Case information

Contracts - Performance - Doctrine of good faith - Contractual discretion - Legitimate expectation - Whether the arbitrator erred in concluding that the duty of good faith could be implied by law - Whether the arbitrator erred in concluding that Wastech had a legitimate expectation that Metro would compensate Wastech over and above adjustments provided for in their agreement - Whether a breach of the duty of good faith required a finding that the parties’ agreement was nullified or eviscerated - Whether a breach of the duty of good faith required proof of subjective dishonesty - Whether the arbitrator’s good faith conclusions are reviewable.

Case summaries are prepared by the Office of the Registrar of the Supreme Court of Canada (Law Branch). Please note that summaries are not provided to the Judges of the Court. They are placed on the Court file and website for information purposes only.

Wastech Services Ltd. and Greater Vancouver Sewerage and Drainage District (“Metro”) were involved in a 20 year contract for the disposal of solid waste from the Vancouver regional district. A dispute arose in 2011 over Metro’s discretionary allocation of solid waste to various dumping sites which negatively impacted Wastech’s contractual profit margin. The dispute went to arbitration. The arbitrator refused to include an implied term restricting Metro’s discretion to allocate waste between waste sites since this had been a possibility considered by the parties and purposefully omitted. The arbitrator found that Metro did not exercise its discretion capriciously or arbitrarily. He accepted that the basis for Metro’s conduct was the furtherance of its own objectives and held that Metro was both honest and reasonable from its own perspective. However, the arbitrator determined that Metro breached its duty of good faith in the exercise of its discretion because it lacked the appropriate regard for Wastech’s legitimate expectations. In the arbitrator’s opinion, it was open to Metro to exercise its discretion in a manner that negatively impacted Wastech financially, but it could not do so to an extent that eliminated any possibility for Wastech to achieve its contractual profit margin. The arbitrator awarded damages to Wastech. Leave to appeal to the Supreme Court of British Columbia was granted on two issues related to good faith in contracts. In granting the appeal, the judge found that the arbitrator made two errors. The judge concluded that an imposition of any duty must be based on the terms of the contract itself which the arbitrator failed to do. An appeal to the Court of Appeal for British Columbia was dismissed but for different reasons than that of the chambers judge. It concluded that bad faith required at least a subjective element of improper motive or dishonesty, neither of which were present in this case.