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PERFORMANCE AND DISCHARGE – Performance - Good faith

Friday, February 05, 2021 @ 2:12 PM  

Lexis Advance® Quicklaw®
Appeal by Wastech Services Ltd. (Wastech) from a judgment of the British Columbia Court of Appeal that dismissed its appeal from a decision that set aside an arbitration award in its favour. Wastech and the respondent, the Greater Vancouver Sewerage and Drainage District (Metro) entered into a contract for waste disposal in 1996 with a 20-year term. The contract contemplated the removal and transportation of waste by Wastech to three disposal facilities. The contract did not provide a guarantee that Wastech would achieve a certain level of profit in any given year. Wastech was paid lower rates for short-haul disposal to the Vancouver Landfill than long-haul disposal to the Cache Creek Landfill. The contract gave Metro the absolute discretion to determine and amend the minimum amount of waste to be transported to the facilities. In 2010, Metro reallocated waste from the Cache Creek Landfill to the Vancouver Landfill, which resulted in a reduced profit for Wastech. Wastech referred the dispute to arbitration. The arbitrator found in favour of Wastech on the basis that Metro had breached its duty of good faith performance of the contract. On appeal, the chambers judge set aside the arbitrator’s award, finding that the arbitrator had effectively ignored the terms of the contract. The Court of Appeal dismissed Wastech’s appeal. It found the arbitrator erred in law in applying the wrong legal test in determining whether Metro breached a duty of good faith.

HELD: Appeal dismissed. The duty to exercise contractual discretion in good faith was breached only where the discretion was exercised unreasonably, in a manner unconnected to the purposes underlying the discretion. The duty of good faith did not displace the detailed, negotiated bargain as the primary source of justice between the parties. The good faith duty did not require Metro to subordinate its interests to those of Wastech, nor did it require that a benefit be conferred on Wastech that was not contemplated under the contract or one which stood beyond the purposes for which the discretion was agreed. The purpose of giving Metro absolute discretion to determine waste allocation was to allow it to structure the disposal of waste in an efficient and cost-effective manner given the operational variability the parties foresaw. Based on that purpose, Metro did not act unreasonably and did not exercise its power to reallocate waste in breach of a good faith duty. Metro was Wastech’s contracting partner, not its fiduciary. Wastech was seeking an advantage not provided for in the agreement between the parties in the absence of any appreciable breach of contract or identifiable wrong. On either a correctness or reasonableness standard, the arbitrator’s award could not stand. Concurring reasons were provided.

Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, [2021] S.C.J. No. 7, Supreme Court of Canada, R. Wagner C.J. and R.S. Abella, M.J. Moldaver, A. Karakatsanis, S. Côté, R. Brown, M. Rowe, S.L. Martin and N. Kasirer JJ., February 5, 2021. Digest No. TLD-February12021011-SCC