Fundamental Breach Lives

The very existence of fundamental breach as a concept has been argued for some years – see the excellent review article Devlin, Richard, “Return of the Undead: Fundamental Breach Disinterred” 2007 86 CBR 1.

The recent Manitoba Court of Appeal decision in Prairie Petroleum Products Ltd. v. Husky Oil Ltd. et al., 2008 MBCA 87 applies the doctrine and holds it is good law.

The Court writes:

38 Where a breach is fundamental, the innocent party becomes entitled to elect to terminate his or her further obligations under the contract. The leading case on the doctrine of fundamental breach of contract is the Supreme Court of Canada decision of Hunter Engineering Co. v. Syncrude Canada Ltd., 1989 CanLII 129 (S.C.C.), [1989] 1 S.C.R. 426. The court in that case accepted the proposition that whether a breach was fundamental was a question of contract construction. Justice Wilson stated that a fundamental breach occurs (at p. 499):

… “Where the event resulting from the failure by one party to perform a primary obligation has the effect of depriving the other party of substantially the whole benefit which it was the intention of the parties that he should obtain from the contract” (emphasis added).

39 And again later (at p. 500):

It seems to me that this exceptional remedy should be available only in circumstances where the foundation of the contract has been undermined, where the very thing bargained for has not been provided.

40 This court, in Print Three Franchising Corp. v. McLennan Printing Inc. et al., 2001 MBCA 1 (CanLII), 2001 MBCA 1, 153 Man.R. (2d) 32, endorsed and followed the above test articulated by Justice Wilson in Hunter Engineering.