Transamerica Life Canada Inc. v. ING Canada Inc.
Transamerica Life Inc. et al. v. ING Canada Inc. [Indexed as: Transamerica Life Canada Inc. v. ING Canada Inc.]
68 O.R. (3d) 457
[2003] O.J. No. 4656
Docket No. C39314
Court of Appeal for Ontario
O'Connor A.C.J.O., Laskin and Sharpe JJ.A.
December 3, 2003
Contract -- Interpretation -- Implied terms -- Duty of good faith -- Sale of shares of insurance company -- Purchaser suing vendor for misrepresentation and for breach of contract -- Purchaser claiming indemnification for amounts required to remedy problems with business, operations and systems of insurance company -- Vendor alleging in its statement of defence that purchaser precluded from advancing claim for indemnification because purchaser had breached duty of good faith by not disclosing to vendor its knowledge of problems before closing transaction -- Motions judge erring in striking out pleading that purchaser owed vendor duty of good faith -- Pleadings stage not appropriate stage to finally determine whether duty of good faith unavailable -- Detailed analysis required to determine issue of whether implied duty of good faith better left for trial.
In January 2000, Transamerica Life Canada Inc. and Aegon Canada (collectively "Transamerica") signed an agreement to purchase from ING Canada Inc. ("ING") all the shares of NN Life Insurance Company of Canada ("NN Life"). The sale closed on April 12, 2000. After closing, Transamerica complained about problems with the business, operations and systems of NN Life and about NN Life's failure to properly administer insurance policies. Transamerica sued ING to recover substantial damages for misrepresentation and breach of warranties and covenants contained in the agreement and for an indemnity for amounts required to remedy the problems. In its amended statement of defence, ING denied any misconduct and pleaded in the alternative that Transamerica breached certain implied duties of good faith and fair dealing and therefore was precluded from asserting its indemnity claims.
Transamerica brought a motion pursuant to rule 21 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, to strike out portions of ING's amended statement of defence. The motions judge struck out pleadings alleging that Transamerica had implied duties of good faith requiring it to notify ING before closing if it became aware of the problems. She held that a duty to bargain in good faith was not recognized in Canadian commercial settings and would have the effect of adding to the obligations contained in the agreement contrary to the "entire agreement" and "no rights in addition" clauses in the agreement. She struck a plea that the agreement should be construed in accordance with the intentions and expectations of the parties, and she struck out certain factual matters, including the allegation that Transamerica knew of, or was willfully blind to, the problems and that it failed to disclose its knowledge to ING. ING appealed.
Held, the appeal should be allowed.
Per O'Connor A.C.J.O. (Sharpe J.A. concurring): On a pleadings motion, a court should not dispose of matters of law that are not settled in the jurisprudence. Unlike the situation in the United States where the duty of good faith in the performance or enforcement of commercial contracts has been broadly recognized, Canadian courts have not developed a comprehensive and principled approach to the implication of duties of good faith in commercial contract. In this case, the pleadings stage was not the appropriate stage in which to finally determine that [page458] the duty of good faith pleaded was unavailable. The detailed analysis required to determine the issue of whether to imply a duty of good faith was better left for a trial, and the motion judge should not have struck the pleas of good faith in paras. 10(b), 11, 17, and 18 of the amended statement of defence. The plea of good faith in para. 29 might relate to the performance of clauses 5.9 and 5.10 of the agreement, and the plea should not have been struck. However, the plea in para. 10(a) was properly struck. This plea about a general duty that Transamerica act fairly in all dealings with ING was vague and it was not tied to the performance or enforcement of the provisions of the agreement.
The motions judge erred in striking references in the pleadings to the intentions and expectations of the parties. These matters were relevant to the interpretation of some provisions in the agreement, including the determination of whether the representations and warranties in issue should be considered "material" as per the agreement. The question of whether the intentions and expectations of the parties were relevant was properly left to the trial judge. Finally, the motions judge erred in striking the factual pleas that Transamerica owed duties of good faith to ING and to other defences raised by ING in its amended statement of defence. Since it was open to ING to plead the duty of good faith, the facts relevant to that plea should not be struck.
Per Laskin J.A. (dissenting in part): On the main issue in the appeal: whether ING should be permitted to maintain its pleading that Transamerica owed it an implied duty of good faith and fair dealing, the motions judge correctly concluded that this defence could not succeed. While it would not have been objectionable for ING to plead that Transamerica was obliged to carry out its contractual obligations in good faith, it was objectionable for it to use good faith to add a substantive term to the parties' express bargain. This was objectionable for three reasons. First, the relationship between the parties, both of whom were large, powerful insurers, represented by major law firms, did not call for implying a duty of good faith. They negotiated a sophisticated share purchase agreement that set out their rights and obligations in detail. Second, the terms of the share purchase agreement precluded implying a duty of good faith. The agreement specifically addressed disclosure and, in three instances, the parties expressly agreed that specific contractual obligations were to be carried out in good faith. Further, the entire agreement, amendment and waiver clauses unambiguously signalled that neither party was to be burdened with an obligation not expressly set out in the contract unless that additional obligation was agreed to in writing. The parties addressed Transamerica's obligations and stopped short of imposing a duty to disclose errors. Third, the well- established rules for when a court can imply a term in a contract were not satisfied.
APPEAL from an order striking out portions of an amended statement of defence.
