By John Gescher, Lawyer

In December 2019 the Supreme Court of Canada (SCC) heard an appeal from British Columbia in the case of Greater Vancouver Sewerage and Drainage District v. Wastech Services Ltd., 2019 BCCA 66.

This case will be of interest to municipalities because it deals with the exercise of a discretion by a municipality under a contract with a waste disposal company.

The Wastech case involves a dispute concerning a 20-year solid waste disposal contract. The regional district had a discretion to allocate solid waste between various dump sites.

In 2011, the district exercised this discretion which resulted in reduced costs to the district, but also negatively impacted Wastech’s profits.

The resulting dispute was determined by an arbitrator.

The arbitrator found that the district did not exercise its discretion arbitrarily or capriciously. He also found that the district did breach its duty of good faith.

He concluded the exercise of discretion lacked the appropriate regard for the legitimate expectations of the waste contractor.

While the district was free to exercise its discretion, it could not do so in a manner that eliminated the possibility for the contractor to achieve its profit margins.

This decision was appealed to the to the British Columbia Supreme Court and from there to the Court of Appeal for British Columbia.

The Court of Appeal carefully reviewed the law involving the concepts of bad faith and the duty of good faith in contractual performance. They reversed the arbitrator's decision.

Because the arbitrator had made no finding that the district’s conduct involved subjective dishonesty, improper motive, or bad faith but did find that the district’s decision making, from its own point of view, was both honest and reasonable the decision could not stand. As a consequence, the Court of Appeal overturned the arbitrator’s decision on the good faith issue.

The SCC will be delivering its decision that will no doubt give further guidance to Municipalities in exercising their contractual discretion.