Anticipatory breach

Ontario: Court of Appeal on the limitation of aniticatory breach actions

In Fram Elgin Mills 90 Inc. V Romandale Farms Limited, the Court of Appeal summarised the limitation of anticipatory breach actions:

[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.

Ontario: Court of Appeal on the limitation of anticipatory breach claims

The Court of Appeal decision in Glen Schnarr & Associates Inc. v. Vector (Georgetown) Limited summarises the principles of the limitation of claims arising from the anticipatory repudiation of a contract:

[29]      Anticipatory repudiation occurs when a contracting party, “by express language or conduct, or as a matter of implication from what he has said or done, repudiates his contractual obligations before they fall due”: G.H.L. Fridman, The Law of Contract in Canada, 6th ed. (Toronto: Carswell, 2011), at p. 585. The parties concede that LDGL by its correspondence of October 2004 did just that.

 [30]      However, an anticipatory repudiation of a contract does not, in itself, terminate or discharge a contract; it depends on the election made by the non-repudiating party: Guarantee Co. of North America v. Gordon Capital Corp., 1999 CanLII 664 (SCC), [1999] 3 S.C.R. 423, at p. 440; Brown v. Belleville (City), 2013 ONCA 148, 114 O.R. (3d) 561, at para. 42. As Cronk J.A. stated in the latter decision at para. 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. [Emphasis added.]

[31]      In Chitty on Contracts, 28th ed. (London: Sweet and Maxwell, 1999), Vol. 1, at p. 25-012, the authors write:

 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.”

[32]      This commentary was accepted by this court in Brown v. Belleville, at para. 48, and by the Nova Scotia Court of Appeal in White v. E.B.F. Manufacturing Ltd., 2005 NSCA 167, 239 N.S.R. (2d) 270, at para. 91.

 [33]      The limitation period then depends on the election that is made in response to an anticipatory repudiation: Ali v. O-Two Medical Technologies Inc., 2013 ONCA 733, 118 O.R. (3d) 321, at para. 22-27; Hurst v. Hancock, 2019 ONCA 483, at para. 19.

Ontario: contract repudiation and the commencement of time

 

The Court of Appeal decision in Hurst v. Hancock is a reminder that in a claim arising from anticipatory breach or repudiation of a contract, the limitation period may not commence until performance is due.  There can no be no claim until there is a cause of action, and there will be no cause of action until claimant accepts the breach, or affirms the contract and performance is due.