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Contract - Anticipatory Repudiation (3). Johnston v. McLean
In Johnston v. McLean (Ont CA, 2024) the Ontario Court of Appeal considered the contractual law of repudiation:[21] The law regarding acceptance of repudiation was stated by this court in Brown v. Belleville (City), 2013 ONCA 148, 114 O.R. (3d) 561, at para. 45, citing John D. McCamus’ The Law of Contracts (Toronto: Irwin Law, 2005), at pp. 659-61: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. . Stayside Corporation Inc. v. Cyndric Group Inc.
In Stayside Corporation Inc. v. Cyndric Group Inc. (Ont CA, 2024) the Ontario Court of Appeal dismissed a breached APS appeal, here on grounds of fundamental and anticipatory breach:[9] The motion judge correctly identified the relevant factors in determining whether an anticipatory and fundamental breach of the contract has been established. These are set out in Spirent Communications of Ottawa Limited v. Quake Technologies (Canada) Inc., 2008 ONCA 92, 88 O.R. (3d) 721, at para. 27:(1) the ratio of the party’s obligations not performed to the obligation as a whole;
(2) the seriousness of the breach to the innocent party;
(3) the likelihood of repetition of such breach;
(4) the seriousness of the consequences of the breach; and
(5) the relationship of the part of the obligation performed to the whole obligation. . Roalno Inc. v. Schaefer
In Roalno Inc. v. Schaefer (Ont CA, 2024) the Ontario Court of Appeal considered an appeal of a dismissal of a purchaser's action for "specific performance with an abatement" in an APS breach case, here involving a dispute over a perceived easement.
Here the court considered the doctrine of 'anticipatory breach':[41] As Gillese J.A. explained in Spirent Communications of Ottawa Limited v. Quake Technologies (Canada) Inc., 2008 ONCA 92, 88 O.R. (3d) 721, at para. 37, leave to appeal refused, [2008] S.C.C.A. No. 151:An anticipatory breach sufficient to justify the termination of a contract occurs when one party, whether by express language or conduct, repudiates the contract or evinces an intention not to be bound by the contract before performance is due.
I accept that Mr. Kelly’s April 25, 2018 letter can be understood as indicating the Vendors’ intention not to be bound by the APS because they mistakenly believed that they would be unable to fulfil one of its terms. ....
[45] The question of whether a party’s words or actions demonstrate an intention not to be bound by a contract must be determined objectively. As Gillese J.A. noted in Spirent Communications, at para. 37, “the court is to ask whether a reasonable person would conclude that the breaching party no longer intends to be bound by [the contract]”. ....
....
[47] In summary, I would find that the trial judge did not err in concluding that Roalno was the party who breached the contract. In my view, it was Roalno who repudiated the APS first, and the Vendors who then accepted Roalno’s repudiation, which brought the contract to an end. This disentitles Roalno from now being granted specific performance, either with or without an abatement. Moreover, as the innocent party in the breach, the Vendors are entitled to keep Roalno’s $5,000 deposit. . The Rosseau Group Inc. v. 2528061 Ontario Inc.
In The Rosseau Group Inc. v. 2528061 Ontario Inc. (Ont CA, 2023) the Court of Appeal considers an issue of tendering performance in a breached APS breach case, here in a context of anticipatory breach:(ii) No Requirement to Tender
[37] 252 argues that although it indicated on June 13, 2017 that it was taking the position the APS was at an end, Rosseau Group did not accept the repudiation, and demanded a closing date of September 19, 2017. It submits that Rosseau Group was therefore required not only to be ready, willing, and able to close on that date, but to demonstrate that by tendering the closing funds and other required documents. 252 argues that the trial judge should have treated the failure to tender as fatal to Rosseau Group’s claim.
[38] I disagree.
[39] Because Rosseau Group did not accept 252’s anticipatory repudiation of the APS, but instead rejected it, it kept the APS alive, and both parties remained bound to perform their obligations on the closing date. In order to rely on 252’s failure to close on September 19, 2017, Rosseau Group had to be ready, willing, and able to close on that date: Domicile Developments Inc. v. MacTavish (1999), 1999 CanLII 3738 (ON CA), 45 O.R. (3d) 302, 175 D.L.R. (4th) 334 (C.A.), at paras. 14-15. But that obligation was satisfied if Rosseau Group was (as the trial judge found) actually ready, willing, and able to close. For 252’s argument to be correct, Rosseau Group’s obligation had to extend to include a requirement to tender on a party who had unequivocally indicated that the tender would be useless because it would not close.
