COURT OF APPEAL FOR ONTARIO

CITATION: Remedy Drug Store Co. Inc. v. Farnham, 2015 ONCA 576

DATE: 20150819

DOCKET: C59230

Epstein, Pepall and Benotto JJ.A.

BETWEEN

Remedy Drug Store Co. Inc.

Plaintiff (Respondent)

and

Jane Farnham

Defendant (Appellant)

AND BETWEEN

Jane Farnham

Plaintiff by Counterclaim

(Appellant)

and

Remedy Drug Store Co. Inc. and Bruce Moody

Defendants to the Counterclaim

(Respondents)

Matthew P. Sammon and Paul-Erik Veel, for the appellant

David Chernos, for the respondents

Heard: March 9, 2015

On appeal from the order of Justice Graeme Mew of the Superior Court of Justice, dated July 25, 2014.

Epstein J.A.:

A. overview

[1] On May 8, 2012, the appellant, Jane Farnham, started working for the respondent, Remedy Drug Store Co. Inc., as its General Manager and Executive Vice President. The employment relationship broke down and came to an end on October 28, 2013.

[2] Leading up to her last day at Remedy, Ms. Farnham forwarded a vast number of emails to her personal computer. Further, on her last day of work, Ms. Farnham took home with her a volume of printed documents from Remedy’s premises.

[3] As a result, on November 25, 2013, Remedy commenced an action against Ms. Farnham for an injunction, damages and declaratory relief that Ms. Farnham had breached her employment contract, her fiduciary duties to the company, and her duties of confidentiality. Remedy brought a concurrent motion for interim injunctive relief relating to the confidential information Remedy alleged that Ms. Farnham had taken from it. Ms. Farnham counterclaimed for damages arising out of the breakdown of the employment relationship.

[4] The parties attempted to settle their differences. A dispute arose over whether they reached a settlement agreement and, if so, whether Remedy repudiated the agreement. Remedy took the position that it and Ms. Farnham had an agreement – one that included a term that a broad forensic sweep of Ms. Farnham’s personal electronic devices would be conducted to search for Remedy’s confidential information. Ms. Farnham took the position that there was a settlement agreement but that it contained no such term. According to Ms. Farnham, she only agreed to a simple wipe of her devices of all Remedy information. She did not agree that Remedy would be entitled to perform a forensic search of her personal computer. Ms. Farnham also claimed that Remedy had taken steps that amounted to a repudiation of the agreement.

[5] At Remedy’s request, the motion for an interim injunction was adjourned and subsequently resolved. Remedy then brought a motion to enforce the settlement.

[6] Before the motion judge, success was divided. The motion judge held that the parties had entered into an enforceable settlement agreement on the terms advanced by Ms. Farnham. In other words, the agreement did not contain the forensic sweep term. He then went on to find that Remedy had not repudiated the agreement.

[7] Ms. Farnham appeals. Her primary argument is that the motion judge erred in finding that Remedy did not repudiate the settlement agreement.

[8] For the reasons that follow, I would dismiss the appeal.

B. Background

(1) Confidential Information

[9] As previously noted, on her last day of work with Remedy, Ms. Farnham deleted thousands of emails from her company computer. She also printed off and took various Remedy documents. Prior to that time, she forwarded over 500 emails – many of which contained attachments – to her personal computer. Ms. Farnham said she felt these steps were necessary for protection against any false allegations that may arise out of the end of the employment relationship. Remedy says this information is confidential.

(2) Settlement Negotiations

[10] On December 25, 2013, the parties started to discuss settlement. Two matters were primarily at issue in the discussions: (1) financial and severance terms; and (2) the return of the documentation taken and the work to be performed on Ms. Farnham’s personal technological devices to clear them of Remedy’s information (the “IT Issue”).

[11] On January 6, 2014, Ms. Farnham emailed a settlement proposal to Remedy. In her email, Ms. Farnham addressed the IT Issue. She wrote:

Regarding the emails, I will engage a third party IT consultant who has been recommended by my lawyer to wipe, purge and certify my devices (laptop and iPad) as well as my Yahoo account clean of all Remedy documents. I will then swear an affidavit stating that I have returned all documents and emails and that I have never and will never do anything to harm you or your business. The IT consultant can swear an affidavit confirming these steps have been completed. I will do this at my expense. I am suggesting that we use the IT consultant recommended by my lawyer as his quote is less than a quarter of the quote provided by Remedy’s lawyers’ IT consultant.