Cases referred to 978011 Ontario Ltd. v. Cornell Engineering Co. (2001), 2001 8522 (ON CA), 53 O.R. (3d) 783, 198 D.L.R. (4th) 615, 12 B.L.R. (3d) 240, 8 C.C.E.L. (3d) 169 (C.A.), revg (1998), 1998 14745 (ON SC), 41 B.L.R. (2d) 219, 41 C.C.E.L. (2d) 118 (Ont. Gen. Div.), Leave to appeal to S.C.C. refused, [2001] S.C.C.A. No. 315 (QL); Gateway Realty Ltd. v. Arton Holdings Ltd. (1992), 1992 NSCA 70, 112 N.S.R. (2d) 180, 307 A.P.R. 180 (C.A.), affg (1991), 1991 2707 (NS SC), 106 N.S.R. (2d) 180, 288 A.P.R. 180, [1991] N.S.J. No. 362 (QL) (S.C.T.D.); GATX Corp. v. Hawker Siddeley Canada Inc. (1996), 1996 8286 (ON SC), 27 B.L.R. (2d) 251, [1996] O.J. No. 1462 (QL), 1 O.T.C. 322 (Gen. Div.); Greenberg v. Meffert (1985), 1985 1975 (ON CA), 50 O.R. (2d) 755, 18 D.L.R. (4th) 548, 7 C.C.E.L. 152, 37 R.P.R. 74 (C.A.); Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959, 49 B.C.L.R. (2d) 273, 74 D.L.R. (4th) 321, 117 N.R. 321, [1990] 6 W.W.R. 385, 4 C.C.L.T. (2d) 1, 43 C.P.C. (2d) 105 (sub nom. Hunt v. T & N plc); LeMesurier v. Andrus (1986), 1986 2623 (ON CA), 54 O.R. (2d) 1, 12 O.A.C. 299, 25 D.L.R. (4th) 424, 38 R.P.R. 183 (C.A.), revg (1984), 31 R.P.R. 143 (Ont. H.C.J.); [page459] M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., 1999 677 (SCC), [1999] 1 S.C.R. 619, 69 Alta. L.R. (3d) 341, 170 D.L.R. (4th) 577, 237 N.R. 334, [1999] 7 W.W.R. 681, 49 B.L.R. (2d) 1, 44 C.L.R. (2d) 163, 3 M.P.L.R. (3d) 165; MacDonald v. Ontario Hydro (1995), 1995 10628 (ON SC), 26 O.R. (3d) 401 (Div. Ct.), affg (1994), 1994 7294 (ON SC), 19 O.R. (3d) 529, 38 C.P.C. (3d) 378 (Gen. Div.); Marshall v. Bernard Place Corp. (2002), 2002 24835 (ON CA), 58 O.R. (3d) 97, 47 R.P.R. (3d) 1, 26 B.L.R. (3d) 9 (C.A.), affg (2000), 36 R.P.R. (3d) 153 (Ont. S.C.J.); MDS Health Group Ltd. v. King Street Medical Arts Centre Ltd. (1994), 1994 7528 (ON SC), 1 L.W.R. 214, 12 B.L.R. (2d) 209, 55 C.P.R. (3d) 360 (Ont. Gen. Div.); Nash v. Ontario (1995), 1995 2934 (ON CA), 27 O.R. (3d) 1, [1995] O.J. No. 4043 (QL) (C.A.); Peel Condominium Corp. No. 505 v. Cam-Valley Homes Ltd. (2001), 2001 24035 (ON CA), 53 O.R. (3d) 1, 196 D.L.R. (4th) 621, 41 R.P.R. (3d) 231, 14 B.L.R. (3d) 169, 7 C.L.R. (3d) 184 (C.A.), revg (1999), 28 R.P.R. (3d) 186 (Ont. S.C.J.) (sub nom. Peel Condominium Corp. v. Cam-Valley Homes Ltd.); Shelanu Inc. v. Print Three Franchising Corp. (2003), 2003 52151 (ON CA), 64 O.R. (3d) 533, 226 D.L.R. (4th) 577, 38 B.L.R. (3d) 42, [2003] O.J. No. 1919 (QL) (C.A.), revg (2000), 2000 22788 (ON SC), 11 B.L.R. (3d) 69 (Ont. S.C.J.), supp. reasons (2000), 2000 22683 (ON SC), 11 B.L.R. (3d) 100 (Ont. S.C.J.) Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rules 21, 21.01, 25, 25.11 Authorities referred to Farnsworth, E.A., "Good Faith in Contract Performance", in J. Beatson and D. Friedman, eds., Good Faith and Fault in Contract Law (Oxford: Clarendon Press, 1995) McCamus, John D., "The Duty of Good Faith Contractual Performance at Common Law" (paper presented to the N.J.I.: Civil Law Seminar, Contract Law: From Form to Remedies, Osgoode Hall Law School, May 17, 2000, unpublished) Perell, P.M., "A Riddle Inside an Enigma: The Entire Agreement Clause" (1998) 20 Advocates' Q. 287
Gerald L.R. Ranking, for appellant. Mary Jane Stitt and Colleen E. Robertshaw, for respondents.
1O'CONNOR A.C.J.O. (SHARPE J.A. concurring): -- The defendant, ING Canada Inc. ("ING"), appeals from a decision of Macdonald J. (the motion judge) dated November 27, 2002, granting a motion pursuant to Rule 21 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, to strike certain portions of ING's amended statement of defence.
2The action involves a claim by Transamerica Life Canada Inc. and Aegon Canada Inc. (collectively "Transamerica") to recover substantial damages for misrepresentation and breach of warranties and covenants contained in a share purchase agreement (the "agreement") pursuant to which Transamerica purchased all of the shares of NN Life Insurance Company of Canada ("NN Life") from ING. Transamerica's complaints relate [page460] to alleged problems with the business, operations and systems of NN Life and to NN Life's failure to administer insurance policies and investment products in accordance with the policies' terms. Transamerica claims indemnity for the amounts required to rectify the problems and to compensate policy and unit holders who suffered prejudice as a result of the problems.
3ING denies that the problems existed and alternatively pleads that if such problems did exist, they were not material and that therefore there was no misrepresentation or breach of any warranty or covenant. In the further alternative, ING pleads that Transamerica breached certain implied duties of good faith and fair dealing ("duties of good faith") and is, therefore, precluded from asserting its indemnity claims.
4The portions of the amended statement of defence that were struck can be divided into three categories.
5First, the motion judge struck pleas alleging that Transamerica had implied duties of good faith requiring it to notify ING before closing if it became aware of the problems that it alleges in its claim and to consult with ING about the remedial actions it took after closing. I have concluded that the motion judge erred in striking those pleas.
6In addition, the motion judge struck a plea that the agreement should be construed in accordance with the intentions and expectations of the parties. In my view, the motion judge also erred in striking that plea. The intentions and expectations of the parties may be relevant to the interpretation of some provisions in the agreement, including the determination of whether the representations and warranties in issue should be considered "material", as per the agreement.
7Finally, the motion judge struck pleas of certain factual matters. ING alleges that, before the closing of the sale of NN Life, Transamerica knew of, or was wilfully blind to the problems upon which it now relies and it failed to disclose its knowledge of these problems to ING. ING also pleads that after the closing, Transamerica did not consult with, or involve ING in its remedial actions. In my view, the motion judge erred in striking the factual pleas from the amended statement of defence. The facts alleged may be relevant to both the pleas that Transamerica owed duties of good faith to ING and to other defences raised by ING in its amended statement of defence.
The Facts
8The following outline of facts is based on the pleadings and the agreement which is referred to extensively in the pleadings. [page461]
(a) The transaction
9In the fall of 1999, ING put NN Life up for sale. Transamerica, a sophisticated and experienced life insurance company, investigated the possible acquisition of NN Life. Transamerica had the expertise to thoroughly examine the business and operations of NN Life.
