In Canada, parties to a commercial agreement owe one another a duty of good faith, including a duty to perform their contract honestly: C.M. Callow v. Zollinger, 2020 SCC 45, per Kasirer J. at para. 3.
This includes the obligation to avoid "active deception". Defined broadly, the term encapsulates not just outright lies, but silence, half-truths, and omissions.
Each case is fact-dependent and involves a contextual inquiry.
A recent decision of the Ontario Superior Court, Bigwin Group Inc. v. Trade X Group of Companies Inc., 2024 ONSC 3827, illustrates that inaction or "ghosting" your contractual counterparty may result in a bad faith breach of the business bargain.
"Candidate # 6"
Bigwin involved an engagement contract (the "Contract") in which the Plaintiff, an executive recruiting firm, agreed to assist the Defendant in its search for a chief financial officer ("CFO").
Under the Contract, the Defendant agreed to pay the Plaintiff for its recruiting services $100,000 in three tranches, as follows:
- An initial, non-refundable payment of $30,000, due upon the agreement's inception;
- A second payment of $33,000, to be owed by the Defendant upon the "presentation of three bona fide candidates" by the Plaintiff, provided the Defendant agreed to interview such candidates; and
- A third and final payment of $34,000, payable upon a CFO candidate's "acceptance and signing of [an] offer letter".
The Defendant paid the first tranche when the parties entered into the Contract.
The Plaintiff then took steps to launch the recruitment process, including the creation of a "leadership matrix", a draft "position profile", and a cognitive and behavioural comparison model.
The Plaintiff's efforts in soliciting candidates worked and the Defendant interviewed nine (9) candidates.
Candidate #6 held the most promise, after efforts to recruit a previous candidate faltered.
After members of the Defendant's executive team interviewed Candidate #6, the Plaintiff began taking steps to assess the interviewee and verify their references.
The Plaintiff maintained constant communication with Candidate #6 and the Defendant throughout the process, facilitating further interviews, delivering reference check information, and ultimately providing all required information in order for the Defendant's Board to decide whether to hire the Candidate.
As a result of the Plaintiff's assurances and representations, Candidate #6 informed his current employer that he would be accepting a position with the Defendant and would be terminating his current employment.
The Defendant's Board ultimately chose not to hire Candidate #6, determining that he lacked the necessary experience to take on the CFO position (the "Decision").
However, the Defendant did not communicate its Decision until after Candidate #6 had already advised his current employer he would be resigning.
A few days later, the Plaintiff emailed the Defendant advising that it would have been prudent to have provided Candidate #6 with reasons for the Decision. The Plaintiff also requested feedback from the Defendant so that it could continue the executive search with the most information available.
The Plaintiff further demanded the second payment on the Contract, given that more than three candidates who had met the Defendant's requirements had been interviewed.
The Defendant responded by requesting that the parties regroup and that a call would be set up with the Plaintiff in the future.
Thereafter, the Defendant stopped responding to the Plaintiff, effectively "ghosting" them.
The Defendant never made the required second payment to the Plaintiff.
Good Faith Means Responding to Your Contractual Counterparty
A summary trial took place, in which the Plaintiff claimed $67,000 for breach of contract. By the time of trial, the Defendant had gone defunct and did not participate in the trial.
The Court held that the Defendant was liable for simple breach of contract by failing to make the second payment, as required under the Contract.
The Defendant, however, was not liable for the third payment, since the Defendant's Board properly exercised its discretion not to hire Candidate #6 and no offer was ultimately executed by the candidate.
In a separate analysis, the Court went further and found the Defendant liable for the breach of the duty of good faith, an aspect of the Plaintiff's breach of contract claim.
In so doing, the Court held that the Defendant engaged in a form of "active deception" by not following through with the Contract and allowing the Plaintiff "to complete the search".
While the Defendant had ample discretion to seek its Board's approval to decide whether to hire Candidate #6, it also, in the Court's view, had a positive duty to the Plaintiff to provide insight into why it had ultimately chosen not to retain Candidate #6.
In short, the Defendant's conduct under the Contract was obstructive.
Most important, the Defendant's "ghosting" of the Plaintiff following the Decision amounted to dishonest conduct:
... The Plaintiff did an incredible amount of work and was still willing to continue searching for candidates to meet the Defendant's criteria. The Defendant misled the Plaintiff by stating they would regroup and set up a call with the goal to move forward. The unresponsiveness and silence of the Defendant thereafter constitute active deception. The Plaintiff was not given an opportunity to conclude the search. The Defendant did not act honestly and in good faith. [emphasis added]
On this basis, the Court held the Defendant liable for $67,000 in damages, plus interest and costs in the amount of $17,832.74.
Silence as Deception
Prior to the Supreme Court of Canada's establishment of a duty of good faith, the Defendant's conduct in Bigwin would likely have amounted to a form of anticipatory or fundamental breach of contract.
With the "good faith" weapon in its arsenal, however, the Court in Bigwin had the ability to analyze the Defendant's performance under the Contract from the perspective of bad faith.
While highly contextual, the Court's reasoning in Bigwin shows that the duty of good faith includes a positive duty to maintain ongoing communication with the contractual counterparty during the course of a commercial agreement.
Silence or "ghosting" represents a questionable form of behaviour that may prevent a contractual party from fulfilling its duties under the agreement. It also prevents the counterparty from holding the bad faith actor accountable for its misconduct.
Where one party to a business contract "flakes out", the other party is left in the unenviable position of insisting on the contract's performance, and ultimately, relying on litigation to enforce it.
In this context, good faith imposes a form of corrective justice on the parties, holding defendants liable for deception by way of silence.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.