Facts of Gateway

1. Facts of Gateway Gateway Landlord lease Zellers Anchor Tenant relocates to takes assignment of Zellers’ lease Arton Competitor of Gateway Upshot: 60,000 square feet of Gateway’s mall is leased to its competition

2. Gateway Realty Ltd. v. Arton Holdings Ltd. (1992) 106 N.S.R. (2d) (S.C.) “[Parties must exercise their contractual rights] honestly, fairly, and in good faith.” “[B]ad faith [is] a conduct that is contrary to community standards of honesty, reasonableness or fairness.”

3. The good faith term has two main sources in common law Canada: • A term implied-in-law (category one contracts) • A term implied-in-fact (category two contracts) 3

4. The good faith term concerns vulnerability in two contexts: • Category One: Power imbalance between the parties is predictably evident at the time of creation of the contract based on the nature of the parties’ relationship at the time. Good faith is implied by operation of law.

5. Franchise contract • Good faith implied-in-law by statute • Good faith implied-in-law by the common law Shelanu v. Print Three Franchising Corp. (2003), 64 O.R. (3d) 533 (C.A.) • Like the employee, the franchisee is typically in weaker bargaining position and the relationship continues to be affected by that power imbalance.

6. Category Two contracts: Power imbalance between the parties tends to emerge only at time of performance. Good faith is implied based on the parties presumed intentions at time of contract (i.e.: a term implied-in-fact).

7. Category Two contract cases are united by four constant factors • the contract is one which gives the parties obligations which cannot be instantaneously performed; • subsequent to creation of the contract, one of the parties finds itself in a position to exercise a contractual right – typically a discretion of some sort – in a manner that severely disadvantages the other side;

8. Four constant factors (cont.) • the party exercising its contractual right does so unfairly and unreasonably; and • at issue is whether this harsh exercise of a contractual power is at odds with the bargained-for standard of conduct governing the contract.