Introduction - McGill Universitylsa.mcgill.ca/pubdocs/files/remedies/183-unknown... · Web viewIn a case like Ruxley, it is clear that the owner got something that the judge held

Remedies Summary Fall, 20001

PART 1: DAMAGES FOR BREACH OF CONTRACT 2

1. Basic Principles 2The Compensation Principle 2Cost of Substituted Performance or Diminution in Market Value 7

2. Some Further Issues 10(a) Lost Enjoyment, Denial of Peace of Mind and Mental Distress 10(b) The Problem of Interest, Inflation and Risk 16

3. Alternative Bases for an Award of Damages 21(a) Awards Measured by the Promisor’s Gain 21(b) Punitive Damages 26

4. Limiting Rules 30(a) Remoteness 30(b) Avoidable Harms 40

PART 2: EQUITABLE REMEDIES 44

Introduction 44

Specific Performance 44General Principles 44Sale of Goods and Chattels 45Long-Term Contracts for the Supply of Goods or Services 46Personal Services Contracts 48Land Contracts 49

Financial Relief in Equity 50Introduction 50Equitable Damages 50

Injunctions 54Introduction 54Quia Timet Injunctions and the Problem of Ripeness 55Mandatory Injunctions: Definition and Supervision 55Injunctions to Protect Property Interests 56Alternatives to Injunctive Relief 58

Interlocutory Injunctions 58Introduction 58Litigation Management 58Balancing Interests 59Accessibility Threshholds 59Interlocutory Injunctions to Restrain the Disposition of Assets Pending Trial 60


Part 1: Damages for Breach of Contract

1. Basic Principles

The Compensation PrincipleClass Notes, September 12, 2000The meaning of words is very important in law. There are a lot of “weasel words”, words that look meaningful, but are actually meaningless. There are also a lot of “code words” that stand for a lot of issues (eg. remoteness). When a judge or academic uses a word, ask: “What does it denote? What does it connote? What is it code for? Does the judge really understand?”The most common response to a finding by a court that a contract has been breached is an award of damages in favour of the person injured by the breach. The rule that has been adopted was set out by Lord Atkinson in Sally Wertheim v. Chicoutimi Pulp Co. (1911):

And it is the general intention of the law that, in giving damages for breach of contract, the party complaining should, so far as it can be done by money, be placed in the same position as he would have been in if the contract had been performed…that is a ruling principle. It is a just principle.

This appears straight-forward; however, there is a weasel-word: “same position”. This does not actually mean same position, but rather same position in so far as the law recognizes it. There is a standardized response and the law ignores a number of factors that are immediately obvious.The following statement makes clear the extent to which the so-called compensation principle falls short of actual compensation.Mayne Treatise on the Law of Damages (1856):

The theoretical idea of damages is, that they are to be a compensation and satisfaction for the injury sustained. Practically, however, there can hardly ever be a case in which they are completely so. Take the simplest instance, viz., the non-payment of a debt. Put out of question every element of mental suffering caused by the delay. There may be a clear amount of pecuniary loss flowing in the most direct manner from it. The creditor may become insolvent, and be permanently ruined. He may have to borrow money at an extravagant rate of interest. Even if nothing of the sort happens, still his taxed costs of the suit never repay him for the amount he has expended in the action; for none of this, however can he be compensated. The amount of debt, with interest, and taxed costs is all he can recover.

Obviously, an award of specific performance dramatically transforms the extent to which you get perfect compensation.The compensation principle often gets confused with two other ideas: (1) the idea that the wrongdoer should not profit from his wrong; and (2) the idea that damages are intended to punish. When considering that the wrongdoer should not profit from his wrong, concepts of remoteness and mitigation do not arise. The courts falsely manipulate compensation to deal with the wrongdoer’s gain. Punitive damages raise a host of problems. The compensation principle get confused because of these other rationales for damages. You should be aware of all these reasons so that you can give your client the best advice on how to spin the issues.

Fuller and Perdue, “The Reliance Interest in Contract Damages”


[In 1936, the U.S. was undergoing a change in how people thought about the law. At the end of the 19th century, a lot of people spoke of a need for scientific analysis of law. They wanted a legal science that reduced law to basic principles that applied generally. Therefore, formalistic rules were applied rigidly – a series of propositions that could be applied like scientific laws. In the early 20th century, legal realism debunked the scientific method. Legal realism focussed on 2 things: (1) the tendency of the judge to find facts and cases to justify the conclusion he preferred; and (2) how people reacted to such judgments. Fuller and Purdue wrote when legal science was no longer valid; however, they didn’t care for legal realism, which said that the outcome of the case depended on what the judge had for breakfast. Fuller and Purdue consider the goals of law and how to reason about legal problems in a helpful way. Note that Canada never had a true legal realism movement – only recently have Canadian courts become more American than English.]There are three principal interests that are considered when awarding contract damages. They are, in order of need for judicial intervention: the restitution interest, the reliance interest and the expectation interest.The restitution interest is similar to unjust enrichment. If the plaintiff has conferred some value on the defendant in reliance on his promise (partially performed his end of the bargain), then the court may order the defendant to disgorge the value he received.The reliance interest is based on the plaintiff changing his position in reliance on the promise of the defendant. For example, the buyer of land may incur expenses in examining the seller’s title or may neglect to pursue other opportunities.The expectation interest involves giving the plaintiff what he expected to make as a result of the contract, such as profit on the re-sale of the items.[Take the example of a bank loan defaulted by the borrower. The bank can recover the principal of the loan as its restitution interest. It can also recover interest under the reliance interest (lost opportunity to lend to someone else). There is no true expectation interest; however, you can imagine it as the difference between the interest on this loan and the interest on the next-most-profitable loan the bank could have made.]Expectation interests are awarded because they are easiest to prove and the best way to calculate what the plaintiff really lost from the breach of contract (best way to measure reliance).

Posner, Economic Analysis of Law, 5th ed. (1999)Posner argues that efficient breach is positive because the goods will go to their most valued use and the breacher can simply compensate the breachee. There are two problems with this: (1) the buyer never gets perfect compensation; and (2) if you claim that the seller is entitled to an appropriate gain, the whole thing collapses (?). It is also hard to imagine a transaction with higher costs than one achieved through litigation.

Canlin Ltd. v. Thiokol Fibres Canada (1983), Ont. CA – mesh pool coversFacts: Canadian Tarpoly (Canlin) wanted to enter the U.S. market for mesh pool covers. It contracted with Thiokol to supply fabric that would have a minimum life of two winter seasons. The pool covers disintegrated before one year was out and the fabric got into the customers’ pool filters and heating systems. At a convention a year later, distributors were warned not to use Tarpoly equipment. At trial, Tarpoly was awarded damages for replacement covers and money-back given to consumers/distributors, and damages for projected loss of future business.Issue: Can Tarpoly claim damages for loss of profits?


Held: Yes. Loss of profits are recoverable if the plaintiff can show that there was a loss of profits and that such loss of profits was within the contemplation of the parties at the time of forming the contract.Swan: Notice the role of remoteness in this judgment. It steps in to limit the consequences for which the defendant is held liable (although, in this case, they decided that all damages were foreseeable). Foreseeability is often used as a matter of fact; however, it is a complete misreading of Hadley v. Baxendale. Remoteness is actually a matter of risk allocation (taxi driver – airport – job…). Cory J. mentions the Simon case involving a dressmaker who lost her job because she made dresses from the flawed material provided to her. Her lost job was not “foreseeable” at law, even if it may have been in fact.

Waddams, The Law of Damages, 2d ed.The usual object of compensatory damages is to put the plaintiff in the position that he would have occupied if his rights had been observed. Some writers have considered whether this was a just rule. Some argue that the main social purpose of the law of contracts is to protect reliance, and that the rule of damages should be changed if the plaintiff did not alter his position in reliance on the defendant’s promise. The argument that enforcing all promises as a matter of principle even where there has been no reliance can be met by proposing a change in onus of proof. If the reason for enforcement is reliance, then the plaintiff’s position is protected by a requirement that the defendant prove that there was no reliance. The argument that contracts are deliberate allocations of risk can be met by pointing out that not all contracts are.The moral argument for enforceability can be met by pointing out that no moral distinction can be drawn between purely gratuitous promises and executory promises that have not been relied upon.However, there are several difficulties that changing the rule would raise. Firstly, if specific performance is available to enforce some contracts, then damages should have an equivalent value. Secondly, for a formal contract (eg. gift under seal), the appropriate enforcement has always been the value of the promise, so damages for informal contracts should be equivalent. Thirdly, a completed exchange is considered final, often conferring a benefit on one of the parties. There is no rule that the contract can be rescinded if one party has benefitted to a greater extent than his reliance. A future planned exchange should be treated in the same way.Fourthly, risk allocation contracts should be enforced. There is not a ready means to distinguish a risk allocation contract from other contracts.[Problem with Atiyah and Waddams is that they don’t have the real world of Cannon in mind, where there is a whole cascade of consequences, including loss of reputation.

Class notesUntil the 19th century, contracts were specific – there was no general law of contracts. Now, a generalized approach has developed. Today, there are new problems. There are a bunch of general contract principles; however, courts are referring to (a) courts of their own province; and (b) courts that deal only with cases of a particular type (employment cases cite employment cases). In this sense, we are disconnecting the general principles both geographically and conceptually.

Arithmetic and Accounting Lesson


Suppose that purchaser (P) buys a machine from vendor (V). V warrants that the machine will bring in $10,000/a. (gross revenue) over the 10 year life of the machine. To earn sales, P must incur costs of raw material and labour of $4000 (cost of sales). This gives P a gross profit of $6000. Then P pays expenses, including rent, interest and property tax, etc. ($1500); office costs and administration ($1000) and depreciation of the machine ($2000) for a total of $4500 in expenses. This leaves a net profit of $1500/a.

Gross revenue $10,000Cost of Sales (variable costs) $4,000Gross profit $6,000Expenses

rent, interest, etc. $1500office, admin. $1000depreciation $2000

$4500 $4,500Net profit $1500

Profit has two meanings: net and gross. Of course, you can’t claim for gross profit and for expenses, because expenses would have been paid out of the gross profits. However, you can claim for expenses and net profit.When awarding damages, the expenses come out of the profits (to give net profits). If, as in Anglia, the plaintiff cannot prove that it would have made a profit, you assume that it would have made at least enough money to cover its costs. These are expectation interests (incurred costs to woo that actor and on the understanding that the actor would play the role), not reliance interests (future sales, etc.). The default position is that you will break even. The plaintiff must show that it would have made a profit. The defendant must show that there would have been a loss (although this can be difficult when the plaintiff has all the books, research, etc.).Watch how the judges get mixed up in Cullinane, Anglia, etc.

Cullinane v. British “Rema” Manufacturing Co. Ltd. – clay-pounding machineFacts: The defendants sold a clay pulverising plant to the plaintiff, warranting that it could produce 6 tons of clay per hour. The plant was only capable of 2 tons per hour, making it commercially useless to the plaintiff. The plaintiff claims damages for (i) the loss of capital, being the difference between the cost of the plant, the buildings to house and their estimated break-up value; (ii) interest on capital; and (iii) loss of profit for three years, allowing running costs and expenses as well as depreciation at 10%/a.Issue: Can the plaintiff claim for both the loss of capital and profits?Held: No. [The majority judges get confused about the word “profit”. They use it as gross profit, when the plaintiff was claiming net profit.Dissent: It is perfectly fine to claim for both loss of capital and net profits, i.e. as long as you include depreciation in the calculation of net profit.Class Notes: The plaintiff decided, for tactical reasons, to reduce its claim to the three year period even though the machine had a 10-year life.Problem: Consider the problem of the cow mentioned by Sir Raymond Evershed M.R. Draft the pleadings for the buyer and, making whatever assumptions that you believe you need, provide a calculation of the buyer’s damages.

R.G. McLean Ltd. v. Canadian Vickers Ltd. (1971, OCA) – printing machine


Facts: McLean bought a colour press from Vickers to print the highest quality offset lithographic printing. There was an exclusion clause in the contract saying that Vickers was liable for defects attributable to defective parts or faulty workmanship. The print quality was inferior. There were a number of difficulties that were repaired by McLean or Vickers; however, the main trouble could not be pinpointed. Vickers offered to take back the press and refund payments to McLean, unconditional with respect to any claim for damages. McLean refused and made Vickers continue to try to solve the problem. Nothing worked, and they are now suing for damages.Issue: Is Vickers liable?Held: Yes. There was a fundamental breach; however McLean chose not to treat the contract as ended and sue for damages. Therefore, everything must be considered within the context of the contract. The fundamental breach can be treated as a breach of warranty for which Vickers is liable.Issue: What are the damages?Held: McLean is entitled to be compensated to put it in the same position it would have been in if the contract had been performed. If the contract had been performed, McLean would have paid for the machine and earned profits. Therefore, the purchase price must stand as a debit against McLean. Only those profits in excess of the purchase price can be awarded. Also, McLean failed to mitigate its damages, and can only take damages up to the cut-off date.Class: Same old mistake.

M.G. Baer, “The Assessment of Damages for Breach of Contract – Loss of Profit”There are two issues that come out of McLean v. Vickers. First, that an innocent party may choose to treat the contract as at an end when there has been a repudiation (breach of condition) or innocent misrepresentation. Secondly, that a plaintiff must choose between profits and losses when calculating damages.For example, if a retailer purchased machinery at $1000, for the purpose (known to the vendor) of resale at $1500, and the machinery delivered was worthless, the purchaser could recover the $1000 purchase price and the $500 expected profit. In addition, if he had incurred additional expenses in a reasonable attempt to make the machinery work, he could recover that. This is subject to mitigation, of course, and has been codified in the Sale of Goods Act.Unfortunately, McLean has cast this method of calculating damages in doubt by ruling that a plaintiff must elect to either prove his damages in the form of lost revenue or to claim a return of the purchase price. This is a mistaken deduction from the more general idea that a plaintiff can choose to be put back in his original position or in the position he would occupy if the contract had been performed properly.Indeed, to make a profit, the plaintiff would have had to pay for the machine so the purchase price must be deducted from the claim for lost profit; however, “profit” usually already has depreciation subtracted from it.Since the plaintiff has a duty to mitigate, it is rare (except in cases of resale) that the he will be able to claim loss of profit for the entire life of the machine. At the end of, for example, a two year period, he will have paid for the machine, incurred losses of profit and perhaps made expenditures to try to fix the machine. Had the contract been performed properly, at the end of two years, he would have made two years’ worth of profits, would not have made those expenditures, and would have a two-year old machine. Therefore, when calculating damages, he should recover the lost profits, the cost of the machine minus two-years’ depreciation (often calculated in profit), and the expenditures to fix the machine.


Anglia Television Ltd. v. Reed (1972, Eng. CA) – actor bails mid-showFacts: ATV wanted to film a play for television. They arranged for a place to film, employed a director, a designer, a manager, etc. Then, they hired Reed to play the lead from September 9 to October 11, 1968. Unfortunately, Reed’s agent had already booked him for another play in America at that time, so Reed repudiated the contract. ATV was unable to find a substitute, so they abandoned the proposed film. They are suing Reed for damages. Rather than suing for profit that they cannot prove, they are asking for the wasted expenditure – fees for the director, designer, managers, etc.Issue: Are expenses that were incurred before the contract was concluded recoverable?Held: Yes. ATV can sue for either lost profits or for expenses thrown away – not for both [Denning is making same old mistake]. If it claims for expenses thrown away, it is not limited to expenses incurred after the contract was concluded.

Sunshine Vacation Villas Ltd. v. Hudson’s Bay Co. (1984, BCCA) – travel agentFacts: Sunshine had a contract with the Bay. If Sunshine opened travel agencies within small Bay stores, it would be given the opportunity to open them in the biggest stores. Sunshine duly opened travel agencies in 6-7 small Bays. Bay then renewed its contract with the previous travel agent to open them in the big stores. Sunshine is suing for lost profits and capital costs thrown away.Issues: Can Sunshine recover both lost profits and capital expenditures?Held: No. They can only recover lost profits. [Same old mistake.]

Cost of Substituted Performance or Diminution in Market ValueThese issues arise in the mining and petroleum industries which follow this pattern. A prospector finds evidence of minerals and stakes a claim (exclusive right to minerals for a certain time). The prospector is usually a junior mining company that specializes in exploration but doesn’t have the capital to develop finds. The junior makes an agreement with a big company where the big company gets back its costs first, then they split the profits along agreed lines (depending on how promising the find is). The big company buys an option on the property; the price of the option is the promise to develop (i.e. the junior demands: “Either you develop it yourself, or you pay me the cost of doing work). As you will see in Cunningham, etc., there are a lot of twists that courts can take.

Cunningham v. InsingerSwan: The court awards the price of performance rather than damages. It misses the point that this is a claim for what the defendant promised to pay if it didn’t develop. The contract was not a promise to actually develop the site. This was an option where the price was the money or the work.

