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Contract - Anticipatory Repudiation II

. Ching v. Pier 27 Toronto Inc.

In Ching v. Pier 27 Toronto Inc. (Ont CA, 2021) the Court of Appeal usefully considered principle of repudiation:
[31] In considering the issue of repudiation, it is helpful to address the governing principles.

[32] As noted by Cronk J.A. in Brown v. Belleville (City), 2013 ONCA 148, 114 O.R. (3d) 561, at para. 42, a repudiatory breach does not, in itself, terminate the contract. If the non-repudiating or innocent party[3] does not accept the repudiation, then the repudiation has no legal effect. In his text, The Law of Contract in Canada, 6th ed. (Toronto: Carswell, 2011), Professor Gerald Fridman explains as follows, at p. 595:
From the time that this kind of termination was recognized, it was accepted that there could be no such thing as unilateral repudiation. Just as the making of a contract requires the joint participation of both parties, an offeror and an acceptor, so the discharge of a contract, even where the discharge is by repudiation, in advance of the time for performance, also requires the conformity and acquiescence of both parties. [Emphasis in original.]
[33] Accordingly, the consequences of a repudiation are stated to depend on the election made by the innocent party. If the innocent party accepts the repudiation, the contract is terminated (sometimes referred to as disaffirmation). Alternatively, the innocent party may treat the contract as subsisting (sometimes referred to as affirmation). See Guarantee Co. of North America v. Gordon Capital Corp., 1999 CanLII 664 (SCC), [1999] 3 S.C.R. 423, at para. 40.

(i) Disaffirmation (Acceptance of the Repudiation of a Contract)

[34] In Brown, at para. 45, Cronk J.A. explained that:
[T]he 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. [Citation omitted.]
[35] Thus, the acceptance of the repudiation must be clearly and unequivocally communicated. That communication must be within a reasonable time. And, the communication may be express or inferred from conduct. The contract is terminated if the innocent party accepts the repudiation.

(ii) Affirmation (Treating the Contract as Subsisting)

[36] A failure to accept a repudiation does not necessarily mean that the innocent party has affirmed the contract. As with disaffirmation, the affirmation may be express or inferred from conduct. A party who “presses for performance” will be found to have affirmed the contract: Ali, at para. 24. The test is an objective one – what would a repudiating party reasonably understand from the words or conduct of the innocent party. For instance, in Dosanjh v. Liang, 2015 BCCA 18, 380 D.L.R. (4th) 137, Mr. Dosanjh’s lawyer sent a letter that Mr. Dosanjh was “ready, willing and able” to complete the transaction on the scheduled date. The British Columbia Court of Appeal noted that the letter was not consistent with an acceptance of repudiation, and the court concluded that Mr. Dosanjh had made an election to affirm the contract.

[37] The court in Dosanjh also stated that “[a] court will not find that an innocent party has affirmed a contract in the absence of clear evidence leading it to that conclusion”: at para. 35 (emphasis added). This is the flip side of the rule that the election to disaffirm a contract must be clear and unequivocal. However, what then does a court do if the innocent party does not clearly disaffirm the contract and does not clearly affirm the contract? This question is particularly vexing given that, as discussed, a repudiation does not terminate the contract. In my view, rather than asking whether the evidence is “clear”, the proper question to ask is whether, in the circumstances of the case, a person in the shoes of the repudiating party reasonably would have understood that the innocent party was electing to keep the contract alive until the date of performance.

[38] This approach is also consistent with the Supreme Court’s commentary in Gordon Capital. In that case, the court suggests that something less than actively “pressing for performance” may amount to affirmation of the contract. At para. 40, the court notes that “[i]f [the innocent party] treats the contract as still being in full force and effect, the contract ‘remains in being for the future on both sides’” (emphasis added). I read this as saying that conduct consistent with the contract still being in force may amount to affirmation, whether or not it can be said that the innocent party actively pressed for performance.

(iii) The Middle Way

[39] An innocent party need not make its election immediately and may be given a reasonable period of time to decide whether to affirm the contract or accept the repudiation: Dosanjh, at para. 37; Abraham v. Coblenz Holdings Ltd., 2013 BCCA 512, 53 B.C.L.R. (5th) 94, at para. 28; and Canada Egg Products Ltd. v. Canadian Doughnut Co. Ltd., 1955 CanLII 90 (SCC), [1955] S.C.R. 398, at p. 407. As stated in Dosanjh, at para. 37, “at least until that reasonable period of time has elapsed, a court should be slow to treat equivocal statements or acts as affirmations of the contract.”

[40] A leading text (Hugh Beale, ed., Chitty on Contracts, 33rd ed. (London, UK: Sweet & Maxwell, 2018)) puts it this way, at para. 24-002:
There is a sense in which there is a middle way open to the innocent party in that he is given a period of time in which to make up his mind whether he is going to affirm the contract or terminate. This point was well-expressed by Rix L.J. in Stocznia Gdanska SA v. Latvian Shipping Co. (No. 2) when he stated: “In my judgment, there is of course a middle ground between acceptance of repudiation and affirmation of the contract, and that is the period when the innocent party is making up his mind what to do. If he does nothing for too long, there may come a time when the law will treat him as having affirmed. If he maintains the contract in being for the moment, while reserving his right to treat it as repudiated if his contract partner persists in his repudiation, then he has not yet elected. As long as the contract remains alive, the innocent party runs the risk that a merely anticipatory repudiatory breach, a thing ‘writ in water’ until acceptance, can be overtaken by another event which prejudices the innocent party’s rights under the contract—such as frustration or even his own breach. He also runs the risk, if that is the right word, that the party in repudiation will resume performance of the contract and thus end any continuing right in the innocent party to elect to accept the former repudiation as terminating the contract.” [Citations omitted.]
[41] Depending on the circumstances, inaction may be read either as a failure to elect or affirmation of the contract. For instance, in his text, The Law of Contracts, 2nd ed. (Toronto: Irwin Law, 2012), Professor John D. McCamus states, at pp. 703-4:
[A] mere failure to communicate an election to disaffirm to the repudiating party will not preclude a subsequent election to disaffirm unless the passage of time has resulted in significant prejudice to the repudiating party or, in the circumstances, the silence of the innocent party is reasonably interpreted as evidence of a decision to affirm the agreement.


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