From: Gerard McMeel KC <Gerard.mcmeel@quadrantchambers.com>

Sent: Friday 6 June 2025 09:46

To: Jack Enman-Beech; Obligations

Subject: Re: Negotiated duty to negotiate in good faith

 

Dear John

 

Thank you for sharing this. Interesting to see how good faith is not a universal solvent, even in a jurisdiction that has gone at least a step further than England and Wales. 

 

The problem was one crying out for an expert determination, or some other internal dispute resolution tie-breaker. But try as I might, I cannot see how that could be achieved other than through negotiation and agreement. 

 

The cases on contractual machinery - such as Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444 - require the parties to have erected somewhat more machinery than they did here.

 

Gerard 

 

From: Jack Enman-Beech <jenmanbeech@gmail.com>
Sent: 05 June 2025 17:15
To: Obligations <obligations@uwo.ca>
Subject: Negotiated duty to negotiate in good faith

 

External Email

 

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