Both the Supreme Court of British Columbia and the province’s Court of Appeal agreed with Metro Vancouver that the arbitrator’s ruling could not stand before the case made its way to the nation’s top court.
In their ruling, all nine judges on the Supreme Court of Canada bench also sided with the city, concluding that its reallocation of waste was not unreasonable.
The Supreme Court judges confirmed that parties do have a duty to exercise contractual discretion in good faith that requires them “to exercise their discretion in a manner consistent with the purposes for which it was granted in the contract.
A breach of the duty may occur when the exercise of discretionary power “falls outside the range of choices connected to its power,” they added.
In cases where the purpose of the discretion is not clear, the court must interpret the contract to determine one. Judges may also intervene in cases of discretion power exercised arbitrarily or capriciously, the Supreme Court added, cautioning judges against delving into the wisdom or morality of the decision from a business perspective.
In Wastech’s case, the Supreme Court found that the purpose of the city’s discretionary power was to give it flexibility to maximize efficiency and minimize the cost of the garbage operation, and that Metro Vancouver had been guided by these objectives when it exercised its discretion to reallocate waste sites.
It was clear from the record that the parties were aware of the risk presented by the exercise of discretion and had chosen to leave it in place, the Supreme Court judges wrote, characterizing Wastech’s claim as a request for an advantage is had not bargained.
“Metro is Wastech’s contracting partner, not its fiduciary. The loyalty required of it in the exercise of this discretion was loyalty to the bargain, not loyalty to Wastech,” the decision reads.