





CITATION: Charter Building Company v. 1540957 Ontario Inc.
      (Mademoiselle Womens Fitness & Day Spa), 2011 ONCA 487

DATE: 20110704


DOCKET: C52439


COURT OF APPEAL FOR
          ONTARIO


Armstrong, Epstein and Karakatsanis
          JJ.A.


BETWEEN


Charter Building Company

a division of Ladson Properties Limited


Plaintiff
          (Respondent)


And


1540957 Ontario Inc. c.o.b. as Mademoiselle Womens
          Fitness & Day Spa,

1540958 Ontario Inc. c.o.b. as Mademoiselle Womens
          Fitness & Day Spa,

1540959 Ontario Inc. c.o.b. as Mademoiselle Womens
          Fitness & Day Spa

and Neil Proctor


Defendants (Appellants)


F. Scott Turton, for the
          appellants


Harry Korosis and Mark Labenski,
          for the respondent


Heard: January 24, 2011


On appeal from the order of
          Justice Jane A. Milanetti of the Superior Court of Justice dated June 17, 2010.

Epstein J.A.:
I.

OVERVIEW
[1]

In February 2008,
    the respondent started a lawsuit against the appellants. In the months that
    followed, a negotiated settlement was reached. When the appellants failed to
    comply with the terms of the settlement agreement, the respondent sought and
    obtained default judgment. At the time of the default judgment, a waiver of
    defence was in place.  As a result, the judgment was irregularly obtained and,
    on consent, was set aside.
[2]

Once the judgment
    was set aside, the respondent returned to the settlement agreement and sought an
    order for its enforcement.  The motion judge agreed with the respondents
    position that a settlement had been reached and granted the order.
[3]

The issue on this
    appeal is whether, having proceeded with the action, the respondent is barred
    from seeking the enforcement of the settlement agreement.
[4]

I would allow the
    appeal on the basis that the respondent, by electing to pursue its rights under
    the action, is precluded from pursuing its rights under the settlement
    agreement.  In my view, the motion judge erred in concluding that the
    consequences of this election were academic and that she had the discretion
    to order that the settlement be enforced.
II.

FACTUAL
    BACKGROUND
[5]

In February of
    2008, the respondent sued one of the corporate appellants and the appellant,
    Neil Proctor, on a promissory note and the other two corporate appellants for
    unpaid invoices.  The amounts claimed totalled an amount in excess of $200,000.
[6]

In March of 2008,
    the appellants served a notice of intent to defend and a demand for
    particulars.
[7]

The respondent
    granted a waiver of defence to allow settlement discussions to take place, and
    as such, no statement of defence was served. At the end of August 2008, a
    tentative agreement was reached between the parties.  The terms of this
    agreement, particularly in relation to a repayment schedule, were fine-tuned
    over the next month or so to the point where, on October 15, 2008, counsel for
    the respondent provided detailed minutes of settlement for signature by the
    appellants.  Despite follow-up by counsel for the respondent, the appellants
    did not sign the minutes of settlement or communicate further with the
    respondent in any respect.  Notably they did not make any payments contemplated
    by the agreed-upon repayment schedule.
[8]

As a result of
    this non-communication, in March 2009, the respondent obtained default
    judgment. Through inadvertence, counsel for the respondent failed to revoke the
    waiver of defence.  Eight months later, counsel for the respondent wrote to the
    appellants enclosing the default judgment and informing the appellants that writs
    of seizure and sale had been filed with the Sheriff. The appellants were
    advised that the Sheriff was going to be directed to enforce the writs if the
    judgment was not paid.
[9]

The appellants
    brought a motion to have the default judgment set aside. The respondent brought
    a cross-motion seeking to enforce the settlement.
III.

THE MOTION
    DECISION
[10]

The appellants took
    the position that since the waiver of defence remained in force, the default
    judgment was irregularly obtained. As previously indicated, the respondent
    conceded this point and the motion judge set aside the judgment.
[11]

In defence to the
    respondents cross-motion for enforcement of the settlement, the appellants
    argued that, having elected to abandon the settlement and proceed with the
    action, the respondent was no longer in a position to seek to enforce its
    terms.
[12]

The motion judge
    found that the parties had reached a settlement agreement in October 2008,
    despite the failure to sign the minutes of settlement. She went on to reject
    the appellants argument that the respondent had waived its right to rely on
    the agreement, reasoning as follows:
Although
    the argument that the plaintiff elected [words missing] the settlement but
    proceeded with the action (as is the election under Rule 49) is interesting, it
    is academic given that the noting of default has been set aside on consent. In
    any event it is not in the interests of justice to allow the defendant to
    enforce its non-payment of the agreed to settlement, nor legal [illegible] to
    the statement of claim served on February 08/05 and now say there is a real
    defence to the action.
[13]

The specific term
    of the order provides that the settlement reached between the parties to this
    action shall be enforced.
IV.


