I. Damages 97
Basic Process for Assessing Damages: 97
1. Select interest that deserves vindication 97
a. Restitution 97
i. Idea that people should live up to bargains. A victim of a breached bargain should at least get their money back. 97
ii. Restitution is measured by benefit to ∆ designed to deprive wrongdoer of ill-gotten gains 97
b. Reliance 97
i. Compensates for expenditures made in reliance on promise by ∆ 97
ii. Restores status quo prior to promise being made 97
c. Expectation 97
i. Puts in position they would have been in had the bargain been fulfilled 97
ii. ∆ must either keep promise (specific performance) or provide monetary equivalent of keeping promise (damages) 97
2. How do you apply the measure of damages? 97
3. Are there any relevant principles that moderate/limit the damages award, to balance out ∆ legitimate interests? 97
a. Mitigation 97
b. Remoteness 97
Expectation Damages 97
General Principles & Lost Profits 97
Theory and Background (from Fuller & Perdue) 97
In some ways, restitution and reliance damages are easy to accept as appropriate remedies in contract law they are about redressing the balance between and ∆, and are easy to line up with shared moral values. 97
The idea is that people shouldn’t make promises then break them, especially when you know someone will waste time and effort as a result. 97
Expectation damages are different: not restoring the harm, but giving the value of the promise. This is a moral concept, but perhaps one not so commonly shared. 97
Expectation damages didn’t originally exist in K law 97
They become important in the planning done by individuals through private interactions. 97
To achieve stability in a complex capitalist economy, we need certainty, future planning, credit. 97
It’s about giving planners in the marketplace the security to trade. 97
Reliance and restitution don’t sufficiently facilitate these interests. 97
Restitution doesn’t give you anything extra 98
Reliance would require to prove all the minute ways in which had relied on ∆ promise, which are just generally included in expectation damages. 98
Note: if you include opportunity costs in reliance damages, and went through the whole minute assessment, people could essentially get expectation damages through reliance damages anyway. 98
Economic and Juristic Rationales 98
Administrative: facilitating reliance 98
Economic: allows trading on present value of the K. 98
Claiming Lost Profits 98
Canlin Ltd v. Thiokol Fibres Canada [1983, ONCA] 98
An example of a court protecting the expectation interest, despite arguments of remoteness and perhaps certainty of damage 98
Default: you get the difference b/w goods paid for and goods received; but this is predicated on a duty/ability to mitigate. Where that can’t be done, the presumption is rebutted. 98
Facts: bought product from ∆ to manufacture swimming pool covers. Material defective, shreds into customers’ pools. 98
Issue/Arguments: 98
∆ argues, per presumption stated in s. 56(3) of the Sale of Goods Act, that the proper measure of damages should be limited to the difference between actual value and value goods would have had if ≠ defective. 98
claims for lost profits in addition, because their business suffered as a result of the damage to their reputation. 98
Held: for . Entitled to lost profits as well as difference in value. 98
Reasons: s. 56(3) of SoG Act doesn’t apply here. 98
An assumption behind the provision: if defect is discovered early enough and buyer acts quickly enough (as obligated to mitigate), then the buyer can find new materials, replace the defective product and move on with their business. 98
Under this assumption, ∆s are normally only liable for the notional cost that would have been incurred to buy new materials. However, in this case the defect wasn’t discovered soon enough and s were shut out of the market for a few years as a result of the fiasco. 98
This is sufficient “evidence to the contrary” as required to avoid the application of s. 56(3) that provision wouldn’t give them what they lost. 98
Problems of Determining the Value of a Bargain: Avoiding Double Recovery 98
R. G. McLean Ltd. v. Canadian Vickers Ltd. [1971, ONCA] 98
Avoiding double recovery 98
Facts: printing co bought new printing press from ∆, didn’t work properly. TJ awarded damages for lost profits and the cost of the press. 99
Issues/Arguments: 99
(1) ∆ argued that TJ award was double compensation. 99
(2) What happens when doesn’t have sufficient funds to mitigate? 99
Held: TJ overruled; sent back for new trial 99
Re inability to mitigate: 99
∆ shouldn’t be saddled with burden; the level of risk of a vendor of machinery should not vary depending on who they sell to. 99
It’s different from the thin skull rule in tort, likely because of the commercial context. 99
The true measure of expectation damages is putting in position they would have been in had the K been performed. 99
