You work as the General Manager for Arnold Distribution, which distributes gym equipment to commercial gyms. Arnold Distribution is a party to a distribution contract with MuscleFlex Equipment to distribute their gym equipment across Canada to its commercial gym customers. Arnold Distribution later negotiates and enters into a distribution contract with MuscleFlex's competitor, Jelloton to distribute their gym equipment products, which will be significantly more profitable for Arnold Distribution if they sign a deal. The question posed to you by the CEO of Arnold Distribution, Arnold Klaus, is whether Arnold Distribution can reduce its support and distribution of MuscleFlex products in favor of incorporating Jelloton's products. Please advise Arnold Distribution whether there is a risk of liability in potentially violating the contractual duty of good faith or the duty of honest performance based on Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7 (Canlii). Advise Arnold Distribution based on your understanding of the ratio and reasoning in Wastech. This requires that you must relate the factual/legal findings in the Wastech case to your specific factual/legal situation.

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Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7, [2021] 1 S.C.R. 32 Facts Wastech Services Ltd. ("Wastech") and the Greater Vancouver Sewerage and Drainage District ("Metro") signed a long-term contract for waste disposal services. In 2011, Metro, which had complete control over waste site locations, raised Wastech's costs and cut profits. Prior Proceedings The proceedings commenced at the B.C. Supreme Court and advanced to the Court of Appeal. Appeals have been lodged with the Supreme Court of Canada. Statement of Issue(s) Does Canadian common law impose the duty to exercise honestly in a contractual performance? Arguments The appellant argued that the duty of good faith was breached. The respondent argued that a breach of the duty of good faith did not occur. Ratio Decidendi Canadian common law does impose the duty to exercise honestly in a contractual performance. Analysis (Reasons For Judgment) The duty of good faith in contractual discretion organizes contract law and protects reasonable expectations and economic certainty, the Court stated. It showed that accountability requires pragmatic, goal-oriented judgment, not openness or interest subordination. The Court argued that good faith is a contract law term for all transactions, not an implied requirement. Conclusion (Holding) The Supreme Court of Canada held that all contracts are subject to a duty of good faith. Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7, [2021] 1 S.C.R. 32 Facts Wastech Services Ltd. ("Wastech") and the Greater Vancouver Sewerage and Drainage District ("Metro") signed a long-term contract for waste disposal services. In 2011, Metro, which had complete control over waste site locations, raised Wastech's costs and cut profits. Prior Proceedings The proceedings commenced at the B.C. Supreme Court and advanced to the Court of Appeal. Appeals have been lodged with the Supreme Court of Canada. Statement of Issue(s) Does Canadian common law impose the duty to exercise honestly in a contractual performance? Arguments The appellant argued that the duty of good faith was breached. The respondent argued that a breach of the duty of good faith did not occur. Ratio Decidendi Canadian common law does impose the duty to exercise honestly in a contractual performance. Analysis (Reasons For Judgment) The duty of good faith in contractual discretion organizes contract law and protects reasonable expectations and economic certainty, the Court stated. It showed that accountability requires pragmatic, goal-oriented judgment, not openness or interest subordination. The Court argued that good faith is a contract law term for all transactions, not an implied requirement. Conclusion (Holding) The Supreme Court of Canada held that all contracts are subject to a duty of good faith.

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1 Summary of Advice Arnold Distribution should be cautious in reducing its support and distribution of MuscleFlex products in favor of Jelloton products There is a risk of liability for violating the ... View the full answer