THE
    ISSUES
[14]

The only issue on
    this appeal is whether the respondent, by pursuing its rights under the action
    through erroneously obtaining default judgment, is precluded from seeking to
    enforce the settlement agreement.  This issue invokes the doctrine of election.
V.

ANALYSIS
[15]

The essence of
    the doctrine of election is that a person is precluded from exercising a right
    that is inconsistent with another right if he has consciously and unequivocally
    exercised the latter.
[16]        The doctrine is set out in the oft-quoted decision of Lord Atkin, in

United Australia Ltd. v Barclays Bank Ltd.
, [1941] A.C. 1 (H.L), in which the
    appellant had started an action against a company on a cheque, framing the
    action as money had and received to the use of the appellant. The cheque had
    been unlawfully issued. The action was discontinued and no judgment obtained.
    The appellants then brought an action against the bank for conversion of the
    cheque. It was held that the commencement of the first action did not amount to
    an election to waive the tort so as to preclude the bringing of the second
    action. In the course of his decision, Lord Atkin said at pp. 29-30:
It seems to me that in this respect it is
    essential to bear in mind the distinction between choosing one of two alternative
    remedies, and choosing one of two inconsistent rights. As far as remedies were
    concerned, from the oldest time the only restriction was on the choice between
    real and personal actions. If you chose the one you could not claim on the
    other
...
On the other hand, if a man is entitled to
    one of two inconsistent rights it is fitting that when with full knowledge he
    has done an unequivocal act showing that he has chosen the one he cannot
    afterwards pursue the other, which after the first choice is by reason of the
    inconsistency no longer his to choose. Instances are the right of a principal
    dealing with an agent for an undisclosed principal to choose the liability of
    the agent or the principal: the right of a landlord where forfeiture of a lease
    has been committed to exact the forfeiture or to treat the former tenant as
    still tenant and the like. To those cases the statement of Lord Blackburn in
Scarf
    v. Jardine
[(1882) 7 App. Cas. 345, 360] applies where a man has an option
    to choose one or other of two inconsistent things when once he has made his election
    it cannot be retracted. In a later passage [(1882) 7 App. Cas. 345, 361] Lord
    Blackburn speaks of a man choosing between two remedies: but it is plain that
    he is speaking of remedies in respect of the inconsistent things as stated above.
    The case was one where the plaintiff had a right of recourse against two former
    partners, or against two new partners: but obviously not against both. Lord
    Blackburn quotes
Dumpor's
case [(1601) 4 Co. Rep. 119(b)] which was a plain
    case of inconsistent rights, the question of waiver of a forfeiture. I
    therefore think that on a question of alternative remedies no question of
    election arises until one or other claim has been brought to judgment.
[17]        The doctrine has
    been endorsed by Canadian courts. See, for example:
Findlay v. Findlay
, [1952]
    1 S.C.R. 96, at pp. 103-104 and 110.
[18]

The doctrine of
    election has been broken down into two categories  the common law doctrine of
    election and the equitable doctrine of election.
[19]

Election at
    common law takes place where a party is faced with a choice between two
    inconsistent courses of action that affect another partys rights or
    obligations, and knowing that the two courses of action are inconsistent and
    that he or she has the right to choose between them, makes an unequivocal
    choice and communicates that choice to the other party.  The doctrine provides
    that the party making the election is afterwards precluded from resorting to the
    course of action that he has rejected.  The election is effective at the point
    of communication on the basis that the parties to an ongoing relationship are
    entitled to know where they stand:
The Commonwealth of Australia v. Verwayen
(1990), 170 C.L.R. 394 (H.C.A), at pp. 421-422.
[20]         Subsequent to
    the development of the common law doctrine, the courts of equity developed a
    separate principle  the equitable doctrine of election  in the context of
    wills and trusts.  The doctrine is based on the fact that the electing party,
    having obtained a particular benefit from a transaction, must accept all of the
    consequences that flow from that transaction, including those to his detriment:
Granot v. Hersen
(1999), 43 O.R. (3d) 421 (C.A.), at p. 424; Piers
    Feltham, Daniel Hochberg & Tom Leech,
The Law Relating to Estoppel by
    Representation
, 4
th
ed. (London: LexisNexis UK, 2004), at pp.
    361-362.
[21]        The two doctrines
    are distinct. This point is clearly stated in the following passage in
Banner
    Industrial and Commercial Properties Ltd. v. Clark Paterson Ltd.
, [1990] 2
    EGLR 139:
There is, however,
    another principle upon which a party may be held to his choice and that is the
    doctrine of election.  Election, as Viscount Maugham pointed out in
Lissenden
    v CAV Bosch Ltd
[1940] AC 412 at pp 417-418, is a term used in different
    senses.  There is an equitable doctrine of election (known in Scotland as the
    doctrine of approbate and reprobate) encapsulated in Lord Eldons dictum that
    no person can accept and reject the same instrument:
Ker v Wauchope
(1819) 1 Blight 1 at p 21.  Its main application has been to a will, deed or
    other instrument which confers a benefit upon a party and at the same time
    purports to dispose of his property to someone else.  The principle requires that
    if he accepts the benefit, he must also accept the burden of giving effect to
    the purported disposition of his own property or compensating the person
    intended to benefit thereby.  There is also the common law principle of
    election, under which in certain circumstances a party faced with a choice of
    remedies (such as whether to affirm or repudiate a contract induced by
    misrepresentation) may be held to the choice he has made.
The circumstances
    in which the two doctrines will apply are quite distinct
. [Emphasis added].
[22]

