Part 1: Monetary Relief

(A) Introduction

-Course is divided into 2 parts(1) Monetary remedies and (2) Specific or equitable remedies (Specific performance, Injunction)

Monetary Remedies

-2 Uses

  • (1) Monetary remedies for disputes regarding property or economic interests
  • (2) Monetary remedies for physical injuries, e.g. personal injury; survivors of people who die

-Why do Remedies exist?

  • To settle a dispute in a way that is fair, balancing the interests of the parties
  • Compensate plaintiff without undue hardship on the defendant
  • Vindicate plaintiff but don’t unduly oppress the defendant

-How to apply remedies

  • (1) Identification of interest: Court selects the interests germane to the case
  • (2) Theory that corresponds: What theory of damages is most appropriate to vindicate this interest?
  • (3) Application: Court applies the theory to the facts of the case
  • The appropriate remedy is one that properly identifies and protects the Ps legitimate interests without unduly oppressing the D or damaging other private social interests that the law values.

-The normal measure of damages is expectation measure. The purpose of contract damages is generally to put the injured party in the position as thought the K had been performed.

-The normal measure of recovery in tort law is “restitution in integrum”: the P is entitled to be restored to the position she would have been in had the tort never been committed.

FRAMEWORK:

INTEREST / PURPOSE/JUSTICE / APPLY
Reliance: When you arrange your life around a representation made / Corrective / Status Quo Aute: Status quo before the interaction ever happened
Expectation: When human interaction goes beyond mistake or unfortunate interaction and is made more intentional and typically built on a promise / Distributive - restoration + distributive / Future position: Position you would have been in if promise was kept. Forward-looking
Restitution: Element of wrongdoing based on interaction where promise was used as a tool by the defendant to obtain a benefit / Corrective – focuses on unjust enrichment, not what the P has lost / Strip Gains: strip ill-gotten gains. Not focussed on what plaintiff lost but on what defendant gained
Punitive: Where above interests awarded are not enough b/c there was moral wrongdoing on the part of the defendant / Retributive / Punish/deter

(B) Expectation Damages

-Can be calculated by determining the difference between the position that the P would have been had the K been performed, and the position that the P is actually in as a result of the breach or non-performance of the K

-It is the standard measure because it protects the loss sufferance and the gain anticipated

-Rationales:

  • Allow contracting parties to treat promises about the future as present values and provide certainty
  • Are an administratively convenient way of protecting the full extent of reliance on contracts, Fuller and Purdue. Promotes the social goal of encouraging individuals to enter into and act upon agreements
  • They ensure the most valuable use of resources by setting incentives for parties to keep contract when it is efficient to do so and to breach them when performance would be inefficient

General Principles and Lost Profits

-Lost profits may be recoverable if such recovery is necessary in order to put the P in the position as thought the K had been performed

-Limits on recovery:

  • Remoteness: cannot always be foreseen
  • Mitigation: P is expected to purchase substitute goods where available
  • Onus of Proof: P needs to show what would have happened

-P can claim: Capital losses, wasted expenses, and lost profits.

-Gross profits: Are the excess of total revenue from a sale or transaction over the direct costs of the sale without and consideration of general expenses.

-Net Profits: Is the figure after all operational expenses have also been deducted from revenues.

-Consequential losses are also recoverable when property is damaged or destroyed

Canlin Ltd. v. Thiokol Fibres (1983, ONCA)

-Addresses the question of whether lost profits can be included in a breach of contract action

-Facts: Thiokol was hired by Canadian Tarpoly to provide materials for swimming pool covers. Canadian Tarpoly made and sold pool covers. Material was defective, pool covers were defective. Canadian Tarpoly suffered huge losses.

-Issue: Can P recover damages for the estimated loss of future profits caused by the D’s breach of warranty?

-TJ: There was an implied condition that goods would be reasonably fit for Tarpoly’s purpose. The material supplied was not fit for which it was intended and Thiokol was thus in breach

-CA: Loss of future business profits was not foreseeable consequence of a breach of warranty argued by D

-Law: There is a strong and binding authority to the effect that damages for loss of future profits, may in proper cases be estimated loss directly and naturally resulting in the ordinary course of events from breach of warranty. Section 51(2) of Sale of Goods Act

  • The Sale of Goods Act had the ‘difference in value rule’ for breach of delivery or breach of warranty. Remedy = difference in value between what the goods would have been if no breach and the actual value w/the breach.But this doesn’t capture the consequential losses of difference in value, namely the loss of future profits
  • Court distinguishes tailor case (Simon v. Pawsons and Leaf Ltd.): D promised to deliver fabric but doesn’t. P loses the contract to make uniforms. Court did not award damages for losing the uniform contract – “too remote.” Why? It is likely the court felt the tailor should have mitigated her damages by purchasing the fabric required to fulfill the uniform contract from a different supplier

