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Breach of contract

To make out a claim for breach of contract, a plaintiff must show evidence of the following that is sufficiently clear, convincing and cogent:

  1. the existence of a valid contract;
  2. a breach of that contract; and
  3. damages flowing as a consequence of that breach.

This test is assessed on a balance of probabilities.

To determine the severity of a breach and the remedies that flow therefrom, Canadian law distinguishes between two types of contractual terms: conditions and warranties. A 'condition' is a term 'of such vital importance that it goes to the root of the transaction'; warranties are important but non-fundamental terms. The general rule is that a breach of a warranty entitles the innocent party to sue for damages only, whereas a breach of a condition constitutes a 'repudiation' of the contract that the innocent party may elect to accept (and thereby, to treat its obligations under the contract as at an end) in addition to claiming damages. The lexical distinction between conditions and warranties does not dominate the repudiation analysis, however, which asks holistically whether there has been a breach of a 'sufficiently important term of the contract so that there is a substantial failure of performance', that is, whether the innocent party is deprived of something fundamental that it bargained for.

The same framework governs the doctrine of anticipatory breach. An innocent party may accept a repudiation of the contract where the other party, whether by express language or conduct, 'evinces an intention not to be bound by the contract before performance is due'. This question is assessed objectively, querying what a reasonable person would conclude from the breaching party's conduct, and with reference to the overarching question of whether the putative breach would deprive the innocent party of substantially the whole benefit of the contract.

However and whenever an innocent party elects to accept a repudiation, it must promptly, clearly and unequivocally communicate that decision to the breaching party. (The general Canadian practice in such cases is for the innocent party to clearly reserve its right to claim damages.) Where an innocent party does not wish to terminate the contract, by contrast, it may waive its rights to do so. Two cautions must be noted for commercial parties in respect of such waivers, however. First, they often cannot be effectively retracted, in that, where the breaching party proceeds to act in reliance on a clear and unequivocal waiver, Canadian courts will often seek to protect that reliance. Second, where a party has a right to invoke a contractual termination provision but chooses not to do so, that party will oftentimes be held liable for the consequences of their non-action.