As can be seen,
    there is a fundamental difference between the two doctrines. The equitable
    doctrine of election does not involve choice between alternatives. To establish
    an election in equity, it is unnecessary to show that the electing party made a
    conscious choice between inconsistent rights at the time when the original
    decision was made.  In fact, an equitable election does not involve making a
    choice at all  it involves accepting the consequences of a decision already
    made.  On the other hand, the common law doctrine is all about choice.  It
    applies to prevent a person who has made a decision from resorting to an
    inconsistent course of action that he has specifically rejected.
[23]

Here, the common
    law doctrine clearly applies.
[24]

The respondent
    sued the appellants and agreed to hold the action in abeyance while settlement
    discussions proceeded.  A settlement was reached but the appellants did not
    honour their obligations under the agreement.  At that point, the respondent,
    faced with a fundamental
    breach of the settlement agreement by the appellants, had a choice between two
    inconsistent courses of action.  It could have elected to affirm the settlement
    and hold the appellants to the performance of their contractual obligations. 
    Or, it could have elected to accept the breach as a repudiation of the contract
    and proceed with the action.
[25]        The decision of
    what to do in the face of a repudiatory breach or renunciation of a contract by
    the other party is one of the situations most often cited as a typical example
    of a common law election.  Lord Goff, in his description of the principles of
    election in the
Motor Oil Hellas (Corinth) Refineries S.A. v. Shipping
    Corporation of India (The Kanchenjunga)
, [1990] 1 Lloyds Rep 391,
    at p. 398, makes this observation:
Election itself is a
    concept which may be relevant in more than one context. In the present case, we
    are concerned with an election which may arise in the context of a binding
    contract, when a state of affairs comes into existence in which one party
    becomes entitled, either under the terms of the contract or by the general law,
    to exercise a right, and he has to decide whether or not to do so. His
    decision, being a matter of choice for him, is called in law an election.
    Characteristically, this state of affairs arises where the other party has
    repudiated the contract or has otherwise committed a breach of the contract
    which entitles the innocent party to bring it to an end, or has made a tender
    of performance which does not conform to the terms of the contract. But this is
    not necessarily so. An analogous situation arises where the innocent party
    becomes entitled to rescind the contract, i.e. to wipe it out altogether, for
    example because the contract has been induced by a misrepresentation; and one
    or both parties may become entitled to determine a contract in the event of a
    wholly extraneous event occurring, as under a war clause in a charter-party.
    Characteristically, the effect of the new situation is that a party becomes
    entitled to determine or to rescind the contract, or to reject an uncontractual
    tender of performance; but, in theory at least, a less drastic course of action
    might become available to him under the terms of the contract. In all cases, he
    has in the end to make his election, not as a matter of obligation, but in the
    sense that, if he does not do so, the time may come when the law takes the
    decision out of his hands, either by holding him to have elected not to
    exercise the right which has become available to him, or sometimes by holding
    him to have elected to exercise it.  Once an election is made, however, it is
    final and binding (see
Scarf v. Jardine
, per Lord Blackburn, at p. 360).