Cotter v. General Petroleums Ltd.Facts: Cotter had a lease for petroleum and natural gas on a quarter-section. He sold an option for a sub-lease to GPL, the price being the act of spudding a well. GPL discovered that the likelihood of oil was remote, so it didn’t bother drilling. Cotter was forced to pay $1000 to continue the lease. Cotter is suing GPL for the $1000 and the cost of drilling.Issue: The court agrees that GPL breached the option. What should the damages be?Held: The plaintiff should be put in the position he would occupy if the contract had been performed. This includes the $1000 he paid and his share of the oil proceeds. The chance of


finding oil was remote, so there would probably not have been any proceeds to share. Therefore, Cotter can only recover the $1000.Swan: The court interprets this as a breach of contract with a suit for damages, rather than a grant of option with a price attached. However, in this case, there was no promise to drill in the option (it was simply the price)

Sunshine Exploration Ltd. v. Dolly Varden Mines Ltd. (N.P.L.)Facts: Sunshine bought a option from DV. Sunshine asked for more time, which DV granted in return for extra exploratory work. Sunshine didn’t do the extra work. DV is suing.Issue: What are the proper damages?Held: The cost of doing the work. The difference between the value of the land with and without the work being done is not an appropriate measure of damages. Sunshine gave a firm commitment to complete the work and refused to perform, which is different than Cotter. This was a case in which DV had paid for the work to be done (by granting an option and more time). That obviously had the same value as the work itself. Therefore, DV should be allowed to recover the cost of the work.Swan: Here, the court gets it dead right.Problem: Can you work out a rationalization for the difference in result in Cotter and Sunshine?

Wigsell v. School for Indigent Blind (1881 Eng.CA) – referred to in Sunshine ExplorationFacts: The purchaser wants to build a school for blind children on the property. The vendor agrees but asks for a wall to keep the children off his property. The purchaser didn’t build the school. The vendor sued for the price of building the wall.Held: The vendor cannot recover the price of building the wall. It was not part of the purchase price, but merely risk allocation. If the vendor wanted it to be built, he should have made it part of the purchase price (structure the deal differently: here it was cost of land with obligation to build, rather than the cost of the land and the cost of the fence equalling the purchase price).

James v. Hutton (1950, Eng.CA) – referred to in Sunshine ExplorationFacts: The landowner leased the property to a tenant with an obligation to restore the land at the end of the lease. There was no restoration of the land. Court: The landowner cannot recover because the restoration didn’t make any difference in the value of his land. Restoration was not part of the purchase price, but an allocation of risk of diminution of property value.Problem with this approach: The tenant is enriched because he doesn’t have to fulfill his obligations.

Class NotesLawyers are not stupid. They try to transform other relationships to look like the purchase of an option. For example, a billboard advertising company says: “I will sell you an option to put up an ad for 7 years. I don’t care if you exercise it, but I will sue you for the price of the option.”White v. Carter involves options to place ads on garbage cans.The classic option: A developer wants to develop a block of real estate. The owner grants the developer an option to purchase. The fact that the developer chooses not to exercise the option doesn’t mean that he can get out of paying for the option.

Peevyhouse v. Garland Coal and Mining Co. (SCOK)Facts: Peevyhouse leased its farm to Garland for strip-mining. The contract included a clause obliging Garland to restore the land. Garland did not do so. Peevyhouse is suing. The cost of


restoring the land is about $29,000. The land is only worth $5000. The difference in value of the land before and after restoration is $300.Issue: What is the proper measure of damages?Held: The difference in value. Generally, the measure of damages would be the cost of performance of the work; however, where the contract provision breached was merely incidental to the main purpose in view, and where the economic benefit which would result by performance is grossly disporportionate to the cost of performance, the damages are limited to the diminution in value of the premises.Swan: The facts and issues that are presented in Peevyhouse can be re-considered in the light of research done by Judith L. Maute. Her article makes the following points:1. Mr. and Mrs. Peevyhouse exchanged a down payment of $3000 (given to all lessors by

Garland) for the promise to level the land.2. It is impossible to know what the costs of levelling actually were and the accepted figure of

$30,000 is probably too high.3. The value of levelled land to Mr. and Mrs. Peevyhouse probably considerably exceeded the

difference in market value and, in any event, the court significantly under-estimated that figure.

4. In an important sense both parties made a mistake, though the intial mistake by Mr. and Mrs. Peevyhouse in trusting that the amendment to the agreement would be effective was hugely magnified by the mistakes made by their counsel. At the same time, Garland may have made a mistake, expecting more coal than actually existed, and under-estimating the cost of restoration.

In dealing with a case like Peevyhouse, note that the defendant is gaining by not having to perform (unjust enrichment-like). This shift in focus to the defendant’s gain gives alternatives for awarding damages. Unfortunately, awards based on defendant gain are rarely given in cases for breach of contract.Eg. A plaintiff buys a car for $25,000. To get recovery of the purchase price, he must bring an action in recission (a remedy that says “There is no contract”). Recission is limited to cases where there is complete failure of consideration. In facts like Peevyhouse and Ruxley, there is consideration – it’s just not what the plaintiffs wanted.Suppose Garland estimated that restoration would cost $10,000, but it actually costs $25,000. It got a $3000 reduction on the signing bonus and agreed to pay $7000 from royalties. There was not much coal and they could only give $4000 in royalties. Garland was not enriched by the actual cost of restoration.In Ruxley, it is easier to see the amount of enrichment.In Radford, the court awards the cost of performance, so enrichment doesn’t arise.

Radford v. DeFroberville (1977, Chancery) - wallFacts: The plaintiff sold land to the defendant. The defendant covenanted to build a wall. The defendant did not build the wall. It would cost £3400 to build (about 20% of cost of land). The plaintiff actually intends to build a wall. There is no diminution in value because of the lack of a wall.Issue: What are the appropriate damages?Held: The cost of building the wall. The basic question to ask is, “What has the plaintiff lost?” This is different from Wigshell because the plaintiff actually intends to build the wall and it is a reasonable thing to do.Swan: The obligation to build and maintain a wall should be reflected in the purchase price.


Ruxley Electronics and Construction Ltd. v. Forsyth (1995, HL) – shallow poolFacts: Forsyth hired Ruxley to build a swimming pool 7 ft 6 in deep. Ruxley built a pool 6 ft 9 in deep. It would cost £21,560 to rebuild. There is no diminution in value of the property.Issue: What damages should Forsyth get?Held: £2500. The defendant should not get the cost of rebuilding the pool because he has no intention of doing so (nor would it be reasonable). He should get more than the diminution in value because this is not solely an economic loss, but a loss of pleasure.

2. Some Further IssuesOne of the sub-plots in the preceding three cases (Peevyhouse, Radford and Ruxley) is whether and to what extent Mayne’s statement of the compensation principle is subject to qualification. Qualifications may be made in at least two respects: (1) effects on the promisee’s feelings; and (2) interest, inflation and risk.

(a) Lost Enjoyment, Denial of Peace of Mind and Mental DistressThe first has to do with the “mental suffering” that the promisor’s breach has caused the promisee. We can ignore the issue of “mental distress” that a corporation may suffer. The issue directly raised by Mayne is whether an individual merchant would have the same possibility of injured feelings or mental distress. If we leave that issue aside for the moment and if we assume that the promisee is not a merchant, should he be entitled to anything for “lost enjoyment” or lost “peace of mind”. The following cases explore this issue.

Jarvis v. Swan’s Tours Ltd. (1973, CA) – holiday gone wrongFacts: Jarvis ordered a tour from Swan’s. It was a terrible disappointment – he didn’t get much that had been advertised. He sued for mental distress.Issue: Can an award of damages include damages for mental distress?Held: Yes. Where it is a contract for the purpose of providing entertainment and enjoyment, damages can be given for disappointment and distress.Swan: Jarvis’ subjective feelings are not very important. The court looks at objective feelings of disappointment.Question: What do you think that the commentator had in mind when he observed (page 341) that Mr. Jarvis had made a 100% profit on his disappointment? Prepare a short explanation or rebuttal.

Class NotesJarvis rejects Mayne’s narrow view, focussing on the element of position and recognizing emotional or psychological position. In later cases the courts will struggle with the limits to financial recovery for mental distress.If you see Jarvis as a development of the compensation principle, then 3 things come up:1. Is this a good development?2. If it is good, then what are the consequences and how do we deal with it? If you see it as part

of the compensation principle, you can use it to deal with similar cases.3. Value choice: Mayne wanted to limit compensation. Denning wanted to expand it.The travel and tourism industry has accepted Jarvis. Before Jarvis, people still got extended damages because the court could play with costs (they have a wide discretion with costs, which are rarely changed on appeal). The mere fact that a court narrowly construes the compensation principle does not mean that it doesn’t give the plaintiff a high award. Therefore, always give


your client advice to show what a nice guy he is who deserves compensation (eg. write polite, reasonable letters, etc.).Jarvis tends to be limited to cases where there was a promise to provide enjoyment; however, Jarvis potentially makes it possible to ask for mental distress damages anywhere. Also consider Ruxley, where loss of amenity is roughly equivalent to loss of enjoyment.

Employment CasesThe basic rule with respect to wrongful dismissal is that there must be cause for dismissal or reasonable notice.In Scapalatti, a carpenter was dismissed when work dried up in the winter. The CA dismissed his claim because they said that there’s no reasonable notice rule in the construction industry. Everyone knows when employment is coming to an end, so no one sues for wrongful dismissal. It is even excluded from the Employment Standards Act.Reasonable notice varies with:1. seniority of employee (# of years)2. status of employee (more senior position, more notice)3. prospect for alternative employment.The typical notice provision is translated into a time period (X months). The time is translated into money by multiplying the salary (since nobody wants a disgruntled employee around).

Vorvis v. Insurance Corporation of British Columbia (1989, SCC) – fired employeeFacts: Vorvis was a lawyer at the Corporation. His immediate superior harassed him. Vorvis’ health deteriorated from anxiety. Vorvis was finally dismissed with cause. They were willing to dismiss him without cause if he agreed to have a shorter notice period. He sued. The trial court found that he was dismissed without cause.Issue: Can Vorvis collect aggravated damages for mental distress?Held (McIntyre): No. Aggravated damages are purely compensatory in nature. They compensate for intangible injuries.Aggravated damages may be awarded for breach of contract in appropriate cases; however, this is not one. A good indication of an appropriate case for an award of aggravated damages is one in which there is an independently actionable wrong. The employer/employee relationship has always been one where either party could terminate with due notice. Therefore, the only damage which could arise would result from a failure to give such notice. Aggravated damages might possibly be awarded in a case of wrongful dismissal, particularly where the acts complained of were also independently actionable. Finally, the mental distress did not proceed from the wrongful dismissal itself, but from conduct that preceded it.Dissent (Wilson): Mental distress damages are justified on the basis of Hadley v. Baxendale. Mental distress could have been foreseen.

Class NotesThe SCC dismisses Vorvis’ claim for aggravated damages by saying that he cannot get damages for the general abuse prior to the point of being fired. Mental distress damages are only available when the mental distress arises from the breach. McIntyre uses the term “independently actionable wrong”. This is problematic: if there were an independently actionable wrong, why wouldn’t Vorvis sue under it.The background to Vorvis is essential to understand the judgment. During the recession in the early 80s, many long-term employees were fired; almost all were men in middle management positions. This was a radical change in the employment relationship as understood at the time.


Courts and judges became sensitive to these issues and awards for mental distress damages were awarded without too much thought. The justification of the awards were: The distress was caused because the notice was inadequate. In truth, people were distressed because they were unexpectedly unemployed. The SCC decided to use Vorvis as an example for the lower courts. McIntyre’s judgment was seen as a deliberate attempt to limit mental distress damages. Lower courts hated Vorvis and often ignored it.Wilson’s opinion is crack-headed. Hadley delas with stopping compensation, not starting it. Hadley v. Baxendale works well in a single transaction context, where you can look back to the day the contract was made. In relational contracts, the relationship changes over time, even if a new contract isn’t signed. Over time, both the employer and the employee have invested a lot in the relationship. There have been some recent cases where, instead of constantly increasing employees’ rights over the years, the employer has had the termerity to decrease them. The courts have even more difficulty dealing with this. They suggest that the employer must say, “Agree to this or I’ll fire you” in order to change the relationship. This is asymmetrical, since an employee doesn’t have to say, “Give me rights or I’ll quit.” There is not the symmetrical ability to change the contract. An employee’s continuing to work is consideration for increased rights; whereas an employer’s continuing to hire is not consideration for decreasing employee’s rights.

Wallace v. United Grain Growers Ltd. (1997, SCC) – wrongful dismissal, good faith…Facts: Wallace was a 45-year old with a secure job. He was induced to leave the job by an offer from UGG who said that Wallace could expect to remain with it until he retired. After 14 years as a successful salesman, he was suddenly dismissed. UGG alleged that he was dismissed with cause. Wallace could not find alternative employment. He is suing for wrongful dismissal, mental distress and punitive damages. The trial judge awarded 24 months plus mental distress damages. The CA took away the mental distress damages and reduced the award to 15 months.Issue: Can Wallace recover punitive damages?Held (Iacobucci): No. UGG’s actions were not “harsh, vindictive, reprehensible and malicious”.Issue: Can Wallace recover damages for mental distress?Held: No. An employment contract is not one in which peace of mind is the very matter contracted for (e.g. Jarvis), so the foreseeability of mental distress doesn’t matter unless there’s an independently actionable wrong.Employers and employees have a mutually right to terminate an employment contract at any time provided there are no express provisions to the contrary, and “bad faith dismissal” would alter that.Issue: What is the appropriate award for wrongful dismissal?Held: 24 months. There are many factors to consider when calculating reasonable notice. Bardal lists the character of the employment, length of service, age of servant, and availability of similar employment. Another factor is whether the dismissed employee was induced to leave previous secure employment. There is also the factor of the presence of job security. These must be taken into consideration. There is a power imbalance in the employment relationship, which is very heavy at the point of termination. Therefore, bad faith conduct in the manner of dismissal is another factor that is properly compensated for by an addition to the notice period.Dissent (McLachlin): An award for damages for wrongful dismissal should be confined to factors relevant to the prospect of finding replacement employment. However, the law has evolved to permit recognition of an implied duty of good faith in termination of employment.


Class NotesThe court in Wallace struggles to compensate a clear loss, but didn’t have a way to deal with it. It explicitly refused to find freedom from mental distress in an employment contract. The court wanted to dance around the problem without saying anything nasty about Vorvis. You can’t reconcile Vorvis and Wallace.Vorvis is rather contradictory. It says that Wallace had no guarantee of employment until retirement, but he had some job security. It says that there was no obligation on the employer to treat the employee in good faith, but it could be held liable for acting in bad faith. This is ridiculous; for compensation, there has to be a breach of an obligation.There are many statements about how important employment is to a person’s life and how there’s inequality of bargaining power, but refuses to put an obligation of good faith on the employer. Yet, it recognizes these factors in the assessment of damages (although it is really vague about how it came up with 24 months).McLaughlin’s judgment makes much more sense.Another problem: In Manitoba, you might get lower damages because they put more money in the extended award and less in ordinary damages. In Ontario, they put more in ordinary damages, and less in extended.Wallace makes it clear(?) that you do get something when your scumbag boss dismisses you, but it is not clear how much or when.

Warrington v. Great-West Life Insurance (1996, BCCA) – disability insuranceFacts: Warrington took out a disability policy with Great-West. GW resolutely denied benefits despite overwhelming evidence of Warrington’s disability. Warrington is suing for damages, including punitive damages and aggravated damages for mental distress.Issue: Can Warrington recover punitive damages or aggravated damages for mental distress?Held: He can recover aggravated damages for mental distress. Jarvis and others rejected the denial of recovery for disappointment in “peace of mind” cases. Aggravated damages are purely compensatory – they compensate for suffering and are independent of the defendant’s conduct or motives. They can be recovered when the subject-matter of the contract is to provide peace of mind or freedom from distress. Such is a disability insurance policy. It’s object is to provide freedom from distress while you are dealing with disability.

Class NotesThis is a very standard case, involving a very standard life insurance policy. During the first two years of disability, it is easy to get compensation under the policy (test: can you perform your old job?). After two years, it is much harder to get compensation (test: can you do any job?). After two years, the insurance company looks hard at the medical evidence because it’s looking at a long-term problem. Warrington deals with the situation where the insured was denied insurance and the court later says that they should have got it.The Court wants to award aggravated damages, but is limited by Vorvis, in which McIntyre said that there had to be an independently actionable wrong. The Court gets around this by saying that there are two things offered by the insurance company: (1) disability benefits; and (2) peace of mind (Newbury: “I am content that mental distress is recoverable when one of the objects of the contract is to provide peace of mind and absence of mental distress”). The problem with this analysis is that any contract can be broken down to show peace of mind as an object. The court treats peace of mind as a warranty or a collateral promise (“If you buy this good, I promise that it will have this quality”).


Note the language of the judgment. An insurance contract is a contract “of the utmost good faith”, in which the insured must reveal all information. Now the insurer must also be held to behaviour in the utmost good faith. This is almost uses fiduciary duty language.There is also the possibility of treating this as a procedural issue (à la admin. law) as follows: The insurer may in good faith believe that the insured does not have a good claim; they must give the insured a chance to present his case (i.e. why he should receive benefits). In the employment context, it would require that an employer give the employee a chance to defend himself against accusations of incompetence. These cases would then become a question of procedural fairness.Problem: Warrington said that it didn’t matter if the insurance company was acting in good faith or maliciously. This doesn’t make sense: an insurance company must be able to refuse payment in good faith. In McIsaac, a case in which the insurer had acted reasonably, the court refused to reconsider Warrington in light of Wallace. This leaves a very unsatisfactory position.Unfortunately, there is generally very little legal analysis of damages. Many people, Southam included, would award damages because they could have been foreseen (misapplying Hadley v. Baxendale). Hadley v. Baxendale uses foreseeability as a basis for limiting damages once they have been started, not as a basis for awarding them in the first place. The real question should be one of risk allocation. The price of the contract should show risk allocation. The question should be whether the risk of mental distress was allocated. This also applies in the employment context.

