|
Contracts - Anticipatory Repudiation (4). Eyelet Investment Corp. v. Zhou
In Eyelet Investment Corp. v. Zhou (Ont CA, 2026) the Ontario Court of Appeal dismisses a plaintiff-developer's breached APS appeal, this brought against orders which "dismissed the appellant’s motion for summary judgment and dismissed the claim on the basis that the appellant had failed to mitigate its damages".
Here the court considers recognized practice in anticipatory repudiation situations:[2] The respondent agreed to buy a home in a development built by the appellant for $1,680,151.38 and paid deposits amounting to $127,500. The scheduled closing date was September 28, 2017. On September 11, 2017, the respondent’s counsel told counsel for the appellant that the respondent was terminating the agreement of purchase and sale (the “APS”). The appellant advised that it would treat the termination as an anticipatory breach and take steps to mitigate its damages. .... . 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.)
|