-Test: Are the consequences such that a reasonable man at the time the tort was committed would foresee damages were likely. Proof of loss on P

-Application: Court finds that the P is not required to mitigate based on the circumstances and loss profits should be awarded because of the knowledge of the D and the catastrophic consequences of the breach, Canadian Tarpoly’s loss of goodwill, future business, and reputation of their business

  • Thiokol knew the extent of Canadian Tarpoly’s reliance on them would lead to catastrophe. Canadian Tarpoly’s reputation was so ruined they couldn’t sell to anyone else, i.e. couldn’t mitigate

-Note: courts will not refuse to quantify damages merely because they are difficult to calculate. But they will also not speculate without evidence

Ticketnet Corp. v. Air Canada (1998 ONCA)

-Facts:Ticketnet hires AC to develop ticket selling software. AC doesn’t deliver. Both parties get so involved in the dispute that the software becomes outdated/useless

  • Pre-Breach Development Costs:$1.6M
  • Post-Breach Expenses: $1.9M
  • Projected Revenue: $15M
  • Projected operating expenses & tax: $5 M
  • Asset “value” on sale: $750K

-Issue: How to calculate lost profits in a complicated, collaborative, long-term development project? Should they use the projected revenue of $15M or the $750K asset value? AC says use $750K

  • Looks at relationship between value and lost profits
  • How do you factor in expenditures made to earn profits

-TJ: Awarded loss profits, loss of business opportunity and order to return software. The $750K was negotiated when Ticketnet was in a horrendous situation and so it was a distress sale due to AC’s breach.

  • Not an accurate value. Had the contract between Ticketnet and AC been going well, the value would have been higher

-CA:Ticketnet can’t claim reliance & expectation damages because that would be double compensation, therefore they have to elect. Ticketnet can’t recover the pre-breach development costs

  • They also want $1.9M post-breach expenses? Would they have had to spend that money if the contract had been performed or did they only have to spend it b/c there was a breach in the contract?
  • $500K awarded as being a cost arising from the breach
  • Therefore, calculate damages as: $15M Projected Revenue – $5M Projected Operating Expenses & Tax + $500K Post-Breach Expenses
  • The remaining $1.4M of the Post-Breach Expenses are like the pre-breach development costs  costs that would have been spent anyway, regardless if there was a breach of contract or not

-Law: a party claiming damages for breach of K must elect between claiming for loss of profits or for wasted expenditure. Choose one, prevents double recovery and out of pocket expenses must be considered to avoid double counting them

Lost opportunities/lost volume

Apeco of Canada Ltd. v. Windmill Place (1978 SCC)

-Facts:P owns a warehouse. D enters 5-year lease to rent half of the warehouse. D refuses to complete the contract. P finds a new tenant but court still gives the P all of the lost rent from the D’s breach. Why? Isn’t this double compensation?

-Decsion:No! If D hadn’t breached, new tenant would have rented the second half of the warehouse. If there was no breach, P would have rented out both halves of the warehouse

-Law: the subsequent transaction, if to be taken into account, must be one arising out of the consequences of the breach and in the ordinary course of business

-Application: Here the second lease was not a transaction arising out of the consequences of the respondent’s breach and rent received is not to be deducted as mitigation

Damages for breach of contract with alternative modes of performance

-Where a minimum and max is set out, the court will adopt the lowest form of performance permitted by the contract. Even if it is possible that the parties may have chosen a higher level

  • Damages will be assessed in the way most favorable to the breaching party
  • Damages will be limited to the minimum performance on the assumption that the seller would have done the minimum required under the contract

-E.g. Costco & bike supplier where the contract says:

  • Costco will order no fewer than 2 bikes and the supplier will provide no more than 80 bikes so it equals lots of latitude
  • So, either (1) Get experts to figure out how many bikes would have been ordered or (2) Use the minimum level of performance as the basis for calculating damages
  • Court tries to balance between the Ps and the Ds

Hamilton v. Open Window Bakery (2004 SCC) – look at minimum performance

-Facts: Appellant worked for OWB and K had given them rights to terminate. OWB terminated K after 16 months saying she acted inappropriately. Breach confidentiality and didn’t disclose certain ingredients in bagels

-TJ: Gave her money for 36 month K, minus 25% for allowance to cancel K after 19 months. CA: Early termination clause with 3 months’ notice constituted guaranteed benefits under the K, so reduced damages