There are numerous
    examples of the application of this principle of election in English law.
    Perhaps the most familiar situation is that which arises when one contracting
    party repudiates the contract. The effect is that the other contracting party
    then has a choice whether to accept the repudiation (as it is called) and bring
    the contract to an end; or to affirm the contract, thereby waiving or
    abandoning his right to terminate it. If, with knowledge of the facts giving
    rise to the repudiation, the other party to the contract acts (for example) in
    a manner consistent only with treating that contract as still alive, he is
    taken in law to have exercised his election to affirm the contract.
[26]

Here, in choosing
    to proceed with the action through obtaining default judgment, the respondent
    unequivocally treated the settlement agreement as at an end.  The fact that the
    initial step the respondent took was irregular  the default judgment was
    technically unavailable  does not, in my view, in any way alter the fact that
    the respondent chose to pursue its rights under the action rather than seeking
    to enforce the settlement.
[27]

Canadian case law
    confirms that an election, once made, is binding.  See, for example,
Morrison-Knudsen
    Co., Inc. et al. v. British Columbia Hydro and Power Authority
(1978), 85
    D.L.R. (3d) 186, at p. 224, which specifically addressed the concept of
    election when a party is faced with a repudiation of the contract:
When
    faced with a fundamental breach the innocent party is put to an election. He
    may elect to affirm the contract and to hold the other party to the performance
    of his obligations and sue for damages as compensation for the breach. He may,
    on the other hand, elect to treat the breach as a fundamental breach and accept
    it as such. Thus he would terminate the contract and thereafter be relieved of
    any further duty to perform and he could sue at once for damages or
quantum
    meruit
for performance to that point.
It is essential that such
    election, an election between inconsistent rights, be made promptly and
    communicated to the guilty party. Once made, the election is binding and cannot
    be changed.
[Emphasis added.]


[28]

I acknowledge
    that decisions may be found where statements have been made suggesting that the
    common law election rules should not be applied too strictly.  I refer to the
    decisions in
Oliver Ashworth Ltd v. Ballard Ltd.
, [2000] Ch 12 (C.A.)
    and
Tang Man Sit v. Capacious Investments Ltd.
, [1996] 1 A.C. 514
    (P.C.).
[29]

However, in
    Canada this view has been restricted. Both of these cases cite
Johnson v.
    Agnew
, [1980] AC 367 (HL).  In
James v. Klaus
(1987), 40 D.L.R. (4
th
)
    763 (B.C.C.A.), at p. 765, counsel for the plaintiff relied on
Johnson v.
    Agnew
for the general proposition that the court has a discretion whether
    to hold a party to an election. Justice Hutcheon, correctly in my view,
    rejected this argument, holding that
Johnson v. Agnew
should be confined
    to the situation where a party sues for specific performance and then later
    wants to accept repudiation and seek damages:
I agree with Mr.
    Cadman, counsel for the trustee, that
Johnson v. Agnew
must be read
    cautiously on the issue of election.
All that was held in that case was that
    if the vendor has obtained a decree for specific performance that election is
    not irrevocable: the vendor may later accept the repudiation and ask for
    damages.
That was based on the proposition that the contract was still in
    being, a proposition that emerges from this passage in the speech of Lord
    Wilberforce at p. 894:
In my opinion, the argument based on irrevocable
    election, strongly pressed by the appellants counsel in the present appeal, is
    unsound. Election, though the subject of much learning and refinement, is in
    the end a doctrine based on simple considerations of common sense and equity.
It
    is easy to see that a party who has chosen to put an end to a contract by
    accepting the other party's repudiation cannot afterwards seek specific
    performance. This is simply because the contract has gone, what is dead is
    dead.
But it is no more difficult to agree that a party, who has chosen to
    seek specific performance, may quite well thereafter, if specific performance
    fails to be realised, say, Very well, then, the contract should be regarded as
    terminated. It is quite consistent with a decision provisionally to keep
    alive, to say, Well, this is no use -- let us now end the contracts life. A
    vendor who seeks (and gets) specific performance is merely electing for a
    course which may or may not lead to implementation of the contract; what he
    elects for is not eternal and unconditional affirmation, but a continuance of
    the contract under control of the court which control involves the power, in
    certain events, to terminate it.
[30]

In my view,
    therefore, the law is clear.  Once a party accepts repudiation of a contract by
    pursuing a course of action that is inconsistent with the existence of the contract,
    that party is no longer entitled to assert its rights under the contract.  The
    court has no discretion to rule otherwise.
[31]

Here, when the
    appellants failed to honour their obligations under the settlement agreement,
    the respondent could have sought to enforce the agreement.  Instead, it made a
    binding election to treat the settlement agreement as if it had never been and
    to proceed with the litigation.  It follows that, from the point in time that
    this election was communicated to the appellants, all rights and obligations of
    the parties to the agreement came to an end.
[32]

The motion judge
    erred in making an order to enforce the terms of an agreement that no longer
    existed.  The order, therefore, cannot stand.
VI.

DISPOSITION
[33]

I would therefore
    allow the appeal and set aside the order of the motion judge.  Pursuant to the
    agreement between counsel, I would award the appellants their costs in the
    amount of $6,000 inclusive of disbursements and applicable taxes.
RELEASED:
RPA                                                Gloria
    Epstein J.A.
JUL -4 2011                                  I
    agree Robert P. Armstrong J.A.
I
    agree Karakatsanis J.A.