[40] I see no error in the trial judge’s conclusion that a tender was not required. Although tendering is one way of showing that a party is ready, willing, and able to close, it is not the only way. “While tender is the best evidence that a party is ready, willing and able to close, tender is not required from an innocent party enforcing his or her contractual rights when the other party has clearly repudiated the agreement or has made it clear that they have no intention of closing the deal” (emphasis added): Di Millo v. 2099232 Ontario Inc., 2018 ONCA 1051, 430 D.L.R. (4th) 296, at para. 45, leave to appeal refused, [2019] S.C.C.A. No. 55 The rationale for this is clear: “the law does not require what would be a meaningless or futile gesture”: Time Development Group Inc. (In trust) v. Bitton, 2018 ONSC 4384, at paras. 56-7.
[41] 252’s reliance on the decision of this court in 1179 Hunt Club Inc. v. Ottawa Medical Square Inc., 2019 ONCA 700, 438 D.L.R. (4th) 566 for the proposition that tender was required is misplaced. 1179 Hunt Club was not a case of a party who was in fact ready, willing, and able to close being denied a contractual remedy because it failed to tender on a party who had indicated that such a tender would be useless.
[42] In 1179 Hunt Club, the vendor rejected the purchaser’s anticipatory repudiation of the agreement, insisted that the transaction close on a specific date, and indicated that there would be immediate pursuit of legal remedies if the purchaser did not perform. The application judge found, and this court agreed, that the vendor was not in fact ready, willing, and able to close on the date it insisted upon, because it was unable to transfer title to the purchaser: at paras. 2, 17, 20, 21, 22 and 27. It was in that context − a party who was in fact not ready to perform insisting on strict performance from the other party − that Lauwers J.A. referred to the failure to tender as being “fatal” to the vendor’s position that it could “render perfection in its own performance”: at para. 23. Later in his reasons, Lauwers J.A. brought those two key aspects together when he explained: “[h]aving set the date, here the vendor did not trouble itself to tender, and in fact could not have tendered because on that day it was incapable of transferring title” (emphasis added): at para. 27.
[43] Accordingly, 1179 Hunt Club does not assist 252, because it does not stand for the proposition that a failure to tender by a party who is ready, willing and able to close precludes their claim.
(iii) The Trial Judge Did Not Err in Finding Rosseau Group Was Ready, Willing, and Able to Close
[44] 252 goes on to argue that the trial judge erred in finding that Rosseau Group was in fact ready, willing, and able to close. It argues that although the trial judge found that Rosseau Group had sufficient funds available from related entities to close the transaction, this was insufficient as it had not taken possession of those funds itself. It also argues that although the trial judge found Rosseau Group could assume the BMO Mortgage, this too was insufficient because it took no steps to do so. And it argues that the trial judge should have considered herself bound by the findings about readiness to close made on the CPL motion.
[45] I disagree.
[46] On the question of funds for closing, the trial judge’s finding that the funds required to close were available to Rosseau Group was sufficient. With that availability, it was ready, willing, and able to close. The added step of symbolically depositing the funds in its own account for a transaction that 252 would not complete would have been “a meaningless or futile gesture” of the type the law does not insist upon. . Leeder Automotive Inc. v. Warwick
In Leeder Automotive Inc. v. Warwick (Ont CA, 2023) the Court of Appeal considered an issue of repudiation (and 'partial' repudiation) of an optional share-sale provision of a unanimous shareholder's agreement (USA) - here being a breach of condition that a fresh evaluation conducted by an agreed upon "independent business valuator" be conducted upon an option-invoked share sale.