10Commencing in the fall of 1999, Transamerica performed due diligence on all aspects of the business and operations of NN Life. During the course of the due diligence, Transamerica reviewed or had the opportunity to review hundreds of documents and had access to the accounting and other systems of NN Life.
11During the due diligence, Transamerica raised a number of issues that ING considered and addressed. Transamerica and ING entered into the agreement by which Transamerica acquired all of the issued and outstanding shares of NN Life. The parties signed the agreement on January 7, 2000, and the sale closed on April 12, 2000. It was agreed that information would be exchanged during the period from January 7, 2000, to April 12, 2000 (the "interim period").
12During the interim period, ING granted Transamerica wide-ranging access to NN Life, its properties, its books and its records. Transamerica was also involved in the operation of NN Life. In particular, the agreement provided that during the interim period:
(a) all material operating decisions in relation to the operation of NN Life were to be made by ING and Transamerica acting jointly;
(b) any profit or loss realized by NN Life after January 1, 2000, was to be for the account of Transamerica;
(c) ING and Transamerica were obliged to use all commercially reasonable and diligent efforts to maintain the value and goodwill of NN Life;
(d) the parties were to agree to a final purchase price; and
(e) ING was obligated to co-operate with Transamerica in arranging meetings and communications with NN Life's agents and distributors with a view to assisting Transamerica to maintain NN Life's goodwill.
13Throughout the interim period, Transamerica attended the offices of NN Life, met with NN Life employees, questioned them as to practices and procedures of NN Life and gained a hands-on appreciation for all aspects of the business, operations [page462] and systems of the company. ING co-operated in providing access to the operations of NN Life and in disclosing information.
14At no time during the due diligence period or the interim period did Transamerica raise concerns about the business, operations or systems of NN Life which went unaddressed by ING. Nor did Transamerica seek an adjustment of the final price based on the problems it raises in its statement of claim.
(b) Statement of claim
15In its statement of claim, Transamerica claims contractual damages and indemnity from ING for ING's misrepresentations and breaches of warranties and covenants in the agreement. The damages and the resulting indemnity claims arise primarily out of errors and deficiencies in (a) the investment management and accounting systems used by NN Life to perform its investment accounting and valuation functions for the NN Life's family of segregated funds (the "PAM System"), and (b) a second accounting system used by NN Life to record policyholder transactions ("CAPS-I-L System"). ING also alleges that NN Life failed to administer its insurance policies in accordance with the policies' terms, failed to file required tax returns and failed to disclose certain liabilities in the financial statements and records of NN Life.
16Transamerica alleges that the errors and deficiencies existed in both accounting systems prior to closing, with the result that virtually all of the segregated funds held by NN Life policyholders were incorrectly priced both before and after the closing. It also alleges that NN Life's failure to administer policies in accordance with the policies' terms created substantial contingent liabilities to NN Life policyholders.
17Transamerica pleads that the circumstances described in the statement of claim constitute several misrepresentations and breaches of warranties and covenants made by ING in the agreement, relating to matters such as the accuracy of the books, records, and financial statements of NN Life and the absence of undisclosed liabilities, changes and unusual transactions. Many of the alleged misrepresentations and breached warranties and covenants are qualified by a requirement of materiality.
18In the agreement, ING agreed to indemnify Transamerica on an after-tax basis from any loss suffered as a result of any misrepresentation or breach of warranty made by ING in any closing document. On closing, ING represented in writing that all of the representations and warranties in the agreement were true in all material respects. Subsequent to the closing, Transamerica merged NN Life's business with its own. [page463]
19Transamerica pleads that it suffered substantial damages as a result of ING's misrepresentations and breached warranties and covenants, and that it is entitled to be indemnified for those damages. Transamerica includes in its damage claim certain payments it made to unit and policyholders which it alleges were necessary because of the errors and deficiencies in NN Life's systems.
(c) The amended statement of defence
20In its amended statement of defence, ING denies that the errors or deficiencies in NN Life's accounting systems or its books and records existed at the closing date. Alternatively, ING pleads that if such errors did exist, they were not material and did not constitute a misrepresentation or a breach of any warranty in the agreement giving rise to a loss for which ING is contractually liable to indemnify Transamerica.
21As a further alternative, ING pleads that Transamerica had the opportunity to conduct due diligence during the period prior to the execution of the agreement and to investigate and review all aspects of the business and operations of NN Life. Following the signing of the agreement, Transamerica continued its review of NN Life during the interim period.
22ING pleads that during the due diligence period and the interim period, Transamerica was aware of, or was wilfully blind to the errors now alleged in the statement of claim and that it did not reveal to ING information within its knowledge with respect to the alleged errors. Transamerica first raised the concerns now alleged in the statement of claim 16 months after closing.
23ING further alleges that Transamerica failed to consult with ING on the appropriate remedial steps for the alleged errors and, in particular, did not consult ING before making gratuitous payments to certain unit holders in an attempt to address the errors.
24ING pleads that Transamerica's failures, set out in the previous two paragraphs, preclude Transamerica from relying upon the errors referred to in the statement of claim as a basis for indemnity for two reasons.
25First, relying upon the combined effect of clauses 5.9 and 5.10 of the agreement, ING pleads that Transamerica had an obligation to give timely notice of its indemnity claim. Transamerica's failure to do so materially prejudiced and caused damage to ING. ING pleads that as a result, Transamerica is disentitled to the relief claimed.
26ING also pleads that Transamerica's failure to disclose the errors before closing and failure to consult with ING about remedial steps after closing breached implied duties of good faith, [page464] thereby disentitling Transamerica to rely on those matters in support of its claim.
27In addition, ING pleads that the agreement and, in particular, the representations and warranties contained therein, must be construed in accordance with the intentions and expectations of the parties.
The Decision Below
28Transamerica moved to strike the amended statement of defence under Rules 21 and 25 of the Rules of Civil Procedure, supra. The motion judge made an order striking portions of the defence under rule 21.01. Although it is not entirely clear from the reasons, it appears that the motion judge made the order under para. (b) of rule 21.01(1) on the basis that the portions struck did not disclose a reasonable defence.
29In all, the motion judge struck all or a portion of 13 paragraphs in the amended statement of defence. The portions that were struck fall into four categories: reliance by ING on implied duties of good faith, references in the pleading to the parties' intentions and expectations, pleas of the factual matters referred to in paras. 22 and 23 above, and pleas suggesting that Transamerica owed ING a duty of care during the interim period (these were struck from paras. 20 and 27 of the amended statement of defence and are not in issue in this appeal).
