) 17.

  67. David Campbell, “Ian Macneil and the Relational Theory of Contract” in David Campbell (ed), The Relational Theory of Contract: Selected Works of Ian Macneil (Sweet & Maxwell 2001) 3, 41-46.

  68. Bhasin (n 12) [60], citing Swan & Adamski (n 2) [1.24].

  69. Collins (n 48).

  70. Ibid 301.

  71. Ibid 324. Collins does not however define this class with reference to whether a contract is “relational”. Instead he draws on the theory of the firm as providing a guide on when contracts are more or less incomplete (incomplete in the economic sense). “The crucial variable that determines the incidence of obligations of loyalty and co-operation is the point at which the contract falls on the spectrum between market and organization”. Ibid. 326. See also ibid 328:

    The reason why these contracts require as normal incidents greater duties of loyalty and co-operation is not because they are long-term and not because the parties may have invested substantially in the project, though both of these features are likely to be present, but because the contract establishes a quasi-integrated system of relations of production with intensified contradictory pressures simultaneously both to co-operate and to compete. The economic logic of networks is that both parties will be better off if they co-operate to maximize the size of the pie, such as sales in a franchise or distribution network, but simultaneously they need to compete to obtain a greater slice of the profits arising from their labours. Each party needs to be co-operative and loyal to the general aim of the networked business enterprise, whilst ensuring that it obtains the maximum share of the rewards. These obligations of loyalty and co-operation within networks must fall short of those applicable to organizations, however, for both parties remain residual profit-takers with antagonistic interests. Loyalty is owed, not to each other, but rather to the network as an independent business operation.

    Collins has probably found a ground for good faith duties that better accords with both the needs of the market and parties’ expectations. Questions remain as to whether his approach is any better at drawing clear lines than the relationality approach. All contracts have elements of organizations. Granovetter (n 43) (responding to the distinctions drawn by Oliver Williamson on which Collins relies).

  72. Cf Robin Bradley Kar, “The Deep Structure of Law and Morality” (2006) 84 Texas L Rev 877.

  73. McMeel (n 3).

  74. MSC Mediterranean Shipping (CA) (n 36) [45].

  75. Powell (n 1) 38.

  76. Ibid 37-38.

  77. This is a bit of an impossible question, poorly defined, difficult to evaluate, and wildly varying across jurisdictions. That said some people conduct surveys to try to get a handle on these issues and the outlook for credence is cloudy. Esteban Ortiz-Ospina & Max Roser, “Trust” in Our World in Data (Oxford Martin Programme in Global Development 2017) <https://ourworldindata.org/trust>.

  78. Brownsword, “Revisited” (n 8) 139.

  79. Bridge (n 7) 426.

  80. Enman-Beech (n 10).

  81. Text at n 39-44.

  82. Mitchell (n 30) 96-97. For an attempt to separate these elements, see (n 71).

  83. Stewart Macaulay, “An Empirical View of Contract” (1985) Wisconsin L Rev 465, 475-476.

  84. Mitchell (n 30) 137.

  85. Michael Trebilcock, The Limits of Freedom of Contract (Harvard 1993) 102.

  86. Ibid ch 5; Brownsword, “Revisted” (n 8) 141-143.

  87. Dierdre N McCloskey, The Bourgeois Virtues: Ethics for an Age of Commerce (University of Chicago Press 2006) and Nathan B Oman, The Dignity of Commerce: Markets and the Moral Foundations of Contract Law (University of Chicago Press 2016).

  88. I refer to the story in which three blind people come into contact with an elephant’s trunk, leg, or ear, and conclude that an elephant is like a snake, a tree, or a blanket. This is usually used as a metaphor for humans’ incomplete perception of religious truth.

  89. Enman-Beech (n 15); McMeel (n 3); and see generally Clare Dalton, “An Essay in the Deconstruction of Contract Doctrine” (1985) 94 Yale LJ 997.

  90. Critical Legal Studies was a fan of this method, prominently Duncan Kennedy, “Form and Substance in Private Law Adjudication” (1976) 89 Harvard L Rev 1685. On the vogue see (n 89) and Roy Kreitner, “On the New Pluralism in Contract Theory” (2012) 45 Suffolk U L Rev 915.

  91. Bhasin (n 12) [33].