In these quotes the court considered whether the share-sale aspect of the USA constituted a 'standalone' contract, here for purposes of determining whether full contractual repudiation occurs and it's implications:(2) The share-purchase transaction was a standalone contract capable of being repudiated
[41] Leeder submits that this ground of appeal involves a matter of contractual interpretation and gives rise to a question of mixed fact and law that is entitled to deference on appeal. It relies on Flintoff, in which Pardu J.A. said the following about the standard of review, at para. 7:Determining whether an option contained within a contract amounts to a separate unilateral agreement is an exercise driven by the context and the contractual language. In Sail Labrador Ltd. v. Challenge One (The), 1999 CanLII 708 (SCC), [1999] 1 S.C.R. 265, at para. 41, Bastarache J. stated that:Whether a contract which contains an option clause establishes a single, bilateral contract or two separate contracts, one bilateral and the other unilateral, is a matter of construction. Courts must examine the text of the contract and the context surrounding it in order to determine the intention of the parties, keeping in mind that this Court has previously approved of the tendency by courts to treat offers as calling for bilateral rather than unilateral performance whenever a contract can fairly be so construed. [Citations omitted.] [42] In my respectful view, the application judge erred in her conclusion that the buy-sell agreement did not form a separate contract. As laid out in Flintoff, this is a matter of contractual interpretation, something that would ordinarily attract deference on appeal. However, the application judge’s ultimate conclusion in this case – that the agreement had been repudiated – appears to rest on the assumption that it did not matter whether there was a standalone contract or not (see para. 27, above).
[43] The parties agree that the law does not recognize the concept of partial repudiation of a contract. Repudiation occurs when the entire foundation of a contract has been undermined; where the very thing bargained for has not been provided. It allows the non-repudiating party to elect to treat the contract as at an end, and relieves the parties from further performance of the contract: see Remedy Drug Store Co. Inc. v. Farnham, 2015 ONCA 576, 389 D.L.R. (4th) 671; Spirent, at para. 35; Place Concorde at para. 51; Hongkong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha Ltd., [1962] 1 All E.R. 474 (C.A.), at 485; and Angela Swan, Jakub Adamski & Annie Na, Canadian Contract Law, 4th ed. (Toronto: LexisNexis Canada, 2018), at §7.89.
[44] Partial repudiation of a contract would be antithetical to a finding that the entire foundation of a contract has been undermined. Accordingly, the application judge could not have found, on the one hand, that the share-purchase transaction was merely an implementation of the USA, but on the other hand, that the transaction agreement alone had been repudiated. Thus, in the circumstances of this case, the application judge’s analysis on this issue is not entitled to deference; it is predicated on an incorrect legal assumption.
[45] Returning to the question of whether there was in fact a standalone agreement, both parties urged her to make that finding. It would appear that Leeder’s counsel provided Blackmore to the application judge in order to draw an analogy between the treatment of the shotgun provision in that case, and the buy-sell mechanism in this case. However, Blackmore does not assist with the interpretive issue in this case.
[46] In Blackmore, the shareholder agreement entitled “each shareholder to force a share sale at a price and on the terms stipulated in [the shareholder’s] offer”, at which point “the recipient of the offer decides whether to buy or sell”: at para. 34. The agreement identified the shareholder who triggered the shotgun provision as the “Instigator”, and the target as the “Recipient”. As MacKenzie J.A. wrote, at para. 36: “The ordinary meaning of these provisions is that once the clause is invoked, the process cannot be stopped – the shareholder relationship will be severed” (emphasis added). The court found that, based on the agreement as whole, once the process was triggered, it was irrevocable during the relevant notice period. The offering parties were not permitted to back out even if market conditions changed during that period.
[47] Whether the shotgun provisions gave rise to a standalone agreement would appear to have played a minor role in the Blackmore decision. MacKenzie J.A. characterized the invocation of the shotgun provision as the exercise of a contractual term rather than as an offer to form a new contract. This characterization influenced her analytical approach to the central question of revocability. As MacKenzie J.A. said, at para. 31:I am not persuaded that the invocation of a shotgun clause is either an exercise of a contractual option or an offer to form a new contract. Rather, to invoke a shotgun clause is to rely on a term of an existing contract by which the parties have agreed to a compulsory buyout procedure. As a result, whether the respondents were entitled to revoke the shotgun offer depends on the proper interpretation of the shareholders' agreement as a whole. [Emphasis added.] [48] Interestingly, although the application judge in this case relied on Blackmore to find the buy-sell mechanism did not create a standalone contract, she declined to characterize the mechanism as a shotgun provision. Relying on the discussion of shotgun provisions in Western Larch Limited v. Di Poce Management Limited, 2013 ONCA 722, 117 O.R. (3d) 561, leave to appeal dismissed, [2014] S.C.C.A. No. 32, at paras. 41 and 42, the application judge said, at para. 54:In my view, Article 12 is not a true shotgun buy-out provision because it cannot be used to initiate a sale of shares against an unwilling vendor. However, once the offer is accepted, this provision does operate in a similar manner insofar as the offeror vendor cannot withdraw from the transaction unilaterally. [49] As outlined above, Article 8.2 requires that, before a shareholder enters into any discussions with a third party about the purchase and sale of any shares, it must provide notice to all other shareholders of its intention to sell. There is no corresponding obligation on the Corporation to buy those shares. The Corporation may choose not to buy those shares, and the shares may be sold to other shareholders, who may also decline the offer. In this eventuality, the shareholder may sell the shares to a third party: Articles 8.2-8.4.