-SCC:Dismissed appeal

  • Law: where there are several ways in which the K might be performed, that mode is adopted which is the least profitable to the P and the least burthensome to the D
  • It is not necessary that the non-breaching party be restored to the position they would likely have been in but for the repudiation. Rather the non-breaching party is entitled to be restored to the position they would have been in had the K been performed.
  • TJ erred in engaging in a tort like inquiry as to what would have happened had OWB not breach. Assessment of damages required only a determination of the minimum performance the P was entitled to under the K, is the performance which was least burdensome to the D

-Ratio: Remedy is the minimum level of performance provided for by the contract

Durham Tees Valley Airport Ltd v bmibaby Ltd – Range of reasonable methods approach

-Facts: Airport closes down and there is an issue about an airline and the number of their planes which would be landing. Here there was discretion for mode of performance, don’t know the different options

-Issue: Whether the party in breach would have operated above the minimum level of performance required under the K

  • Court has to conduct a factual inquiry about how the K would have been performed had it not been repudiated

-Law: the judge conducting assessment must assume the D would not have acted outside the terms of the K and would have performed it in his own interests having regard to the relevant factors prevailing at the time

  • Solution is to seek to identify a range of reasonable methods of performance of which the least advantageous to the claimant would provide the measure of damages.

-Decision: The court refuses to apply the minimum obligation rule as there is no specific minimum number of flights stated. The courts will pay particular interest to the business interests of the D.

-Cases the court considers

  • Abrahams: The contract there said that the D would publish the Ps book and then pay a certain sum to the P. The K did not specify the number of books and the D refuses to publish saying minimum is 1.
  • Here the court doesn’t apply the classic rule instead, they make an estimate of what the earnings would have been had the contract been performed.
  • Why does the court deviate? This is not a case which specified a commercially reasonable minimum, there is no explicit range agreed upon. So the court says it is up to us what that range should be.
  • Rule: Where the parties do not specify the minimum, the court will step in and assume that the parties have an obligation to act in good faith and create a reasonable level of performance.
  • Also two employment law cases
  • Lavarack: It was an employment contract which said nothing about bonuses, but there was a history of payment of bonuses, argued it was discretionary
  • P argued for the general rule: what would I likely have earned had I not been terminated, this would have included bonuses.
  • Court refused to apply this rule and applied the minimum rule, we don’t know what would have happened. The bonus was discretionary, so it was ignored.
  • Contour Fitsgerald: the contract said while you are employed will receive an annual bonus
  • So the court refused to apply the minimum rule and awarded a bonus of lost chance of bonus. This is because the contract imposes a legal obligation on the employer to give a bonus and takes it out of the situation where the parties have specified a minimum.
  • The parties must have assumed that the agreement for bonus would not have been 0, not commercially sensible

Discretionary Benefits in Employment Contracts

-When the employment contract contains a discretionary benefit, like a bonus, courts will adopt the classic rule and assume no bonus.

-But when it is a non-discretionary benefit, no room for the classic rule.

-Where the P can establish a pattern of receiving bonuses, a court is likely to consider such pattern as the norm and hence automatic, thereby entitling wrongfully dismissed employees such benefits (Ditmar)

Lewis v. Lehigh Northwest Cement Limited

-Facts: The P went on medical leave and no position available for him when he returned. They wanted to pay him 15 months of severance and he said that it was not enough. He got 22 months at trial plus some money, but no costs

  • Appealed because he said his salary would have increased in the 5 years he took leave. The historic increase should be accounted for in the damages. The increase was an implied term

-Decision: increase in salary is a discretionary and based on companies performance. Since he didn’t work and didn’t contribute to the company’s financial performance, judge need not find it was an implied term.

  • There was nothing in the contract which stated that there would be a wage increase, so the lost wage increase is not given.

Ditmars v. Ross Drug Co.

-Facts: P worked in a company for many years as a pharmacist at several locations. He went to the doctor for surgery and didn’t come in to work. TJ found he was dismissed

  • He wanted bonuses in damages, and the company said no because it was not in the contemplation at the time of the K

-Law: It is not the original terms of the agreement which must be considered but those terms under which, with the passage of time and inevitable change in circumstances the engagement is continued.

-Decision: The court departs from what courts used to think was a hard and fast rule. He was able to show that the bonus system had become integral part of the employees wage structure. It seemed to be clear that the bonus was discretionary and at the whim of employer, so according to the traditional rule, there was no room for the court to step in and make a guess of what the bonus would have been had the contract not been breached

  • But courtimplies a term into the contract that the practice was to raise the wages via way of bonuses. The wages were substandard so they were given bonuses to make this up to par with the market wages.
  • Evidence that the board had recognized that the bonus system was a way of fixing wages

Cost of Performance v Diminution of Value

-Issue: How do you apply the expectancy principle in situations where there is a radical disjunction between difference in market value and specific performance