Putting Your Best Foot Forward in Summary Judgment Applications

In P. Burns Resources Limited v. Honourable Patrick Burns Memorial Trust, 2015 ABCA 390, the Court of Appeal of Alberta confirmed that there is no “default position” that document production and questioning procedures should be put on hold pending an application for summary judgment or summary dismissal.

The Respondent trustee brought an action for oppression against the Appellants and sought document production. The Appellants then applied for summary dismissal of a part of the action, and the Respondent sought to cross-examine on the Appellants’ affidavit of records and to conduct questioning in accordance with Part 5 of the Alberta Rules of Court, AR 124/2010. The Master set aside the appointments for questioning and cross examination, and in so doing, stated that:

… one might as well remove the summary judgment provisions of the Rules of Court if a respondent is entitled, as of right, to insist on the usual production of documents and questioning (discoveries) prior to the hearing of a summary judgment application. [3]

Subsequently, the Respondent trustee issued appointments for questioning on the Appellants’ corporate representative related to the balance of the claim which was not part of the summary dismissal application. In response the Appellants expanded their application for summary judgment to the entire claim and refused to attend the appointments. The Respondents then sought an order compelling attendance before the same Master. Again, the Master declined to grant the order, stating that there should not be document production or discoveries when a summary judgment hearing is pending.

The Court of Queen’s Bench disagreed, and after hearing the appeal, overturned both of the Master’s orders. In overturning the Master, the chambers judge noted that the Master made:

… no inquiry into the nature of the action, or the nature of the application, but proceeded on the basis that, in the face of a summary dismissal application or an application for summary judgment, the rules related to questioning and document production should be put on hold. [5]

The Court explained that while parties are required to “put one’s best foot forward in summary applications”, and cannot oppose an application for summary dismissal by arguing that some evidence supporting its claim may arise through discovery or document production, there are instances where “the Defendants have all of the knowledge and all of the documents related to the Plaintiff’s claim [and] the situation cries out for an analysis of what disclosure is necessary or reasonable before the summary judgment application goes ahead”.

The Court of Appeal upheld the decision of the Queen’s Bench judge, and noted that the decision to allow document production and questioning prior to summary judgment applications is discretionary. In all circumstances, the discretion to allow discovery must be in compliance with the purpose of Part 5 of the Rules, and in particular, Rule 5.1(1), which discourages “conduct that unnecessarily or improperly delays proceedings or unnecessarily increases their costs”. In situations where a great deal of the supporting evidence is in the possession of the opposing party, then it is more likely that an applicant will require disclosure of documents and discoveries to be able to put their best foot forward in a summary judgment application.

Honesty the Best Policy

It may have been news to some people that parties to a contract could cheat and mislead with impunity so long as they performed their contractual obligations. The Supreme Court of Canada now says otherwise in Bhasin v Hrynew, 2014 SCC 71 – importing minimum standards of honesty and good faith to the common law of contract.

Mr. Bhasin’s agency sold investment instruments exclusively for Canadian American Financial Corp (Can‑Am). Their business relationship was governed by a contract with a 3 year term that automatically renewed unless 6 months’ written notice was given stating the contrary. They enjoyed 10 years of business together.

Enter Mr. Hrynew. Mr. Hrynew was Mr. Bhasin’s competitor and sought to merge his agency with Mr. Bhasin’s, first by approaching Mr. Bhasin and then by pressuring Can‑Am to force a merger. During the same period, the Alberta Securities Commission had compliance concerns with agencies selling Can‑Am’s investment instruments and required Can‑Am to appoint someone to oversee compliance. Mr. Hrynew was appointed and sought to review Mr. Bhasin’s confidential business records. Mr. Bhasin refused.

Can‑Am responded by:

  1. lying to Mr. Bhasin about Mr. Hrynew being bound to a confidentiality agreement – no such agreement was in place;
  2. lying to Mr. Bhasin about the Alberta Securities Commission rejecting a proposal to have an outside person to oversee the compliance of agencies; and
  3. equivocally answering Mr. Bhasin’s question as to whether a merger of his and Mr. Hrynew’s agencies was a done deal.

When Mr. Bhasin continued to refuse Mr. Hrynew access to his confidential business records, Can‑Am gave notice not to renew its contract with Mr. Bhasin. As a result, Mr. Bhasin lost the value of his business and his employees joined Mr. Hrynew’s agency.

While Mr. Bhasin was clearly wronged by Can‑Am, it had not breached the terms of their agreement, potentially foreclosing a remedy for Mr. Bhasin.

This prompted the Supreme Court’s review of the doctrine of good faith in the law of contract – typically reserved for established classes of contracts (franchise and insurance contracts, for example).

The Court took two “incremental steps” to find in Mr. Bhasin’s favour and to end the “piecemeal” approach to importing a duty of good faith in contractual performance. The first step was to find that good faith contractual performance is a general organizing principle of the law of contract. Within the rubric of good faith the Court then established a new duty of honest performance applicable to all contracts.

Can‑Am failed to meet that minimum standard when it lied to Mr. Bhasin about Mr. Hrynew’s appointment. The Court found Can‑Am to have breached the agreement and awarded Mr. Bhasin the lost value of his business had Can‑Am fulfilled its duty.

Somewhat unusually, these incremental developments made the front page of the national news (Globe and Mail, November 14, 2014). Why does a commercial case verifying contractual principles garner such attention?

First, businesses will have to be more mindful in how and what they communicate to contracting parties. While there may be no express duty to disclose information affecting one party’s performance, equivocally answering direct questions affecting performance may constitute a breach of contract (Bhasin, paras 86 and 100). Savvy parties will seek to inform themselves knowing they are entitled to an honest answer.

Second, the organizing principle of good faith contractual performance provides fertile ground for new duties of contractual performance. Claims of good faith are no longer limited to discrete situations and relationships. Litigators will certainly test the principle’s fecundity in all manner of contexts. Justice Cromwell forestalls some potential proliferation of new duties when he states:

The application of the organizing principle of good faith to particular situations should be developed where the existing law is found to be wanting and where the development may occur incrementally in a way that is consistent with the structure of the common law of contract and gives due weight to the importance of private ordering and certainty in commercial affairs (para 66).

Specific new duties of good faith contractual performance may not spring up overnight without warning. However, cautious parties may think twice in making representations affecting performance, in a way that does not take unfair advantage of their contractual partners. Enterprising lawyers will be on the lookout.

And, finally, the decision is newsworthy because most non‑lawyers are incredulous to learn that honest performance is in fact something new. Most would agree that honesty is, or should be, expected from every party to a contract.