Kempling v. Hearthstone Manor Corp. (1996, Alta. CA) – condo in NanaimoFacts: Hearthstone sold a condo to the Kemplings. The Kemplings told Hearthstone that the condo was to accommodate themselves and the wife’s elderly father. They are suing for the contract price plus mental distress damages.Issue: Can they collect damages for mental distress?Held: Yes. The test to limit liability where the claim arises through special circumstances is as follows: (1) the contract must be made on the basis of those special circumstances; (2) they must be communicated to the defendant; (3) there must be a causal link between the breach and the distress; and (4) mental distress must be foreseeable. Those were fulfilled here.

Class NotesThis is not an enjoyment case, but a real estate case. The Alberta Court of Appeal awarded damages because the defendant could have foreseen mental distress. By itself, foreseeability is not enough. It must be combined with risk allocation to form a good basis for awarding damages.

Problem1. Draft a memo for the Claims Department of a large life and disability insurer stating what

should be done to avoid the risk that “extended damages” will be awarded if a disability claim is denied.

2. Draft a memo for a client that builds and sells condos advising it how to deal with the problem of particularly sensitive purchasers. Might you encounter problems of the Charter or from provincial human rights commissions if you were to try some ways to protect your client?

CommentThere are a great many cases dealing with issues of wrongful dismissal and I shall only very briefly note a few. The leading cases are referred to in the SCC judgment in Wallace. One that


is particularly interesting (and not referred to there) is Cronk v. Canadian General Insurance Company (1995), 25 O.R. (3d) 505.

McCaw v. United Church of Canada (1991, OCA) – fired minister, admin. lawFacts: There was a controversy at McCaw’s church. The Presbytery inquired and wrote a letter advising McCaw that he would “be required to take a course as laid down by Presbytery.” A few days later, it passed a resolution recommending to Conference that McCaw’s name be placed on the discontinued service list. The Conference heeded that recommendation.The Manual is the law of the United Church of Canada and governs its relationship with its ministers. S.176(c) states that the Presbytery can recommend to Conference that a minister’s name be removed from the rolls and put on the discontinued service list if the minister has refused to take a directed program for the improvement of pastoral skills.Issue: Was the recommendation made under s. 176(c) valid?Held: No. The Presbytery never directed a program for the improvement of McCaw’s pastoral skills, so he never refused to take such a program. That would be the only basis upon which the recommendation could be made, and the conditions for it were not fulfilled.Issue: Should McCaw receive damages analogous to wrongful dismissal or should his name be placed back on the rolls?Held: McCaw’s name should be placed back on the rolls. This is not necessarily a wrongful dismissal suit, but it is wrongful interference with the status of a person to earn his living, resulting in financial injury. The basis of wrongful dismissal damages is that an employment contract is generally terminable upon reasonable notice; the status of an ordained minister of the United Church is not. Therefore, damages are inadequate.Note: Note how the problem of wrongful dismissal is transformed if the issue is seen, not as a breach of contract, but as an administrative issue, attracting all kinds of procedural safeguards.Similarly, if an employer cannot establish grounds for dismissal, a union or labour arbitrator will always require reinstatement. Courts don’t do that (except in this weird administrative law-type case).It is worth noting that applying the concept of extended damages to a claim by a corporation might cause difficulties. A corporation, having neither a soul to be damned nor a body to be kicked, cannot have feelings; it cannot suffer mental distress or enjoyment. Indeed, an individual who is a merchant may be thought of as similarly “emotionally challenged”. Where a corporation claims damages for breach of contract, the application of the compensation principle would deny it any more than what can be termed “standard” damages. This fact would deprive the court of the option of expressing its disapproval of the defendant’s conduct by an award for mental distress.Walker et al. v. CFTO Ltd. et al. (1987), 59 O.R. (2d) 104, was an action for defamation brought by an individual and a corporation. The CA held the defendant liable in defamation to both the individual and the corporation. In giving the judgment of the Court, Robins J.A. said:

But a company has no feelings and, therefore, as Lord Reid notes in Lewis et al. v. Daily Telegraph, Ltd., [1963] 2 All E.R. 151 (H.L.) at p. 156, “[a] company cannot be injured in its feelings, it can only be injured in its pocket”. Hence, unlike an individual, a company is not entitled to compensation for injury to hurt feelings or, it follows, to compensation by way of aggravated damages for a loss of this nature.


(b) The Problem of Interest, Inflation and RiskThere is systematic undercompensation because the plaintiff doesn’t get the difference between the market price and contract price until judgment day.The background to the power of the courts to award interest at common law is described in Hungerfords v. Walker (p.362). The court rejected the call for interest because: (1) the inflation loss was not foreseeable; and (2) it was not a proper head of damages.Once the courts had the power to award pre-judgment interest, the problem was transformed and the extent of the systematic under-compensation of plaintiffs was reduced.The prejudgment interest rate provide for in s. 128 of the Courts of Justice Act (RSO 1990, c. C.43) is fixed by the rules set out in s. 127. The pre-judgment interest rate is the bank rate for the quarter preceding the quarter in which the proceedings were commenced. The reference rate is the “bank rate” established by the Bank of Canada for each quarter. The post-judgment rate is higher than the pre-judgment rate because (i) the bank rate is rounde to the next higher whole number and (ii) 1% is added to that rate. The pre-judgment (and post-judgment) interest rate for each quarter is published in the Ontario Gazette and set out in, for example, Watson & McGowan, Ontario Civil Practice. If there are wide interest rate swings either before or after judgment, the plaintiff may have different incentives depending on how the rate has varied.It is clear that $1,000 payable a year from now is worth less than $1,000 payable today. The fact that, in general, the common law courts did not until quite recently have the power to award pre-judgment interest led to serious and systematic under-compensation of plaintiffs.

Generally, you sue for the price of damages plus interest. Note that the amount at the date of closing or breach with interest is different from the market price at the judgment day. The issue is of market price vs. inflation/interest rates. The reason specific performance is so attractive is because it gives the full market value. This regime gives the purchaser the opportunity to speculate. One area with rapid fluctuations in price is foreign currency. The court has struggled with figuring out compensation, considering the change in exchange rates. According to the Treaty of Rome, Canadian courts must give all judgments for money in Canadian dollars. A judgment is an order to the sherriff to seize enough goods to raise the money. If foreign currency is involved, the sherriff is ordered to seize enough goods to raise the amount in Canadian dollars that would buy enough foreign currency based on the exchange rate of the day before payment. This is equivalent to an order for specific performance.

Perry v. Sydney PhillipsFacts: Perry hired S.P. to inspect a house that he wanted to purchase. The inspection was done negligently, so that Perry paid far more for the house than it was worth. Generally, in this case, you make the inspector pay for the repairs. Perry sold the house without having the work done.Held: Perry gets the difference between the market price of the house he actually bought and the price he actually paid plus interest.Note: Perry’s reliance interest was the difference plus interest. His expectation interest would have been if S.P. had warranted the fact that it was a grade A house. In such a case, he would

market price (judgment day)market price at breach + interestmarket price (at day of closing/breach)contract price


have been given the difference between the market price of a grade A house and his actual house at the date of trial. (Reliance is the amount he lost; expectation is the amount he would have made). The court chose to award only his reliance interest.

Dodd Properties v. Canterbury City CouncilThis case demonstrates that if the increase in value of the property is roughly equivalent to the interest rate, then there is no difference between awarding reliance or expectation interest. Note: This doesn’t work if interest rates and increase in property values are very different. There was an intensity of problems with land sale contracts in England during a period of incredible increases in land prices.

Judgment Date DamagesCourts of Justice Act, RSO 1990, c. C.43, s.99A court that has jurisdiction to grant an injunction or order specific performance may award damages in addition to, or in substitution for, the injunction or specific performance.Note: This comes from Lord Cairns’ Act in England.

Wroth v. TylerFacts: Wroth agreed to buy Tyler’s house for £6000 in May. By the date of breach the value of the land was £7500. By the date of the trial, it was £11,000. Ralph wanted specific performance. The problem with that is that Mrs. Tyler had a protected interest in the house and she was not party to the contract.Issue: What are the damages in substitution for specific performance, as envisaged by the Courts of Justice Act, s. 99?Held: This is a proceeding in equity (specific performance). Lord Cairns’ Act gives the court discretionary power to give damages. The damages must be assessed at the time when the court is making its decision to award damages, i.e. the trial date, in order to be a true substitute for specific performance. This will allow them to buy a new house.

Johnson v. Agnew (1980, Eng.)This case states that courts have general power to choose the date for the assessment of damages.

Metropolitan Trust Co. of Canada v. Pressure Concrete Services Ltd.Facts: The owner of a building agrees to sell it and lease it back (sale of a lease-back). This makes damages very easy to assess. They knew exactly what they would have made (because they’ve been operating there for years). They know that their income will cover their expenses, so you can give the buyer the entire increase in the value of the land.

306793 Ontario Limited v Rimes (Ont., 1979)Facts: The plaintiff contracted to purchase 29 acres of vacant land for $580,000 ($20,000/acre). The defendant defaulted. The plaintiff asked for damages in lieu of specific performance. It was agreed that the date for assessing damages was the date of trial, at which point the value of the land was $25,000 to $30,000 an acre. An appraiser estimated that the vendor paid carrying charges of 10% to 15% of the value of the land. The trial judge awarded the increased value minus approximately 10% as carrying charges on the land.Issue: Should the vendor’s carrying charges be taken away from the damages for increased value of the land?Held: No. The plaintiff should get the difference between the original purchase price and the increased value at the date of trial. The defendant, having delayed the closing of the transaction


in breach of the agreement cannot ask for part of the transaction to be back-dated to the original date of closing so that it can be relieved of the carrying charges while in possession of the property.Reasoning: The trial judge imposed on the purchaser, who was not in default, the notional carrying charges and offset them against any increase in the value of the land. This removes from the vendor any risk in assuming the carrying charges as well as holding the property because he recovers those charges from the purchaser. The defendant would still be in possession of the land and be able to sell it at the new valuation, recouping his carrying charges plus the profit. If the plaintiff had opted for specific performance, there would have been no accounting for carrying charges.Note: The appeal court rightfully rejected the trial judgment, since the costs to the vendor are not an issue. However, the trial judge was onto something important. The appropriate thing to do would be to focus on what the purchaser’s carrying costs would have been.

Semelhago v. Paramadevan (SCC, 1996)Facts: S. contracted with P. to purchase a house under construction for $205,000. He planned to pay $75,000 in cash and raise $130,000 by mortgaging his present home. P. sold the house to a third party in breach of contract. S. commenced an action for specific performance with an alternative claim for damages. At the date of trial the house was worth $325,000. S.’s own house increased in value from $190,000 to $300,000.Issue: Is specific performance (or damages in lieu of) appropriate here?Held: The court doesn’t really address this issue because it wasn’t argued, but states in obiter that in another case, the trial judge would not be bound to allow specific performance for breach of a contract involving real estate that is not unique. This is because the basis for awarding specific performance is that the thing is unique and you can continue to treat the contract as operational up to the date of trial.Issue: Should the award deduct the increase in value of S.’s own home, since he had planned to sell that when he bought P.’s house?Held: No. There should be no such deduction because S. would have had both places if he had received specific performance.Note: A problem with this case is that S. didn’t care if he got the house or not. The trial judge felt bound to award the full difference between the market value at trial and the contract price, based on Rimes. However, the trial judge felt that this was excessive considering that S. had gained almost as much on the increase in value of his own house. S. would not have made both profits because he had to sell his house to buy the new one.

Peco v. Windmill PlaceFacts: Peco agreed to rent a shop in Windmill Place. The tenant breached and the landlord sued for damages. The landlord managed to rent out the shop.Issue: Since the landlord rented out the shop, should damages be awarded?Held: Yes, if there are still vacancies and the landlord could still have rented to another person.Reasoning: The court asks: “Did the gain arise from the breach?” In other words, could the landlord have had both profits? If the defendant can show that the plaintiff would not have had both profits, then the plaintiff cannot recover.

Employment CaseFacts: A senior employee is fired. He bought a bunch of inventory from the company and sold it for great profit. His suit for wrongful dismissal was rejected because he would not have been


able to buy the inventory as president (fiduciary obligation). Therefore, the gain arose from the breach.

Jamal v. Moolla Dawood Sons & Co. (1916, PC Burma)Facts: Jamal agreed to buy shares at a certain price, then breached. The seller later sold the shares for a price higher than the price at the date of breach.Issue: What should the damages be?Held: The difference between the contract price and the price at the date of breach.Reasoning: Since the defaulting buyer doesn’t bear the risk of further loss after breach, then the buyer cannot be permitted to have the gain after breach.Notes: You want to compensate the seller, but wish to prevent the seller from speculating at the expense of the buyer. The seller knows that he will get the contract price regardless what happens, so he can hang on to the shares hoping that the price will rise. [I don’t get it. He can’t speculate like that because he bears the risk of the shares decreasing further in value.] The seller can also hope for judgment day damages, but these are only available for things that have a thin market (Sale of Goods Act). The default rule is breach date damages if there is an available market.

Class NotesThere is a problem with judgment date damages. If the plaintiff had paid the money at the breach date, they would have incurred costs: borrowing costs; lost investment opportunity (assuming that the property is not income property). Therefore, you must be careful when you award judgment date damages to take account of the costs the purchaser would have incurred. To be fair, the plaintiff should have to pay the purchase price and costs when getting specific performance.One of the problems created by Semelhago v. Paramadevan is that it provides the purchaser with an opportunity to speculate at the risk of the vendor. If the property rises in value, it can sue for damages in lieu of specific performance. If the property falls in value, it can sue for ordinary damages (breach date). The availablility of this risk is seen more easily in Jamal v. Moolla Dawood Sons & Co. When looking at “costs” that the plaintiff would have incurred, you should also include gains that the plaintiff would not have made (eg. the rise in value on his own house in Semelhago). You can assume that the plaintiff’s money would have been invested in low interest-bearing instruments (principle of mitigation).Ontario Law Reform CommissionWhere a seller has exercised his right of resale (in face of breach by the buyer), he should be bound by the results of the resale in claiming his damages.

Asamera Oil Corp. Ltd. v. Sea Oil & General Corp. (1979, SCC)Facts: Contract of loan of stocks to Brooks, president of Asamera, by Baud, a subsidiary of Sea Oil. Brooks did not return them in breach of contract. The share price fluctuated greatly since the loan was made, generally rising ($0.29 at time of breach to high of $47).Issue: Can Baud request specific performance?Held: No. In this case, damages are an adequate remedy since Asamera shares are listed on the public stock exchanges and their market value can be estimated from day to day.Issue: How should damages be measured?Held: Damages are measured by determining how much the purchaser would have to pay in the market at the time of breach minus the contract price. This involves two principles: (1) The plaintiff has a right to recover all its losses which are reasonably contemplated by the parties as


liable to result from the breach; and (2) the plaintiff has a duty to mitigate his losses. Mitigation requires that the plaintiff purchase like shares in the market on the date of breach or within a period thereafter which is reasonable in all the circumstances.Baud’s duty to purchase Asamera shares was delayed for several reasons. Brook asked Baud to refrain from enforcing its claims until 1966. Baud was unaware that Brook had not only defaulted on returning the shares, but had actually sold them in violation of an injunction. Finally, the shares only traded thinly and sporadically until 1967. The reasonable period extends to the fall of 1967, when the share price had risen to $5 or $6. Giving an allowance of $1, that results in a price of $6.50/share for a total of $812,500.Notes: Estey rejects the analogy to remedies for conversion (when your stockbroker sells your shares) in which the plaintiff gets the highest award between the date of delivery to the broker and the date of discovery of the broker’s actions. He also rejects the argument that by making a claim for specific performance, the plaintiff has avoided the duty to mitigate (the duty of avoidable harm trumps even specific performance).

NotesThere is more than one way to skin a cat and imaginative counsel can easily make it far more difficult for the courts to do much about some of the concerns that they might have.In 32262 B.C. Ltd. v. See-Rite Optical Ltd. [1998] (Alta.C.A.), the advertiser of a large sign attempted to cancel the contract which had been automatically renewed under its provisions. Clause 24 provided:

The Advertiser hereby acknowledges that the Display is of a unique and distinctive character and has been expressly designed and manufactured for the Advertiser by the Owner and that the Owner’s design, manufacturing, sales, finance, depreciation and administrative costs together with the Owner’s anticipated profit have been amortized over the term of this Agreement. In the event of breach by the Advertiser of this Agreement, or of any term, covenant or condition herein contained, the whole of the monthly payments payable hereunder for the balance of the term shall forthwith become due and payable as liquidated damages for the Owner’s design, manufacturing, sales, finance, depreciation and administrative costs and the Owner’s anticipated profit allocated to the uninterrupted completion of this Agreement, and not as a penalty. Furthermore, upon happening of any such event the Owner shall have the right to take down and remove the display.

