Legal Blog

Repudiation

As we have stated previously (see newsletters of October 1999 and February 2000), a party repudiates a contract when it evinces an intention not to be bound by it. The test is objective. Just as for fundamental breach, the court must ask whether the breach deprives the innocent party of substantially the whole benefit of the contract. A simple breach of contract is not necessarily a repudiation of the contract.

Contrary to the concept of rescission, repudiation requires the non-repudiating party to make an election. If that party treats the contract as being in full force and effect, the contract remains in force for both parties. If it accepts the repudiation, the contract is terminated and the non-repudiating party can sue for damages for failure to receive its benefits under the contract. This is exactly what a law firm’s client expected in Miller, Canfield, Paddock and Stone v. BDO Dunwoody LLP 2016 ONCA 281.

Retainer

The client and the law firm entered into a contingency agreement. Under the agreement, the firm agreed to act on behalf of the client “in any and all proceedings.” The agreement also contained a provision entitling the client to “cancel“ the firm’s services, with or without cause, but, in that case, was liable to pay the value of all services rendered to the termination. The agreement set out the methodology to value those services.

Dispute

A decision was rendered in the proceedings, but the unsuccessful party (we are unsure who it was) appealed. The client wanted the firm to pay appeal counsel and the firm refused.

The client took the position that the firm repudiated the agreement by refusing to accept responsibility to pay appeal counsel. The client then accepted that repudiation and directed the firm to take no further steps on its behalf. If its position were justified, then the client fully expected to pay nothing for the services that the firm rendered pursuant to the agreement.

The law firm rendered an account for $428,000 for the services it had rendered, an amount properly quantified in accordance with the agreement. The firm brought an action for payment of the account. The client brought a summary judgment motion to dismiss the action and the firm brought a cross-motion for judgment.

Appeal

The motions judge held that the firm had breached the agreement, the breach was a repudiation of the agreement, and the client properly accepted the breach. The motions judge also held that the termination was not a cancellation of the firm’s services, within the meaning of the agreement; rather, the agreement was simply terminated in its entirety.

The Court of Appeal disagreed. Without deciding whether the firm’s position in the dispute amounted to a breach of the agreement, it held that the direction from the client to take no further steps meant that the client cancelled the firm’s services pursuant to the termination provisions of the agreement. Accordingly, by the very terms of the agreement, the client became liable to pay for the firm’s services rendered to the date of the cancellation. The Court awarded judgment for the agreed upon amount of $428,000.

Moral

The firm was successful because the agreement contemplated that the firm and the client might have a dispute that resulted in the client no longer wishing to retain the firm’s services. Without those termination provisions, the firm would have received nothing. With the provisions, the firm may not have received everything it would have received if successful in the action, but at least it received some payment for its services. The moral of the story is obvious.

Image courtesy of caprisco.

Written by Jonathan Speigel Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.