The next day, Remedy responded by email, saying only the following with regard to the IT Issue: “The IT firm selected by my law firm will do the work at your cost.”

[12] By return email, Ms. Farnham indicated that she would pay $2,500 towards the work performed by Remedy’s IT consultant. Remedy responded with some concessions in relation to the financial and severance terms, but was silent on the IT Issue. On January 9, 2014, Ms. Farnham said: “we have an agreement”.

[13] Remedy’s lawyers approached Ms. Farnham’s lawyer to draft formal minutes of settlement. Although Ms. Farnham’s lawyer took the position that minutes were unnecessary because the settlement agreement was memorialized in the emails exchanged between the parties, he agreed to consider recommending minutes to Ms. Farnham that minutes be prepared, as long as they reflected the agreement.

[14] Remedy’s lawyers prepared draft minutes of settlement. They stated that Ms. Farnham would provide her yahoo email account and password and Paragraph 7 of the draft, entitled “Confidential Information”, read in the relevant part: “[The IT consultant] will take the necessary steps to search and permanently delete all of Remedy’s information from [Ms. Farnham’s] devices and the yahoo email account by taking the following steps: (1) forensic collection; (2) keyword searching; (3) keyword hit reviews; (4) preparing native file date; and (5) wiping devices.” Ms. Farnham took issue with this sentence, saying it did not reflect the simple data wipe the parties had agreed to.

[15] Under the minutes, the motion for injunctive relief would be withdrawn following delivery of the password and the devices to Remedy.

[16] Various accusatory emails between the parties ensued. For example, on January 20, 2014, Mr. Moody, Remedy’s President and Chief Executive Officer, wrote to Ms. Farnham insisting on Remedy’s interpretation of the IT Issue:

I will not budge on the sweep of your systems being conducted in the manner detailed by my lawyers in previous communications. Again, you started this process when you stole the highly confidential and highly damaging information. I will maintain my rights to gain as much peace of mind as possible through an IT sweep process defined by my lawyers and paid by you. If you wish to leave lawyers out, stop going to yours and settle. Your lawyer has all the information required for you to settle. At this point, I am happy to continue and press forward with an injunction and any other legal avenues available to me.

[17] Additionally, on January 21, 2014, Mr. Moody wrote:

The purpose of this email is to be very clear and speak directly to you. I will not accept an agreement that restricts me in any fashion as stated above [the IT sweep]. In the final analysis, if you are indeed sincere in your words of “peace” and “moving on”; you will accept my position on these two items which are very reasonable and appropriate given your actions. Alternatively, we will have to go through the courts as it will become clear, based on your unwillingness to move that you do in fact have something to hide. You are providing me with no alternative other than taking the necessary action to protect my business.

The decision is in your hands Jane.

(3) Alleged Repudiation and Motion for Enforcement

[18] On February 3, 2014, new lawyers acting for Ms. Farnham wrote to Remedy alleging Remedy had, through its words and conduct, repudiated the settlement agreement. This February 3 letter made specific reference to Mr. Moody’s email of January 20, 2014, excerpted above. Ms. Farnham’s counsel also informed Remedy that Ms. Farnham had elected to treat the settlement as at an end and that she would proceed with defending the claim and pursuing her counterclaim.

[19] Remedy’s counsel responded immediately on February 4, 2014 stating that the settlement had not been repudiated. He wrote: “If required, Remedy will take all necessary steps to enforce the settlement, including in respect of the return of Remedy’s confidential information. Unless we have your advance confirmation on behalf of Ms. Farnham that she intends to honour the terms of the settlement reached with Remedy, we intend to appear on February 10, 2014 (the date set for the return of the injunction) in order to seek the Court’s assistance in setting a date and timetable for the enforcement of the settlement.”

[20] Remedy then appeared in court on February 10, 2014 and obtained an adjournment of the injunction motion. On April 10, 2014, the parties resolved the motion by agreeing that Ms. Farnham would place her personal computer in the hands of a third party to await further agreement or a court order.

[21] Remedy then moved to enforce the settlement agreement.