The defendant argued that the clause was an oppressive penalty. The court rejected those arguments. Hunt J.A. pointed out that the contract having been renewed (because the defendant had failed to give timely notice) and that the term to which the damages applied wasn’t the term of the renewed contract. He said:

Given that Clause 24 permitted the Appellant to claim as damages an amount that was closely related to the amount to which it would have been entitled according to principles of general contract law, I am at a loss to know how one could conclude that the damages anticipated in Caluse 24 were oppressive, extravagant or so unreasonable as to justify the intereference of a court in a matter of private ordering in a commercial context. And, having found the provision at issue to be enforceable, it follows that it si that provision alone that governs the calculation of damages in this case.


In Dunlop Construction Products Inc. v. Flavelle Holdings Inc. (OCA, 1996), the tenant’s obligation to restore at the end of the lease was secured by a letter of credit. The tenant did not restore and the landlord claimed under the letter of credit. The bank argued that it was not liable under the letter on two grounds: (1) the landlord committed fraud by claiming under the letter when it never intended to complete the repairs that the tenant had failed to make; and (2) the landlord could not claim under the letter until it had made the repairs. The court said that whether or not the landlord did the repairs or not was irrelevant to the bank’s laibility. The court said that the landlord was entitled to the lesser of the estimated cost of repairs and the diminution in value of the demised premises by reason of the state of disrepair.

3. Alternative Bases for an Award of Damages

(a) Awards Measured by the Promisor’s GainThe attraction of measuring the award by the defendant’s gain is that (1) it is an efficient antidote to the doctrine of efficient breach; (2) it removes problems that come from the principle of avoidable harms (limiting rules, mitigation no longer a problem to deal with); and (3) it makes people pay for their wrongdoing. The compensation principle addresses some of these problems, too.One of the arguments made in discussions of cases like Peevyhouse, Radford, Ruxley and in cases where the landlord sues for damages for the tenant’s breach of an obligation to restore is that making the promisor liable is necessary to prevent its making a gain from its wrongdoing. The general concern that this argument reflects is natural, but putting the argument into effect is anything but simple.There are both technical and substantive arguments.The technical arguments are based on the fact that the rule in contract that the promisee can only recover the benefit it conferred on the promisor if there has been a total failure of consideration (promisee can have the contract rescinded). In a case like Ruxley, it is clear that the owner got something that the judge held to be functionally equivalent to what he wanted and that did not adversely affect the value of his property.Nevertheless, there are arguments that can be made that the promisor should not keep what it made from the breach of contract. Wrothan Park illustrates one method.

Wrotham Park Estate Co. Ltd. v. Parkside Homes Ltd. (Ch., 1974)Facts: The defendant built on land in breach of a restrictive covenant. Brightman J refused a mandatory injunction that woul dhave required the house to be demolished. The value of Wrotham Park Estate was not diminished by the erection of houses.Issue: What is the appropriate remedy?Held: A just substitute for mandatory injunction would be such a sum of money as might reasonably have been demanded by the plaintiffs from Parkside as a quid pro quo for relaxing the covenant. A landowner faced with a request from a developer which he feels reluctantly obliged to grant would first ask what profit the developer expected to make. The developer would have said about £50,000, since that is the profit that Parkside concedes it made from the development. The landowner would then reasonably have required a certain percentage of that anticipated profit as a price for the relaxation of the covenant. The appropriate award is £2,500.Note: In Surrey County Council v. Bredero Homes Ltd., the English CA explained Wrotham Park as “only defensible on the basis of the…restitutionary principle.” and refused to extend


restitution to breach of contract generally. Later, the English CA reconsidered and held that Wrotham Park was rightly decided on compensatory, not restitutionary, principles.

Class NotesWrotham Park did not involve a breach of contract in the sense that a default by a seller to deliver goods would involve such a breach. While the plaintiff’s rights arose under a restrictive covenant (and in this sense was contractual) the right is more closely akin to a property right.Tactically speaking, the plaintiff should have sought an injuction to stop the defendant from building. This would have allowed him to bargain for an attractive price before releasing the defendant from the injunction. Since the plaintiff did not do that, it had no loss and had to throw itself on the court’s mercy to give it some relief. In such a case, the court can: (1) compensate the plaintiff’s loss; (2) award the defendant’s gain; or (3) if it’s a deliberate invasion of property rights, give punitive damages.The substantive problems are illustrated by the following cases. The crucial test for the recovery of the promisee’s gain would be if that right would prevent efficient breach. Efficient breach (when it takes the form of “efficient trespass” or “efficient conversion” will be prevented in several situations, though the basis for that result is principally the law of resititution.

Harry Street, Principles of the Law of Damages, “Account”Account is an equitable remedy, so the plaintiff must have some ground for seeking equitable relief. The following are a few circumstances where account may be sought:1. The plaintiff is making a purely equitable demand, such as rescission for fraud or setting up a

constructive trust.2. The plaintiff is seeking equitable relief such as an injuction.3. The legal remedies are inadequate, for example, accounts may be so complicated that a bill

of discovery would have been granted under the old rules.4. The proceedings may be of a character entrusted to Chancery jurisdiction. The significance of account is that the plaintiff is not limited to his own loss, but his damages are measured by the profit which the wrongdoer has made.The most important area for account today is in economic torts. This area includes infringement of trade marks, patents and designs, injurious falsehood, disclosure of trade secrets, defamation, deceit, fraud, etc.It is almost invariably stated that the plaintiff cannot claim both account and damages. The frequent justification for this is that by electing to treat the wrong as a quasi-contract, you are condoning it. United Australia, Ltd. v. Barclays Bank, Ltd. exposed the fallacy that by suing for money had and received you condone the wrong. They are simply different remedies for the same wrong. The proper way of looking at it is that the plaintiff cannot collect twice for the same head of damage. Clearly, if there are two heads of damage, the plaintiff can recover both in one proceeding.

Copyright Act, RSC 1985, c. C-42This legislation requires the infringer to pay damages suffered by the owner and profits made as the court may decide to be just and proper.

United Australia Ltd. v. Barclays Bank, Ltd. (HL, 1941)Facts: Debtors sent a cheque for 1900l. to U.A. A U.A. employee fraudulently endorsed it to M.F.G. M.F.G. deposited the cheque in its account at B.B. U.A. sued M.F.G. for 1900l. as money lent by the appellants to M.F.G. or as money had an received to the appellant’s use.


M.F.G. went bankrupt, so U.A. is suing B.B., claiming 1900l. as damages for conversion of the cheque or for negligence.Issue: Did the U.A. waive the conversion by M.F.G. by suing them for money lent or money had and received? If yes, then does that waiver also waive the conversion by B.B.?Held: No. There is no waiver of conversion. Suing for money had and received or money lent is simply another remedy for the wrong of conversion.Reasoning: If the plaintiff truly treats the wrongdoer as having acted as his agent, overlooks the wrong, and by consent of both parties is content to receive the proceeds, this will be a true waiver. This is retroactive ratification of a relationship. However, in most cases for conversion, blackmail, fraud, etc., the plaintiff has no intention of waiving or excusing the tort. The plaintiff is actually protesting violently against what has been done to it. A person cannot waive a wrong unless it either has a real intention to waive it, or such an intention can be imputed. That is not the case here.Having established that this is a question of alternative remedies (not a waiver of inconsistent rights), the plaintiff may pursue both remedies together, until the time of judgment, when the cause of action on both will be merged into one.Swan: Under the old rules of common law, U.A., in suing M.F.G. for money “had and received”, ratified the employee’s fraudulent act. This would make M.F.G.’s holding of the cheque rightful. That means that B.B. could clear it and pay M.F.G. rightfully. However, the court says: “This is all a fiction to allow U.A. to sue M.F.G. They didn’t actually endorse the fraudulent actions of their employee.

NotesThe law of resititution is full of examples of awards based on the wrongdoer’s gain. The following cases are a very small sample.

Phillips v. HomfrayFacts: The coal mine on the defendant’s property extended onto the plaintiff’s property (underground, so the plaintiff didn’t notice). The plaintiff suffered no real loss, but wants the money the defendant made from using its property.Held: The plaintiff may recover based on a fictional contract.

Whitwham v. Westminster Brymbo Coal and Coke CompanyFacts: The defendant dumped slag onto the plaintiff’s land. The damage suffered by the plaintiff was less than the market value of a contract for slag dumping.Held: A proper scale of damages is the higher sum, since the trespasser should not be allowed to make use of another’s land without compensating for the use.

Mahesan S/O Thambiah v. Malaysia Government Officers Co-operative Housing Society Ltd.Facts: Thambiah, an agent of the Housing Society, was bribed by a third party to purchase certain land for a housing development.Held: The plaintiff has two alternative remedies: (1) it may recover the amount of the bribe as money had and received by the agent; or (2) it may sue the briber for fraud, under which he can recover the amount of the actual loss sustained in consequence of entering into the contract for which the bribe was given. The plaintiff cannot sue for both.

Strand Electric Engineering Co. Ltd. v. Brisford Entertainments Ltd.


Facts: Strand rents/sells equipment to theatres. A theatre went bankrupt, Brisford took over and refused to allow anything to leave, including the Strand’s equipment. Strand sued. It had other equipment that it could have rented.Held: Strand was permitted to recover the full market rate of hire for the whole period of detention of the equipment. It was irrelevant that Strand had other equipment, since the damages are being measured by Brisford’s gain.

Peter Pan Manufacturing Corporation v. Corsets Silhouette Ltd.Facts: The defendant obtained confidectional information of the plaintiff. The plaintiff is suing for the amount by which the defendant is enriched through this information.

LAC Minerals Ltd. v. International Corona Resources Ltd. (SCC, 1989)Facts: LAC is a senior mining company; Corona is a junior. Corona’s prospectors found a promising gold discovery. They got a patent to the land, but Williams had filed a claim to the land next door, which Corona also wanted. They wanted LAC to help them develop the mine and gave this confidential information to them. They started negotiating with Williams’ widow. LAC also started secretly negotiating with the widow and got the deal (widow liked LAC’s stationary better). LAC dropped Corona and started developing Williams’ land. Corona is suing for breach of fiduciary duty.Issue: What is the relationship between Corona and LAC? What is the appropriate remedy?Ontario Court: There was a fiduciary duty.SCC: There is no fiduciary duty, but a constructive trust. Therefore, LAC must account for its profits. Every benefit that LAC obtained from the wrongdoing will be held on trust for Corona.Swan: Corona received the best remedy possible for recovering the defendant’s gain. The constructive trust is the solution to undercompensation (except for discounting estimates of profit). At the time Corona was decided, the decision was expected by the mining industry. As soon as LAC’s CEO admitted that LAC’s conduct was not within the standards of the mining industry, he rang the knell for LAC. This case is important because it indicates that the mere process of beginning to negotiate imposes an obligation of good faith.

Ernst & Young v. StewartFacts: Stewart was a partner at Ernst & Young. He was induced to leave and join Arthur Anderson before the 1 year notice period was up. Ernst & Young claim against Stewart and against Arthur Anderson for their gains.Held: It is appropriate to award the gains made by Stewart in moving and also the profits realized by Arthur Anderson from Stewart’s arrival.

Central Trust Co. v. Rafuse (SCC, 1986/1988)Facts: A lawyer is retained to act for a purchaser of land. He does the job carelessly, so the client doesn’t get marketable title to the land. Generally, you don’t find out that the lawyer screwed up until you try to sell the land and the purchaser’s lawyers discover the defect in title. The Statute of Limitations is only 6 years for breach of contract. Can they still sue the lawyers?Issue: Is there any way to compensate the plaintiff despite the Statute of Limitations?Held: Yes. We will hold the lawyer liable in tort, in which case, the limitation period runs from the date of knowledge of wrongdoing.Swan: This case gives the plaintiff the unrestricted right to sue in contract or in tort. The SCC confirmed this in BG Checo.

Notes


There is a larger issue that has not been explored. The SCC has repeatedly said that a plaintiff has a very wide discretion to sue in either contract or tort. In BG Checo International Ltd. v. BC Hydro and Power Authority (SCC, 1993), La Forest J. and McLachlin J., in a joint judgment said:

In our view, the general rule emerging from this Court’s decisoin in Central Trust Co. v. Rafuse (SCC, 1986/1988), is that where a given wrong prima facie supports an action in contract and in tort, the party may sue in either or both, except where the contract indicates that the parties intended to limit or negative the right to sue in tort.

The question raised by this attitude is whether the principles of United Australia could perhaps be applied broadly in contracts (can the plaintiff sue for the defendant’s gain in the normal course of things). No case has done so yet. Sometimes, the distinction has been based on the fact that a person who breaches a contract is, unlike a tortfeasor, not a wrongdoer. This distinction is hard to maintain either on principle – what is an award of damages but compensation for a breach of duty either in tort or contract – or, again, in the light of the position of the SCC. It could be possible to develop an argument that, as a matter of policy, a promisee will not be able to prevent the promisor from gaining from its breach. If so, what are those policy arguments.Various rules, for example, the rule applicable where there is an “available market”, tend to operate to deny the seller the benefit of efficient breach.So, how far do you take La Forest and McLachlin’s statement of unrestricted choice with respect to suing in contract or in tort. Reconsider (1) the landlord whose tenant has not restored the property at the end of the lease; (2) Ruxley; and (3) Peevyhouse. Consider how those cases could be dealt with if the court’s focus was not on damages and the compensation principle but on preventing the defendant from making a gain at the plaintiff’s cost. Test your analysis by making some calculations for the purpose of making an argument that the plaintiff should be liable for a specific amount. This completely destroys the availability of efficient breach because there is no such thing as efficient tort.In dealing with the problem posed by Peevyhouse, keep in mind the fact that, as was mentioned earlier, even a wrongdoer like Garland may make a mistake (what if the land was a dud and they actually made no profit). Follow that argument to its conclusion.The most unequivocal statement that you can sue for the defendant’s gain comes from A.G. v. Blake. This case also shows an interesting examination of some of the problems of making sure that the wrongdoing “does not pay”.

A.G. v. Blake (Eng.CA, 1998)Facts: Blake worked for the British secret service. He gave information to the Soviet Union. He was convicted of unlawfully communicating information and sent to prison for 42 years. He escaped to Moscow. He wrote a book about his experiences, which was published by an English company. The government wants to discourage publication of such books, so it is asking for an injunction preventing the publisher from paying Blake’s royalties.Issue: Has Blake breached a private law duty?Held: Yes. The fiduciary relationship had come to an end, so there was no breach of fiduciary duty. S.1(1) of the Official Secrets Act, 1989 prohibits former members of the SIS from disclosing official information without lawful authority. However, the Crown did not seek an injunction to prevent publication and cannot establish loss, so it is only entitled to nominal


damages under this head. Damages for breach of contract are generally compensatory, not restitutionary; however, there are exceptions (Wrotham Park).Issue: Under what circumstances is a restitutionary award available for breach of contract?Held: It should not depend on the defendant’s moral culpability alone. The fact that the breach enabled the defendant to make a profit is also insufficient. There are two situations in which restitutionary damages are appropriate: (1) where the defendant fails to provide the full extent of the service which he has contracted to provide and for which he charged the plaintiff; (2) where the defendant has made a profit by doing the very thing which he contracted not to do. The Crown decided not to pursue a private law claim for restitutionary damages for breach of contract.Issue: Has Blake committed a breach of a public law?Held: Yes. Notes: If the purpose of the rule adopted by the CA in this case is to prevent the wrongdoer from making a gain from his wrongdoing, why should the Crown be under any obligation to show any loss? The measure is restitutionary, not compensatory.The publisher gets to keep the money. The court did not use the doctrine of constructive trust because it is not developed in the U.K. the way it is in Canada. In Canada, the Crown could have got the money through a constructive trust.Appeal to HL: The Crown appealed Blake to the House of Lords. It upheld the restitutionary award for breach of contract and ordered the publisher to pay the money to the crown. There was a strong dissent.Swan: This will now be seen as a clearly possible remedy. This is a good example of compensation measured by the defendant’s gain, which isn’t all that evil.

NotesBlake is a very important case because it specifically mentions Ruxley as the type of case where restitutionary damages should apply. Compensation will remain the principal remedy, but there will be increasing cases where the defendant’s gain will be used. This completely undercuts the notion of efficient breach.Note how the court uses trends in legislation to analogize in paragraph 47. This is like Hedley Byrne, where the court said: “We can make an analogy to Donahue v. Stevenson w.r.t. pure economic loss.” Here, the court quotes Lord Diplock saying, “We can use statutes by analogy.” This is not often done. One place where it might be useful is in third party beneficiary contract (there’s a legislative trend to recognize 3rd party beneficiaries). The common law does not currently treat statutes as a source of analogy, but they could.

