Mar 11, 2019

A breach of contract that deprives the innocent party of "substantially the whole benefit of the contract" gives the innocent party the option to terminate the contract and discharge the parties from future obligations, the Alberta Court of Appeal recently reminded us in Booster Juice Inc v West Edmonton Mall Property Inc, 2019 ABCA 58 [Booster Juice]. Normally a breach of contract only gives rise to the right to seek damages or an order enforcing compliance with the contract.

In Booster Juice, West Edmonton Mall Property Inc. (WEM) leased a kiosk to Booster Juice Inc. (Booster Juice) in West Edmonton Mall. After a successful run, the parties entered into a second lease for another kiosk in a different area of the mall. The relationship between the parties deteriorated, resulting in litigation. At trial, the Court of Queen's Bench found that both parties acted contrary to the second lease—Booster Juice failed to pay rent owed under the lease, while WEM breached the lease by unilaterally changing the location and orientation of the second kiosk.

The Court of Appeal affirmed the lower Court's ruling, focusing on WEM's breach as being "repudiatory". As the Court stated, "[i]t is well established that the innocent party to a breach of contract may be entitled to treat the breach as repudiatory where the breach is fundamental, because it deprives that party of substantially the whole benefit of the contract." There was no palpable and overriding error in the trial judge's finding that the "overall location and configuration" of the kiosk was "fundamental", and that WEM's "unilateral alteration of the agreed location" to a different spot with lower "traffic flow and with a different directional orientation" deprived Booster Juice of "substantially the whole benefit of the contract."

The Court of Appeal affirmed that "[w]here a repudiatory breach has occurred, '[i]f the other party accepts the repudiation, the contract is terminated, and the parties are discharged from future obligations.'" While acceptance of repudiation is "usually done by communicating the decision to terminate [to] the party in default," acceptance can also be accomplished by an "unequivocal overt act which is inconsistent with the subsistence of the contract." In particular, "there may be circumstances in which a continuing failure to perform will be sufficiently unequivocal to constitute acceptance of a repudiation." While WEM argued that Booster Juice never accepted its repudiation of the second lease, the Court of Appeal upheld the trial judge's finding that it did. Booster Juice "conducted itself in a manner inconsistent with its obligations under the contract…which was sufficiently unequivocal to constitute acceptance of the appellant's repudiation" by:

  1. failing to commence construction at the second kiosk as requested by WEM;
  2. raising the issue of the new location and orientation with WEM; and
  3. continuing to fail to pay rent or arrears for the second location.

Palpable and overriding error with respect to acceptance of the repudiation was not made out. As such, the parties were discharged from future obligations under the contract as of the date of acceptance, and as a consequence, WEM was not entitled to damages after this date.

Booster Juice is a good reminder that not all breaches of contract are created equal. Where a breach is severe enough, the innocent party should consider whether it is repudiatory. If a repudiatory breach is established and accepted, obligations under the contract will be terminated and other claims for breach of contract may be affected.