Process Over Outcome: Ontario’s Duty of Good Faith in Contractual Dealing
“If you took a poll of Ontarians who have had occasion to frequent the ServiceOntario outlets that dot the Province, there is little doubt that the overwhelming majority would hold the view that the operations were “government” owned and operated. Nothing could be further from the truth.” said Gans, J. in Mayotte v Ontario, 2016, a recent decision on the payment of ServiceOntario Operators. The Province pays businesses to operate ServiceOntario branches on a per transaction basis, with the Province controlling the standards and rates of pay.
The case arose because some Operators started a class action against the Province alleging that they had been underpaid and that compensation reviews were not done in good faith. The decision is important because it deals with the duty of good faith in a contract between business and government – an area familiar to Davies Howe Partners LLP, whether expropriation or development related.
It was determined that the Province owes a duty of good faith to those with whom it does business. However, what is important to recognize is that the duty of good faith is process, not outcome, oriented. This is especially true where the government makes no promises about what the outcome of doing business with it will be. For example, in Mayotte the government never guaranteed a minimum yearly income. Instead, Operator profits were determined by a formula that was largely dependent on the number of transactions processed and Operator efficiency. The Province was never dishonest in describing the formula. During compensation reviews, the Province was seen as understanding of Operator issues, but ran into budgetary limitations when it came to pay increases. As a result, it was decided that the Province did not underpay and did not act in bad faith.
What can be learned from Mayotte is: without a representation or warranty about expected income from a government contract, the duty of good faith is limited to acting honestly during the course of negotiating contracts.