would have earned profit, but would have had to incur an expenditure to acquire the press. 99
CA refers back to new trial to determine the amount of profit after expenditure 99
BUT: this isn’t enough would have spent $ on the press, but then also would have had a working press. 99
So, consider the depreciation value of the press in the two year delay, then calculate profit by deducting that depreciation. Alternately, consider the cost of buying a new press. 99
Note: realistically, had paid $15,000 already, which is likely roughly equivalent to the depreciated cost, so really the TJ did award net profits in the end. 99
The CA was right about the rule generally, but you shouldn’t deduct 100% of the value of equipment from a claim of lost profits over only two years. 99
Mitigation: ∆ offered to take back press and refund, but declined. Obligation to mitigate. 99
M.G. Baer, “The Assessment of Damages for Breach of Contract – Loss and Profit” 99
Gross profits include your expenses 99
Doctrine of Election 99
Profit or Capital 99
THE ISSUE: Double Counting 99
In McLean, the press didn’t work so they claimed lost profits. But hadn’t paid for the press, and TJ didn’t deduct cost of press from lost profits. 99
Doctrine of Election means you can’t get both. That would be double-counting, because if had actually earned the profits, they would also have paid for the press. It’s about putting in the position as if K had actually been performed. 99
Note: CA applied the doctrine too broadly in McLean. 99
Yes, would have to pay for press to earn the profit, but had K been performed they would also have had a valuable press. 100
So, can’t deduct the whole cost of the press just deduct the depreciated value. 100
Assess the proportion of the working life of the press that is attributable to the time period for which profits are being claimed, and deduct that proportion of the press’ value from the profits. 100
Overlap of Expenditures and Lost Profits 100
In McLean, the CA also overturned the TJ’s method of calculating lost profits in relation to expenditures. 100
General principle: you can either claim the money wasted or sue for the profit you should have had. Can’t have both – that would be overlap. 100
Also, you can’t claim wasted expenditures in excess of the amount you would have had to spend to make the profit. 100
In McLean, the TJ awarded net profit, not gross profit. So, really, even though he included profit and expenditures, his calculation was actually in keeping with the doctrine of election. So, they SHOULD have been allowed to claim lost profit and expenditures. 100
Waddams: profit must be net profits, not gross potential income 100
Problems of Proof 100
CA in McLean found that the lost profits claimed were exaggerated. 100
Don’t calculate profit solely on the theoretical productive capacity of the machine must also consider the actual likely work that was available and/or would have been done. 100
This puts a significant burden of proof on the , but courts won’t hold ∆s to the assumption that every party they deal with is running the best possible business (most competitive, most profitable) in that industry. 100
Rather, a court will consider industry averages and projections, and compare with ’s actual track record to try to establish some kind of ratio. 100
Ticketnet Corp v. Air Canada [1998, ONCA] – Laskin JA 100
Doctrine of Election: gets the whole “net vs. gross profits” thing right. 100
The burden of proof is on to prove damages, but where ∆ wrong has prevented precise proof, can rely on projections (discounted to reflect certain contingencies) 100
Facts 100
created an online ticket-booking software, made a deal w/ ∆ to jointly develop it and share revenues for a set period. 100
∆ repudiated and at first expected to get the software back but ultimately ∆ never returned it. 100
entered into new K with American Airlines. Different terms, but involved payment to of 750k for the software. When it became clear they weren’t getting the software back, had to renegotiate their K with American Airlines, and lost out on the 750k. 101
Issue/Arguments: sued ∆ for lost profits and lost business opportunity. 101
(1) claimed $12 million in lost profits. ∆ accepted breach but argued damages should be limited to 750k, the difference between the first and second AA agreements. 101
(2) also sought additional expenses not allowed at trial 101
Held: Damages NOT limited to 750K; TJ ruling on additional expenses upheld. 101
Reasons 101
Issue (1) – Damages limited to 750k? 101
Arguments: 101
∆ argued the only value lost was the value of the asset. Had managed to parlay the repudiated agreement into a new agreement with AA, but then the lost software meant they lost $750k. 101