C. MOTION JUDGE’S DECISION

[22] Before the motion judge, Ms. Farnham maintained that Remedy fired her when she rejected a new employment agreement. For the purposes of the motion, the motion judge held that it was immaterial whether Ms. Farnham had been dismissed or pre-emptively resigned.

[23] The material aspect of the dispute was whether the parties had reached a settlement agreement and on what terms, and whether it remained enforceable. The IT Issue was at the centre of the storm.

[24] The motion judge held that the parties had reached a settlement agreement. At para. 33 of his endorsement, he reasoned, “Despite the failure to agree on a more formal document, the terms of the agreement can, in my view, be distilled from the email traffic between the parties which commenced on 25 December 2013 and culminated with Ms. Farnham’s ‘we have an agreement’ email of 9 January 2014.”

[25] The motion judge found that the terms of the agreement relating to the IT Issue were those advanced by Ms. Farnham. At para. 38, the motion judge wrote that “[a]n objective reading of [the email] exchange between the parties supports the conclusion that there had been a compromise – with the process as set out by Ms. Farnham but, as a result of a concession subsequently made by Ms. Farnham, with such process being undertaken by [Remedy’s] preferred IT consultant rather than Ms. Farnham’s.”

[26] In other words, the parties did not agree to a full forensic sweep of Ms. Farnham’s computer.

[27] With respect to Ms. Farnham’s claim that Remedy had repudiated the agreement, Remedy argued that the emails exchanged after the January 9, 2014 “we have an agreement” message amounted to an interpretive dispute. According to Remedy, it was not refusing to perform its obligations under the settlement agreement; rather, it was attempting to clarify the terms of the agreement.

[28] Ms. Farnham, on the other hand, asserted that the post-agreement emails went well beyond an interpretive dispute. She argued she was confronted with an ultimatum: perform the agreement on Remedy’s terms or risk further legal action, including the injunction.

[29] The motion judge held that although Remedy took a hard line, it was prepared to be bound by the terms of the agreement. He said, at para. 46, that, “[a]lthough I have ultimately disagreed with the position taken by [Remedy] with respect to the terms of the settlement agreement, it cannot be said that [Remedy’s] position was so patently unreasonable as to evidence an insistence upon terms and conditions which could not possibly have been reasonably implied in the circumstances.”

[30] Finally, the motion judge reasoned that the fact that Remedy proceeded with its injunction did not mean it repudiated the agreement. He noted that, “[n]otice of the [injunction] motion had already been given when the parties started their settlement negotiations in earnest on or about 25 December 2013” and observed it was not unusual for parties to negotiate while continuing to litigate.

[31] Given his conclusion that Remedy had not repudiated the agreement, the motion judge granted judgment enforcing the settlement on the terms advanced by Ms. Farnham.

D. issues on appeal

[32] While Ms. Farnham identifies three issues on appeal, her argument centres on whether the motion judge erred in failing to find that Remedy’s conduct amounted to a repudiation of the settlement agreement. Ms. Farnham’s arguments relating to rule 49.09 are closely connected to this one main issue.

E. ANALYSIS

[33] I first outline the positions of the parties. I then articulate the relevant legal principles before applying them to the facts of this case. I conclude by discussing the impact of rule 49.09 on the issues at play.

The Parties’ Positions

[34] In oral argument, Ms. Farnham’s primary submission is that Remedy anticipatorily repudiated the settlement agreement. In his email sent on January 20, 2014, Mr. Moody, on behalf of Remedy, insisted on a term that was not contained in the settlement agreement – a broad forensic sweep. And Mr. Moody refused to perform the settlement agreement without the new term, threatening to continue with the injunction if Ms. Farnham did not comply with his demand. The email manifested Remedy’s intention to no longer be bound by the settlement agreement.

[35] Moreover, Remedy did not, in the interim, perform the non-controversial aspects of the settlement agreement.

[36] Ms. Farnham says that Remedy, by this conduct, repudiated the bargain. If the parties’ post-settlement agreement controversy was simply an interpretive dispute, Remedy needed to proceed on the basis that its interpretation of the agreement might be wrong. But it did not do so. Remedy refused to accept anything other than its view of the agreement. Significantly, it also proceeded with its motion for an injunction.

[37] Remedy argues that it did not repudiate the settlement agreement. It submits that a finding of repudiation is exceptional, particularly in the context of settlement agreements.