30The motion judge concluded that ING's pleas that Transamerica owed it implied duties of good faith were not tenable at law. She held that a duty to bargain in good faith is not recognized in Canada in commercial settings like that found in the present case and that absent a "special relationship" the parties' obligations are governed solely by the express terms of the agreement.
31The motion judge concluded that the implication of a duty of good faith would have the effect of adding to the obligations contained in the agreement. She attached importance to the "Entire Agreement" and the "No Rights In Addition" clauses in the agreement, respectively, clauses 1.5 and 5.15.
32The motion judge also struck several references to the parties' intentions and expectations on the basis that parol evidence of this nature would not be admissible to construe the agreement. She said that there is no suggestion of ambiguity in the terms of the agreement, that the agreement is clear and that its provisions are "not reasonably susceptible of more than one meaning". The motion judge concluded that the pleas regarding the intentions and expectations of the parties are not sustainable in law. [page465]
33Finally, the motion judge held that factual references to the failure of Transamerica to express concerns about the accounting systems of NN Life during the due diligence period are irrelevant and should be struck.
Issues
34ING submits that the motion judge erred in striking:
(a) the pleas referring to implied duties of good faith;
(b) references to the parties' intentions and expectations; and
(c) the factual pleas referred to in paras. 22 and 23 above.
Analysis
(a) Motions under rule 21.01
35The relevant parts of rule 21.01 read as follows:
21.01(1) A party may move before a judge,
(a) for the determination, before trial, of a question of law raised by a pleading in an action where the determination of the question may dispose of all or part of the action, substantially shorten the trial or result in a substantial saving of costs; or
(b) to strike out a pleading on the ground that it discloses no reasonable cause of action or defence, . . .
36The test on a motion to strike a pleading is well- settled. When the motion is brought under rule 21.01(1)(b), the essential question is whether it is plain and obvious that the pleadings disclose no reasonable cause of action or defence: Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959, 74 D.L.R. (4th) 321.
37The "plain and obvious" test is also applicable to motions brought under rule 21.01(1)(a): MacDonald v. Ontario Hydro (1994), 1994 7294 (ON SC), 19 O.R. (3d) 529, 38 C.P.C. (3d) 378 (Gen. Div.).
38On a motion to strike a pleading, the court must take the facts alleged in the challenged pleading as true unless they are patently ridiculous or incapable of proof. The court should read the pleading generously, making allowances for drafting deficiencies: Hunt, supra; Nash v. Ontario (1995), 1995 2934 (ON CA), 27 O.R. (3d) 1, [1995] O.J. No. 4043 (QL) (C.A.), at p. 6 O.R.
39On a pleadings motion, a court should not dispose of matters of law that are not settled in the jurisprudence. Where the law in a particular area can be described as "muddy", the court will not strike that part of the pleading, nor hold that the claim or defence must fail: Nash, supra. [page466]
40ING concedes that the motion judge correctly articulated the law regarding motions to strike pleadings. It argues, however, that she erred in the manner in which she applied the law to those portions of the amended statement of defence discussed in the next three sections of these reasons.
(b) Issue #1: the duty of good faith
41ING argues that the motion judge erred in concluding that its pleas regarding Transamerica's implied duties of good faith are not tenable at law.
42The primary duty of good faith pleaded by ING is found in paras. 10(b), 11, 17, and 18 of the amended statement of defence. ING pleads that Transamerica had a duty to disclose facts which came to its attention during the due diligence and interim periods that might adversely affect or prejudice ING's position. In oral argument, counsel for ING narrowed this plea to a duty to disclose only during the Interim Period.
43ING pleads that, before closing, Transamerica knew of, or was wilfully blind to the facts that it now alleges constitute misrepresentations and breached warranties. Despite this knowledge, it closed the purchase without seeking a final price adjustment as it could have done under clauses 2.4 and 2.5 of the agreement.
44ING argues that Transamerica should not now be permitted to recover damages for matters that could have given rise to a price adjustment, thereby by-passing the price adjustment scheme set in the agreement. Hence, the court should imply into the agreement a duty of good faith which required Transamerica to disclose the complaints on which it now relies, prior to closing so as to prevent Transamerica from defeating one of the objectives of the agreement.
45ING points out that obligations of good faith in the performance and enforcement of contracts have been recognized in a number of cases in Canada, including GATX Corp. v. Hawker Siddeley Canada Inc. (1996), 1996 8286 (ON SC), 27 B.L.R. (2d) 251, [1996] O.J. No. 1462 (QL) (Gen. Div.); Greenberg v. Meffert (1985), 1985 1975 (ON CA), 50 O.R. (2d) 755, 18 D.L.R. (4th) 548 (C.A.); LeMesurier v. Andrus (1986), 1986 2623 (ON CA), 54 O.R. (2d) 1, 25 D.L.R. (4th) 424 (C.A.); MDS Health Group Ltd. v. King Street Medical Arts Centre Ltd. (1994), 1994 7528 (ON SC), 12 B.L.R. (2d) 209, 55 C.P.R. (3d) 360 (Ont. Gen. Div.); Gateway Realty Ltd. v. Arton Holdings Ltd. (1991), 1991 2707 (NS SC), 106 N.S.R. (2d) 180, 288 A.P.R. 180 (S.C.T.D.), affd (1992), 1992 NSCA 70, 112 N.S.R. (2d) 180, 307 A.P.R. 180 (C.A.). ING submits that the existence of a doctrine of implied duties of good faith is settled and that the only uncertainty concerns the [page467] ambit of the principles that apply to the duty. That being the case, ING says the jurisprudence is at a minimum "muddy" and as a result, the pleas in the amended statement of defence that rely on a duty of good faith should not have been struck on a pleadings motion.