Argued that lost capital is better representative of the lost profit ∆ said that since AA was willing to buy and was willing to sell for $750k, that is an accurate measure of the damages suffered. 101
The concern is against double-recovery: lost profits are logically contained in the value of the assets. The value of a business asset is the discounted stream of revenue that will be earned by that asset. 101
In principle, this argument is sound. If there is a radical difference between the value an asset is sold for and the damages claimed for it, something is amiss. 101
But in this case, there is a difference: the price of a share sale conducted by shareholders under financial pressure (due to ∆ actions) and eager to mitigate is NOT a proper measure of the value of the company. 101
∆ shouldn’t profit from the poor bargaining position it left in. 101
Plus, wasn’t seeking damages for the past/present value of the software, only for the lost business opportunity due to ∆ breach of agreement and subsequent injunction. 101
Issue (2) – calculation of lost profits: inclusion of expenses in damages 101
Damages for Breach of K w/ Alternative Modes of Performance 102
Expectation damages are not necessarily the ’s actual expectation, but what has a right to expect. 102
What if a party could have performed K duties in more than one way, but failed to perform at all? 102
It has been argued that we should measure the damages based on how ∆ would most likely have performed the K. 102
However, in 2004 the SCC unanimously rejected that argument: 103
Hamilton v. Open Window Bakery [2004, SCC] 103
Stands for: minimum performance principle 103
Facts: 103
Reasons – Arbour J. 103
Durham Tees Valley Airport Ltd. v. bmibaby Ltd. [2010, Eng. CA] 103
Facts: ∆ agreed to fly two airplanes out of the airport for a 10-year term, but then stopped. 103
Issue: ∆ wants to take advantage of minimum performance rule – say they agreed to fly two airplanes but never specified how many times/day they would fly. Thus, argues damages are zero under the minimum performance rule you assume the minimum possible. 103
TJ said this wasn’t even a K and declined to enforce it. 103
Held: CA did enforce the K, but rejected zero minimum. 103
Where parties have not specified, court says the K must still have meaning. 103
Since parties have not specified a range of possible performance, no room for operation of the minimum performance rule it would be absurd to assume the understood zero flights to be an option, because that is commercially ridiculous. 103
So, back to the old rule: what would the parties have actually done? 103
Reasonable amount of damages. 103
Ditmars v. Ross Drug Co. [1971, NBQB] 103
Facts: Wrongful dismissal action won, received severance and also sought a bonus that he would have earned had he not been fired. 103
Issues/Arguments: Employer argued that K said maybe bonus, but did not obligate them to pay a bonus. 104
K specifies that it is discretionary, which implicitly assumes zero as a possibility. 104
Held: Court awarded a bonus 104
Adds requirement of a bonus as a term of the K (says “virtual” but that word isn’t really necessary it’s a straight up term of the K now) 104
Through practice and continual renewals, it’s not unrealistic to say that the K has been changed by the parties over time. 104
All other pharmacists in industry had been getting salary increases, but in this case they were just getting bonuses instead, to keep them up to industry practice. 104
So: courts can avoid the minimum performance principle, and then a judge can put in whatever figure he thinks is reasonable. 104
Lewis v. Lehigh Northwest Cement Ltd. [2009, BCCA] 104
Facts: wrongful dismissal. claiming for anticipated annual increase in salary (had received ~3%/year for the previous five years). Argues implied term in K. 104
Held: Increased salary ≠ awarded. 104
Reasons: 104
Judge ≠ bound to find that would have received a discretionary salary increase during the notice period. 104
had been on extended medical leave during which he had no job performance to assess and had made no contribution to ∆ financial performance. 104
Cost of Performance or Lost Market Value 104
Posner – Economic Analysis of Law 104
Efficiency 104
Sometimes it makes more sense to breach a K than to perform it. 104
Holmes’ view: the law simply requires a party to choose between performing the K and compensating the other party for any injury resulting from failure to perform. 104
A remedy that induces the wronged party to complete the K after the breach may be wasteful 104
Hence the doctrine of mitigation, and the preference for damages as a remedy over specific performance. 104
What if the cost to ∆ of making good the wrong exceeds the value to of doing so? 104
Sometimes there is an incentive to breach where the profit expected from breaching is greater than the profit expected from performance, even considering the losses of the other party that will be taken out in damages. 104