[38] Remedy asserts that what transpired after the lawyers attempted to paper the settlement agreement was merely an interpretive dispute over one minor issue in the context of the settlement agreement as a whole – the IT Issue. This issue was particularly minor for Ms. Farnham, as the settlement included a term releasing her from all claims arising out of her use of Remedy’s confidential information.

[39] Remedy submits that the steps it took in relation to the injunction were benign in the context of the agreement. Remedy’s moving forward with the injunction and ultimately obtaining a consent order that protected the information in issue pending the resolution of the terms of the settlement amounted to nothing more than an attempt to preserve its confidential information pending the resolution of the dispute over the settlement. According to Remedy, rather than thwart the settlement agreement, its injunction proceedings amounted to an effort to preserve the status quo while the rights under the settlement agreement were being determined.

[40] Remedy also submits that Ms. Farnham’s position fails to respect two fundamental tenets of the doctrine of anticipatory repudiation. First, Remedy’s conduct was not so serious as to deprive Ms. Farnham of substantially the whole benefit of the settlement agreement. Second, Remedy’s conduct did not amount to a clear and unequivocal intention not to be held to the terms of the bargain.

The Applicable Legal Principles

[41] The authorities establish the following principles relevant to this issue.

i. A Focus on Intention

[42] Repudiation occurs by the words or conduct of one party to a contract that show an intention not to be bound by the contract: Guarantee Co. of North America v. Gordon Capital Corp., 1999 CanLII 664 (SCC), [1999] 3 S.C.R. 423, at para. 40. Anticipatory repudiation is essentially the same as repudiation simpliciter – the only difference is timing. In her treatise, Canadian Contract Law, 3d ed. (Markham: LexisNexis Canada, 2012), at p. 618, Angela Swan begins her discussion of anticipatory repudiation by helpfully outlining the circumstances in which this issue typically arises:

The phrases “anticipatory breach” or “anticipatory repudiation” refer to the situation created when, before the time of performance has arrived, one party to a contract tells the other, either explicitly or as an inference from something said or done by the party, that, despite having no justification for its position, it is no longer prepared to perform its obligations under the contract. The statement may be made in a letter by one party’s solicitor to the other, by an oral statement by a party himself or herself to the other, or in any form of communication. [Emphasis added. Citations omitted.]

See also John McCamus: The Law of Contracts, 2d ed. (Toronto: Irwin Law Inc., 2012), at p. 689.

[43] Recently, in Potter v. New Brunswick (Legal Aid Services Commission), 2015 SCC 10, 381 D.L.R. (4th) 1, at para. 149, Cromwell J. (concurring) wrote this about anticipatory repudiation: “The focus in such cases is on what the party's words and/or conduct say about future performance of the contract. For example, there will be an anticipatory repudiation if the words and conduct evince an intention to breach a term of the contract which, if actually breached, would constitute repudiation of the contract.”

[44] Accordingly, the same principles guide both anticipatory repudiation and repudiation. Courts often use the terms interchangeably because alleged repudiations frequently occur “before the time of performance has arrived” (to borrow Swan’s phrasing).

ii. The Test is Objective and the Surrounding Circumstances Should be Considered

[45] The test for anticipatory repudiation is an objective one: S.M. Waddams, The Law of Contracts, 6th ed. (Toronto: Canada Law Book, 2010), at para. 620. As Gillese J.A. wrote for this court in Spirent Communications of Ottawa Ltd. v. Quake Technologies (Canada) Inc., 2008 ONCA 92, 88 O.R. (3d) 721, at para. 37: “To assess whether the party in breach has evinced such an intention [to repudiate the contract], the court is to ask whether a reasonable person would conclude that the breaching party no longer intends to be bound by it.”

