From: Moore,
Marcus <moore@allard.ubc.ca>
Sent: Thursday
5 June 2025 17:49
To: Jack
Enman-Beech; Obligations
Subject: Re:
Negotiated duty to negotiate in good faith
I imagine Trump's
tariffs will soon give rise to another global tsunami of private litigation
over modifications, good faith, frustration etc...
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From: Jack Enman-Beech <jenmanbeech@gmail.com>
Sent: Thursday, June 5, 2025 9:15 AM
To: Obligations <obligations@uwo.ca>
Subject: Negotiated duty to negotiate in good faith
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The good faith faithful may enjoy Royal
Bank of Canada v Peace Bridge Duty Free 2025 ONCA 54. A duty-free shop at
the Peace Bridge (just up from Niagara Falls) lost all customers during the
pandemic when the border closed. Its lease with the bridge authority contained
a clause that had been specifically requested by it and inserted in 2016, clause
18.07. It is not as strongly worded as what Peace Bridge wanted, but it is what
it got:
"Regulatory Changes - In the event an unanticipated
introduction of or a change in any Applicable Laws causes a material adverse
effect on the business operations of the Tenant at the Leased Premises, the
Landlord agrees to consult with the Tenant to discuss the impact of such
introduction of or change in Applicable Laws to the Lease."
(Apologies for any formatting
errors.) This clause presents a duty to consult--that it should be in good
faith goes without saying, and anyway follows directly from Supreme Court
jurisprudence. By the time of the hearing, the parties "essentially agree[d]"
that this term meant "the parties would act reasonably and in good faith
to make appropriate changes to the Lease, which may include changes to Base
Rent" (2023
ONSC 7096 para 63). The parties attempted to negotiate an abatement of the
rent paid and owing during and following the closure. The parties never managed
to agree on one, and the Court of Appeal, upholding the largely factual
findings of the motion judge, found that the authority had negotiated in good
faith. To the contrary, it was Peace Bridge "putting forward terms that it
knew were not amenable to the Authority" rather than the other way around
(para 74). Appeal dismissed.
Paragraph 52 stood out to me:
Peace Bridge argues that the motion judge's decision creates
a commercially absurd result by finding that if the parties cannot agree on the
quantum of a rent adjustment, then the outcome is to provide no adjustment.
Resultantly, there would be no reason for the Authority to ever agree to a
change in rent. I disagree. For reasons I outline below, the doctrine of good
faith in contractual performance imposes precisely such a reason on both
parties. The fact that they might not reach agreement is not commercially
absurd, but follows naturally from the language of the contract.
It has sometimes been said that good faith will get in the way of agreement.
Here we see the opposite. Good faith gives meaning to a clause that would
otherwise be a commercial absurdity. The alternative would be to impose some
substantive, formulaic right to an abatement (or for the parties to have
negotiated one in advance). Thanks in part to a recognition of good faith
negotiation in Canadian law, the parties got just what they bargained for.
Well, Peace Bridge got more: it is now in receivership.
Yours truly &c.,
Dr John Enman-Beech
University of Alberta Faculty of Law