So, the law, and remedies, are structured to facilitate the efficient allocation of resources. 105
Efficiency is defined as arrangements of resources to their most highly valued use. 105
“Value”: measured by parties’ willingness to pay 105
“Trade”: maximizes welfare and efficiency moves items to more highly valued uses as measured by a party’s willingness to pay. 105
“Contract”: allows for complex trades 105
Economic Analysis and Damages 105
Expectation damages encourage the performance of Ks when they are efficient and discourage their performance when they are inefficient. 105
When is performance of a K inefficient? 105
(a) When cost to ∆ of performance exceeds the losses from non-performance 105
(b) When alternate opportunities to ∆ are more valuable than loss 105
Efficiency explains the requirement of mitigation: reduction of joint costs of breach 105
Efficiency explains why courts should not award less than expectation damages. 105
E.g. reliance damages won’t give an incentive to carry our K even if it is efficient. 105
Efficiency explains why courts should not award more than expectation damages, and should generally avoid specific performance: 105
We don’t want to encourage the performance of inefficient Ks 105
BUT, efficiency also shows why specific performance is sometimes available: because it is the only way to measure the value of the K. 105
Where goods are fungible, SP won’t be available. 105
SP may be available if there is no functioning market in the goods, or if for some reason the market isn’t the right indicator of value 105
E.g. consumer surplus, sale of unique property 105
Note: even if the law gets it wrong on this, a post-judgment bargain may bring things back into balance. 105
Lost Value vs. Cost of Performance 105
Posner: Efficiency generally points toward “lost value” rather than “cost of performance” 105
Don’t encourage performance of Ks where cost exceeds benefit, and don’t penalize K-breaker for avoiding waste. 105
The Old Approach: Wigsell v. School for the Indigent Blind, as cited in Radford v. DeFroberville, and McGregor on Damages 105
Facts: partitioned property and sold half to build a school; part of the deal was that buyer would build a fence between the partitions. School never built, no more need for fence, and it never got built. No evidence that ∆ land was worth any more with or without the fence, but the cost of building was several thousand pounds. 105
Held: court awarded lost value. 105
Note: Posner would say that building the fence was an inefficient use of the resources. 105
Megarry V-C in Tito v. Waddell, Four Propositions on Cost of Performance Awards: 106
[Cited in Radford v. DeFroberville] 106
1. The principle is to compensate by putting him as much as possible in same pos’n as had he not suffered the wrong. It’s not about making the ∆ pay what he has saved, but about compensating the . 106
2. If has suffered monetary loss, then that is obviously recoverable. If ∆ has saved $ by not doing what he K’d to do, that is irrelevant to the calculation of damages, as it was not a loss by the . 106
3. If can establish that his loss includes the cost of doing work ∆ failed to do (in breach of K), then that sum is recoverable. Onus is on to establish what his loss was. 106
4. has a number of ways to establish that loss includes cost of work: 106
Work was done before action brought. 106
OR, work will/must be done. This Can be indicated through: 106
An action for specific performance, 106
Or by the fact that is obligated to a 3rd party to complete the work, 106
Or perhaps by the existence of a statutory obligation; 106
Could also be indicated simply by proving he wants/intends to complete the work. 106
Radford v. DeFroberville [1977] 106
Facts 106
sued for breach of K to erect a wall on ∆ property. 106
sold adjoining property to ∆ in consideration for an agreement to build a wall between them. But, ∆ never completed the wall. 106
Absence of physical barrier didn’t devalue the land; in fact, ∆ argued higher value than if wall were completed. 106
Held: gets cost of performance. 106
Reasons: 106
The principle is to put (as far as money can) in the same pos’n he would have been in had the K been fulfilled. 106
Note: this is not necessarily the same as putting in as good a financial position. 106
Distinguishes Wigsell: in this case, there was convincing evidence that did have a real interest in having a fence. 106
To assess whether a wants to complete the work: 106
1. Does have genuine/serious intention of doing the work? 106
2. Is carrying out the work reasonable for the to do? 106
In this case: 106
1. Court found the requisite ‘fixity of intention’. Plus gave undertaking anyway. Court accepted that wanted to do work and found that the appropriate measure of damages was the cost of completion. 106