[46] In objectively construing the purported breaching party’s intention, the surrounding circumstances must be considered. In White v. E.B.F. Manufacturing Ltd., 2005 NSCA 167, 239 N.S.R. (2d) 270, Saunders J.A. wrote, at para. 89: “Proof of such an intention requires an investigation into the nature of the contract, the attendant circumstances, and the motives which prompted the breach.” Earlier this year, Cromwell J., in his concurring opinion in Potter, confirmed the importance of considering the surrounding circumstances. At para. 164, Cromwell J. wrote: “As Lord Scarman put it in Woodar Investment Development Ltd. v. Wimpey Construction UK Ltd., [1980] 1 All E.R. 571 (H.L.), at p. 590, the trial judge and the Court of Appeal in this case were ‘concentrating too much attention on one act isolated from its surrounding circumstances and failing to pay proper regard to the impact of the party's conduct on the other party’.”

iii. Subjective Intention Not to Repudiate is Not Determinative

[47] A party can repudiate a contract without subjectively intending to do so. As the Supreme Court wrote in Guarantee Company, at para. 40:

Repudiation, by contrast, occurs "by words or conduct evincing an intention not to be bound by the contract. It was held by the Privy Council in Clausen v. Canada Timber & Lands, Ltd. [1923 CanLII 430 (UK JCPC), [1923] 4 D.L.R. 751], that such an intention may be evinced by a refusal to perform, even though the party mistakenly thinks that he is exercising a contractual right" (S.M. Waddams, The Law of Contracts (4th ed. 1999), at para. 620).42 [Emphasis added.]

[48] Swan confirms this approach at p. 618 of her treatise: “The person (or his or her solicitor) may believe when the statement is made that he or she has an excuse for non-performance and that it is the other party who is in breach of the contract. The characterization of the statement as an “anticipatory breach” [or “repudiation”] will then be made when the dispute goes to trial.”

[49] However, the subjective intentions of the breaching party are of some moment. They may assist in determining what the objective intention was. Justice Cromwell made this point at para. 171 of Potter: “while the breaching party's motives as such are irrelevant, they may throw light on the way the alleged repudiatory conduct would be viewed by a reasonable person.” Thus, the driving factor behind anticipatory repudiation remains the objective intention of the party purportedly about to breach the contract.

iv. The Seriousness of the Conduct

[50] A finding of anticipatory repudiation is reserved for cases in which the conduct at issue can be said to be serious. Before an anticipated breach of contract can be characterized as an anticipatory repudiation, the breach must deprive the innocent party of substantially the whole benefit of the contract: see Swan, at p. 618; Waddams, at ss. 590, 595; McCamus, at pp. 693-694; and Fridman, The Law of Contracts in Canada, 6th ed. (Toronto: Carswell, 2011), at p. 585.

[51] In Spirent, Gillese J.A. confirmed an approach that focuses on the importance of the disputed term, saying, at para. 37, “When considering Spirent’s conduct, it was important to keep in mind that what was involved was an anticipatory breach of contract…. [I]n determining whether the party in breach had repudiated or shown an intention not to be bound by the contract before performance is due, the court asks whether the breach deprives the innocent party of substantially the whole benefit of the contract.” See also Place Concorde East Limited Partnership v. Shelter Corporation of Canada (2006), 2006 CanLII 16346 (ON CA), 270 D.L.R. (4th) 181 (Ont. C.A.), at para. 51, where this court wrote, “A breach that allows the non-repudiating party to elect to put an end to all unperformed obligations of the parties is an exceptional remedy that is available only in circumstances where the entire foundation of the contract has been undermined, that is, where the very thing bargained for has not been provided”; and Potter, per Cromwell J., at para. 164.

[52] The authorities are therefore clear. The conduct in this case – insistence on a new contractual term – can amount to an anticipatory repudiation, but only if the term is of such importance that the party seeking to rely on the term can be said to have exhibited an intention not to be bound by the contract.

v. Anticipatory Repudiation in the Context of a Settlement Agreement

[53] I agree with the opinion of the British Columbia Court of Appeal in Fieguth v. Acklands Limited (1989), 1989 CanLII 2744 (BC CA), 59 D.L.R. (4th) 114 (B.C.C.A.), at pp. 122-123, that anticipatory repudiation should be considered a particularly exceptional remedy in the context of settlement agreements. The Court explained the rationale for this approach as follows:

It should not be thought that every disagreement over documentation consequent upon a settlement, even if insisted upon, amounts to a repudiation of a settlement. Many such settlements are very complicated, such as structured settlements, and the deal is usually struck before the documentation can be completed. In such cases the settlement will be binding if there is agreement on the essential terms. When disputes arise in this connection the question will seldom be one of repudiation as the test cited above is a strict one, but rather whether a final agreement has been reached which the parties intend to record in formal documentation, or whether the parties have only reached a tentative agreement which will not be binding upon them until the documentation is complete. Generally speaking, litigation is settled on the former rather than on the latter basis and parties who reach a settlement should usually be held to their bargains. Subsequent disputes should be resolved by application to the court or by common sense within the framework of the settlement to which the parties have agreed and in accordance with the common practices which prevail amongst members of the bar. It will be rare for conduct subsequent to a settlement agreement to amount to repudiation. [Emphasis added.]

