What is the standard of review of a finding as to whether or not a party has repudiated a settlement agreement? The Ontario Court of Appeal answered this important question in Remedy Drug Store Co. Inc. v. Farnham, released August 19, 2015. In overview, the Court held that a “blended” standard is appropriate, reflecting the fact that the test for repudiation is a question of law, but whether a party repudiated a settlement agreement is a question of fact. Here, the decision was reviewable on a correctness standard because the judge had misstated the law and it was “not a minor” misstatement.

The Background Facts

The case emerged from duelling claims brought by the parties after the appellant, just before departing from employment with the respondent, forwarded a large number of emails to her personal computer, and allegedly took confidential information with her. The parties entered into discussions to resolve their claims. Both parties submitted that they had settled the claims but disputed what the terms of that settlement were. The appellant also alleged that the respondent had repudiated the settlement agreement. On the respondent’s motion to enforce the settlement agreement, the judge found that the claims were settled on the terms proposed by the appellant but that the respondent had not repudiated the agreement.

The Standard of Review

Justice Epstein, on behalf of a unanimous Court, addressed the standard of review issue as follows:

[59]     The question of whether a party repudiated an agreement is a question of fact, but whether the motion judge applied the proper legal test in determining whether there was a repudiation is a question of law. Therefore, in the typical case, a blended standard of review applies.

[60]     As explained by Saunders J.A. of the Nova Scotia Court of Appeal in [White v. E.B.F. Manufacturing Ltd., 2005 NSCA 167], at para. 60:

[T]here are mixed standards of review to be applied. When deciding, as he did, that the License Agreement had not been repudiated, the trial judge was obliged to apply proper legal principles. In that sense the standard for our review on appeal, to that segment of his decision making, is one of correctness. However, in arriving at that conclusion he was also obliged to carefully consider the evidence and make certain key findings. Such findings are reviewable on a palpable and overriding error basis […]

[61]     In my view, the motion judge’s decision is reviewable on a correctness standard because he did not articulate the correct legal principles. Specifically, at para. 46, he wrote:

Although I have ultimately disagreed with the position taken by [the respondent] with respect to the terms of the settlement agreement, it cannot be said that [the respondent’s] position was so patently unreasonable as to evidence an insistence upon terms and conditions which could not possibly have been reasonably implied in the circumstances.

[62]     Here, the motion judge fell into error. The test for anticipatory repudiation is not, as the motion judge expressed it, whether the breaching party’s position was so “patently unreasonable as to evidence an insistence upon terms and conditions which could not possibly have been reasonably implied in the circumstances.” With respect, reasonableness has nothing to do with it. As I have already discussed, the correct analysis focuses on what the purported breaching party’s conduct says about its objective intention in relation to future performance of the contract. And this was not a minor misstatement as this error appears to lie at the heart of the motion judge’s analysis.

Despite this correctness review, Justice Epstein went on to conclude that the respondent had not repudiated the settlement agreement as “a ‘reasonable person’ would not conclude that [the respondent] no longer intended to be bound by the settlement agreement” (para. 64).