46In response, Transamerica says that under the law of Ontario there is no generalized overarching duty of good faith to be implied into all contracts. Rather, Transamerica submits that the requirement to exercise contractual rights of good faith is recognized only in certain categories of relationships, none of which apply here. Those categories of relationships are found in agreements relating to employment and franchises, agreements containing rights of first refusal, agreements that empower a party to act in its "sole discretion" and to use its "best efforts", and in contractual arrangements where there is a power imbalance or a disparity of information between the parties, such as insurance or condominium purchase transactions: Peel Condominium Corp. No. 505 v. Cam-Valley Homes Ltd. (2001), 2001 24035 (ON CA), 53 O.R. (3d) 1, 196 D.L.R. (4th) 621 (C.A.), at pp. 30-34 O.R.; 978011 Ontario Ltd. v. Cornell Engineering Co. (2001), 2001 8522 (ON CA), 53 O.R. (3d) 783, 198 D.L.R. (4th) 615 (C.A.), at pp. 793-95 O.R., leave to appeal to S.C.C. refused, [2001] S.C.C.A. No. 315 (QL); Marshall v. Bernard Place Corp. (2002), 2002 24835 (ON CA), 58 O.R. (3d) 97, 47 R.P.R. (3d) 1 (C.A.), at p. 101 O.R. Thus, Transamerica says that the motion judge correctly struck references to a duty of good faith in the amended statement of defence.
47Transamerica also argues the Canadian courts have not recognized a stand-alone duty of good faith that is independent from the expressed terms in a contract. The duty that ING pleads is not a duty that applies to the performance or the enforcement of the agreement. Rather, it is a duty that is in addition to the specific terms of the agreement and a duty that conflicts with the "Entire Agreement" and the "No Rights In Addition" clauses in the agreement.
48Transamerica submits that the jurisprudence is settled and that the motion judge properly found that the duty of good faith pleaded is not tenable at law.
49In my view, the motion judge erred in striking the pleas set out in paras. 10(b), 11, 17, and 18 of the amended statement of defence.
50The comments that follow are intended to apply only to the implication of duties of good faith into commercial contracts, and not to contracts involving other areas of the law.
51It is fair to say that Canadian courts have proceeded cautiously in recognizing duties of good faith in the performance and [page468] enforcement of contracts. Interestingly, when Canadian courts have referred to duties of good faith, they have done so in circumstances where the result of the case has been determined by the application of other, more established legal principles. In a helpful article, Professor John McCamus describes the somewhat tenuous judicial underpinnings of the doctrine of good faith duties in Canadian jurisprudence and the cautious approach adopted by Canadian courts to the implication of duties of good faith as a separate doctrine in contract law. See John D. McCamus, "The Duty of Good Faith Contractual Performance at Common Law" (paper presented to the N.J.I.: Civil Law Seminar, Contract Law: From Form to Remedies, Osgoode Hall Law School, 17 May 2000) (unpublished).
52Unlike the situation in the United States where the duty of good faith in the performance of enforcement of commercial contracts has been broadly recognized, Canadian courts have not developed a comprehensive and principled approach to the implication of duties of good faith in commercial contracts. As Professor McCamus points out, many questions about the nature and scope of such duties have yet to be resolved. Indeed, it remains an open question whether implied duties of good faith add anything to the other available common law doctrines that apply to contracts.
53I agree with Transamerica that Canadian courts have not recognized a stand-alone duty of good faith that is independent from the terms expressed in a contract or from the objectives that emerge from those provisions. The implication of a duty of good faith has not gone so far as to create new, unbargained- for rights and obligations. Nor has it been used to alter the express terms of the contract reached by the parties. Rather, courts have implied a duty of good faith with a view to securing the performance and enforcement of the contract made by the parties, or as it is sometimes put, to ensure that parties do not act in a way that eviscerates or defeats the objectives of the agreement that they have entered into: see GATX, supra; Greenberg, supra; Gateway Realty, supra.
54That said, it must be kept in mind that this issue comes before the court on a pleadings motion. As such, the facts pleaded must be taken as established and a decision to strike the pleading must only be made when the applicable law is settled in the jurisprudence.
55The duty of good faith pleaded by ING in paras. 10(b), 11, 17, and 18 asserts that Transamerica had a duty to disclose facts, which it learned before closing, that might adversely affect or prejudice ING. ING's position is that it is necessary to imply such [page469] a duty in order to prevent Transamerica from ignoring the price adjustment procedure set out in the agreement, opting instead to recover the damages claimed in this action. Accepting the facts as pleaded, it is at least arguable that if Transamerica is permitted to recover the damages now claimed, one of the objectives of the agreement -- namely, that the parties would use the price adjustment mechanism in the agreement to address claims of the kind now asserted -- would be defeated. Such a duty, if implied, would not be independent of or unconnected to the bargained for agreement, but rather, would be directed at preventing Transamerica from defeating one of the objectives of its agreement with ING.
56I hasten to add that as a matter of law the implication of the duty of good faith pleaded in paras. 10(b), 11, 17, and 18, is far from certain. Transamerica makes several arguments that point away from the implication of such a duty, not the least of which is the inclusion by the parties of the "Entire Agreement" and the "No Additional Rights" clauses in the agreement. Those clauses may well prove to be a complete answer to ING's plea that a court should imply a duty of good faith into the agreement. However, I am not persuaded that, in this case, the pleading stage is the appropriate stage in which to finally determine that the duty of good faith pleaded is unavailable. Two matters lead me to conclude that the resolution of this issue should await the trial.
57First, ING has pleaded that the duty of good faith alleged is consistent with the intentions and expectations of the parties and with commercially reasonable standards of conduct. Not surprisingly, Transamerica argues that evidence regarding these matters is inadmissible and should play no role in either construing or interpreting the provisions of the agreement or in determining whether the agreement should include terms other than those expressly set out by the parties. However, given the complex and sophisticated nature of the agreement and the extensive dealings between the parties before the closing of the transaction, the issue of the admissibility of this type of evidence is better left to the trial. At the pleadings stage, it is premature to determine what evidence may or may not be admissible at trial and, if admissible, for what purpose. If evidence relating to the intentions and expectations of the parties and the commercially reasonable practices were to be admitted, it could have a bearing on a court's decision whether to imply the duty of good faith as pleaded in paras. 10(b), 11, 17, and 18 of the amended statement of defence.
58Second, striking the duty of good faith pleaded in paras. 10(b), 11, 17, and 18 at this point would require, at a minimum, a very detailed review of the agreement and the objectives of its [page470] contractual scheme. It would also require analysis as to how those objectives may be affected by the duty of good faith that ING seeks to have implied into the agreement. I recognize that the agreement was referred to in the pleadings and that a court can, therefore, have regard to its terms on a pleadings motion. However, it is my view that, in this case, the detailed analysis required to finally determine the issue of whether to imply a good faith duty is better left for a trial.
59Accordingly, I am of the view that the motion judge should not have struck the pleas of a duty of good faith in paras. 10(b), 11, 17, and 18 of the amended statement of defence.
