|
Contracts - Anticipatory Repudiation
MORE CASES
Part 2 | Part 3
. Fram Elgin Mills 90 Inc. v. Romandale Farms Limited
In Fram Elgin Mills 90 Inc. v. Romandale Farms Limited (Ont CA, 2021) the Court of Appeal considers anticipatory breach:B. Governing Legal Principles
[258] An anticipatory breach of contract occurs when one party to a contract, by express language or conduct, or as a matter of implication from what it has said or done, repudiates its contractual obligations before they fall due: Ali v. O-Two Medical Technologies Inc., 2013 ONCA 733, 118 O.R. (3d) 321, at para. 22, citing G.H.L. Fridman, The Law of Contract in Canada, 6th ed. (Toronto: Carswell, 2011), at p. 585.
[259] An anticipatory breach does not, in itself, terminate the contract. Once the offending party shows its intention not to be bound by the contract, the innocent party has a choice. The innocent party may accept the breach and elect to sue immediately for damages, in which case the innocent party must “clearly and unequivocally” accept the repudiation to terminate the contract. Alternatively, the innocent party may choose to treat the contract as subsisting, continue to press for performance, and bring the action only when the promised performance fails to materialize. However, by choosing the latter option, the innocent party is bound to accept performance if the repudiating party decides to carry out its obligations: Ali, at para. 24.
[260] Section 4 of the Limitations Act provides that “a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.” Section 5(1)(a) sets out the factors for determining when a party discovers a claim. However, where the innocent party does not accept the repudiation of the contract, the limitation period does not begin to run until the breach actually occurs: Ali, at paras. 26-27. . Lucas v. 1858793 Ontario Inc. (Howard Park)
In Lucas v. 1858793 Ontario Inc. (Howard Park) (Ont CA, 2021) the Court of Appeal considers the issue of repudiatory breach:[53] In reaching that conclusion, the application judge did not commit any error of law. He correctly identified the applicable legal principle. Even if the Lucases’ breach could be characterized as repudiatory, on the basis that s. 18 of the Agreement describes that particular kind of breach as one “incapable of rectification”, an innocent party must elect to treat the contract at an end and communicate that election to the repudiating party “within a reasonable time”: Place Concorde East Ltd. Partnership v. Shelter Corp. of Canada Ltd. (2006), 2006 CanLII 16346 (ON CA), 270 D.L.R. (4th) 181, at para. 50. . Barresi v. Jones Lang Lasalle Real Estate Services Inc.
In Barresi v. Jones Lang Lasalle Real Estate Services Inc. (Ont CA, 2019) the Court of Appeal had this to say on anticipatory contractual repudiation:[5] The trial judge correctly noted that contractual repudiation occurs “by words or conduct evincing an intention not to be bound by the contract”: Guarantee Co. of North America v. Gordon Capital, 1999 CanLII 664 (SCC), [1999] 3 S.C.R. 423, at para. 40. A contractual breach “is a repudiation of the contract if it is a breach of a contractual condition or of some other sufficiently important term of the contract so that there is a substantial failure of performance”: Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10 (CanLII), [2015] 1 S.C.R. 500, at para. 145. . Remedy Drug Store Co. Inc. v Farnham
In Remedy Drug Store Co. Inc. v Farnham (Ont CA, 2015) the Court of Appeal discusses the law relating to repudiation and anticipatory breach, here in the context of an allegation of breach of a settlement agreement. There is also a discussion of when commencement of litigation itself constitutes repudiation [paras 55-58].i. A Focus on Intention
[42] Repudiation occurs by the words or conduct of one party to a contract that show an intention not to be bound by the contract: Guarantee Co. of North America v. Gordon Capital Corp., 1999 CanLII 664 (SCC), [1999] 3 S.C.R. 423, at para. 40. Anticipatory repudiation is essentially the same as repudiation simpliciter – the only difference is timing. In her treatise, Canadian Contract Law, 3d ed. (Markham: LexisNexis Canada, 2012), at p. 618, Angela Swan begins her discussion of anticipatory repudiation by helpfully outlining the circumstances in which this issue typically arises:The phrases “anticipatory breach” or “anticipatory repudiation” refer to the situation created when, before the time of performance has arrived, one party to a contract tells the other, either explicitly or as an inference from something said or done by the party, that, despite having no justification for its position, it is no longer prepared to perform its obligations under the contract. The statement may be made in a letter by one party’s solicitor to the other, by an oral statement by a party himself or herself to the other, or in any form of communication. [Emphasis added. Citations omitted.] See also John McCamus: The Law of Contracts, 2d ed. (Toronto: Irwin Law Inc., 2012), at p. 689.
