The following case decision is a cautionary tale for any party confronted with an anticipatory breach or repudiation of a contract—in layman’s terms, when it becomes clear before the end of the contract terms that one party will not fulfill their side of the agreement. These principles were recently applied by the Ontario Superior Court of Justice in Caivan (Creekside) Limited Partnership et al. v. Logoteta et al.,[1] a summary judgment decision involving a failed pre-construction real estate transaction.

A mere acknowledgement of repudiation, or even an internal belief that the agreement is over, is insufficient. Unless the non-repudiating party clearly communicates its acceptance of the repudiation within a reasonable time, the contract remains in force. As this case illustrates, silence can have serious and costly consequences.

Although the dispute arose in a residential real estate context, the Court’s reasoning has broad application across commercial agreements. In particular, it carries important lessons for franchise systems and supply or distribution relationships, where franchisors, franchisees, and suppliers frequently confront defaults, payment issues, and threatened non-performance.

The Facts

In June 2022, the defendants entered into an agreement of purchase and sale with the plaintiffs to buy a pre-construction townhouse in Oakville for approximately $3.31 million, with completion anticipated in July 2024. The defendants paid an initial deposit of $100,000 but failed to make subsequent required payments in August and October 2022, due to difficulties selling their home in the United Kingdom.

The plaintiffs granted an extension to November 10, 2022, warning that failure to pay could result in termination. On November 8, 2022, the plaintiffs advised that if payments were not made by 5 p.m. on November 10, they “will move to terminate the Purchase Agreement and all deposits shall be forfeited.” However, the plaintiffs also stated that if the defendants later became able to make payment and the house remained available, they were “willing to consider in good faith reviving the transaction,” including crediting the forfeited deposits towards the purchase.

The payments were not made by the deadline. Despite their prior warnings, the plaintiffs took no steps to actually terminate the agreement or communicate any acceptance of the defendants’ repudiation.

Several months later, in March 2023, while the agreement remained technically in force, the plaintiffs resold the property to a third party at a lower price. When the defendants subsequently inquired about reviving the transaction, the plaintiffs asserted that the agreement had already been terminated and sought damages. The defendants countered that the resale constituted a breach and demanded the return of their deposits.

The Decision

The Court reaffirmed the settled law on anticipatory breach repudiation does not terminate a contract unless and until the innocent party clearly accepts it. While acceptance may be communicated expressly or inferred from conduct, it must be clear, unequivocal, and communicated within a reasonable time.

The plaintiffs relied on Cachet Summerhill Developments Inc. v. Kaznlson,[2] where the Court termination based on mandatory and unequivocal language stating that the agreement “shall be declared null and void” unless performance occurred. In contrast, the communications in this case fell short.

Here, the plaintiffs’ October 31 and November 8, 2022 letters did not effect termination. Statements that the vendor “shall have the right” to terminate, or “will move to terminate,” contemplated future steps rather than an immediate and final election. Further, by expressly inviting the defendants to revive the transaction if payment later became possible, the plaintiffs affirmed the contract.

When the defendants failed to pay on November 10, 2022, the plaintiffs were required to make a fresh election, either to terminate or to continue with the agreement. They did neither. Their silence meant the repudiation went unaccepted and the contract remained alive.

By reselling the property in March 2023, the plaintiffs rendered themselves incapable of performing the agreement. In doing so, the “tables turned”: the plaintiffs became the breaching party. The Court held that the defendants were therefore entitled to the return of their deposits, with interest.

Why This Matters for Franchise and Commercial Relationships

This decision carries particular significance for franchise systems. Franchisors often grant indulgences, extensions, temporary forbearance, or informal accommodations to struggling franchisees or suppliers. While commercially understandable, such indulgences can inadvertently affirm the contract and eliminate the ability to later rely on an earlier repudiation.

