The Alberta Court of Queen's Bench, reviewing the decision of an arbitrator had a good discussion of fundamental breach in a contract. In the case of Athan Homes Inc v Phan, 2021 ABQB 119. The Court said at paragraph 44:
....I distill the following elements of fundamental breach of contract from the Arbitrator’s decision:
“[A] breach that allows an innocent party to treat the contract as at an end” must be fundamental. This depends on a “construction of the contract and on the facts and circumstances of the case.”: John Barlot Architect Ltd v 413481 Alberta Ltd, 2013 ABQB 288, citing from Suisse Atlantique Societe v NV Rotterdamsche Kolen Centrale, [1996] 2 All ER 81 (HL).
Five factors are used to assess whether a breach is fundamental:
(a) The ratio of the party’s obligations not performed to that party’s obligations 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;
(e) The relationship of the part of the obligation performed to the whole obligation;
A fundamental breach can arise as a result of a series of breaches; and
If one party fundamentally breaches the contract, this entitles the innocent party to accept this as repudiation of the contract: Cubbon Building Centre Ltd v Gabrysh, 2020 ABQB 219.
The Court went on to review the effect of fundamental breach at paragraph 48:
However, courts in Canada have held that in some circumstances, fundamental breach of contract and repudiation can be distinct concepts. For example, in Mantar Holdings Ltd v 0858370 BC Ltd, 2014 BCCA 361 (Mantar Holdings) the Court stated at para 11:
Although circumstances constituting a fundamental breach of contract may sometimes also constitute a repudiation of the contract, the doctrines of fundamental breach and repudiation are distinct. A fundamental breach of contract occurs where the failure of one of the contracting parties to perform a primary obligation under the contract has the effect of depriving the other party of substantially the whole benefit which the parties intended that the party to receive: see Hunter Engineering Co. v Syncrude Canada Ltd., 1980 CanLII 129 (SCC)... Repudiation occurs where a party to the contract, either by words or conduct, evinces an intention not to be bound by the contract: see Guarantee Co of North America v Gordon Capital Corp, 1999 CanLII 664 (SCC)...
Fundamental breach of contract and its effect can be complicated. If you require advice in this area, please feel free to contact us.
The information contained in this article is not legal advice. No solicitor client relationship is formed through this article. The reader is encouraged to retain counsel for advice in these matters.