This passage from Fieguth has been cited with approval by at least three Ontario courts, including this one: see Bogue v. Bogue (1999), 1999 CanLII 3284 (ON CA), 46 O.R. (3d) 1 (C.A.); Cellular Rental Systems Inc. v. Bell Mobility Cellular Inc., [1995] O.J. No. 721 (S.C.), aff’d [1995] O.J. No. 3773 (C.A.); and Whitehall Homes & Construction Ltd. v. Hanson, 2012 ONSC 3307, 23 C.L.R. (4th) 272, at para. 31.

[54] Courts are motivated to enforce settlements for good reason. As Swan puts it at p. 52 of her treatise, “There are strong policy reasons for the court’s attitude to settlements: it is in everyone’s interest that litigation be concluded by the parties’ agreement”.

vi. The Relevance of Commencing Legal Proceedings

[55] Courts have recognized that, in certain circumstances, commencing an action may constitute repudiation of an agreement: see e.g. Suleman v. British Columbia Research Council (1990), 1990 CanLII 746 (BC CA), 52 B.C.L.R. (2d) 138 (C.A.), at p. 142; but see Vrana v. Procor Limited, 2004 ABCA 126, 25 Alta. L.R. (4th) 201, at para. 14. In Suleman, the Court noted that the respondent had repudiated her employment contract by prematurely filing a writ of summons since she failed to establish a case of constructive dismissal: at pp. 142, 144. However, in Vrana, the Court found the employee had not repudiated his employment contract by bringing legal action too early.

[56] Although not perfectly analogous, this court has recognized that a non-repudiating party’s filing of a statement of claim may, but does not automatically, constitute an acceptance of a repudiation. For example, in Domicile Developments Inc. v. MacTavish (1999), 1999 CanLII 3738 (ON CA), 45 O.R. (3d) 302 (C.A.), at pp. 305-6, this court found that a party did not accept a repudiation when it issued a statement of claim seeking specific performance or damages because it made clear, in part through a letter to the repudiating party, that it did not accept the repudiation.

[57] In Place Concorde, LaForme J.A. was prepared to assume that an election to accept a repudiation can be made by commencing an action but held that, in the overall context, the pleading did not constitute an election to treat the agreement as being at an end.

[58] Case law is thus consistent with the principle that commencing legal action can, but does not necessarily, constitute repudiation. The proper inquiry remains focused on whether the party bringing legal action evinces an intention, in all the circumstances, to repudiate the agreement.

Application of These Principles

i. Standard of Review

[59] The question of whether a party repudiated an agreement is a question of fact, but whether the motion judge applied the proper legal test in determining whether there was a repudiation is a question of law. Therefore, in the typical case, a blended standard of review applies.

[60] As explained by Saunders J.A. of the Nova Scotia Court of Appeal in White, at para. 60:

[T]here are mixed standards of review to be applied. When deciding, as he did, that the License Agreement had not been repudiated, the trial judge was obliged to apply proper legal principles. In that sense the standard for our review on appeal, to that segment of his decision making, is one of correctness. However, in arriving at that conclusion he was also obliged to carefully consider the evidence and make certain key findings. Such findings are reviewable on a palpable and overriding error basis, as discussed earlier.

[61] In my view, the motion judge’s decision is reviewable on a correctness standard because he did not articulate the correct legal principles. Specifically, at para. 46, he wrote:

Although I have ultimately disagreed with the position taken by [Remedy] with respect to the terms of the settlement agreement, it cannot be said that [Remedy’s] position was so patently unreasonable as to evidence an insistence upon terms and conditions which could not possibly have been reasonably implied in the circumstances.