(b) Punitive DamagesThe law of punitive damages is a mess. In the last few years, punitive damages in the millions have been awarded (before they tended to be nominal and modest). They are indefensible. The difficulty in dealing with the topic is caused by the fact that punitive damages can be awarded for a number of reasons:(a) They can be awarded so that the plaintiff gets more money than the compensation principle

would justify. This goal may be achieved either by being less strict with the normal requirements that the plaintiff prove its losses or by offering another head of damage.Swan: A court that is aware of systematic undercompensation of plaintiff’s losses may be tempted to give punitive damages. This is an inappropriate way of dealing with the problem. Moreover, the court has a number of other ways to increase the plaintiff’s award without


getting into punitive damages. Warrington shows how the courts were able to use the compensation principle in a new way (aggravated damages).

(b) They can be awarded to make sure that the defendant does not profit from its wrongdoing.Swan: This is not the way to deal with the defendant’s gain. Punitive damages are awarded by a jury who has no evidence w.r.t. how much the defendant actually made. Austin v. Rescon shows the dangers of this approach.

(c) They can be awarded to achieve goals normally associated with the criminal law, principally deterrence.Swan: A court that is outraged by the defendant’s conduct may give punitive damages to fulfill goals that should be left to the criminal law. The courts are usually explicit about why they are giving punitive damages: deterrence, even punishment.

To the extent that the compensation principle is broadened to include various kinds of extended damages, it might be expected that the need to enhance the plaintiff’s compensation would be lessened. There have been some indications that this shift may be occurring – Warrington may be such a case – but there has been no careful analysis of the issues.There are two problems: (1) when may punitive damages be awarded; (2) what is the justification for the award. Vorvis suggests that there must be an “independently actionable wrong”. Note how this requirement plays out in the cases.The second is more difficult. The English point of view is stated in Cassell & Co. v. Broome.

Cassell & Co. Ltd. v. Broome (HL, 1972)Facts: Cassell published a book that libelled Broome. Broome sued for damages and for punitive damages.Issue: Are punitive damages available for this case?Held: Yes. Punitive damages are available in two situations: (1) oppressive, arbitrary or unconstitutional action by the servants of the government; and (2) deliberate commission of a tort in conumelious disregard of another’s rights in order to obtain an advantage which would outweigh any compensatory damages likely to be obtained by the plaintiff. Punitive damages may only be awarded to the extent that compensatory damages are not adequate punishment.Reasoning of Lord Hailsham: Punitive damages are to teach the defendant that wrongdoing does not pay (preventing gains objective).Reasoning of Lord Reed: Punitive damages are an undesirable anomaly in the law of remedies. The House could not abolish it, so it chose to strictly confine it to classes of cases.Swan: There are two objectives for punitive damages stated by the court: (1) to make the wrongdoing less profitable; and (2) to deter oppressive conduct (especially on the part of government). The first motive is justifiable, but should be dealt with in a way that permits the parties to lead evidence regarding how much the defendant actually gained. The second motive is more problematic.

NotesThe Canadian position is based on Vorvis, which establishes the possiblility of getting punitive damages for breach of contract.

Vorvis v. Insurance Corporation of British Columbia (1989, SCC) – fired employeeFacts: Vorvis was a lawyer at the Corporation. His immediate superior harassed him. Vorvis’ health deteriorated from anxiety. Vorvis was finally dismissed with cause. They were willing to dismiss him without cause if he agreed to have a shorter notice period. He sued. The trial court found that he was dismissed without cause.


Issue: Can Vorvis collect punitive damages?Held (McIntyre): No. Punitive damages are meant to punish conduct that merits punishment. They impose a fine that is paid to the plaintiff. Since this is done without the procedural protection afforded in criminal law and the punishment is awarded on a balance of probability (not beyond a reasonable doubt), it must be used cautiously. Punishment may not be imposed without basis in the law. Therefore, punitive damages cannot be imposed without an independently actionable wrong which caused the injury.Dissent (Wilson): Mental distress damages are justified on the basis of Hadley v. Baxendale. Mental distress could have been foreseen.Swan: This case creates two requirements for punitive damages: (1) the defendant’s conduct must merit punitive damages (oppressive, harsh); and (2) an independently actionable wrong. The second requirement has never been satisfactorily explained. If there’s an independently actionable wrong, then why not sue under it (eg. Warrington). McIntyre uses the example of inducing breach of contract and the tort of conspiracy: if two people conspire to induce wrongful breach, then the court treats them harshly. It is not clear how this applies or what an independently actionable wrong is.

NotesThe bulk of cases do not distinguish between an award designed just to punish, irrespective of whether the plaintiff has received full compensation. Thus, in Claiborne Industries Ltd. v. National Bank of Canada (OCA, 1989), Cathy J.A. said:

In an exhaustive analysis of exemplary, punitive or aggravated damages, Lord Hailsham observed, citing Lord Devlin in Rookes v. Barnard that “[e]xemplary damages can properly be awarded whenever it is necessary to teach a wrongdoer that tort does not pay.”

The statement of Lord Hailsham has been frequently quoted in support of the argument that a court may award punitive damages. The statement is consistent with the view that the focus of such damages is at least partly, if not entirely, restitutionary, i.e., an award of punitive damages from this point of view would simply be a method for making the defendant pay whatever it made to the plaintiff.Punitive damages are often awarded in actions for defamation. In Hill v. Church of Scientology of Toronto (SCC, 1995), where punitive damages of $800,000 were awarded, Cory J. said:

Punitive damages may be awarded in situations where the defendant’s misconduct is so malicious, oppressive and high-handed that it offends the court’s sense of decency. Punitive damages bear no relation to what the plaintiff should receive by way of compensation. Their aim is not to compensate the plaintiff, but rather to punish the defendant. It is the means by which the jury or judge expresses its outrage at the egregious conduct of the defendant. They are in the nature of a fine which is meant to act as a deterrent to the defendant and to others from acting in this manner. It is important to emphasize that punitive damages should only be awarded in those circumstances where the combined award of general and aggraveated damages would be insufficient to achieve the goal of punishment and deterrence.

The other area where they are often awarded is in actions for wrongful interference with economic relations. It is hard to disentangle the various elements in many of the awards for defamation and wrongfully inducing breach of contract. The following quotations from Vale v.


Int. Longshoremen’s & Warehousemen’s Union, Loc. 508 (SCCA, 1979) illustrates the factors that may be considered. Seaton J.A. said:

Damages for the tort of inducing breach of contract are said to be “at large”. This means that their assessment is “a matter of impression and not addition”: see Cassell & Co. Ltd. v. Broome per Lord Hailsham of St. Marylebone L.C. In this respect they are similar to damages for libel. The plaintiff is to be compensated for the invasion of a right and need not be put to strict proof of specific damage: see Exchange Telegraph v. Gregory & Co. The Court must assess a global figure approximating the harm it thinks he has suffered. It may take into account a number of factors, including of course any pecuniary loss that has been suffered. As Lord Hailsham has put it in Cassell & CO. Ltd. v. Broome:

The expression “at large” should be used in general to cover all cases where awards of damages may include elements for loss of reputation, injured feelings, bad or good conduct by either party, or punishment, and where in consequence no precise limit can be set in extent.

The SCC awarded what it called “exemplary damages” (the same as “punitive damages”) of $100,000 in Royal Bank of Canada v. W. Got & Associates Electric Ltd. (SCC, 1999). The plaintiff bank was held liable to its customer for not giving reasonable notice of its intention to appoint a receiver. The exempary damages were awarded because the bank had been less than frank in the affidavit that it had submitted in support of its motion to have the receiver appointed.In Deb v. American Life Insurance Co. (OCA, 1998), an insurer had behaved badly and, though the trial judge had dismissed the plaintiff’s claim, he had said that, had he allowed the claim, he would have awarded punitive damages. The Court of Appeal reversed the trial judge on the issue of the insurer’s liability. McKinlay J.A., giving the judgment of the court said:

The trial judge stated that had he found that the appellant was entitled to the disability insurance he would have awarded punitive damages as a result of the behaviour of the respondents, basically because they provided insurance in this jurisdiction and failed to deal with the claim of the appellant in a reasonable manner, given the nature of the insurance. He also pointed out that they denied his disability and alleged that he acted fraudulently in making his claim. While I agree with the comments of the trial judge, I am of the view that the behaviour of the respondent in this matter is more properly addressed by an award of solicitor and client costs of the trial and of this appeal.

In Austin v. Rescon Construction (1984) Ltd. (BCCA, 1989), the defendant trespassed on the plaintiff’s property in the course of construction of the foundations of a large building. There was minimal damages to the plaintiff’s land, but the defendant saved about $25,000 by what it did. The Court of Appeal increased the award of exemplary damages from $7,500 to $30,000.Note that it is usually much easier for a plaintiff to prove what it lost than it is to prove what the defendant saved because the evidence in the former case is all available to the plaintiff, while in the latter, the defendant has control over it.The issues all come to a head in Whiten v. Pilot Insurance Co.

Whiten v. Pilot Insurance Co. (OCA, 1999)Facts: Whiten owned a home where she lived with her husband. She had an insurance policy with Pilot. A fire destroyed their home and all of their belongings. Pilot refused to pay under the claim, maintaining an arson defence up to and throughout the trial. It deliberately ignored


any opinion, even of its own adjuster and experts, that would oblige it to pay the claim. It abused its financial position (cancelling rent on the Whiten’s cottage knowing of their straitened circumstances) and it contrived an arson defence to avoid payment of the claim or at least force a significant compromise.Issue: When are punitive damages appropriate?Held: Yes. There are two requirements for punitive damages. Vorvis requires an independently actionable wrong. This need not be a tort, but can be a breach of another element of the same contract. Here, it was the breach of the obligation to act in good faith (an insurance contract is a contract of the “utmost good faith”). The second requirement is that the actions of the defendant are so malicious, vindictive, reprehensible or high-handed that an award of punitive damages is warranted. That is fulfilled.Issue: Is $1 million too high for punitive damages?Held: Yes. It should be reduced to $100,000. Punitive damages against insurers based on bad faith handling of claims have traditionally been in the range of $7,500 to $15,000. The very high awards in recent years have been to disgorge “enormous” profits.Dissent: No. (1) The jury’s award is entitled to deference on appeal and should only be overturned if it serves no rational purpose. (2) Here, the extent of Pilot’s reprehensible conduct justifies the award. (3) A significant award was needed to deter Pilot and others from exploiting the vulnerability of insureds. (4) To be meaningful, punitive damages must “sting”. Pilot’s net worth is $231 million. (5) There have been other high awards of punitive damages in Canada, so this is not entirely unprecedented. (6) Both courts and legislatures have increased fines in recent years for companies who act irresponsibly or contrary to public interest.

Class NotesThe plaintiff made no claim for other extended damages (eg. aggravated damages). It may be true that the plaintiff would be inadequately compensated for loss of peace of mind, allegations of arson, etc.; however, why not compensate her for those, rather than using punitive damages. Consider: punitive damages are unavailable if the defendant has been convicted for a criminal offence. This interferes with the rationale for punitive damages as compensation.Compensation for loss of peace of mind tends to be modest, but Swan doesn’t see why an award couldn’t be larger (like $100,000, if necessary). While you cannot claim for defamation made during pleadings, there’s no reason to prevent suing for defamation made outside the courtroom. If there is systematic abuse of policy holders, then the class action suit is available.A civil action suit is an inappropriate place for punishment/revenge/deterrence. The proper place is the criminal law or the Superintendant of Insurers. Why should Whiten get money beyond what compensates her? Moreover, who do you want to punish – not Pilot’s shareholders, but the defence lawyer who harassed Whiten and perhaps the directors who authorized that action.An alternative to punitive damages are solicitor-client costs. These are truly compensatory and would reduce the systematic undercompensation of the plaintiff.

4. Limiting RulesThere are two principal limiting rules: (1) remoteness; and (2) mitigation of avoidable harm.

(a) RemotenessClass Notes


Remember that remoteness deals with the problem of stopping an award of damages, not starting it.Remoteness is a code word for a range of factors:1. Even thought the defendant breached and the plaintiff suffered harm, the court will say:

“Remoteness! The causal link is too weak.” (Taxi to airport, miss plane, miss job interview, don’t get job…). Common sense: you can’t be blamed for everything.

2. Even though the defendant breached and the plaintiff suffered harm, the court will say: “Remoteness! The defendant did not accept all the risk of that harm occurring.” It would not be fair to impose the risk on the defendant. The narrower the scope of compensable loss (e.g., Mayne’s view), the easier it is to stop (because you never start). When you hold the defendant liable for mental distress, it’s difficult to know where to stop. That’s why mental distress is measured objectively (reasonable mental distress).

OutlineThe problems of “remoteness” are illustrated by the way in which the issue is presented in the casebood: there is no introduction to the issue and the editors simply present three cases. It is worthwhile to review the basic issues and, indeed, the leading cases.The most important point to bear in mind is that it is at least as hard to know how to stop an award of damages as it is to know when or how to start. The second point is that the problems of what we can loosely call “remoteness” are a function of a number of separate issues. If the range of losses for which the plaintiff can recover compensation is very restricted or if the range is wider and the kinds of losses include inherently vague and indeterminate categories – e.g., something like “mental suffering” or “peace of mind” – then these facts will make it easier or harder to determine where to stop any award. If these problems are seen by the courts, it is to be expected that the courts may either have concerns about broadening the range of compensable losses or may be prepared to manipulate the rules of “remoteness” to achieve whatever goal they are seeking. In other words, the whole concept of remoteness is confused by the number of themes being played out within it.

Hadley v. Baxendale (Exch., 1854)Facts: The plaintiff broke the crankshaft to their mill. They shipped it via the defendant carriers to get fixed. The plaintiff told the clerk that the mill was stopped and that the shaft must be sent immediately. There was some delay (defendant’s fault) and the mill was closed for extra days.Issue: Can the plaintiff recover the lost profits because the mill was shut down longer?Held: No.Ratio: The damages for breach of contract should be (1) such as may fairly and reasonably be considered either arising naturally (according to the usual course of things) from the breach of contract; or (2) such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract, as the probably result of the breach of it.Swan: The name Hadley v. Baxendale is used as a code word for concerns of remoteness. Unfortunately, it is often misunderstood as asking whether the palintiff’s damages were foreseeable. This suggests that Hadley v. Baxendale promotes a factual inquiry: What did the defendant foresee? This is the incorrect approach. Contemplation is a code word for various policy considerations. When we ask if something was in contemplation of the parties, we are not asking whether the parties knew about it (although that is a prerequisite). We are asking: What risks did the carrier take in undertaking the carriage of goods? This is a question of risk allocation/assumption. Thus, the real understanding of the ratio is as follows: Damages should


be (1) arising naturally, in the ordinary course of things; and (2) if special circumstances are made known to the defendant and bargained over.

Koufos v. C.Czarnikow Ltd. (“The Heron II”), (HL, 1969)Facts: A defendant carrier undertook to ship sugar from Romania to the Persian Gulf. It took a detour and delayed one week. The sugar market became glutted and the price fell drastically during that week.Issue: Can the plaintiff recover the difference in price?Held: Yes.Reasoning: Such a fall in price was not unlikely, so the defendant is liable.Swan: It would have been better to say that the carrier, by taking the detour, assumed the risk of a decrease in market price. Note that this case involves the deliberate delay, whereas in Hadley, it involved an accidental delay – is that important?

Horne v. Midland Railway Company (Exch., 1873)Facts: The plaintiff shoe manufacturers supplied the French army during the Franco-Prussian war, which ended January, 28, 1871. They had one last contract, to be delivered February 3, 1871. If the shipment arrived in time, they would get an extremely high price. The plaintiff explained to the defendant carrier that if the shoes arrived late, the buyer could repudiate the contract. The defendant delayed and the buyer refused delivery, so the plaintiff had to sell the shoes at market price, which was much lower than the contract price.Issue: Can the plaintiff recover the difference between the contract price and the market price?Held: No.Reasoning: Railway companies may not refuse to accept goods or compel payment of an extraordinary rate of carriage. Therefore, merely notifying the railway company of extraordinary consequences of late delivery does not place the risk of those consequences on the railway, it being in no position to refuse under those terms of to bargain over the price in light of the risk allocation. In the absence of an express contract to assume those risks, there is not any contract to be liable for more than the ordinary damages (flowing naturally from the breach).Swan: This is a good case. The attitude of the court: If the shipper wanted the carrier to bear the risk of delay, it should have told the carrier of the special circumstances and made them expressly accept the risk. The court also considers the unfairness of putting the risk on the carrier because the rates of carriage were fixed by the government, and the carrier was not allowed to change them. In both Horne and Koufos, it’s about allocation of risk for market collapse. The difference between Horn and Koufos is that the carrier in Koufos deliberately took a detour for its own profit. This allowed an implication of a willingness to accept the risk of late delivery.

Cornwall Gravel Co. Ltd. v. Purolator Courier Ltd. (SCC, 1978)Facts: The plaintiff had to get a bid on a construction contract to Toronto by a certain time. It asked Purolator to send a driver. It told the driver, “This is really important.” The driver said, “Don’t worry.” The plaintiff paid the normal rate. There was late delivery. Had the delivery been on time, the plaintiff would have got the contract because it had the lowest bid.Issue: Can the plaintiff recover its lost profits on the bid?Held: Yes.Reasoning: The circumstances were communicated to the driver. He knew how important it was. Therefore, the defendant is responsible for the risk.


