Duty of honest performance held not to extend to dishonest conduct in negotiations before contract
The British Columbia Court of Appeal has allowed an appeal to the extent of setting aside an order certifying common issues relating to the breach of the duty of honest performance. However, it permitted an amendment of the relevant pleadings.
Ocean Pacific Hotels Ltd. – the appellant in this case – operated the Pan Pacific Hotel in Vancouver. It could not offer regular shifts to multiple employees after the COVID-19 pandemic seriously impacted its hotel operations. The respondents in this case were former employees who, in summer 2020, signed offers of casual employment replacing their existing regular employment contracts.
The respondents brought claims relating to the appellant’s alleged dishonesty during the negotiations of the casual employment agreements. The chambers judge certified common issues under the BC’s Class Proceedings Act, 1996 (CPA) in connection with claims for punitive damages and contractual breach, including breach of the duty of honest performance.
On appeal, the appellant challenged the certification of only three common issues relating to its alleged breach of the duty of honest performance. The appellant argued that the judge made a legal error when it certified the respondents’ claim.
Specifically, according to the appellant, its alleged pre-contractual dishonesty lacked a direct link to the contract’s performance as required by Bhasin v. Hyrnew, 2014 SCC 71 and C.M. Callow Inc. v. Zollinger, 2020 SCC 45 and thus could not support a claim for breach of the duty of honest performance.
The respondents also wanted to amend their pleadings so that they could allege a breach of the duty of honest performance with respect to the existing employment contracts instead of the casual employment agreements.
In Ocean Pacific Hotels Ltd. v. Lee, 2025 BCCA 57, the Court of Appeal for British Columbia refused to strike the respondents’ claim for breach of the duty of honest performance and granted them leave to amend the pleadings to fix the deficiencies. The appeal court returned the matter to the chambers judge, who could give directions or make orders that she considered appropriate.
The appeal court decided that the chambers judge erred in certifying the common issues relating to respondents’ claim of breach of the duty of honest performance.
The appeal court explained that the duty of honest performance in the contract did not extend to dishonesty intended to influence another party to enter into the contract. According to the appeal court, extending the duty that way could have the following effects:
The appeal court deemed it plain and obvious that the claim in the pleading failed to state a reasonable cause of action since its basis was an allegation of dishonesty inducing the respondents to enter into the casual employment agreements.
The appeal court found it appropriate to allow the respondents to amend their pleadings to remedy these shortcomings. According to the appeal court, upon the matter being remitted to the chambers judge, she could then make orders that she thought appropriate.
These would include an order permitting the respondents to again apply for a certification hearing on the claim for breach of the duty of honest performance of the existing employment contracts. This order would allow the appellant to respond to the amended pleadings and would enable the court to address whether the amended cause of action met the certification criteria in s. 4(1) of the CPA.
