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“Breaching a contract and repudiating a contract are not the same.”

The Ontario Superior Court of Justice was between a townhouse developer, Islington Chauncey Residences Corp., and their contracted construction manager, Sundance Development Corporation.

Islington claimed Sundance had breached the contract when they walked off the project, while the manager countered that the developer had repudiated the contract.

This was a project beset with complications and acrimony. Construction had commenced in July 2019 but was delayed by the COVID-19 pandemic. By September 2020, two model units had yet to be completed. Shortly after, Sundance’s site superintendent gave notice and left the company. Islington did not approve of Sundance’s replacement. The position remained vacant for a few weeks.

Islington then took it upon itself to engage their own replacement, who began to directly co-ordinate the various trades.  Sundance took the position that this change in site management excluded them. Islington maintained the new site manager was simply there to assist getting the model suites complete and work toward a transition in construction management as per the parties’ agreement.

Conversations took place between Islington and Sundance about mutually agreeing to terminate their agreement, but no resolution was reached. Islington then submitted to Sundance a list outlining a number of alleged damages caused by Sundance’s delay and mismanagement and said Sundance had breached their contract. Sundance replied, claiming Islington had repudiated the contract and submitted its own list of payment claims.

The court noted in its ruling, “The Supreme Court of Canada has observed that ordinary, non-repudiatory breach is consistent with ignoring the terms of an agreement, but that more is required to establish repudiation. For a contract to have been repudiated, the repudiating party must have acted in a manner showing an intention not to be bound by the contract.”

The court further noted, “A breach giving rise to repudiation must be serious. It must deprive the innocent party of substantially the whole benefit of the contract. For that reason, repudiation is generally viewed as an exceptional remedy. It allows the non-repudiating party to elect to put an end to all unperformed obligations under a contract. It is thereby only available in circumstances where the entire foundation of the contract has been undermined, namely where the very thing bargained for has not been provided.”

The court ultimately ruled Islington did not repudiate the contract with Sundance. There was no objective evidence to support claims by Sundance that they were excluded from participating with the new site manager, or that Sundance’s work was materially impeded.

“Repudiation is assessed on an objective standard,” the court wrote. “A party can repudiate a contract without subjectively intending to do so. The court must ask whether a reasonable person would conclude that the breaching party no longer intends to be bound by the contract, which requires considering the surrounding circumstances.”

Based on the evidence of the circumstances, the court ruled that, in fact, it was Sundance that had breached the contact by withdrawing its services and by making demands for payment to which it was not entitled as a precondition for their return to the site.

Furthermore, Islington was ruled to be within its rights to direct Sundance to co-operate with site management. There was what the court called “hard bargaining” during discussions between the two parties, but this did not amount to “repudiatory conduct.”

In their of this case, James Little, partner with Singleton Reynolds LLP, and associates Nicholas Reynolds and Kathryn Irwin write, “This decision confirms just how necessary objective evidence is when showing repudiation. Subjective impressions are not relevant to the analysis.”

They further note that a failed claim of repudiation is a “high risk manoeuvre” that could result in significant damages being awarded to the claimant.

“Where the contractual relationship has become highly acrimonious, parties would be best served by confirming their rights and obligations under the relevant agreement(s) and, if necessary, consulting a lawyer.”

John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com