Swan: This is truly bizarre. Why would they assume that the minimum wage driver has the power to change the contract. Why are they relying on Purolator for a $70,000 contract. Purolator offers different grades of service. Its minimum service is similar to Canada Post. Its next service is a package signed for at each transfer. The ultimate service it offers is a guy handcuffed to the briefcase (this would have cost about $350 from Cornwall to Toronto). You pay for the level ofcare the courier will take and the carrier’s liability is related to this. This case turns Hadley v. Baxendale on its head.Saving grace: The only way to justify what this court did is to base it on an implied obligation from the Purolator’s ad campaign, in which it held itself out as being a no-fail method.

OutlineThe issue is not, as Hadley v. Baxendale and Horne v. Midland make clear, whether the defendant could or could not have foreseen the loss that occurred or whether the plaintiff told the defendant what would happen if it breached the contract, but whether, in all the circumstances, it is appropriate for the defendant to bear the risk. That inquiry makes relevant all the circumstances of the making of the contract, what the parties understood by the deal that they made and what the external situation of the deal might disclose what the parties expectations were.Consider how well Parsons v. Uttley deals with the issue.

H. Parsons (Livestock) Ltd. v. Uttley Ingham & Co. Ltd. (QCA, 1978)Facts: The defendant sold a hopper for storing pig food to the plaintiff. When installing the hopper, the defendant forgot to open a ventilator. The pignuts became mouldy and the pigs got E. coli.Issue: Can the plaintiff recover the damages caused by the E. coli outbreak?Held: Yes.Reasoning: The defendant is only liable for those damages that arose naturally (in the ordinary course of things) from the breach. It was a natural consequence of not opening the ventilator that the hopper was no longer suitable for storing pignuts, and there was a serious possibility that the pigs would become ill. It does not matter that the parties did not specifically contemplate E. coli resulting from eating mouldy nuts.

OutlineSpecial problems have arisen with contracts between lawyers and their clients (though they only partly involve issues of remoteness).

Messineo v. Beale (OCA, 1978)Facts: The plaintiff bought a property. The defendant lawyer did a title search and certification. He was negligent in failing to discover that the vendor did not have title to Murch’s Point (a portion of the land the plaintiff thought he was buying). The plaintiff’s got an excellent deal for the land and it is worth more than they paid for it.Issue: How should damages be measured?Held: The measure of damages is the difference in money between the amount paid by the client to the vendor and the market value of the land to which the client received good title.Swan: This all hinges on how you characterize the lawyer’s promise. The court backs off on this in Kiezle v. Stringer.

Outline


The problem of lawyers negligence is not simply one of remoteness. There is, first, the problem of what the lawyer’s promise is. The lawyer promises – or will be held to have promised – to perform to the standard of the reasonably competent lawyer, but the promise may have to address the substance of the undertaking. There are two forms that the promise can take and the form will determine the substance. In the example of Messineo v. Beale, the lawyer will most likely have made the contract with his client in the following way:Client: Will you act for me?Lawyer: Yes, of course; I’d be happy to do so.This exchange does not spell out with any precision what the lawyer is undertaking to do. There are at least two possible undertakings and these can be illustrated – again in the context of Messineo v. Beale – in the following way. The lawyer may say (or may be taken to have said):(a) “I promise that if you use my professional services you will not suffer any loss, and, in

particular, I promise that you will be able to recover on any sale of the property at least what you will have paid for the land you are buying.” OR

(b) “I promise that if you use my professional services you will make as much money from the land you are buying as you would have made had you got the interest in the law that you expected to get.”

If we work backwards from the result, i.e., the measure of damages awarded in Messineo v. Beale, we can infer that the court held the lawyer only to the first undertaking. We could call this measure the reliance loss of the plaintiff, i.e., the plaintiff is put back in the position that he would have been in had the contract never been made. It is not hard to see that the problems of remoteness are significantly attenuated when the plaintiff’s claim is measured by what he lost and not by what he might have gained. (Note, of course, that words like “reliance” and “loss” do not always point unequivocally to what Fuller & Perdue call the “reliance interest”; the reliance interest and expectation interests will, for example, largely coincide if we talk about opportunity costs as “reliance” losses. We shall come back to this point later in the course).Should it matter that the purchaser in Messineo v. Beale wanted the land for, as Arnup J.A. said, “for the use of his own family and those of his numerous brothers and sisters” and not for, say, a commercial development or to hold the land as an investment?In the next case, Kienzle v. Stringer, the Court of Appeal was bothered by the inference that could be drawn from the judgment in Messineo v. Beale and seemed to suggest that a different inference should be drawn from the conversation between a lawyer and his or her client.

Kiezle v. StringerFacts: The plaintiff bought the Oxford farm. The defendant acted as his solicitor, certifying that the plaintiff had “a good and marketable title”. The title was not good or marketable. The plaintiff later decided to sell the Oxford farm and purchase the Kincardine farm. He conditionally bought it, conditional on his being able to sell the Oxford farm. He found a buyer for the Oxford farm. In anticipation of the sales, the plaintiff shut down his effective operation of the Oxford farm by letting go the surrounding leasehold property. The buyer found out that there was no good and marketable title and both deals fell through. There were rising land values and the plaintiff’s loss on the Kincardine farm, diminished by his gain on the Oxford farm was $20,200.Issue: Can the plaintiff recover for losses due to shutting down operation of the Oxford farm?Held: Yes. This loss is directly and imediately connected to the defective title and consequent lack of marketability of the Oxford farm and would have occurred if the plaintiff had chosen only to sell the Oxford farm without any plan to purchase another farm.


Issue: Can the plaintiff recover for losses due to the rising value of land?Held: No. When courts use the term, “reasonably foreseeable”, they are not often concerned with what the parties actually foresaw or contemplated. This is a question of policy. The fee charged by a solicitor is calculated with the risk assumed by the solicitor in mind. It is not unreasonable to add to that risk consequential damage immediately concerned with the failure of marketability; however, the range of secondary transactions flowing therefrom is beyond the ambit of reasonable foreseeability.Swan: The court backs off from the approach taken in Messineo v. Beale because it’s embarrassed that lawyers are treated more tenderly than other contracting parties. Foreseeability is more a question of policy than one of fact.

Sir Robin Cooke, “Remoteness of Damages and Judicial Discretion” (1978)If a defendant’s tort or breach of contract is a substantial cause of the plaintiff’s damages, then it is prima facie recoverable. However, under the circumstances, it may be just to limit the damages. The main considerations are: (1) the degree of likelihood that such damages (or damage of a broadly similar kind) would by

caused by the breach. This should be considered from the point of view of a reasonable man in the defendant’s position;

(2) the directness of the causation;(3) the nature of the damage (to person, property or purely economic interests)(4) the degree of the defendant’s culpability(5) whether the defendant had a reasonable opportunity of limiting his liability by an agreed

term.A discretionary approach would not necessarily make the law any more certain, but it might reduce distraction and bring to direct light the considerations that sway decisions.Swan: He lumps contract and tort cases together. Also, he says the correct approach is to give the judge discretion. This creates a problem of consistency and coherency. It undercuts the parties’ abilities to present reasoned arguments.

OutlineAs you read this extract consider the following argument:The process of reaching decisions by adjudication (as opposed, for example, to doing so in a legislature or through the exercise of universal suffrage) is characterized by the way in which the parties participate in the process. The parties’ participation is based on their right to present proofs of facts and to make reasoned arguments. (The parties affected by legislation have no right to participate in the legislative process and neither the legislators nor the electors are required to give reasons for their decision or to acknowledge, explain or justify the basis on which they voted). For adjudication to work at all, let alone work well, the parties (or their legal advisors) have to know what facts are relevant in the light of the arguments that they intend to make and how the arguments that they intend to make depend on the facts that they can establish. Seen in this light, rules of law of every kind must be seen as (i) restrictions on the freedom of the judge to do what he or she may like and (ii) necessary if solicitors are to be able to give advice to their clients. A proposal to leave matters to judicial discretion then either creates the serious risk that the process of adjudication will be undermined or – and this result is more likely – causes conscientious judges to seek to develop principles to guide them and those that have to rely on the law.To what extent does Sir Robin Cooke acknowledge that the issues of remoteness must be dealt with by the judicial process?


Expectation Recovery and Negligence Constituting Breach of ContractThe following case is another example of the problems of sorting out the consequences of a lawyer’s carelessness and illustrates that much of the analysis is smoke and mirrors.

Toronto Industrial Leaseholds Limited v. PosesorskiFacts: Didn’t read case. Skip the dissent and just read the majority. Another sleazy lawyer case. Lawyer forgot to mention option to renew lease, so investment property was not that good a deal.Held: Solicitor was under no obligation to remove the option. It just had an obligation to told the clients about the option. If the solicitor had told the client about the option, they could have refused to buy or they could have tried to get a lower price. They followed Messineo rather than Kienzle because in Kienzle, the problem was caused by the solicitor’s screw-up.They paid $100,000 more for the property, so they get that + interest. They also got costs for challenging the validity of the option.Swan: Court gets its knickers in a twist, making a mountain out of a molehill. Talks about Messineo p.335. The Messineo approach is good law and should be applied unless the plaintiff can show that a restitutionary goal is more appropriate. The line between reliance and expectation collapses. Unless you take interest into account, you wind up with the same amount.Reconsider at this point the cases like Cullinane v. British “REMA” and ask yourself what is the nature of the plaintiff’s recovery in a case like Toronto Industrial Leaseholds Limited.

Damages in Contract Versus Damages in TortIntroductionTraditionally, there were several differences between contract and tort.1. In contract, damages were to put the plaintiff in the position he would have occupied, had the

contract been performed. In tort, damages were to restore the plaintiff to the position he would have occupied had the tort not been committed.

2. Different remoteness rules3. Non-pecuniary loss for mental distress, hurt feelings and loss of enjoyment were not

compensable in contract.4. Apportionment was not possible in contract.Recently, the border between contract and tort has been opened up and many of the different consequences that once flowed from the different causes of action have disappeared.

Class NotesFor a long time, separation between contract and tort was impermeable. There was no recovery for negligence causing pure economic loss. There were three remedies for breach of contract:1. Recission (for innocent misrepresentation)2. Warranty (for breach of a grade A contract)3. Tort of fraud (rescission or damages). This was very risky because it was difficult to prove

and you would have to pay all costs if you lost.So, basically you had rescission and warranty. Since rescission was an equitable remedy, you had to move very quickly with it.

Hedley ByrneSwan: There was a negligent misrepresentation that lead to damages. The result of the tort was to give a remedy to a plaintiff when the defendant had no contractual relationship. It allowed


damages for pure economic loss Before Hedley Byrne, the concern was that an indeterminate number of people will rely on a representation for an unlimited amount of money.

Esso v. MardenFacts: Esso induced Marden to buy a gas station based on estimated sales of gas. The estimate was made negligently, and Marden lost his shirt. The court found that Esso did not warrant the estimate.Issue: Can Esso be held liable for Marden’s losses (or lost profits)?Held: Esso owed Marden a duty of care. He was within that class of people that Esso should view as relying on a statement. Esso breached that duty.Swan: The result is that there is a tort surrounding the contract. The court is careful to say that damages in tort are different from damages in contract. The tort measure of recovery is to put the plaintiff back in the position he would be in if he had not made the contract (not the position he would be in if the estimate had been true). Therefore, he gets what he lost, not what he would have made. On the facts of Esso, it is not clear how the two methods of recovery would differ. Eg., Marden invests $20,000. Suppose he would have recovered $20,000 and made a $10,000 profit ($30,000 altogether). The recovery for a grade A contract would be $30,000. In tort, he may recover the $20,000 plus interest and his own labour, which could easily equal $10,000. So, before you try to establish a warranty, see if there’s a difference in figures between contractual damages and recovery for negligent misrepresentation.NB: Esso owed a duty of care to Marden because he was within a class of people that would rely on it. The reliance must be reasonable and expected. In Esso, Esso was the party with the expertise, so it was reasonable for Marden to rely on its representation.

Beaver Lumber Co. v. McLenaghan (SKCA, 1982)Facts: The plaintiff bought a prefab. house from the defendant. The defendant said that Mr. Nixon was “the man for the job” to erect and finish their house. Mr. Nixon did a negligent job. The court held that the defendant’s statement was a negligent misrepresentation.Issue: What is the measure of damages for negligent misrepresentation?Held: The measure of damages for negligent misrepresentation is the tortious measure of damages, not the contractual measure of damages. The plaintiff should be put back in the position he would occupy had the contract never been formed. Therefore, the plaintiff should get the money they paid to Mr. Nixon plus consequential losses. The consequential losses are either (1) the total additional amounts the respondents spent on the house and lot, less the value of the property they ended up with; or (2) the estimate of fixing the deficiencies in the house. Either way, $7500 fits the bill.Swan: The court is unwilling to hold Beaver Lumber to warranting Mr. X’s quality of work; however, it was willing to call it a negligent misrepresentation.

V.K. Mason Construction Ltd. v. Bank of Nova ScotiaFacts: The bank, in response to an inquiry by Mason gave an express assurance that financing would be provided to a developer “sufficient to cover the construction”. In reliance on this assurance, Mason agreed to a contract with the developer. Mason was not fully paid. The bank did not advance sufficient funds and eventual, as mortgagee, sold the development, asserting priority over Mason’s mechanics’ lien.Issue: Was the bank liable for negligent misrepresentation?Held: Yes.


Ratio: There are four requirements for negligent misrepresentation: (1) an untrue statement; (2) made negligently; and (3) there must be a special relationship giving rise to a duty of care; and (4) there must be foreseeable reliance.Application: (1) The bank made an untrue statement since, in the context of Mason’s inquiry, the bank should have told MASON that its assurance was based on the assumption that soft costs would not be incurred. (2) The statement was negligent because it was made without revealing that it was based on a loan arrangement that Mason had already said was insufficient assurance to it of the existence of adequate financing. (3) The bank had a special relationship with Mason because it was inducing Mason to sign a contract on the Bank’s assurance of adequate financing. (4) Mason relied on the assurance to enter into the contract.Issue: What damages is the bank liable for?Held: Damages should resotre the plaintiff to the position in which it would have been if the negligent misrepresentation had never been made. But for the misrepresentation, Mason would have ceased work for the developer, recovered its expenses for the work completed, and found another construction project to work on. Mason’s anticipated profit from another construction project is a reasonably foreseeable head of damages. This lost profit can be estimated by the amount Mason would have made from this project. Mason should also get prejudgment interest.Swan: This case demonstrates that there is no distinction between reliance (tort) and expectation (contract) damages. The court said that Mason can recover the costs it incurred and its expectation of profit (lost opportunity to pursue another equally profitable contract). This collapses the distinction between reliance and expectation interests, allowing Mason full recovery.

Class NotesWe have spent the class basing our understanding on Fuller & Purdue’s distinction between reliance and expectation interest. It is not always different, both in the V.K.Mason sense (reliance on a representation of expectations) and in the Esso sense (factually, the numbers would be the same). Important: If there is a difference, what is the rationale for awarding the lower amount?It is generally easier to find a representation than a warranty. A warranty must be a grade A contract. A representation merely requires a special relationship, a negligent, untrue statement and reliance.

Barry J. Reiter, “Contracts, Torts, Relations and Reliance”The problem with acknowledging that liability in tort and in contract can co-exist is that of the appropriate damages to be awarded in light of historical differences between tort and contract damages. The usual contract damages protect the plaintiff’s expectation interest, while the usual tort measure protects the reliance interest. Moreover, remoteness is considered to operate differently in contract than in tort. Finally, certain heads of damage are recoverable in either one of contract or tort, but not in the other.Point #1: Difficult issues concerning the appropriate interest (expectation or reliance) to be protected by damages can arise even in a pure contract setting. For example, in Messineo, the plaintiff only recovered its reliance interest, despite it being a grade A contract. The question of how courts should construe the terms of incompletely expressed warranties is the same as the question of how to construe representations: “What were the reasonable expectations of the plaintiff; and to what extent should the defendant have known of them or be held to have agreed to be responsible for their satisfaction?”


Point #2: The question of why expectation damages should ever be given has rarely been examined systematically. The expectation measure is most appropriate to those promises bought for consideration in a strict sense.Point #3: The difference between contract and tort damages can be made irrelevant. For example, in Esso, the court could have chosen an expectation measure by finding Hedley Byrne liability only, or a collateral warranty of care in the estimate of throughput. Having selected a reliance measure, the court defined the extent to which reliance should be protected, choosing to protect some of Mardon’s forebearance reliance (losses attributable to having foregone other opportunities in reliance upon the present opportunity). In this sense, reliance and expectation interests tend to merge.Point #4: Remoteness does not necessarily operate differently for tort than for contract. In both contract and tort, the test of remoteness is not a straight factual test. It is applied to achieve the purpose behind the policy that it is not just to hold a defendant liable for all of the plaintiff’s losses. In a relational context, the contract duties are elaborated from the status and relationship of the parties and from the nature of their joint enterprise. This is also true of the tort duties imposed on the parties. Therefore, the test of remoteness must converge.Point #5: Suggestions that recovery for particular sorts of losses is available in tort but not in contract should be received with skepticism. [I won’t go into what Reiter says, since we have learned that mental distress and loss of amenity can be recovered in contract.]

OutlineIn what does the distinction between expectation and reliance losses or interests lie?

