Date: Tue, 8 Jan 2008 14:20

From: David Cheifetz

Subject: New SCC case on Contract

Dear Jason,

To be entirely fair to Laskin JA, the doctrine you're referring comes from an earlier Ontario CA decision which Laskin JA didn't write, at least according to whom the prior reasons are attributed. He was "just" part of the panel and the reasons aren't "by the Court". So maybe he shouldn't be held to be entirely to blame. Laskin JA did cite (accurately, I believe) the prior case, in Jedfro, as the basis for the doctrine you've quoted.

And, as you know, the Ontario CA claimed, in that earlier case, that that doctrine was the view of a certain Canadian professor of law and writer of contract texts (whose name all of us here would recognize - it starts with W) and who has (according to the Ontario CA) written that the key question is whether there was "substantial failure of performance" by the party allegedly in breach and that W "proposes five factors derived from the jurisprudence to measure whether future performance under a contract should be excused".

What Laskin JA wrote in the Ontario CA's Jedfro - was

[11] I do not accept this submission. Where parties act in a way that shows they do not intend to comply with or be bound by the terms of their written agreement, one party cannot later come to court and ask to have the agreement enforced for its benefit. Enforcing the written agreement in these circumstances would be contrary to the intention of the parties, as evidenced by their conduct. See Shelanu Inc. v. Print Three Franchising Corp. 2003 CanLII 52151 (ON C.A.), (2003), 226 D.L.R. (4th) 577 at 595-6 (Ont. C.A.).

[12] Although the trial judge did not expressly articulate this legal principle, the tenor of her analysis shows, in substance, that she applied that principle to deny the appellants’ relief. In my view, she made no error in doing so. I therefore would not give effect to the appellants’ main ground of appeal.

I think it's correct to say that the quotation from Jedfro accurately summarizes what the Ontario CA said Ontario law was in Shelanu. (The comments amounted to obiter in Shelanu because the Court went on to say that the facts didn't invoke that principle.)

One could correctly, say, too, that Shelanu states that it applies (and probably does apply) an earlier Ontario CA decision which Laskin JA was not part of. The reasons in the earlier case are attributed to the same judge as the Shelanu reasons.

The relevant part of what the Ontario CA had written in Shelanu - starts at para 118 - and the key parts, for present purposes are paras 118 and 119.

[118] Professor Waddams addresses the variety of expressions that have been used to define the sort of breach that will excuse a party from further performance under a contract in his text: Waddams, supra at para. 583. Waddams says that behind all of these expressions lies a single notion, that of substantial failure of performance. Irrespective of the expression used, he proposes five factors derived from the jurisprudence to measure whether future performance under a contract should be excused at para. 587. In 968703 Ontario Ltd. v. Vernon 2002 CanLII 35158 (ON C.A.), (2002), 58 O.R. (3d) 215 (C.A.) this court, after referring to the decisions in Robson, supra, and Bayer, supra, adopted and applied the factors suggested by Waddams to measure whether future performance should be excused. They are: (a) the ratio of the party’s obligation not performed to the obligation as a whole; (b) the seriousness of the breach to the innocent party; (c) the likelihood of repetition of such breach; (d) the seriousness of the consequences of the breach; and (e) the relationship of the part of the obligation performed to the whole obligation. Applying those factors to the breaches by Print Three in this case would not lead to the conclusion that Shelanu should be excused from further performance of its obligations.

[119] Applying Waddams’ guidelines in this case would not lead to the conclusion that Shelanu should be excused from future performance. The first and fifth factors appear to be aimed at helping a court to ascertain whether the contract was substantially performed. See Fairbanks Soap Co. v. Sheppard, [1953] 2 D.L.R. 193 (S.C.C.). The crux of the agreement between Print Three and Shelanu was the licence to use Print Three’s name and trademark in exchange for royalty payments and its exclusive territory. Print Three did not revoke or undermine Shelanu’s licence to use Print Three’s name and trademark and Shelanu continued to use them. In return, Shelanu was obligated to make royalty payments which it did. Over the ten years of the franchise agreement, Print Three also paid Shelanu the majority of its royalty rebates. I would also disagree that Print Three evinced an intention to no longer be bound by the agreement as a whole although it certainly refused to be bound by parts of it. Print Three did not place another franchisee in Shelanu’s territory until after Shelanu’s franchise agreement had expired. Shelanu was not deprived of substantially the whole of the benefit of its agreement with Print Three.

And, kidding aside, you might be overstating what the SCC intended to say in Jedfro. The SCC may not have intended to overrule the Shelanu doctrine at all but merely to say that the facts didn't trigger it. The Jedfro headnote - an accurate summary here - on this point is:

While the parties may have ignored the joint venture agreement, the obligations under it remained in effect as none of the ways in which a contract can be discharged is established on the facts. There was no discharge by agreement because the parties never reached a new agreement to terminate the joint venture agreement. Similarly, abandonment discharges a contract only if it amounts to a new contract in which the parties agree to abandon the old one; ignoring a contract does not establish a new contract to terminate the old contract. Nor was it established that the parties had elected to treat the breach as ending the joint venture agreement. [16-17][22-23][28]

I think a strong argument can be made that what's said in paras 16-28 of the reasons supports the conclusion that the SCC didn't intend to eviscerate anything except the argument that the facts triggered the application of the Shelanu doctrine. If that's correct, then Jedfro could be seen as an affirmation of the doctrine, since the SCC chose not to comment on it unfavourably. And the SCC does not say Laskin' JA's statement of law was wrong. Actually, something in the reasons can be seen as support for the proposition. For example, paras. 18, 19, 23 and 28 of the SCC reasons are:

[18] While both the trial and appeal courts referred saliently to the intention of the parties not to be bound by the joint venture agreement after the crisis precipitated by Air Products’ call for payment, the Court of Appeal per Laskin J.A. expressed the view that the principles in Shelanu Inc. v. Print Three Franchising Corp. (2003), 64 O.R. (3d) 533 (C.A.), meant the parties’ obligations under the contract had come to an end.

[19]  The facts, however, do not support a finding of the consensus necessary for a new contract, as discussed above.  Therefore the finding of the trial judge that none of the parties acted as though they were bound by the joint venture agreement after the note was called does not end the obligations under that agreement.

[23] In summary, none of the ways in which a contract can be discharged is established on the facts in this case. I therefore conclude that it has not been established that the joint venture agreement came to an end. We must therefore proceed on the basis that the joint venture agreement was not terminated and remained in force.

[28] I conclude that while the parties may have ignored the joint venture agreement, the obligations under it remained in effect and were not breached by the respondents.

So, as much as I'd like to agree with you, I don't think I can.

Best regards and Happy New Year

----- Original Message ----
From: Jason Neyers
Sent: Monday, January 7, 2008 4:42:14 PM
Subject: New SCC case on Contract

Dear Colleagues:

Some of you might be interested in the SCC's decision in Jedfro Investments (U.S.A.) Ltd. v. Jacyk which was released stealthily on December 20th. It is interesting mainly because it eviscerates a radical doctrine created by Laskin JA in the Court of Appeal as follows:

Where parties act in a way that shows they do not intend to comply with or be bound by the terms of their written agreement, one party cannot later come to court and ask to have the agreement enforced for its benefit. Enforcing the written agreement in these circumstances would be contrary to the intention of the parties, as evidenced by their conduct.

Happy New Year!

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