2. Reasonable to carry out work? 107
This is really a question of mitigation. ∆ argued prefab fence would be just as effective and less expensive. 107
But, court did not accept this argument: 107
Prefab fence ≠ permanent and would have to maintain it 107
Prefab fence ≠ what the asked for. 107
Although ∆ argued future owner might not want a fence there, so they could build another house in a corner of the lot, court said there was no indication of that, and in fact thought it might not be possible to get planning permission anyway. 107
“A plaintiff may be willing to accept a less expensive method of performance, but I see nothing unreasonable in his wishing to adhere to the contract specification.” 107
Note: Court asked a third question: Does it matter that is not personally living on the land but wants to do the work for benefit of his tenants? 107
Apparently not. 107
Cotter 107
Facts: mining companies, ∆ breached K to drill well, seeks cost of drilling well 107
Held: In cases like this, can only get proven economic loss suffered, not cost of performance. 107
The only loss proven was $1000 for not having well. claimed $25k for cost to drill the well, but court said this would be oppressive. 107
Sunshine Exploration Ltd. v. Dolly Varden Mines Ltd. [1970, SCC] 107
Stands for: Cotter isn’t a hard rule; depends on the circumstances 107
Facts 107
Similar to Cotter. JV; (DV) holds lease to mining territory in northern ON. ∆ takes half interest and commits to doing a bunch of work, but then only does part and abandons the project. 107
claims the cost of completing the work. 107
∆ argues Cotter, you only get proven economic losses. 107
Held: gets cost of completion. Cotter ≠ hard rule – it depends. 107
Reasons 107
The rule is expectation damages. What those amount to varies depending on the circumstances. 107
In this case, ∆ had done almost nothing under the K, and full consideration had passed from . 107
∆ now owned half the property – took all the benefit from , and then didn’t do what they promised. Sense of unjust enrichment. 107
The decision looks to the true expectation: the loss was actually the information on whether or not to mine, and didn’t get that, so they didn’t get the value sought from the K. 108
Groves v. John Wunder Co. [1939, Minn. SC] 108
Facts: ∆ K with to remove fill; ∆ only took the good fill to its own advantage, leaving the land unusable and in worse condition than when it began. Cost of performance = $60k, max overall value of land = $12k. 108
Damages were awarded for cost of performance, even though that was grossly disproportionate to the value of the land. 108
Posner critiques Groves: 108
Real preference was to maintain land value, not have flat land. Thus, Posner says the decision is wrong. 108
Majority said if wants a certain situation, court shouldn’t enforce the price of the land as a cap on that preference. BUT, these were commercial operators; owned land for an investment, and it’s highly unlikely that the would actually spend $60k to level the land if he knew it would only sell for $12k. 108
If pockets the $60k then turns around and sells the property, the court hasn’t protected expectation just conferred a massive windfall. But if lives on the land and has personal/family connection etc., then maybe it can be argued that $12k isn’t the appropriate valuation. 108
SO...we examine the nature of interest in the K: is it economic or personal? 108
In Groves, there was basically a windfall built into the K for one side or the other: 108
Even if the outcome was inefficient, ∆ shouldn’t be unjustly enriched by failing to perform, and should be punished for their egregious behaviour. 108
So, where a windfall must be given to one party, for moral reasons the judge decided it should be the who benefited in this case. 108
Peevyhouse v. Garland Coal Mining Co. [1963, Oklahoma SC] 108
Facts 108
Farmers, lived on farm for generations. Leased land to coal mining company to strip-mine their land, with promise to restore farm. 108
But they didn’t restore. 108
Cost of restoration: $25k. Diminished value: $300. 108
Held: Court awarded diminished value. 108
Cost of performance uneconomic, would be windfall to . 108
Comments: 108
But in this case, the s were family people and probably had legitimate reasons for wanting the land restored. Plus, they built that requirement into the K. 108
So...maybe both Groves and Peevyhouse are wrong. 108
Probably the court and jury in Peevyhouse were bothered by the serious disparity between cost of performance and the value of the property you could buy several farms for that price. 109
Ruxley Electronics and Construction Ltd. v. Forsyth [1996, HL] 109
Stands for: consumer surplus court can consider the personal/subjective value over a straight market-value assessment 109
Facts 109
∆ built pool for , but 6 inches shallower than K called for. 109