60The second duty of good faith pleaded by ING is found in para. 29 of the amended statement of defence, which reads as follows:
Further, if errors or deficiencies existed as at or after the date of Closing, which is denied, Transamerica owed ING a duty of good faith and fair dealing under the Share Purchase Agreement, to give ING due and prompt notice of the alleged errors, and to consult ING on appropriate remedial steps. . . .
61Although not entirely clear, it appears that the duty pleaded in para. 29 is tied to the performance of the agreement. Under clause 5.9 of the agreement, the party making a claim for indemnity for misrepresentation or breach of any warranty or covenant is required to give written notice no later than 30 days after the party becomes aware of the claim. The party receiving notice is given 30 days in which to respond.
62Under clause 5.10, failure to give timely notice does not affect the party's right to indemnity unless, inter alia, the party entitled to notice was "materially prejudiced or damaged as a result of such failure".
63The plea of duty of good faith in para. 29 may relate to the performance of clauses 5.9 and 5.10 and as such should not be struck in a pleadings motion.
64Finally, in para. 10(a) of the amended statement of defence, ING pleads a general duty that Transamerica would act fairly in all its dealings with ING throughout the interim period and beyond. The amended statement of defence gives no specifics about what is entailed in the general duty referred to in para. 10(a). The plea is vague and is not tied to the performance or enforcement of the provisions in the agreement. Nor is it linked to any alleged actions by Transamerica that would defeat any of the contractual objectives. Indeed, ING does not allege a breach of the general duty of good faith in para. 10(a). In my view, the motion judge properly struck that plea. [page471]
(c) Issue #2: intentions and expectations
65ING alleges that the motion judge erred in striking references in the amended statement of defence to the intentions and expectations of the parties. The first reference is in para. 9 which reads as follows:
Furthermore, the Share Purchase Agreement, and the representations and warranties contained therein, must be construed in accordance with the intentions and expectations of the parties that were understood and shared by ING and Transamerica at the time the Share Purchase Agreement was executed.
66In my view, the motion judge erred in striking para. 9. Many of the representations and warranties relied upon by Transamerica in asserting its claim were qualified by a requirement for materiality. The issue of what is material and what is not will likely be an important issue at trial.
67Materiality is not defined in the agreement. It will be for the trial judge to determine what evidence, if any, is relevant and admissible in order to determine what is material. The question of whether the intentions and expectations of the parties are relevant to this determination is properly left to the trial judge and should not be determined on a pleadings motion.
68In addition, it may be necessary for the trial judge to determine whether the failure to give notice under clause 5.9 "materially prejudiced or damaged" ING within the meaning of clause 5.10. Again, in determining this issue, the trial judge may consider it appropriate to look to the intentions and expectations of the parties.
69In paras. 10(b), 11, and 17 of the amended statement of defence, ING refers to the intentions and expectations of the parties in support of its pleas that there should be an implied duty of good faith in the performance of the agreement. Given my conclusion that some of the pleas of duties of good faith should be permitted to stand, I do not consider that the references to the parties' intentions and expectations in paras. 10(b), 11, and 17 should have been struck.
70Finally, there is a reference to the intentions and expectations of the parties in para. 13 of the amended statement of defence relating to the establishment of a steering committee during the interim period. The creation of the steering committee is part of the narrative or background that gives context to the events at issue. The reference to the intentions and expectations of the parties is innocuous and I see no reason to strike this reference. [page472]
(d) Issue #3: factual pleas
71ING argues that the motion judge erred in striking a number of pleas asserting facts. Under rule 25.11, a court may strike pleas of facts that are clearly not relevant to the issues raised in the pleadings. Rule 25.11 reads as follows:
25.11 The court may strike out or expunge all or part of a pleading or other document, with or without leave to amend, on the ground that the pleading or other document,
(a) may prejudice or delay the fair trial of the action;
(b) is scandalous, frivolous or vexatious; or
(c) is an abuse of the process of the court.
72The impugned facts are asserted in a support of a plea that Transamerica breached an implied duty of good faith. Since I conclude that it is open to ING to plead the duty of good faith, the facts relevant to that plea should not be struck.
73The first factual plea struck by the motion judge is found in para. 17 of the amended statement of defence. In that paragraph, ING pleads as a fact that Transamerica was aware of, or was wilfully blind to the errors now relied on and that it did not reveal the existence of such errors to ING before closing.
74The impugned facts in para. 17 may also be relevant to the plea that the errors alleged by Transamerica were not material and, therefore, did not amount to a breach of representation or warranty. ING may argue that Transamerica's knowledge of the errors before closing and failure to seek a price adjustment are evidence that Transamerica considered such errors to be immaterial.
75In addition, the facts pleaded in para. 17 may be relevant to ING's plea that Transamerica breached the obligation to give timely notice of its claim under clause 5.9 of the agreement and that such failures materially prejudiced and caused damage to ING within clause 5.10.
76Transamerica argues that the reference to wilful blindness in para. 17 was properly struck because it suggests that Transamerica owed ING a duty of care, prior to closing, to discover the problems now relied upon; a duty which ING says is not tenable since it did not appear in the agreement. I do not accept this argument.
77The reference to wilful blindness is a factual plea, nothing more. It is a plea that Transamerica had constructive knowledge of the problems before closing. It is not a plea that Transamerica owed a duty of care to ING to discover those problems. It is premature at the pleading stage to determine what significance, if [page473] any, a finding that Transamerica was wilfully blind during the due diligence or interim periods may have on the issues raised by the amended statement of defence.
78For the same reasons that apply to the facts asserted in para. 17 of the amended statement of defence, I am satisfied that the factual allegations contained in paras. 24 and 25 -- that Transamerica did not express concerns about the PAM or the CAPS-I-L systems until 16 months after closing -- should not have been struck.
79The motion judge also struck a factual allegation in para. 30 of the amended statement of defence. In that paragraph, ING pleads that Transamerica did not consult ING before making certain gratuitous payments to unit holders, thereby incurring unnecessary losses. Those facts may be relevant to the plea of the duty of good faith found in para. 29 of the amended statement of defence.
80In addition, the factual assertion that Transamerica failed to consult may be relevant to ING's plea that Transamerica failed to mitigate its damages. Accordingly, the factual assertion in para. 30 should not have been struck.
Disposition
81ING did not argue that the motion judge erred in striking the portions of paras. 20 and 27 or the amended statement of defence, which are referred to in subparas. 1(g) and 1(j) of her order.