[43] Recently, in Potter v. New Brunswick (Legal Aid Services Commission), 2015 SCC 10 (CanLII), 381 D.L.R. (4th) 1, at para. 149, Cromwell J. (concurring) wrote this about anticipatory repudiation: “The focus in such cases is on what the party's words and/or conduct say about future performance of the contract. For example, there will be an anticipatory repudiation if the words and conduct evince an intention to breach a term of the contract which, if actually breached, would constitute repudiation of the contract.”
[44] Accordingly, the same principles guide both anticipatory repudiation and repudiation. Courts often use the terms interchangeably because alleged repudiations frequently occur “before the time of performance has arrived” (to borrow Swan’s phrasing).
ii. The Test is Objective and the Surrounding Circumstances Should be Considered
[45] The test for anticipatory repudiation is an objective one: S.M. Waddams, The Law of Contracts, 6th ed. (Toronto: Canada Law Book, 2010), at para. 620. As Gillese J.A. wrote for this court in Spirent Communications of Ottawa Ltd. v. Quake Technologies (Canada) Inc., 2008 ONCA 92 (CanLII), 88 O.R. (3d) 721, at para. 37: “To assess whether the party in breach has evinced such an intention [to repudiate the contract], the court is to ask whether a reasonable person would conclude that the breaching party no longer intends to be bound by it.”
[46] In objectively construing the purported breaching party’s intention, the surrounding circumstances must be considered. In White v. E.B.F. Manufacturing Ltd., 2005 NSCA 167 (CanLII), 239 N.S.R. (2d) 270, Saunders J.A. wrote, at para. 89: “Proof of such an intention requires an investigation into the nature of the contract, the attendant circumstances, and the motives which prompted the breach.” Earlier this year, Cromwell J., in his concurring opinion in Potter, confirmed the importance of considering the surrounding circumstances. At para. 164, Cromwell J. wrote: “As Lord Scarman put it in Woodar Investment Development Ltd. v. Wimpey Construction UK Ltd., [1980] 1 All E.R. 571 (H.L.), at p. 590, the trial judge and the Court of Appeal in this case were ‘concentrating too much attention on one act isolated from its surrounding circumstances and failing to pay proper regard to the impact of the party's conduct on the other party’.”
iii. Subjective Intention Not to Repudiate is Not Determinative
[47] A party can repudiate a contract without subjectively intending to do so. As the Supreme Court wrote in Guarantee Company, at para. 40:Repudiation, by contrast, occurs "by words or conduct evincing an intention not to be bound by the contract. It was held by the Privy Council in Clausen v. Canada Timber & Lands, Ltd. [[1923] 4 D.L.R. 751], that such an intention may be evinced by a refusal to perform, even though the party mistakenly thinks that he is exercising a contractual right" (S.M. Waddams, The Law of Contracts (4th ed. 1999), at para. 620).42 [Emphasis added.] [48] Swan confirms this approach at p. 618 of her treatise: “The person (or his or her solicitor) may believe when the statement is made that he or she has an excuse for non-performance and that it is the other party who is in breach of the contract. The characterization of the statement as an “anticipatory breach” [or “repudiation”] will then be made when the dispute goes to trial.”
[49] However, the subjective intentions of the breaching party are of some moment. They may assist in determining what the objective intention was. Justice Cromwell made this point at para. 171 of Potter: “while the breaching party's motives as such are irrelevant, they may throw light on the way the alleged repudiatory conduct would be viewed by a reasonable person.” Thus, the driving factor behind anticipatory repudiation remains the objective intention of the party purportedly about to breach the contract.
iv. The Seriousness of the Conduct
[50] A finding of anticipatory repudiation is reserved for cases in which the conduct at issue can be said to be serious. Before an anticipated breach of contract can be characterized as an anticipatory repudiation, the breach must deprive the innocent party of substantially the whole benefit of the contract: see Swan, at p. 618; Waddams, at ss. 590, 595; McCamus, at pp. 693-694; and Fridman, The Law of Contracts in Canada, 6th ed. (Toronto: Carswell, 2011), at p. 585.
[51] In Spirent, Gillese J.A. confirmed an approach that focuses on the importance of the disputed term, saying, at para. 37, “When considering Spirent’s conduct, it was important to keep in mind that what was involved was an anticipatory breach of contract…. [I]n determining whether the party in breach had repudiated or shown an intention not to be bound by the contract before performance is due, the court asks whether the breach deprives the innocent party of substantially the whole benefit of the contract.” See also Place Concorde East Limited Partnership v. Shelter Corporation of Canada (2006), 2006 CanLII 16346 (ON CA), 270 D.L.R. (4th) 181 (Ont. C.A.), at para. 51, where this court wrote, “A breach that allows the non-repudiating party to elect to put an end to all unperformed obligations of the parties is an exceptional remedy that is available only in circumstances where the entire foundation of the contract has been undermined, that is, where the very thing bargained for has not been provided”; and Potter, per Cromwell J., at para. 164.
