(Un)Fettered Contractual Rights And Discretion

Canada's Top Court Clarifies the Duty of Good Faith in the Exercise of Contractual Powers

How can the exercise of seemingly unfettered contractual rights and discretionary powers ever constitute a breach of contract if exercising such a power (even opportunistically) is merely doing what the other party agreed it could do?

Two recent companion decisions of the Supreme Court of Canada have answered this question and clarified two ways in which the organizing principle of good faith constrains the manner in which all contractual rights (including seemingly unfettered rights) are exercised.

First, in C.M. Callow Inc. v Zollinger¹ (Callow), the Supreme Court of Canada confirmed that the exercise of a seemingly unfettered right under a contract may constitute a breach of the duty of honest performance (and, therefore, a breach of contract) when a party lies or otherwise actively misleads a counterparty about matters directly linked to the performance of the