82In summary, I would allow the appeal and vary the order of the court below by deleting all of the subparas. of para. 1 of that order other than:
-- subpara. 1(b) as it relates to para. 10(a) of the statement of defence
-- subpara. 1(g)
-- subpara. 1(j)
83As ING has been largely successful on the appeal, I would direct Transamerica pay to ING its costs of this appeal and the costs of the motion below on a partial indemnity scale. I would fix the costs of this appeal in the amount of $15,000 inclusive of GST and disbursements.
84LASKIN J.A. (dissenting in part): -- I have had the benefit of reading the draft reasons of O'Connor A.C.J.O. I agree with him that the following parts of ING's amended statement of defence should be permitted to stand: [page474]
(i) ING's pleading about the parties' intentions and expectations in paras. 9 and 13. As O'Connor A.C.J.O. said, this pleading may bear on the meaning of materiality;
(ii) ING's plea of "wilful blindness" in para. 17 and its "factual pleas" in paras. 24, 25 and 30;
(iii) ING's pleading in para. 29.
85I take a different view, however, on the main issue in this appeal: whether ING should be permitted to maintain its pleading that Transamerica owed it an implied duty of good faith and fair dealing during the Interim Period. In my opinion, the motions judge correctly concluded it was "plain and obvious" that this defence could not succeed.
86The way that ING seeks to use its pleading of an implied duty of good faith is critical for me. Had ING meant only that Transamerica was obliged to carry out its contractual obligations in good faith, on the plain and obvious test I would have allowed its pleading to stand. This is why, like O'Connor A.C.J.O., I would not strike ING's pleading in para. 29 that Transamerica owed a good faith obligation to give prompt notice of any errors at or after closing.
87Although I doubt para. 29 has much merit or adds anything to ING's defence in the light of other provisions in the agreement (which I will discuss), I would not strike it on a pleadings motion. I would not do so because in a variety of settings, this court and other courts have used the doctrine of good faith to police the bargain the parties have already made and to supervise performance of their contractual obligations. Even where good faith is not pleaded, in many contexts courts have held that one contracting party owes the other an implied duty to carry out its obligations or to exercise any discretion given by the contract in good faith. See, for example, 978011 Ontario Ltd. v. Cornell Engineering Co. (2001), 2001 8522 (ON CA), 53 O.R. (3d) 783, 198 D.L.R. (4th) 615 (C.A.). The pleading of good faith in para. 29 relates to the performance of Transamerica's timely notice obligation under Articles 5.9 and 5.10 of the share purchase agreement. It is therefore supportable.
88But ING also seeks to use good faith for an entirely [different] purpose and it is this other purpose I find objectionable. ING asserts an implied duty of good faith not just to police performance of an existing obligation but also to add a substantive term to the parties' express bargain. It seeks to use good faith to add to the contractual obligations expressly agreed to by Transamerica. This [page475] can be seen most clearly by ING's pleading in paras. 10(b) and 17 of its amended statement of defence:
The intentions and expectations of the parties were as follows:
a) that Transamerica and its Advisors would act in good faith, and would act fairly in all of their dealings with ING throughout the Interim Period and beyond; and
b) that Transamerica would disclose to ING all facts that came to its attention, or the attention of its Advisors, during the Due Diligence period and the Interim Period which might adversely affect or prejudice ING's position.
In the further alternative, if errors existed, and if such errors were material, which is denied, ING pleads that Transamerica was aware, or was wilfully blind to such errors and that it owed ING an implied duty of good faith and fair dealing under the Share Purchase Agreement, to give due and prompt notice of the alleged errors. This duty included an obligation to, amongst other things, disclose to ING all errors that came to its attention during the Due Diligence period and Interim Period that might adversely affect or prejudice ING's position. ING pleads that Transamerica did not reveal the information within its knowledge or the knowledge of its Advisors with respect to the alleged errors. The failure of Transamerica to provide prompt notice of the alleged errors was contrary to the reasonable intentions and expectations of the parties and contrary to commercially reasonable standards of conduct.
(Emphasis added)
In oral argument counsel for ING acknowledged that he sought to maintain the pleading of an implied duty of good faith during the Interim Period only, not during the Due Diligence Period.
89Still, the parties did not stipulate that Transamerica had an obligation to "disclose to ING all facts that came to its attention . . . during the . . . Interim Period that might adversely affect or prejudice ING's position". ING seeks to add this obligation to the list of obligations Transamerica expressly undertook by pleading an implied duty of good faith. This it cannot do.
90I have reached this conclusion for three reasons:
- The relationship between the parties does not call for implying a duty of good faith.
91This is not a contract between unequals where one party is vulnerable to the bargaining strength of the other. Both ING and Transamerica are large, powerful insurers. Both were represented on the transaction by major Toronto law firms, and together they negotiated a sophisticated share purchase agreement, which sets out each party's rights and obligations in excruciating detail. Yet nowhere in their single spaced 69- page [page476] agreement is Transamerica under an obligation to disclose to ING errors it may discover during the Interim Period, though as a practical matter one may ask why it would opt not to do so and instead "lie in the bushes" until after closing.
- The terms of the share purchase agreement preclude implying a duty of good faith.
(a) Express disclosure obligation only on ING
92This is not a contract where the parties overlooked the question of disclosure. Instead, they specifically addressed what disclosure obligations would be imposed during the Interim Period. Article 4 of the agreement details each party's covenants before closing. Article 4.5 is headed "Disclosure" and provides:
Prior to the Closing Date, the Seller shall immediately disclose in writing to the Buyer any matter inconsistent in any respect with any of the Seller's representations or warranties contained herein.
ING, not Transamerica, had a disclosure obligation during the Interim Period. The parties could have struck a different bargain, a bargain that would impose a disclosure obligation on Transamerica. Presumably they chose not to do so. It is not for the courts, under the rubric of good faith, to rewrite their bargain for them. Further, the absence of any disclosure obligation on Transamerica may be contrasted with its duty -- in Article 2.5 of the agreement -- to speak out (give notice) if it wished to dispute any of the various net worth calculations before closing.
(b) Express good faith obligations
93Moreover, this is not even a contract where the parties were silent about good faith obligations. In three places in the contract the parties expressly agreed that specific contractual obligations were to be carried out in good faith.