[50] As can be seen, there is little that is compulsory about this procedure, not at least until the Corporation or other shareholders elect to purchase the offered shares. Built into the buy-sell mechanism are a number of exit ramps, including where the Corporation declines to purchase the shares, and where other shareholders do the same. At this juncture, the offering shareholder may decide to sell to a third party, or they may have a change of heart and retain their shares.
[51] In my view, Article 8.2 creates a mechanism akin to a right of first refusal, giving rise to a new contractual arrangement built on an offer to sell (by Mr. Warwick) and the acceptance of that offer (by the Corporation or other shareholders). The application judge said that Leeder “effectively had a right of first refusal under Article 8.2 of the Shareholders’ Agreement”: para. 46. Indeed, Article 8 is entitled “Rights of First Consideration”, a relevant factor in the interpretation of these contractual provisions.
[52] The essential aspect of a right of first refusal is “a commitment by the grantor to give the grantee the first chance to purchase should the grantor decide to sell. This commitment may be structured in a variety of ways”: Paul M. Perell, “Options, Rights of Repurchase and Rights of First Refusal as Contracts and as Interests in Land” (1991) 70 Can. Bar Rev. 1, at p. 8 (emphasis added); Mitsui & Co. (Canada) Ltd. v. Royal Bank of Canada, 1995 CanLII 87 (SCC), [1995] 2 S.C.R. 187 at p. 200.
[53] The authors of Canadian Contract Law identify a right of first refusal as a type of option contract. They state, at §4.120:An option contract is a contract like any other. The typical arrangement is that the optionor, i.e., the person giving the option, agrees with the optionee, i.e., the person who may want to exercise that option, to sell property, often real property or shares, to the optionee in return for a payment by the optionee. Options may take other forms; a right of first refusal, for example, is an option to buy property at the price and on the conditions fixed by the offer the optionor has received from a third party. [Footnotes omitted.] [54] In this case, the triggering of the buy-sell mechanism by the selling shareholders did not force a sale, as the shotgun clause did in Blackmore. Instead, the buy-sell mechanism required an acceptance of the seller’s offer by the Corporation (or by other shareholders), and in this way the mechanism differed fundamentally from the shotgun clause in Blackmore. It was the fact that the buy-sell mechanism required both offer and acceptance that caused it to give rise to a standalone contract. In my respectful view, it was therefore an error to characterize the buy-sell mechanism in this case by relying on the analysis of the shotgun clause in Blackmore.
[55] That the buy-sell mechanism must give rise to a standalone contract is also illustrated by the scenario involving a potential sale to a third party. By definition, a third party purchaser is not a party to the USA. Any such sale would undoubtedly involve a separate contract. In oral argument, the appellants submit that this situation is just “different” and inconsequential. They relied on Sail Labrador to illustrate the following distinction. On the one hand, a third party sale would require an offer and an acceptance, thus giving rise to a contract. By contrast, a sale from one shareholder to another would simply follow the process laid out within the existing USA. I would not accept this submission.
[56] The process in the USA required shareholders wishing to sell their shares to make an offer that the Corporation could accept or reject, and subsequently, another shareholder could either accept or reject. The offer, if accepted, created an agreement that the transaction would be completed through compliance with Article 12. The presence of the opportunity for the Corporation or another shareholder to accept - or reject - the offer, and, subsequent to rejection by both, for the offeror to retain their shares, meant that the buy-sell mechanism would give rise to a contract in the same way that sale to a third party would inevitably require the creation of a contract.