[62] Here, the motion judge fell into error. The test for anticipatory repudiation is not, as the motion judge expressed it, whether the breaching party’s position was so “patently unreasonable as to evidence an insistence upon terms and conditions which could not possibly have been reasonably implied in the circumstances.” With respect, reasonableness has nothing to do with it. As I have already discussed, the correct analysis focuses on what the purported breaching party’s conduct says about its objective intention in relation to future performance of the contract. And this was not a minor misstatement as this error appears to lie at the heart of the motion judge’s analysis.

ii. Did Remedy Repudiate the Settlement Agreement Through its Words and Conduct?

[63] Although I disagree with the basis upon which the motion judge concluded that Remedy’s words and conduct did not amount to an anticipatory repudiation of the settlement, I agree with the result he reached. In my view, Remedy did not repudiate the settlement agreement through its words or conduct.

[64] Fundamentally, considered objectively and in the light of the surrounding circumstances, Remedy did not exhibit an intention not to be bound by the contract. Given the motion judge’s interpretation of the settlement agreement, it is clear Remedy was not entitled to insist on a full forensic sweep. And it is also clear that Remedy took a hard line with Ms. Farnham in threatening to continue with the injunction proceedings if she did not capitulate. However, a “reasonable person” would not conclude that Remedy no longer intended to be bound by the settlement agreement: Spirent, at para. 37.

[65] I say this for four primary reasons.

[66] At the outset, I think it important to remember that the contract at issue is a settlement agreement. The circumstances outlined above do not provide a compelling reason for this court to depart from the general principle that it is important to hold parties to their settlements. As the Court noted in Fieguth, at para. 49, “It will be rare for conduct subsequent to a settlement agreement to amount to repudiation.”

[67] My first point is that this is not one of those rare cases.

[68] Second, the term involving the IT Issue is not a term of the contract which, if actually breached, would constitute repudiation of the contract. The threatened breach of the term that would have given Remedy the right to a technological sweep of Ms. Farnham’s personal computer would not deprive her of substantially the whole benefit of the contract. It would not undermine the foundation of the settlement agreement; namely, the financial package. This is particularly so because the settlement agreement contained a term that gave Ms. Farnham a full and final release from all claims arising out of her use of Remedy’s confidential information. Accordingly, the precise scope of the technological sweep should have been of little, if any, consequence to Ms. Farnham.

[69] Third, Ms. Farnham’s reliance on Remedy’s proceeding with the injunction does not, in my view, support a finding of repudiation. As previously noted, the proper inquiry remains focused on whether the party moving forward with legal action evinces an intention to repudiate the agreement. Here, Remedy’s counsel expressly advised Ms. Farnham that there was no repudiation and then proceeded to obtain an adjournment of the injunction motion. Remedy’s steps taken in relation to its motion for an interim injunction were not tantamount to an intention to abandon the settlement agreement. As I see it, Remedy’s injunction motion was consistent with – not contrary to – the spirit of the settlement agreement.

[70] Fourth, it would be a mistake to focus in on the injunction and lose sight of the circumstances as a whole. It is an error to concentrate too much attention on one act isolated from its surrounding circumstances and fail to pay proper regard to the impact of the party’s conduct on the other party: Potter, at para. 164.

[71] In my view, the surrounding circumstances paint the following picture. A dispute arose that brought an end to a relatively brief employment relationship. A settlement was negotiated and the parties then disagreed on the nature of the technological sweep that would be required to ensure that Ms. Farnham no longer had possession of Remedy’s confidential documents. In my view, even without the release, the forensic sweep did not go to the root of the contract. However, in the light of the release, the forensic sweep was next to meaningless in terms of its impact on Ms. Farnham.

[72] Although insistence on a new contractual term can amount to repudiation, this will not always be the case, “especially when it can be demonstrated that the other party is seizing upon small points to get out from under its contractual obligation”: AIC Ltd. v. Infinity Investment Counsel Ltd. (1998), 1998 CanLII 7783 (FC), 147 F.T.R. 233 (F.C.), at para. 42.

[73] I would therefore not give effect to Ms. Farnham’s argument that Remedy repudiated the settlement agreement.

[74] And, as I will now discuss, I would also reject Ms. Farnham’s submissions regarding rule 49.09.

iii. The Impact of Rule 49.09

[75] Rule 49.09 provides:

49.09 Where a party to an accepted offer to settle fails to comply with the terms of the offer, the other party may,

(a) make a motion to a judge for judgment in the terms of the accepted offer, and the judge may grant judgment accordingly; or

(b) continue the proceeding as if there had been no accepted offer to settle.