94In Article 2.5 the parties agreed "in good faith" to negotiate a resolution of any dispute over the calculation of net worth. In Article 4.13 the parties agreed -- significantly, before closing -- to "work together in good faith to find a commercially reasonable solution" to any problem caused by ING's failure to obtain certain third party consents and waivers. In Article 8.4 the parties undertook to "use all reasonable efforts, acting in good faith" to agree on the text of any required pre-closing public announcement. Because of these specific contractual good faith provisions, I am dubious whether there is any room to plead an implied duty of good faith, even the one pleaded in para. 29 of the defence, let alone the implied duty asserted in paras. 10(b) and 17. [page477]
(c) Entire agreement, amendment and waiver clauses
95As is typical with major agreements of purchase and sale, the parties included an entire agreement clause, an amendment clause and a waiver of rights clause in their share purchase agreement. These clauses unambiguously signal that neither party is to be burdened with an obligation not expressly set out in the contract unless that additional obligation is agreed to in writing. The relevant provisions state as follows:
1.5 Entire Agreement
This agreement constitutes the entire agreement between the Parties pertaining to the subject matter hereof and supersedes and replaces all prior agreements, negotiations, discussions and understandings, written or oral, between the Parties including, from and after Closing, the Confidentiality Agreement. There are no representations, warranties, conditions or other agreements or acknowledgements, whether direct or collateral, express or implied, that form part of or affect this Agreement, or which induced any Party to enter into this Agreement or on which reliance is placed by any Party, except as specifically set forth in this Agreement or in any other Closing Documents.
1.6 Amendment
This Agreement may be amended, modified or supplemented only by a written agreement signed by each Party.
1.7 Waiver of Rights
Any waiver of, or consent to depart from, the requirements of any provision of this Agreement shall be effective only if it is in writing and signed by the Party giving it, and only in the specific instance and for the specific purpose for which it has been given. No failure on the part of any Party to exercise, and no delay in exercising, any right under this Agreement shall operate as a waiver of such right. No single or partial exercise of any such right shall preclude any other or further exercise of such right or the exercise of any other right.
Implied obligations, such as the one contended for by ING in paras. 10(b) and 17, are expressly excluded by the deal the parties made.
96To be sure, courts have not always given effect to entire agreement clauses. See, for example, P.M. Perell, "A Riddle Inside an Enigma: The Entire Agreement Clause" (1998) 20 Advocates' Q. 287; Shelanu Inc. v. Print Three Franchising Corp. (2003), 2003 52151 (ON CA), 64 O.R. (3d) 533, 226 D.L.R. (4th) 577 (C.A.). But they have not done so where, for example, after signing a written contract, parties have entered into an oral agreement and by their conduct have shown that they did not intend to be bound by their previous written contract. ING has not pleaded an oral agreement or any other facts that would make the entire agreement and related clauses inapplicable. [page478]
(d) Cooperation during the interim period
97ING contends that if Transamerica knew of errors or deficiencies before closing, it had an obligation to disclose them before claiming damages to permit ING to "remedy such errors in a timely and cost-effective manner". My colleague makes the related point that the pleading of an implied duty of good faith in paras. 10(b) and 17 of the defence may be needed to give effect to the price adjustment mechanism in Article 2.4 of the share purchase agreement.
98It seems to me, however, that the agreement the parties wrote crystallizes Transamerica's obligations in the Interim Period. Its obligation was to cooperate to maintain the value of the Company and to permit the closing to take place. Therefore, under Article 4.4 Transamerica (together with ING) was required to "use all commercially reasonable and diligent efforts" to maintain the value and goodwill of the company and to facilitate the closing. Under Article 4.6 it was obliged to use "reasonable commercial efforts" to satisfy the conditions of closing. In short, the parties addressed Transamerica's obligations in the Interim Period and stopped short of imposing a duty to disclose errors. Significantly, ING does not plead that Transamerica breached its obligation to cooperate in Articles 4.4 and 4.6.
- The conditions for implying a term have not been met
99In Canada we have well-established rules for when courts can imply a term in a contract. Terms may be implied in a contract in three situations:
(1) based on custom or usage;
(2) as the legal incidents of a particular class or kind of contract; or
(3) based on the presumed intention of the parties where the implied term must be necessary "to give business efficacy to a contract or as otherwise meeting the 'officious bystander' test as a term which the parties would say, if questioned, that they had obviously assumed".
See M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., 1999 677 (SCC), [1999] 1 S.C.R. 619, 170 D.L.R. (4th) 577, at para. 27.
100Only the last situation -- the presumed intention of the parties -- could support ING's pleading of an implied duty of good faith, which, as I have said, in reality is a pleading that Transamerica owed an implied duty of disclosure during the [page479] Interim Period. But ING has not asserted that such an implied term is necessary to give business efficacy to the contract or that this term is one the parties would say they had obviously assumed.
101Nor could ING realistically maintain such an assertion. M.J.B. Enterprises Ltd. is instructive. There the court considered whether terms could be implied in a tender document. Writing for the court, Iacobucci J. commented that a "degree of obviousness" is needed to imply a term and that it is important to look at the express terms of the contract [at para. 29]:
A court, when dealing with terms implied in fact, must be careful not to slide into determining the intentions of reasonable parties. This is why the implication of the term must have a certain degree of obviousness to it, and why, if there is evidence of a contrary intention, on the part of either party, an implied term may not be found on this basis. As G.H.L. Fridman states in The Law of Contract in Canada (3rd ed. 1994), at p. 476:
In determining the intention of the parties, attention must be paid to the express terms of the contract in order to see whether the suggested implication is necessary and fits in with what has clearly been agreed upon, and the precise nature of what, if anything, should be implied.
102Applying this passage here, I see nothing obvious or necessary about the implied term pleaded by ING. Rather than fitting in with the written agreement of the parties, it is quite inconsistent with that agreement. It is inconsistent with the "entire agreement" and "amendment" clauses, with the express disclosure obligation during the Interim Period imposed solely on ING, and with the explicit references to good faith elsewhere in the agreement. On the existing jurisprudence, I am not persuaded a court can imply a term that Transamerica had a disclosure obligation during the Interim Period. By couching its pleading in the language of good faith, ING is attempting to do indirectly what the case law precludes it from doing directly.
103I recognize that Rule 21 motions are not meant to defeat novel causes of action or defences. Perhaps, in the appropriate case, a court may consider using good faith as a tool to imply terms more readily than under the existing rules laid down by the Supreme Court of Canada. For all the reasons I have already discussed, I do not consider this to be the appropriate case to do so. See E.A. Farnsworth, "Good Faith in Contract Performance" in J. Beatson and D. Friedman, eds., Good Faith and Fault in Contract Law (Oxford: Clarendon Press, 1995).
104I would allow the appeal to the limited extent set out in these reasons. However, I would dismiss the appeal on paras. 10, [page480] 11, 17 (other than the plea of "wilful blindness") and 18 of the amended statement of defence. Because success was divided, I would order no costs of the appeal.
Order accordingly.
