Ontario Court of Appeal Reminds Contracting Parties of their Options upon Contract Repudiation

2 August 2019

By Michael Bookman

In its recent decision Hurst v. Hancock1, the Court of Appeal for Ontario reminds contracting parties of their options when faced with an anticipatory breach of contract or repudiation.  When one contracting party repudiates its contractual obligations, the other contracting party may accept the repudiation and sue or it may wait until performance of the contract is due and fails to materialize before bringing a claim. This choice featured prominently in the underlying issues on the appeal.  

Background: Craig Hurst was an employee of the respondent Darwin Productions Inc. (“Darwin”). Hurst consulted a law firm when he was not paid extra salary he claimed was owed along with an ownership stake in Darwin.

Hurst’s legal counsel wrote to Darwin demanding that his compensation be paid, in accordance with the alleged agreement between them. Darwin refused. Hurst sued more than two years after the law firm’s initial correspondence with Darwin and after Darwin declined to acknowledge the terms of their agreement. Darwin moved for summary judgment, claiming that Hurst’s claim was statute-barred by the Limitations Act, 2002, S.O. 2002, c. 24, [Sch.] B.

Hurst commenced an action against his law firm for negligence in failing to advise him of the limitations period for his claim. His law firm was permitted to intervene on the summary judgment motion related to Hurst’s action, because if the claim against Darwin was dismissed as statute-barred, Hurst would rely on that finding as the basis to claim against his law firm.

The motion judge granted the summary judgment motion, dismissing Hurst’s claim against Darwin as statute-barred. Hurst did not appeal this decision. However, his legal counsel appealed the motion judge’s decision to dismiss Hurst’s claim.

The Appeal: On appeal, Hurst’s law firm argued that when Darwin responded to the initial demand letter, it was providing notice that it intended to breach the agreement and would not pay any remaining salary. At that point, the appellant argued, Hurst had options. Hurst could have accepted Darwin’s repudiation and sued. Or, he could have chosen to wait until the performance was due and, when Darwin failed to pay him, sue for breach of contract. If Hurst had accepted the repudiation when Darwin said it would not be paying Hurst any further amounts, the limitations period would have begun to run from the time of his acceptance. 

Hurst’s law firm argued that the motions judge did not consider that Hurst had these legal options and therefore erred in dismissing the claim.

The Court of Appeal agreed. It held that the motions judge failed to address the legal argument that, in the circumstances, Hurst could have accepted Darwin’s repudiation or waited until it failed to perform its obligations. 

The Takeaway: The Court of Appeal’s decision provides important guidance for contracting parties who find themselves in the circumstances of an anticipatory breach or repudiation. The decision to accept repudiation has consequences for how and when limitations periods may begin to run.

1 2019 ONCA 483.

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