[52] The authorities are therefore clear. The conduct in this case – insistence on a new contractual term – can amount to an anticipatory repudiation, but only if the term is of such importance that the party seeking to rely on the term can be said to have exhibited an intention not to be bound by the contract.
v. Anticipatory Repudiation in the Context of a Settlement Agreement
[53] I agree with the opinion of the British Columbia Court of Appeal in Fieguth v. Acklands Limited (1989), 1989 CanLII 2744 (BC CA), 59 D.L.R. (4th) 114 (B.C.C.A.), at pp. 122-123, that anticipatory repudiation should be considered a particularly exceptional remedy in the context of settlement agreements. The Court explained the rationale for this approach as follows:It should not be thought that every disagreement over documentation consequent upon a settlement, even if insisted upon, amounts to a repudiation of a settlement. Many such settlements are very complicated, such as structured settlements, and the deal is usually struck before the documentation can be completed. In such cases the settlement will be binding if there is agreement on the essential terms. When disputes arise in this connection the question will seldom be one of repudiation as the test cited above is a strict one, but rather whether a final agreement has been reached which the parties intend to record in formal documentation, or whether the parties have only reached a tentative agreement which will not be binding upon them until the documentation is complete. Generally speaking, litigation is settled on the former rather than on the latter basis and parties who reach a settlement should usually be held to their bargains. Subsequent disputes should be resolved by application to the court or by common sense within the framework of the settlement to which the parties have agreed and in accordance with the common practices which prevail amongst members of the bar. It will be rare for conduct subsequent to a settlement agreement to amount to repudiation. [Emphasis added.] This passage from Fieguth has been cited with approval by at least three Ontario courts, including this one: see Bogue v. Bogue (1999), 1999 CanLII 3284 (ON CA), 46 O.R. (3d) 1 (C.A.); Cellular Rental Systems Inc. v. Bell Mobility Cellular Inc., [1995] O.J. No. 721 (S.C.), aff’d [1995] O.J. No. 3773 (C.A.); and Whitehall Homes & Construction Ltd. v. Hanson, 2012 ONSC 3307 (CanLII), 23 C.L.R. (4th) 272, at para. 31.
[54] Courts are motivated to enforce settlements for good reason. As Swan puts it at p. 52 of her treatise, “There are strong policy reasons for the court’s attitude to settlements: it is in everyone’s interest that litigation be concluded by the parties’ agreement”.
vi. The Relevance of Commencing Legal Proceedings
[55] Courts have recognized that, in certain circumstances, commencing an action may constitute repudiation of an agreement: see e.g. Suleman v. British Columbia Research Council (1990), 1990 CanLII 746 (BC CA), 52 B.C.L.R. (2d) 138 (C.A.), at p. 142; but see Vrana v. Procor Limited, 2004 ABCA 126 (CanLII), 25 Alta. L.R. (4th) 201, at para. 14. In Suleman, the Court noted that the respondent had repudiated her employment contract by prematurely filing a writ of summons since she failed to establish a case of constructive dismissal: at pp. 142, 144. However, in Vrana, the Court found the employee had not repudiated his employment contract by bringing legal action too early.
[56] Although not perfectly analogous, this court has recognized that a non-repudiating party’s filing of a statement of claim may, but does not automatically, constitute an acceptance of a repudiation. For example, in Domicile Developments Inc. v. MacTavish (1999), 1999 CanLII 3738 (ON CA), 45 O.R. (3d) 302 (C.A.), at pp. 305-6, this court found that a party did not accept a repudiation when it issued a statement of claim seeking specific performance or damages because it made clear, in part through a letter to the repudiating party, that it did not accept the repudiation.
[57] In Place Concorde, LaForme J.A. was prepared to assume that an election to accept a repudiation can be made by commencing an action but held that, in the overall context, the pleading did not constitute an election to treat the agreement as being at an end.
[58] Case law is thus consistent with the principle that commencing legal action can, but does not necessarily, constitute repudiation. The proper inquiry remains focused on whether the party bringing legal action evinces an intention, in all the circumstances, to repudiate the agreement. . Brown v. Belleville (City)
In Brown v. Belleville (City) (Ont CA, 2013) the Court of Appeal canvasses principles of law applicable to repudiatory breach:[42] A repudiatory breach or an anticipatory repudiation of contract does not, in itself, terminate or discharge a contract. In Guarantee Co. of North America v. Gordon Capital Corp., 1999 CanLII 664 (SCC), [1999] 3 S.C.R. 423, at para. 40, the Supreme Court explained:Contrary to rescission, which allows the rescinding party to treat the contract as if it were void ab initio, the effect of a repudiation depends on the election made by the non-repudiating party. If that party treats the contract as still being in full force and effect, the contract “remains in being for the future on both sides. Each [party] has a right to sue for damages for past or future breaches” (emphasis in original): Cheshire, Fifoot & Furmston’s Law of Contract (12th ed. 1991), by M.P. Furmston at p. 541. If, however, the non-repudiating party accepts the repudiation, the contract is terminated, and the parties are discharged from future obligations. Rights and obligations that have already matured are not extinguished. Furmston, supra, at pp. 543-44. See also Canada Egg Products, Ltd. v. Canadian Doughnut Co. Ltd., 1955 CanLII 90 (SCC), [1955] S.C.R. 398, at pp. 406-7; Place Concorde East Limited Partnership v. Shelter Corp. of Canada Ltd., 2006 CanLII 16346 (ON CA), [2006] O.J. No. 1964 (C.A.), 270 D.L.R. (4th) 181, at para. 49.