Similarly, communications that reserve rights, threaten future termination, or continue to press for performance may prevent a franchisor (or franchisee) from later asserting that the agreement was already at an end. In commercial relationships failing to clearly accept repudiation can expose parties to unexpected liability.

Key Takeaways

At the core of the decision is a long-established principle of contract law: a repudiatory breach does not, by itself, bring a contract to an end. Termination depends not on the breaching party’s conduct, but on the clear and unequivocal election of the innocent party to accept the repudiation.

The key takeaways of this case are as summarized:

• Repudiation alone does not terminate a contract. Termination requires a clear and unequivocal acceptance by the “innocent” (non-repudiating) party.
• Termination cannot be unilateral or internal. A belief that an agreement is over has no legal effect unless communicated.
• Granting indulgences carries risk. Courts may infer that a party willing to extend time once may do so again.
• Pressing for performance affirms the contract. Once affirmed, the right to accept the repudiation is lost.
• Silence can be fatal. Where there is still time for the defaulting party to cure, inaction may leave the contract alive and shift breach risk to the innocent party.

For franchisors, franchisees, and commercial actors alike, the lesson is clear: when faced with repudiation, contact counsel, decide, and communicate, quickly and decisively. Silence is not termination.

About the Author

Sara Ray Ramesh is a litigation associate at Sotos LLP.  Prior to joining Sotos, Sara gained valuable experience as a summer and articling student at a national full-service law firm in Toronto. Sara has worked on a wide range of litigation matters spanning various practice areas, including general commercial litigation, construction law, and regulatory proceedings. She can be reached at 416.572.7306 or srayramesh@sotos.ca.

[1] 2025 ONSC 1875.
[2] 2021 ONSC 2512.

This article originally appeared in the Canadian Franchise Association’s Legal Digest column. 

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The Ontario Court of Appeal’s recent decision in Aroma Franchise Company, Inc. v Aroma Espresso Bar Canada Inc. (the “Aroma Decision”)[1] explored the grounds of arbitrator impartiality and disclosure obligations under the UNCITRAL Model Law on International Arbitration (the “Model Law”), adopted in the International Commercial Arbitration Act, 2017, S.O. 2017, c. 2, Sched. 5.

The Model Law contains provisions that promote arbitral impartiality. Article 12(1) imposes a duty on an arbitrator to disclose – before appointment and as the arbitration proceeds – any circumstance likely to give rise to justifiable doubts about the arbitrator’s impartiality. Article 12(2) permits a challenge to the arbitrator or the award that was made if circumstances exist that give rise to justifiable doubts about the arbitrator’s impartiality, as long as the person making the challenge was unaware of the circumstances when they participated in the arbitrator’s appointment. Justifiable doubts about impartiality is an equivalent phrase to reasonable apprehension of bias.^[2]

So, What Happened?

The franchisor, Aroma Franchise Company Inc. (the “Franchisor”) and its affiliates alleged that their Canadian master franchisee, Aroma Espresso Bar Canada Inc. (the “Franchisee”) breached an exclusive coffee supply arrangement. As a result of the breach, in May of 2019, the Franchisor sent a notice to the Franchisee terminating the Master Franchise Agreement (“MFA”). The Franchisee, in turn, argued the termination was unlawful. Following a lengthy arbitration over the termination of the MFA, substantial damages were awarded to the Franchisee. After the arbitration had concluded, the Franchisor discovered the arbitrator had accepted another arbitration appointment on an unrelated matter from counsel for the Franchisee during the proceedings. The arbitrator did not disclose this to the Franchisor, arguing the two cases had no overlapping parties or issues.

This non-disclosure led to claims of bias, prompting the Franchisor to successfully have the award set aside by the Ontario Superior Court of Justice. The decision was rooted in a finding of reasonable apprehension of bias, due to the arbitrator’s silence regarding his other engagement. However, the Court of Appeal disagreed, restored the award relating to this issue, and clarified the threshold for bias in arbitration.