Contribution and ApportionmentTompkins Hardware Ltd. v. North Western Flying Services Ltd. (OHC, 1982)Facts: The plaintiff owned an aircraft which was flown by Mosbeck, a shareholder, VP and general manager of the plaintiff. Mosbeck took the plane to the defendant to be fitted with winter skis. The work was done negligently. Despite indications that the work had been done badly, Mosbeck flew the plane. The plane was damaged in a crash landing due to the defendant’s negligent work.Issue: What is the effect of Mosbeck’s negligence on the plaintiff’s claim?Held: Some of the loss will be apportioned to the plaintiff.Reasoning: Because of Mosbeck’s position, his negligence can be regarded as the negligence of the plaintiff. Traditionally, contributory negligence of a plaintiff was a bar to relief in a tort action; however, this was changed by the Negligence Act , which provides for apportionment between the plaintiff and defendant. Contributory negligence of a plaintiff in contract did not bar relief unless his negligence rendered the damages too remote.It is a recognized tort principle that where a man is part author of his own injury he cannot call upon the other party to compensate him in full. There is no reason why this cannot apply to contract cases as well. Mosbeck, by negligently taking the aircraft up, created the situation where the damage occurred because of the inadequate shock cords installed by the defendant. The extent of apportionment should be the same in contract and in tort. The criteria is the relative degree of negligence of the parties. Here it is 80-20 because the defendant’s negligence was far greater than that of the plaintiff.Swan: Suppose a bank asks a lawyer to look into a property before purchase and the lawyer doesn’t check the zoning. Can the lawyer argue: “You, as a bank, always run an internal check on the land yourself and should have caught my error.” There would be no indication that the


lawyer’s fee was reduced because the plaintiff is double-checking it. In light of this, it is not reasonable to hold the plaintiff partly at fault. Also, lawyers tend to warrant the quality of their work, certifying: “You have good and marketable title.” This is an unqualified statement.

OutlineWhat do you have to do to the terms of the parties’ contract to be able to reach the result that Saunders J. reached? What does the answer to this question tell you about the circumstances in which a plaintiff may be held responsible for part of the loss that it has suffered?Me: You have to assume that the parties’ contract said: “You, as a pilot, are responsible for checking things out if something appears to be amiss with the work we did. For example, a reasonable pilot should recognize a ski falling off mid-flight as an indication that there was something wrong with our installation of the winter skis.”

Dominion Chain Co. Ltd. v. Eastern Construction Co. Ltd. (OCA, 1976)Facts: Dominion contracted with Eastern, a general contractor, to construct a factory according to plans prepared by Giffels, an engineering firm. It contracted with Giffels to supervise the construction. Due to negligent construction procedures by Eastern, the roof leaked, causing damage. Giffels was found negligent in its supervision and approval of the work done. There was a clause in the contract between Dominion and Eastern that exempted Eastern from liability.Reasoning: The Negligence Act does not apply to breaches of contract. However, the defendant engineers are tortfeasors. The contractor is also a tortfeasor, under the principle of Donoghue v. Stevenson, unless there is language in the contract effective to relieve the employee of liability or to exclude damage suffered.Issue: Does contribution depend on liability to the plaintiff?Held: Yes.Reasoning: In this case, the contractor was exempt from liability to the plaintiff. Therefore, it would be unjust if the engineers could claim contribution from the contractor?Swan: The claim for contribution is a restitutionary claim, based in unjust enrichment.NB: In contract, the apportionment is 50-50 because it’s a no-fault thing. There is no way to measure comparative fault.

Dabous v. Zuliani (OCA, 1974)Facts: The plaintiff contracted with a builder to construct a house in accordance with plans prepared by a firm of architects. She contracted with the architects to supervise the construction. Because of negligence in construction of a chimney, the house caught fire. The architects were found negligent in their supervision and approval of the work. The judge did not find that the contract did not exempt the contractor from liability. It held that both the contractor and the architects were tortfeasors.Issue: Shall liability be apportioned between the contractor and the architects?Held: Yes. The fault is 25% (architects): 75% (contractor).

OutlineHere the issues are substantially restitutionary: the defendant who is not made to pay its share of the loss is unjustly enriched to the extent that the other has met the demand (or judgment) of the plaintiff.

(b) Avoidable HarmsErie County Natural Gas and Fuel Company Ltd. v. Carroll (PC, 1911)


Facts: The defendant contracted to supply gas to the plaintiff for use in its business. The defendant breached the contract. The plaintiff acquired other gas leases, and constructed new works to secure their supply gas, later selling them at a profit. Issue: What damages can the plaintiff get?Held: Nominal damages.Ratio: Where a party does not perform his contract, the other may do so for him, as near as may be, and charge him for the expenses incurred in so doing.Reasoning: If the plaintiff acquires the goods for a sum equal to or less than the contract price, it can only recover nominal damages because it has suffered no loss.

Cockburn v. Trusts & Guarantee Co. (SCC, 1917)Facts: The plaintiff was wrongfully dismissed by the defendant employer. When the defendant went into liquidation, the plaintiff bought assets at the liquidation sale and sold them at a profit of $11,000.Issue: Can the plaintiff recover damages for wrongful dismissal?Held: No.Reasoning: The plaintiff is not required to take steps that a reasonable person would not take, to mitigate his loss. However, if the plaintiff does take action which diminished his loss, it may be taken into account in assessing damages even though he had no duty to act.

Asamera Oil Corp. Ltd. v. Sea Oil & General Corp.Facts: Contract of loan of stocks to Brooks, president of Asamera, by Baud, a subsidiary of Sea Oil. Brooks did not return them in breach of contract. The share price fluctuated greatly since the loan was made, generally rising ($0.29 at time of breach to high of $47).Issue: How should damages be measured?Held: Damages are measured by determining how much the purchaser would have to pay in the market at the time of breach minus the contract price. This involves two principles: (1) The plaintiff has a right to recover all its losses which are reasonably contemplated by the parties as liable to result from the breach; and (2) the plaintiff has a duty to mitigate his losses. Mitigation requires that the plaintiff purchase like shares in the market on the date of breach or within a period thereafter which is reasonable in all the circumstances.Baud’s duty to purchase Asamera shares was delayed for several reasons. Brook asked Baud to refrain from enforcing its claims until 1966. Baud was unaware that Brook had not only defaulted on returning the shares, but had actually sold them in violation of an injunction. Finally, the shares only traded thinly and sporadically until 1967. The reasonable period extends to the fall of 1967, when the share price had risen to $5 or $6. Giving an allowance of $1, that results in a price of $6.50/share for a total of $812,500.Swan: Duty to mitigate can even trump a claim for specific performance. The plaintiff cannot recover for some of the harmful consequences of the defendant’s breach. This is the opposite of what Semelhago said, but Asamera is right.

OutlineIf the plaintiff cannot recover for what it actually avoided or should have avoided, what about the case where it is better off from payment of damages than it would have been from performance?

Harbutt’s “Plasticine” Ltd. v. Wayne Tank and Pump Co. Ltd. (QCA, 1970)Facts: The defendants contract to design an install equipment in the plaintiff’s factory for storing and dispensing heavy wax. The pipes and heating system were wholly unsuitable for the purpose, which intended tests would have revealed. In order to melt the wax for the tests, the


defendants turned on the heating system and left the plant unattended overnight. The installation burst into flames and the factory was destroyed. The cost of reinstatement was £146,581. The difference in market value was £117,785.Issue: Should damages be measured by the cost of reinstatement or the difference in market value?Held: The cost of reinstatement.Reasoning: A building is different from a chattel. They could not go out and buy a second-hand factor built to their needs, so they had a new one built. They should not be penalized for getting new for old. True, they built the new factory along modern lines, etc.; however, there was no evidence that it cost more than if they had rebuilt the old factory.Swan: Denning doesn’t even consider that they are getting an all-new factory. There was evidence that the factory was more efficient. If you make a profit from a breach that you couldn’t have made if the contract had been performed. The new plan is an incontrovertible benefit conferred upon Harbutt’s. It’s a profit-earning asset, the present value of which is at least the difference between the old and new buildings measured by profits. The CA’s judgment is inadequate because it’s difficult not to conclude that Harbutt’s “Plasticine” was unjustly enriched. If Denning hadn’t cut out the exclusion clause, all would be well because Harbutt’s insurer will pay for the new plant and the cost of replacement is reflected in the premiums. It costs Wayne more for liability insurance than it would cost Harbutt’s for fire insurance. Waynetank’s liability insurance takes into account the exclusion clause in all their contracts, so when Denning chops out the exclusion clause, there’s a gap in the insurance. Waynetank has a second insurer. Now, there’s a battle between the insurers which demonstrates how much Denning screwed up. This case was overruled by the HL in a later case. This case is an example of what not to do.Notes: K. Dore & E. Veitch summed up the law relating to choice between difference in value and cost of reinstatement with 4 principles: (1) If the cost of replacement is the same as the difference in value, there’s no issue; (2) if the cost is less than market value, then damages are measured by cost; (3) if the cost is more than market value, and no reasonable person in the victim’s position would incur the cost, then damages are measured by market value; (4) if the cost is more than market value, and a reasonable person would incur the cost, then damages are measured by the cost.

OutlineDoes lord Denning M.R. acknowledge the assumptions that underlie any decision to make a capital investment in a business? In the law of restitution, a person will be held to have been “incontrovertibly benefitted” if the person makes a gain that would not have been made had the other not performed some service or supplied some gain. A simple example is where a contractor does work on a house for which the owner is not liable (the work might have been ordered by a person who did not have the owner’s authority to do so). The owner will not be liable for the work even though it may have improved the house unless he sells the house and the contractor can prove that the sale price was increased by the work. The contractor can in this case recover the amount by which the work increased the price. To what extent is Harbutt’s “Plasticine” Ltd. benefitted by what the defendant was forced to do? To what extent should it pay for this benefit? Is there a problem of the mechanism by which Harbutt’s could be made to pay?British Westinghouse Electric and Manufacturing Co. v. Underground Electric Railways, [1912] A.C. 673, illlustrates the problem. The defendant had supplied steam turbines to the plaintiff.


They were defective in that they were very expensive to operate. A few years later, the plaintiff replaced the turbines with more efficient ones. It sued the defendant for the extra fuel it had used and the full cost of the new turbines. The arbitrator held that the plaintiff had acted reasonably and that, even if the original turbines had not been defective, it would have been worthwhile to replace them. In the circumstances, the House of Lords held that the plaintiff had to take the additional benefits into account.How does British Westinghouse differ from Harbutt’s?

James Street Hardware and Furniture Co. Ltd. v. SpizziriFacts: The defendant welder’s negligent work caused extensive fire damage to the plaintiff’s building. The plaintiff rebuilt the damages part of the building in a superior form, exact restoration being prohibited by the building code. The cost of restoring the building was $340,000. From this, the trial judge deducted $34,000 to cover “enhancement”.Plaintiff: The trial judge erred in (a) deducting $34,000 from the replacement cost; and (b) refusing to allow the $49,394 as the cost of compliance with the Building Code Act.Defendant: The trial judge erred in (a) not deducting $95,000 for depreciation; and (2) not reducing the damage to inventory ($140,000) by a profit of $124,925 received on sale of the inventory.Issue: How should the betterment/depreciation issue be dealt with?Held: Reasoning: Damages should put the plaintiff in the same position as it would occupy if it had not sustained the wrong. McGregor on Damages states that “[t]he test which appears to be the appropriate one is the reasonableness of the plaintiff’s desire to reinstate the property; this will be judged in part by the advantages to him of reinstatement in relation to the extra cost to the defendant in having to pay damages for reinstatement rather than damages calculated by the diminution in value to the land.” On the question of betterment, McGregor states that the law will not place on the plaintiff the cost of betterment when the plaintiff incidentally derives a greater benefit than mere indemnification, due only to the impossibility of effecting indemnification without betterment. Waddams states, “[I]t is suggested, therefore, that an anticipated benefit accruing to the plaintiff on repairing damaged property ought to be taken into account to reduce damages, with compensation, however, for the cost to the plaintiff of the unexpected expenditure required of him, and with the onus of proof upon the defendant in case of doubt on this question, or on the value of the benefit.” In fact, the court finds that the defendant must prove that the plaintiff benefits; however, the plaintiff must show that he bears a loss from having to expend on this benefit early.Application: The defendant did not adequately prove the depreciation or the $34,000 benefit. The plaintiff did not adequately prove how much of the cost of complying with the new building code was relevant (i.e., flowed from the breach, rather than from the change in floor plan they used upon rebuilding). If it had been able to prove it, it would have been recoverable (or if he had merely rebuild along the old plan).Swan: This case demonstrates that the issue is often a question of burden of proof. There is more thoughtful consideration of the issue of betterment in this case than in Harbutt’s.


Part 2: Equitable Remedies

IntroductionEquitable remedies are extraordinarily effective, giving the client exactly what he wants: a constructive trust, an injunction or specific performance. It allows the plaintiff to get the entire increase in the value of land.

Requirements for Equitable Remedies1. Plaintiff’s Rights: There must be a substantive cause of action or violation of the plaintiff’s

rights.2. Irreparable Harm: Damages would be inadequately vindicate the plaintiff’s rights. There are

a number of possible meanings to this phrase: (1) damage to person or property that is impossible to repair; (2) damage to an interest that is not easily susceptible to economic measurement; (3) a legal wrong that causes no financial or economic harm; (4) damages are ascertainable, but unlikely to be recovered; (5) a threat to an interest that is so important that damages are inappropriate; or (6) an injury that has not yet occurred or a wrong that is continuing. Which of these you apply depends on the nature of the interests at stake, and the purposes of the law.

3. Discretion and Balance of Convenience: There must be discretionary factors that incline against specific relief. You never have a right to equitable relief. The court chooses whether or not to give it to you, weighing all factors. They are also concerned with the defendant’s interest, 3rd parties (third party purchaser for value without notice), and the court’s own efficiency and efficacy. Defences to equitable remedies include: unfairness, delay, hardship, the conduct of the plaintiff, and considerations of public policy.

There are a number of equitable maxims that must be fulfilled. E.g., equity does not assist a volunteer.

Specific Performance

General PrinciplesE. Allan Farnsworth, “Legal Remedies for Breach of Contract” (1970)Relief is of two kinds: specific (equitable) and substitutional (damages). Specific relief is better at putting the promisee in the position in which he would have been had the promise been performed. In civil law, specific performance is the rule, and damages the exception. In common law, damages are the rule and specific performance the exception. Common law will not coerce a performance that is personal in nature, nor will it order performance that will be difficult to supervise or enforce. It will not order specific performance if damages are adequate. Equitable relief is also discretionary, which is embodied in some of equity’s maxims: “he who seeks equity must do equity”, “he who comes into equity must come with clean hands” and “equity aids the vigilant”.

Alan Schwartz, “The Case for Specific Performance” (1979)Specific performance is deemed an extraordinary remedy, only available at the court’s discretion. The paradigm cases for specific performance are: sales of “unique goods”, sales of land, and long-term requirements contracts.


To get specific performance, a plaintiff must show that damages would be inadequate. Even if they are inadequate, the defendant has a number of defences: inadequacy of consideration, lack of security for the promisee’s performance, the promisor’s unilateral mistake, and the difficulty of court supervision of specific performance.Specific performance should be as routinely available as the damages remedy. It gives the promisee the precise performance that he purchased. Damages are often undercompensatory. Specific performance would not get overused because promisees have economic incentives to elect for damages if they are adequate (because specific performance can be a hassle to enforce).

Donald H. Clark, “Rethinking the Rule of Specific Relief in the Contractual Setting” (1991)This article discusses remedial approaches in the aftermath of contractual breach. In looking at equity, it says that it is the most complete form of relief, since damages are often undercompensatory.There are three countervailing forces against specific performance: the defendant’s interests, the court’s interests and the interests of third parties.Defendant’s interest: The principle of “efficient breach” has been argued as follows: the promisor should have the right to buy out the promoisee’s interest in performance, quantified as appropriate at either the expectation or reliance measure, when it results in a net gain to the promisor. However, this analysis proceeds on an assumption of zero transaction costs. Moreover, a promisor should not be permitted to retain gains achieved by opportunistic behaviour. When weighing the equities to determine whether specific performance is appropriate, the courts will weigh the inconveniences of each party. On the plaintiff’s side, it will ask whether damages would be adequate. On the defendant’s side, it will ask whether the defendant will suffer hardship. This seems like the “efficient breach” argument.Court’s interest: Courts don’t like making orders which the defendant may simply disregard or whose compliance would require continual judicial monitoring….Interests of third parties: …

Class NotesNote that specific performance is inconsistent with the doctrine of efficient breach.If a contract is not nominally specifically enforceable, there is no equitable interest. In the sale of land, there a period of time between signing a contract and closing it. During that time, the purchaser has equitable title, which the vendor holds in trust. In a shotgun clause (buy me out or I’ll buy you out) the person receiving the buy/sell offer has an equitable interest as soon as the offer is made. It is specifically enforceable. Damages would be inadequate because you want the shares (to break a deadlock in struggle for control of the corporation, etc.).All equitable awards are discretionary; however, some contracts almost guarantee specific performance (sale of land, etc.).

Sale of Goods and ChattelsThere are cases in which the sale of goods cannot be adequately compensated (“unique goods”, e.g. sale of a Picasso).