[43] In his leading textbook, The Law of Contracts (Toronto: Irwin Law Inc., 2005), John D. McCamus refers to the election right of the innocent party on repudiation as an option to disaffirm or affirm the contract. Disaffirmation of the contract, in this sense, constitutes an election to terminate the contract in the face of the non-innocent party’s repudiation of the contract. In the applicable authorities, it is frequently said that an election to disaffirm the contract is an ‘acceptance’[1] or ‘adoption’ of the repudiation. On this view, an election to affirm the repudiated contract constitutes rejection or denial of the repudiation and a decision to treat the contract as subsisting and on-going.
[44] Professor McCamus puts it this way, at p. 654:[I]n the context of a repudiatory breach of an agreement, the victim of the breach is entitled either to affirm or disaffirm the agreement and, in either event, pursue remedies for breach of contract. Similarly, in the context of anticipatory repudiation, the effect of the repudiation is to confer an option upon the innocent party either to disaffirm or affirm the contract. Thus, although the innocent party is entitled to disaffirm the agreement immediately and sue, that party may prefer to affirm the agreement and encourage or insist upon performance by the repudiating party or, more passively, simply wait and see whether the repudiating party does in fact eventually refuse to perform his or her contractual obligations when they fall due. [Citations omitted.] [45] It appears to be settled law in Canada that where the innocent party to a repudiatory breach or an anticipatory repudiation wishes to be discharged from the contract, the election to disaffirm the contract must be clearly and unequivocally communicated to the repudiating party within a reasonable time. Communication of the election to disaffirm or terminate the contract may be accomplished directly, by either oral or written words, or may be inferred from the conduct of the innocent party in the particular circumstances of the case: McCamus, at pp. 659-61.
[46] In American National Red Cross v. Geddes Bros. (1920), 1920 CanLII 6 (SCC), 61 S.C.R. 143, rev’g 47 O.L.R. 163 (S.C. (A.D.)), the Supreme Court of Canada addressed the means by which the adoption of a repudiation may be effectively communicated. Sir Louis Davies said, at p. 145:The question then, it seems to me, in every such case must be whether under the proved facts adoption of one party to a contract of its repudiation by the other party may be inferred from the proved facts, or whether an actual notice of acceptance or adoption must be given by the party receiving notice of the repudiation to the party repudiating.
It seems to me from reading the authorities that such an actual notice of acceptance or adoption is not necessary but that adoption may be reasonably inferred from all the circumstances as proved. [47] In American National, Davies C.J. concluded, at p. 147, that a direct communication to the repudiating party of the election to disaffirm the repudiated contract is not essential “where facts proved allow of a fair inference of acceptance of renunciation [repudiation in this context] being drawn”. This view was endorsed by a majority of the Supreme Court in Kamlee Construction Ltd. v. Town of Oakville (1960), 26 D.L.R. (2d) 166, at 182.
[48] More recently, in White v. E.B.F. Manufacturing Ltd., 2005 NSCA 167 (CanLII), 239 N.S.R. (2d) 270, at para. 91, Saunders J.A. of the Nova Scotia Court of Appeal accepted the following description of what constitutes ‘acceptance’ of repudiation, set out in Chitty on Contracts, 28th ed. (London: Sweet & Maxwell, 1999), Vol. I, at p. 25-012:Where there is an anticipatory breach, or the breach of an executory contract, and the innocent party wishes to treat himself as discharged, he must “accept the repudiation.” It is usually done by communicating the decision to terminate [to] the party in default although it may be sufficient to lead evidence of an “unequivocal overt act which is inconsistent with the subsistence of the contract ... without any concurrent manifestation of intent directed to the other party” ... Acceptance of a repudiation must be clear and unequivocal and mere inactivity or acquiescence will generally not be regarded as acceptance for this purpose. But there may be circumstances in which a continuing failure to perform will be sufficiently unequivocal to constitute acceptance of a repudiation. It all depends on “the particular contractual relationship and the particular circumstances of the case.” [Emphasis added.]
|