≠ effect on value of pool, or utility (can still dive into it) no functional difference. 109
Zero lost value in commercial terms. Fixing the problem means rebuilding the whole pool, at a cost of ~£30k. 109
Held: Award of £2000 for loss of amenity higher than nothing, but less than full cost of performance 109
Reasons 109
Court believes wanted a deeper pool, but won’t award the full cost of performance. 109
Doubtful that the award would actually be used to build a deeper pool, and thinks it’s unreasonable. 109
Policy concern: protect interest w/o imposing undue liability on ∆ (who was pretty much innocent in this case.) 109
Court acknowledges loss of amenity the personal satisfaction would have had if pool were made to spec. 109
In most cases of this sort, neither alternative is really satisfactory there’s always going to be a significant windfall or punishment if you choose absolutely between cost of performance and lost market value. SO...we don’t stop with market value. Can consider an individual’s personal valuation. 109
Consumer surplus the amount by which a party values a transaction over and above the market price. 109
It’s usually hidden or irrelevant because a consumer can mitigate, thus making the loss measurable by market price (difference in what’s paid) 109
But, sometimes, the market won’t work. 109
E.g. no replacement available. 109
In these cases, court awards the value of lost amenity as an estimate of what the true loss to is. 109
Wilson v. Sooter [1988, BCCA] 109
Facts: 109
K for wedding photos. 109
K price = $399, but we can assume wedding pictures have a much higher consumer surplus value. 109
Photographer showed up drunk, took terrible pictures, and s didn’t find out until the pictures were developed. 109
∆ argued measure of damages should be the market value, $399 give them their money back. 110
s wanted the cost of redoing the whole wedding – $7000. 110
Held: s awarded ~$2000 110
Reasons 110
Court knew there was subjective value, but the cost of redoing the entire wedding and flying people back from Brazil etc. was just too high. 110
The goal: find an amount that compensates without unduly penalizing ∆. 110
Courts want to enforce performance of Ks, when they are efficient, but not to penalize people for breaching a K when performance doesn’t make sense idea of waste. 110
Miles v. Marshall [1975, ON] 110
Facts: damages for tenant failure to give land back in good repair. Some repairs ≠ necessary for enjoyment of property. 110
Held: Awarded diminution in market value 110
Reasons 110
Cited Joyner v. Weeks [1891]: two ways to measure cost of damages for repair 110
(1) cost of doing repair 110
(2) cost of diminution in market value 110
Court says that generally, the rule is #2: we look at diminution of market value. 110
Basically, the rule in Radford exists, but we’re going back to Wigsell. 110
Comment: this was decided after Sunshine, but that was an SCC case so maybe we should trust that. 110
Summary of Factors re Cost of Performance v. Lost Market Value 110
Starting Points 110
Expectation principle 110
Balance of interests 110
Enforcement of Ks 110
Avoidance of waste and inefficiency (Jacobs) 110
Factors 110
Assessment of ’s true interest 110
Nature of K commercial or consumer [Ruxley] 110
Centrality of the obligation (e.g. building K or incidental provision) 110
Problem of “waste” [Jacobs; Ruxley] 110
Problem of unjust enrichment of ∆ vs. windfall to [Groves, Peevyhouse] 110
Claim to specific performance? 110
Owner’s intent to do work 110
Reasonableness of work size disparity b/w cost of performance and benefit achieved 110
Non-Pecuniary (Aggravated) Damages for Breach of K 111
Basics 111
A common claim in tort law/personal injury cases it’s often reasonably foreseeable that if you injure someone they will suffer non-pecuniary harm. 111
In K law, the starting point is the exclusionary rule: non-pecuniary losses are presumptively not recoverable in breach of K (unless it’s also a tort/causes physical injury). 111
Addis v. Gramophone [1909, HL] 111
Facts: was fired in a mean way 111
Held: damages for breach of K are limited to financial losses, absent ability to prove an independent actionable wrong 111
This set the general rule. 111
Vorvis v. ICBC [1989, SCC] 111
Facts: fired summarily in breach of K, suffered mental distress 111
Held: SCC reaffirmed the rule: absent an independent tort or other cause of action, the mere breach of K does not attract non-pecuniary damages. 111
Policy Concerns 111
K law is generally assumed to be about trade/exchange economic values. 111
Non-economic values and risks are not normally part of the trade. 111
There is an administrative/evidentiary concern as we move away from pecuniary losses, dealing w/ subjective harms that are difficult to prove and likely prone to overstatement/exaggeration. 111
Issue of causation: 111