Dhanesar v. Pandher: Good Faith in Contractual Discretion

In Dhanesar v. Pandher, 2026 BCCA 63, the British Columbia Court of Appeal offered new clarification on the obligation to exercise contractual discretion in good faith.

The dispute arose under a contract for the construction and sale of a residential property that collapsed when the purchaser declined to proceed. She invoked a clause requiring the sellers to deliver either an unconditional occupancy certificate or “other evidence satisfactory to the Buyer” confirming that the building work was finished. Trial Court Decision At first instance, the trial judge sided with the vendor. He interpreted the “evidence satisfactory” provision as imposing a standard of what a reasonable person—albeit one with the buyer’s subjective yet reasonable expectations—would accept. In his view, the duty of good faith did not allow the purchaser to insist solely on an occupancy permit while disregarding other proof that construction was complete.

The Court of Appeal overturned that verdict and ordered a retrial. It identified two key errors in the trial judge’s approach:

1. Treating the duty of good faith in contractual discretion as if it were merely a rule of contractual interpretation, rather than a standalone common-law doctrine.

2. Applying an objective “reasonable person” test to that duty, rather than assessing whether the discretion was exercised consistently with the contract’s purposes.

The Court reiterated the Supreme Court’s analysis in Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7, which holds that the contract itself is the primary source of the parties’ obligations.

Determining whether a party has acted in good faith when exercising discretion thus involves two steps:

• First, identify the contractual provision granting discretion and the purposes for which it was conferred.

• Second, assess whether the exercise of that discretion remains tethered to those identified purposes.

Moreover, the Court underscored that “reasonableness” in this context is not judged by a generic reasonable-person standard; it is measured by fidelity to the contractually defined objectives for which the discretion was granted.