This article is an extract from the 5th edition of Government Procurement.
In its January 2022 decision in Correct Building Corp. v. Lehman, the Ontario Superior Court of Justice granted as summary dismissal motion after finding that the defendant municipality was not under an implied duty to negotiate in good faith in relation to a land development project. The dispute involved a failed negotiation that occurred after the City of Barrie released a request for expression of interest to identify parties interested in developing municipal lands. After the negotiations failed the unsuccessful developer brought an action claiming a breach of good faith duties and misrepresentation. Those claims were summarily dismissed. In support of this ruling, the court concluded that there was no implied common law duty to negotiate in good faith:
A Common Law Duty or Obligation to Disclose during Negotiations?
CGI’s position is that Barrie had a duty to disclose what it knew about the Lands because Barrie led CGI and YMCA to believe it was getting a clean site. However, it is important to note that by July 2009 when the first draft APS was exchanged, CGI and YMCA could no longer have possibly believed that as Barre was expressly proposing that it was not taking responsibility for potential environmental/archeological issues on the Lands.
I conclude there was no obligation or duty to disclose the potential environmental/archeological issues in the Historical Reports (or the information therein) leading up to or during the negotiations.
A duty to conduct contractual negotiations in good faith or a positive obligation to disclose negative information about one’s product or services, is inherently repugnant to the adversarial process of commercial negotiations.
There is no certainty or standard by which a court could enforce such a duty at common law. Such a common law duty could not adequately or reasonably be “enforced” by the court. Contrast this to situations where such a statutory duty of detailed disclosure exists to protect the public such as in a prospectus in the Securities Act or in a franchise offering in the Arthur Wishart Act.
Parties are entitled to pursue their own respective interests during the course of contractual negotiations. On the other hand, once an agreement is finalized by the parties, courts has jurisdiction to deal with limited aspects of the negotiations such as whether fraudulent or negligent misrepresentations were made during the negotiations but only in the context of the agreed upon terms in the agreement. That is because the parties have negotiated and agreed upon the terms of the agreement – the necessary yardstick for assessing any claims advanced.
During the course of contractual negotiations, either party is entitled to withdraw from the negotiations, at any time and for any reason. Would that amount to a breach of the duty to negotiate in good faith? Does the withdrawing party need a reason? Is it material enough? An agreement to negotiate has no legal content and parties are not obliged to continue to negotiate until there is a proper reason to withdraw: see Walford v. Miles, [1992] A.C. 128 (U.K. H.L.), at p. 138; Georgian Windpower Corp. v. Stelco Inc., 2011 ONSC 5785, at para. 3.
To ensure what is important to them, during contractual negotiations either party can request as a term of the agreement being negotiated representations or warranties from the opposing side. Each party knows what is important to them and know what representations and warranties they want or need for them to come to an agreement. It is for the other party to decide what representations or warranties, if any, will or will not be given and included in the agreement. If a party wants a particular representation or term that the other party refuses to agree to, the remedy is to withdraw from the negotiations.
Absent some statutory obligation to disclose, to require parties to enter negotiations with an obligation to fully and completely disclose all potential negative facts to the opposing side (whether the other side considers them relevant) would eliminate due diligence, the need for representations, warranties and many terms. And then the issue would be what is material? Was it fully disclosed? Were the consequences of the negative fact disclosed? And so forth.
All parties enter negotiations knowing that an agreement may or may not be reached. Both parties take their chances, spend their time and often money, during the negotiations.
I conclude, there was no duty or obligation of good faith to negotiate before or after the Preliminary Agreement.
This claim is dismissed.
After concluding that the negotiation process did not give rise to good faith duties, and also concluding that the municipality did not engage in any negligent misrepresentation, the court granted the summary dismissal. As this case illustrates, the courts continue to be reluctant to recognize new common law duties owed between negotiating parties.
