Good faith and fairness -- is a contractual relationship a condition precedent to such duties arising?

The issue of good faith and fair dealing in contract law is difficult.

There is little doubt that the law has evolved. Cases in the employment context (such as Keays and Wallace) make it clear that in existing relationships there can be a duty of good faith that is not anchored in a specific contractual provision.

The duty to deal with tender bids fairly then poses a question -- until there is a bid there is no relationship in contract -- does this mean there is no duty of fairness?

Last week's Court of Appeal decision in Coco Paving (1990) Inc. v.  Ontario (Transportation), 2009 ONCA 503 suggests that a duty of fair dealing can arise only once a strictly compliant tender has been submitted.

This suggests, more broadly, that a duty of good faith is based on an existing relationship arising in contract. Quaere, does this mean that there is no duty of good faith prior to some form of contractual relationship? Could such a duty arise from mere neighbourhood? But if so surely Coco, or a person like Coco, was in the contemplation of Ontario? Perhaps I am seeing too much in this case?

The Court writes:

[4]               We begin with this preliminary observation.  The analysis of whether Coco's bid was compliant must proceed in recognition of the fundamental tendering law principle that no contractual duties arise between the tender-calling authority and a bidder unless and until what is termed under tendering law as "Contract A" is formed.  The formation of Contract A only occurs on the submission of a valid, that is, a compliant bid: see R. v. Ron Engineering & Construction (Eastern) Ltd., [1981] 1 S.C.R. 111, at para. 16; M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., [1999] 1 S.C.R. 619, at paras. 36 and 41.  As recently observed by the British Columbia Court of Appeal in Hub Excavating Ltd. v. Orca Estates Ltd., 2009 BCSC 167, at paras. 39 and 40, "[t]here is no free-standing duty of fairness in the bidding process independent of [the] contractual duty [arising on the formation of Contract A.]"
James Morton
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