[76] Ms. Farnham makes two submissions with respect to rule 49.09. As will become apparent, I would not give effect to these submissions for much the same reasons as I would not give effect to Ms. Farnham’s suggestion that Remedy repudiated the settlement agreement.

[77] First, Ms. Farnham submits that once the dispute as to the terms of the settlement agreement arose, rule 49.09 gave Remedy a choice: it could either proceed with its injunction, or it could bring a motion to enforce the settlement. According to Ms. Farnham, the motion judge erred in law in permitting Remedy to bring its motion for enforcement under rule 49.09(a) subsequent to the steps it took in relation to the injunction.

[78] This first submission on rule 49.09 comes down to the following. Through the injunction proceedings, Remedy took steps inconsistent with the settlement and, under rule 49.09, these steps disentitled Remedy to an order enforcing the settlement on any terms.

[79] I disagree.

[80] Recall that Remedy moved for an interim injunction in November, 2013, to restrain Ms. Farnham from damaging the company. The return date was in February, 2014. When the parties reached their impasse, Remedy’s counsel immediately wrote rejecting the suggestion that the settlement had been repudiated and advised that, in the absence of a resolution, they would attend at court on the return date “in order to seek the Court’s assistance in setting a date and timetable for the enforcement of the settlement.” No criticism is properly levelled at Remedy in these circumstances. Ms. Farnham’s argument, if successful, would result in the triumph of form over substance.

[81] As the motion judge observed, the injunction motion was initially brought before the settlement negotiations began. The application of the doctrine of election precludes a party “from exercising a right that is inconsistent with another right if he has consciously and unequivocally exercised the latter”: Charter Building Co. v. 1540957 Ontario Inc. (c.o.b. Mademoiselle Women’s Fitness & Day Spa), 2011 ONCA 487, 107 O.R. (3d) 133, at para. 15. Remedy’s actions were not inconsistent with the settlement agreement. The parties preserved the status quo while the enforceability and terms of the settlement agreement were determined by a court.

[82] Ms. Farnham’s second submission in relation to rule 49.09 goes like this. Once Remedy insisted on a contractual term to which it was not entitled (the full forensic sweep), Ms. Farnham was at liberty to treat the agreement as at an end and continue the proceeding as if there had been no accepted offer to settle, pursuant to rule 49.09(b).

[83] According to Ms. Farnham, the motion judge erred when he said, at para. 40: “Absent agreement between the parties as to what they had agreed to, the issue could and should be resolved by way of a motion under rule 49.09(a)”. Ms. Farnham submits that this passage suggests that a disagreement that results in the parties’ failing to complete a settlement must be resolved through a motion to interpret the settlement. This, says Ms. Farnham, is not what the rule provides. Rule 49.09(b) gives the other party the right to treat the settlement as at an end.

[84] The effect of this error, says Ms. Farnham, is the following. Had the motion judge properly applied rule 49.09, he would have accepted that she was entitled to and, in fact, did elect to treat the settlement as at an end and continue the litigation. Ms. Farnham’s argument is that the motion judge’s interpretation of rule 49.09 eviscerates a party’s right to make an election under the rule.

[85] Again, I disagree.

[86] The motion judge did not err in resolving the one outstanding issue separating the parties by granting judgment in accordance with the terms of the accepted offer to settle. It cannot be the case that Ms. Farnham could unilaterally elect to proceed with the litigation in the face of Remedy’s motion to enforce the settlement – a motion that was brought to resolve an interpretive dispute over a term with very little consequence to Ms. Farnham. Having concluded that Remedy did not repudiate the settlement agreement, it would be odd indeed to then allow Ms. Farnham to resile from the settlement under the guise of rule 49.09(b).

[87] I find no error in the motion judge’s consideration of rule 49.09 in the circumstances of this case.

F. DISPOSITION

[88] For these reasons, I would dismiss the appeal. I would award the respondent its costs on a partial indemnity basis fixed in the amount of $12,000 all inclusive.

Released: August 19, 2015 (GE)

“Gloria Epstein J.A.”

“I agree S.E. Pepall J.A.”

“I agree M.L. Benotto J.A.”