Lavrijsen Campgrounds v Eileen Reville, Steven Reville and Douglas Reville (2015 ONSC 103) offers the first significant pronouncement on the duty of honesty in contractual performance recently established in Bhasin v Hrynew (see Honesty is the best policy when it comes to commercial contracts). In this case, the parties negotiated a share purchase agreement for a campground property. The defendant vendors did not disclose documents to the plaintiff purchaser which, although not specifically requested by the purchaser, would have assisted them in determining the value of prepaid rentals for the year of the sale. As a result, the purchaser was under-compensated at closing by over $70,000.

At trial, the vendors argued that they were under no duty to disclose documents which were not requested. They also hid behind a clause that required the purchaser to bring any claims for breach of warranty within twelve months. That clause excepted claims for “intentional misrepresentation or fraud”, but the vendors argued that their non-disclosure did not amount to a misrepresentation of any kind.

In dismissing the vendors’ arguments and finding them liable, Justice Kent wrote that:

[15]           Counsel for the defendants suggests that this is not a case of intentional misrepresentation or fraud and the claim is barred because it was not brought within the 12 month period following the closing date.   I disagree.  Active non-disclosure constitutes intentional misrepresentation and the defendants are not entitled to the protection provided by the agreement…

[16]           Any hesitation this court may have had concerning a distinction to be drawn between active non-disclosure and intentional misrepresentation is eliminated by the decision of the Supreme Court of Canada released recently, Bhasin v. Hrynew, 2014 SCC 71.

The effects of the duty of honesty in contractual performance as seen in Lavrijsen Campgrounds are quite remarkable. Here, the trial judge used Bhasin to transform inaction on the part of the vendors (i.e. not disclosing unrequested documents) into an intentional act which was equivalent to a misrepresentation. According to Justice Kent, this type of active non-disclosure does not align with the Supreme Court’s vision for the organizing principle of good faith.

In many ways, this is actually an extension of the principles in Bhasin, because the Supreme Court did not explicitly create any positive duty to disclose. Yet Justice Kent seems to have founded liability against the defendants in Lavrijsen Campgrounds solely on their failure to disclose documents they knew to be relevant.

At this juncture, it is unclear whether Lavrijsen Campgrounds will be seen as a proper adaptation of Bhasin. As noted above, it may very well not be. However, what is clear is that courts have heeded the call issued by the Supreme Court to expect more from parties in their performance of contracts.

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