The Appeal

The Court of Appeal corrected the lower court judge’s fundamental error in failing to address the fact that the arbitrator was not made aware (and deliberately so by Franchisor’s counsel) of the communications between counsel for the parties which predated counsel’s approach to the arbitrator. The Court of Appeal found that the arbitrator could not have known of any potential concerns which the Franchisor had about other relationships with the arbitrator because Franchisor’s counsel deliberately chose not to so inform the arbitrator.

The Court of Appeal confirmed that the threshold for disclosure under Article 12(1) of the Model Law is an objective one and relied on the objective test for reasonable apprehension of bias – what would a fair-minded and informed observer think?

1. Disclosure ≠ Determinative

The Court acknowledged that while arbitrators must disclose any circumstances that are likely to raise justifiable doubts about impartiality, failure to disclose does not automatically indicate bias. In this case, the Court emphasized that the two arbitrations were entirely unrelated, involving different parties, industries, and issues. This lack of a meaningful connection diminished the likelihood that the arbitrator’s impartiality could reasonably be called into question, ultimately tipping the scales in favour of upholding the award.

2. International Decisions

The Court leaned heavily on UK precedent, including Halliburton Company v Chubb Bermuda Insurance Ltd., (“Halliburton”)[3] and Aiteo Eastern E & P Company Ltd. v Shell Western Supply and Trading Ltd., & Ors (“Aiteo”)[4] emphasizing that disclosure obligations in international arbitrations are context-specific and guided by the Model Law. These cases underscored the principle that multiple appointments by the same counsel does not inherently give rise to bias.

3. Objective Test Prevails

A fair-minded observer, the Court concluded, would not find the arbitrator’s undisclosed second appointment sufficient to displace the presumption of impartiality. The decision underscored that Canadian courts apply a strong presumption of arbitrator impartiality, even when disclosure lapses occur.

Key Takeaways for Coffee (and Arbitration) Enthusiasts:

• Disclosure Duties Are Not Black and White

While the Model Law sets a high standard for disclosure, it’s not a free pass to challenge awards where an arbitrator does not disclose something. Context matters and parties must assess the potential overlap of issues and parties objectively.

• Precedent Percolates Across Borders

Canadian courts are aligning their approach with international best practices, as seen in Halliburton and Aiteo. Practitioners should familiarize themselves with these decisions to better anticipate disclosure risks.

• “Reasonable Apprehension of Bias” Is Not a Catch-All

Bias remains a high bar to prove. Parties seeking to challenge arbitrators must go beyond subjective discomfort and belief and demonstrate objectively justifiable doubts about impartiality.

• Toward a Global Trend

This decision hints toward greater alignment in how arbitrator disclosure and disqualification are approached globally. While it does not supplant the International Bar Association Guidelines on Conflicts of Interest in International Arbitration (the “IBA Guidelines”), it signals a move toward consistency for cases where the IBA Guidelines are not adopted. This could help standardize outcomes and strengthen confidence in arbitration as a fair and predictable dispute resolution method.

Final Sip…

The Aroma Decision reaffirms the importance of maintaining impartiality in arbitration while recognizing that non-disclosure alone does not automatically indicate bias. By emphasizing the objective standard of a fair-minded and informed observer, the Court of Appeal clarified that disclosure obligations must be assessed in each specific context. This ruling aligns Canadian arbitration practices with international standards and reinforces the principle that arbitration should balance transparency with practicality, to preserve its integrity and efficiency. Additionally, its influence may extend beyond Canada, contributing to greater global consistency in arbitrator disclosure and disqualification approaches.

NOTE: Allan D.J. Dick and his team at Sotos LLP acted as counsel to the Franchisee in the arbitration and in the court proceedings and, with co-counsel, Alison FitzGerald, on the appeal.

[1] 2024 ONCA 839.
[2] Ibid, para 2.
[3] [2020] UKSC 48, [2021] 2 All E.R. 1175.
[4] [2024] EWHC 1993 (Comm).

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