[57] In this case, reading the relevant provisions in the context of the USA as a whole, there is no basis on which to characterize a sale between shareholders and a sale between a shareholder and a third party in such fundamentally different ways. This approach would mean that some share-purchases (i.e., to the Corporation or other shareholders) would not constitute standalone transactions, and would not be capable of repudiation, whereas others (to third parties) would. I would reject this interpretation.
[58] In conclusion, the agreement to sell Mr. Warwick’s shares was a standalone agreement that arose from and incorporated terms of the USA – specifically, those laying out the valuation procedure under Article 12. As a standalone agreement, it was capable of being repudiated. . Leeder Automotive Inc. v. Warwick
In Leeder Automotive Inc. v. Warwick (Ont CA, 2023) the Court of Appeal considered (and dismissed) an appeal of an issue of repudiation of a share-sale provision, itself an option under a unanimous shareholder's agreement (USA) - here being a condition that a fresh evaluation conducted by an agreed upon "independent business valuator" be conducted upon share sale:[64] It was open to the application judge to find that the failure to obtain an independent appraisal of the Corporation’s real estate holdings was a repudiatory breach of the share-purchase agreement. Afterall, Leeder’s real estate holdings were an essential component of the Corporation’s value, and the value of its shares. The point of Article 12 was to generate the fair market value of the company based in part on a fair value for these holdings. Bypassing the requirements put in place to generate a fair value would therefore undermine the purpose of this article altogether.
[65] A similar analysis applies to Leeder’s attempts to undo the application judge’s findings in relation to the BDO valuation. As noted above, Article 12.1 requires that the accountants or auditors “shall use generally accepted accounting principles applied on a basis consistent with those used in the preceding fiscal year”. As noted above, when draft financial statements were sent to Mr. Leeder, BDO wrote: “Paragraph 12.1 requires GAAP financial statements, being a Review of Audit Engagement. The draft financials are a Notice to Reader engagement only and are not GAAP” (emphasis added). This draft included the TDI Settlement. Subsequent statements excluded the TDI Settlement. The application judge concluded that this exclusion must have been on the basis of Mr. Leeder’s instructions. This conclusion was reasonable.
[66] On appeal, Leeder submits that Article 12.1 did not require formal compliance with GAAP. Something short of GAAP was permitted, based on the language “applied on a basis consistent with those used in the preceding fiscal year”. This amounts to the proposition that, in 2003, the shareholders intended that, down the road, the exchange of potentially millions of dollars’ worth of shares would proceed on a ‘GAAP-lite’ basis: without properly audited statements that were instead based on the advice of management. This is an untenable interpretation of Article 12. The provision could not be any clearer. This is undoubtedly why BDO was cautious to alert readers of the statements that they were not prepared according to GAAP. This was a sufficient basis for the application judge to find that Article 12.1 had been infringed. There is no basis to set aside this finding.
F. CONCLUSION
[67] As I have explained, the share-purchase agreement was a separate contract, which Leeder repudiated by failing to comply with the valuation provisions of the USA. Mr. Warwick accepted the repudiation. Consequently, there is no basis to force Mr. Warwick to sell his shares. I would dismiss the appeal. . Will v. Geo. A. Kelson Company Limited
In Will v. Geo. A. Kelson Company Limited (Ont CA, 2023) the Court of Appeal considered law of contract repudiation:[23] She correctly noted that repudiation occurs where one party, by words or conduct, shows 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. The conduct must deprive the innocent party of substantially the whole benefit intended under the contract: Hunter Engineering Co. v. Syncrude Canada Ltd., 1989 CanLII 129 (SCC), [1989] 1 S.C.R. 426, at pp. 499-500.
[24] We note that the failure to pay a minor portion of the monies owed does not meet the test for repudiation, as it does not deprive the innocent party of substantially the whole benefit that it was to obtain under the agreement: 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. See also Galt Machining & Plating Inc. v. MLS Group Ltd., 2022 ONCA 546, at para. 14. (By contrast, Cosolo v. Geo. A. Kelson Limited, 2017 ONSC 4150, aff’d 2018 ONCA 318, cited by Mr. Will, is distinguishable as in that case, unlike this one, Kelson refused to continue to pay both the principal and the interest such that the contract was found to have been repudiated.)
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