Ffalke v. Gray (Ch., 1859)Facts: The plaintiff offered 40 for 2 Chinese vases. The defendant accepted, then got them appraised for 400. She sold them to a third party.Issue: Can the plaintiff get specific performance?Held: No.


Reasoning: They were unique goods; however, he acted deceitfully (“clean hands”), so he can only get damages.Swan: Because equity focusses on fairness, you lose your rights if you act unfairly. A consequence of this is that, if a purchaser could get specific performance, then so could a vendor (mutuality); however, all the vendor is seeking is money. It is difficult to justify the vendor’s claim for the entire purchase price when the vendor can sell and get damages to recover the amount. Nonetheless, the rule still exists that the vendor can call for specific performance. Swan prefers the vendor selling and then recovering damages because it doesn’t permit speculation. If you’re acting for a vendor, you’re better off to advise not to make a claim for specific performance; however, there are lots of leading cases involving claims for specific performance by vendors. Today, the contract would have been set aside as unconscionable.

Sky Petroleum v. V.I.P. Petroleum (Ch., 1974)Facts: The defendant oil wholesaler breached its contract with a buyer because it could get a higher price during the 1973 oil embargo.Issue: Can the plaintiff get specific performance?Held: Yes. Oil is a “unique good” during the oil embargo because it is so scarce on the market.Note: The court awarded an interlocutory injunction to restrain the withholding of petroleum supplies under a long-term supply contract notwithstanding that the goods were not “specific or ascertained” in terms of the Sale of Goods Act.

Third PartiesCanadian Long Island Petroleum Ltd. v. Irving Industries Ltd. (SCC, 1975)Facts: Irving contracted with Sadim for joint ownership and development of an oil lease. The contract included a ROFR. Sadim sold to Long Island. A copy of the agreement between Irving and Sadim was enclosed with the offer.Issue: Can Irving get specific performance?Held: Yes. A third party purchaser for value without notice can trump even an equitable claim; however, Long Island had notice of Irving’s interest.

Class NotesThis issue of knowledge is a problem in insurance or travel agency cases involving banks. An agent works for an insurance company or a carrier. It is authorized to receive premiums or payments from the public. Under the agreement, the money is to be held on trust for the insurance company or carrier. Hypothetically, the agent may put the money into a bank to which the agent owes money. The bank may take the money to offset the agent’s debt. The insurance company or carrier becomes really upset because the bank has taken its money. This is assuming that the agent never told the bank that it was trust money. The Bank Act has provisions exculpating the bank from having constructive knowledge; however, the bank “knows damn well” that the money was held on trust. Therefore, the bank holds the money on constructive trust for the insurer or carrier.

Long-Term Contracts for the Supply of Goods or ServicesDominion Iron & Steel Co. v. Dominion Coal Co. (1908)Facts: This involved a coal mine with a steel plant next door in Cape Breton. The coal company had a long term contract with the steel company to sell coal. The market price of coal rose, so the coal company breached.


Issue: Can the plaintiff steel company get specific performance?NSSC en banc: Yes. Although coal is not unique property, it would be impossible to measure the damages in such a long-term contract, considering all the possible price fluctuations, etc.PC: No. This is not a contract of which specific performance would be decreed by a court of equity.Notes: It is likely that the Privy Council would decide this case differently today.Swan: The plaintiff plead poorly. It asked for both damages and specific performance.

Ryan v. Mutual Tontine Westminster Chamers AssociationFacts: Ryan was a tenant. Mutual Tontine, the landlord, was supposed to appoint a resident porter.Issue: Can Ryan get specific performance?Held: No. The court cannot supervise the apartment and the effectiveness of the resident porter.Swan: Sometimes there’s a problem with implementation of specific performance. In the sale of land, the court can order the vendor to sign the transfer. If the vendor refuses, it can have an officer of the court do it on the vendor’s behalf. In the sale of goods, an officer can seize the goods. However, there is a problem when the cooperation of the defendant is necessary to carry out specific performance. The more recent view on this aspect is expressed in Tanenbaum.

Tanenbaum v. W.J. Bell Paper Co. Ltd.Facts: When the plaintiff sold land to the defendant, the defendant covenanted to build a road and to provide access to the plaintiff’s land and to put in a watermain to the plaintiff’s land. It constructed an inferior roadway and built a much smaller watermain.Issue: Can the plaintiff obtain specific performance?Held: Yes.Reasoning: Generally, the court will not order specific performance of a contract to build; however, there is an exception to that rule where a person undertakes accommodation works on lands possessed by him in consideration for obtaining those lands, if the particulars of the work are sufficiently clear and defined and the damages would not be an adequate remedy. The degree of certainty with respect to the particulars of the work must be a reasonable one, having regard to the nature and subject-matter of the undertaking and the context of the contract. The basis of equity’s disinclination to grant specific performance of building contracts is the difficulty of enforcing the decree; however, where the inadequacy of damages is great, and the difficulties of enforcement not extreme, specific performance will be granted.Swan: This is the modern attitude of the courts (rather than Tontine). It shows what a modern court will do. It is probably limited to construction contracts because details can be specified quite clearly.

Dynamic Transport Ltd. v. O.K. Detailing Ltd. (SCC, 1978)Facts: The defendant vendor accepted an offer to sell part of its business property to the plaintiff. The vendor refused to convey even before the date for closing because the value of the land had nearly tripled. The ABCA refused to order specific performance because it would have been necessary to obtain subdivision approval from the City of Edmonton.Issue: Can the plaintiff get an order for specific performance?Held: Yes. The defendant must make a good faith application for subdivision approval.

Webster v. Garnet Lane Developments Ltd. (OCA, 1992)Facts: The plaintiffs agreed to sell their home. In return, the defendant agreed to build a three-bedroom bungalow of specific dimension and attributes for them on a specified lot in the


plaintiff’s subdivision according to plans to be approved by them. The defendant refused to build the house. The trial court awarded specific performance and accepted the obligation to supervise construction of the house. Because of problems that arose, the trial court directed that a third party and not the defendant should actually build the house under the supervision of a trustee appointed by the court, and the defendant should pay administration costs and the costs of construction to the trustee. The plaintiffs appealed the decision, asking for damages (they must have realized how difficult it would be to get the house they wanted under specific performance).Issue: Should the plaintiff get damages?Held: Yes.

Class NotesThere are a class of contracts for which damages are “inadequate”. The court may nevertheless refuse specific performance if supervision would be too difficult. It may also refuse specific performance if the plaintiff does not have clean hands.

Personal Services ContractsRemember McCaw, in which the court ordered the Minister’s reinstatement. Under collective agreements with unions, the employee is automatically reinstated. Clearly the problem of specific performance in personal services cases is not considered a problem when the employee is the one seeking reinstatement, although the court does look into whether the employer has enough trust in the employee to make it work. However, in cases where the employer is seeking specific performance, the court won’t award it. Courts won’t order specific performance; however, there have been some exceptions.

Giles & Co. v. Morris (Ch., 1972)Facts: The corporation had an obligation to offer a contract of employment to Morris. If Morris accepted, he’d be promptly dismissed.Held: Specific performance is only ordering someone to execute the contract, not forcing them to perform. Let things turn out as they will and it will be dealt with in damages later.

Lumley v. Wagner (Ch., 1852)Facts: Johanna Wagner agreed to sing at Lumley’s theatre during a certain period of time and would not sing elsewhere without his written authority. Issue: Can Lumley get specific performance?Held: Sort of. They will not order Wagner to sing, but they will order an injunction preventing her from singing anywhere else.Swan: There is little difference between specific performance and an injunction. If you get specific performance, you get an injunction. An injunction is an order to perform or not to perform.

Warner Brothers Pictures Incorporated v. Nelson (1937)Facts: Nelson (Bette Davis) signed an exclusive contract with Warner Brothers for one year. She then entered into an agreement with another person to perform as an actress.Issue: Can Warner Brothers get specific performance?Held: Not exactly. The court will not order Nelson to act for them; however, it will order an injunction preventing her from acting anywhere else.


Swan: There is a larger issue of unconscionability here. The contracts at this time between studios and stars were grossly one-sided (in favour of the studio). For example, Warner Bros. could have refused to give her any roles, while preventing her from going elsewhere – there goes her career.These are classes of cases in which courts will give partial effect to a clause in a contract by focussing on the negative covenant. NB. These are not the same as non-competition clauses, where the plaintiff must show reasonability because non-competition clauses are against public policy.

Land ContractsSemelhago v. ParamadevanFacts: S. contracted with P. to purchase a house under construction for $205,000. He planned to pay $75,000 in cash and raise $130,000 by mortgaging his present home. P. sold the house to a third party in breach of contract. S. commenced an action for specific performance with an alternative claim for damages. At the date of trial the house was worth $325,000. S.’s own house increased in value from $190,000 to $300,000.Issue: Is specific performance (or damages in lieu of) appropriate here?Held: The court doesn’t really address this issue because it wasn’t argued, but states in obiter that in another case, the trial judge would not be bound to allow specific performance for breach of a contract involving real estate that is not unique. This is because the basis for awarding specific performance is that the thing is unique and you can continue to treat the contract as operational up to the date of trial.Swan: The old rule is that contracts for puchase and sale of land are specifically enforceable. This case says that the old rule should no longer apply, and to get specific performance, you must show that the land is unique. However, the case is not clear on how you would establish that the land is unique. Problem: What if the plaintiff liked this particular house for a certain reason, e.g., proximity to the bus stop, morning sunshine in the kitchen, etc. There are more problems here. When the contract is signed, the plaintiff gets equitable title to the property, which can be registered as security. It is unclear what happens to this post-Semelhago. What good is this security if it can’t be specifically enforced? There were earlier cases in which specific performance was denied; however, they all involved a financial interest in property (e.g., investing in an apartment building). In Semelhago, Mr. S. is buying a home. Swan has no idea why the court refused specific performance.

Class NotesSpecific performance is as close as we come to perfect compensation. For the most part, it works well (Rimes and Semelhago aside). We shouldn’t go and change this, for example, by trying to compensate the purchaser for its “losses” (very vague, like Ruxley). Specific performance is much clearer and simpler.

Specific Performance with AbatementThis is used to balance the claims of the vendor and purchaser. Swan’s impression is that the law has not changed. The trial judge is still finding that real estate is unique. Semelhago could be the court giving notice that they will consider the issue in the future even though it doesn’t come up here (like Hedley Byrne, where the court said, “We’re changing the law, but this defendant is protected). It is prospective, not retrospective – we want to review the old rule. It will be confirmed if leave is given to a case on that issue.


It could be a switch in burden of proof. Before Semelhago, the court assumed that land was unique. Now, perhaps the plaintiff must show why the land is special to them.

Financial Relief in Equity

IntroductionHistorically, damages in equity were based on the trust. In contract, recission was based on grounds of fraud. There were also the equitable remedies of injunction and specific performance. However, the courts of equity had no power to award damages. Only common law courts could do that. Before the fusion of law and equity, litigants who failed in equity had to recommence their action in the common law courts. Moreover, when a plaintiff got equitable relief, but also required damages to make their relief complete, they had to go to the common law courts. Lord Cairns’ Act of 1958 addressed these issues in part. It gave the Court of Chancery authority to award damages as well as or in substitution for specific performance or an injunction.Some questions arise: To what extent are there still areas in our law where equitable damages are necessary because the rights violated are not vindicated at all or inadequately under common law damages? Do common law limitations apply at all or in the same way under equity? For the purposes of equitable damages, do the principles of causation, foreseeability, contributory negligence, and mitigation, as well as those governing the date at which loss is measured, recovery for non-economic loss, and punitive or exemplary damages work the same way?

Equitable DamagesJ.A. Jolowicz, “Damages in Equity – A Study of Lord Cairns’ Act” (1975)In Hooper v. Rogers, the court awarded damages in respect of a nuisance which had not yet resulted in any damage. In Wrotham Park, the court awarded damages for breach of a restrictive covenant to successors in title to the covenantee from the successors in title to the covenantor. In Wroth v. Tyler, damages for non-performance of a contract for the sale of a house were assessed by reference to the value of the house at the date of hearing, rather than at the date of breach. All these cases were founded on Lord Cairns’ Act.The main purpose of Lord Cairns’ Act was to do away with the necessity for separate proceedings in law and equity. It allowed the court to award damages in addition to or in substitution for an injunction or specific performance. Once the Judicature Acts were brought into operation, Lord Cairns’ Act was repealed; however, this doesn’t seem to have affected the way courts use it.

Class NotesFor equity, we must know:1. The range of remedies that equity provides. There is not the underlying theoretical problem

that occurs with damages because equity does not try to address the plaintiff’s loss of position.

2. The pattern of equitable remedies: when they’re available; when it’s good strategy3. The relationship between equitable remedies and common law remedies. They may lead to

different results (e.g. Semelhago)

Dobson v. Winton & Robbins Ltd. (SCC, 1959)


Facts: The defendant purchaser repudiated its contract prior to the date of closing. The plaintiff vendor brought a claim for specific performance. A few days prior to trial, the plaintiff “mitigated” his losses by selling the property to a third party for $5000 less than the purchase price.Issue: Can the plaintiff get damages?Held: Yes.Reasoning: If a plaintiff asks for specific performance alone, he elects to affirm the contract and cannot ask for damages for breach of contract. If he asks for specific performance or equitable damages in the alternative, he is still electing to affirm the contract. However, if he asks for specific performance or common law damages in the alternative, the writ is equivocal and there is no election. He is under no compulsion to elect between them until judgment. The plaintiff must make sure that his claim for damages is identifiable as one at common law, rather than one for equitable damages under Lord Cairns’ Act. This is a question of formulating pleadings.Swan: Judson J. was really nice to the plaintiff here. It was by no means clear that the original pleadings were asking for damages. The judge could have gone the other way. So, be careful how you formulate your pleadings.

Price v. Strange (Eng. CA, 1978)Facts: There was an oral agreement to sell property. The sub-lessee wanted specific performance.Defendant lessor: There’s a rule that the court cannot order specific performance for personal service contracts. The plaintiff’s obligations under the contract are personal service. There is a principle of mutuality in equity. The court can’t order me to perform because I couldn’t get specific performance from the lessee because that’s a personal service contract. The court therefore has no discretion to award damages in substitution.Held: The decision to order enforcement of personal service contract and issues of mutuality are within the exercise of discretion. The lessee can get specific performance against the lessor even though the lessor could not get it from the lessee.Swan: Mutuality is attenuated.

Specific Performance with Abatement in Purchase PriceLe Mesurier v. Andrus (OCA, 1986)Facts: Market prices in Toronto spiralled. A woman bought at a high point and now wants out. She made two arguments: (1) there was a 2-4” encroachment by a driveway; and (2) she thought certain trees were on the property. The trial judge found that there was no meeting of the minds.CA (Grange J.A.): Specific performance with abatement is appropriate here. The purchaser gets the land, but the purchase price is reduced because of those few inches that she’s not getting. The vendor would be able to do the same thing [but, under standard agreement for conveyance, the vendor must be able to convey the whole thing, so can’t get abatement]. The court makes a strong statement on the need for good faith in performance of contractual undertakings. The tree argument is evidence of bad faith – just wants an escape route.Swan: Another issue with respect to abatement is that courts won’t make agreements for parties; however, this sort of thing often happens, so be careful. If the deal has closed, the plaintiff won’t have a remedy for not getting the land he wanted. I.e., after closing, there is no equitable remedy and the plaintiff can’t get damages from common law because the purchaser has an obligation to perform a title check.

Canson Enterprises Ltd. v. Boughton & Co. (SCC, 1991)


Facts: Original owner of land sold it to a corporation for $410K. The corporation then sold it to a JV for $525K. The buyer was unaware of the land flip, but its lawyer was. The buyer built on the land. Due to the engineers negligence, the building collapsed. They couldn’t get enough money from the engineers. They sue the lawyer who knew of the land flip.Issue: Can Canson sue the lawyer for, not just $125K, but also for all subsequent losses arising from land purchase, etc? Ie., when you have a claim in equity (breach of fiduciary obligation), are you limited by common law rules of remedies?BCCA: The lawyer is not liable for the profits because he is not a constructive trustee.Majority (LaForest): Even though this is an equitable cause of action, it is appropriate to apply common law remedial system with principles of remoteness, etc. Ashburner was on the right track, but didn’t quite get it. In some respects common law and equity remain distinct and separate; in others, they mix. Tort remedies are more developed than equitable remedies, so it makes sense to use the tort remedy and attach it to the equitable cause of action. However, common law and equity cannot be completely melded. Fiduciary obligations may be divided into those based on property and those based on tasks. The principles applicable to trusts have never been applied to breaches of other fiduciary duties. In the latter, the remedy is to compensate for the loss resulting from the breach. Breaches may be those in which there is a benefit to the fiduciary and those in which there is no such benefit. If the fiduciary has received a benefit, that benefit can be disgorged (equitable remedy). When there is no such benefit, tort principles may apply, since compensation and damages have the same underlying policy. Here, the lawyer received no benefit, so common law rules apply. Too remote.Concurring (McLachlin): This is an equitable cause of action. The foundation and goals of equity are very different from those of tort or contract. Contract and tort deal with arm’s length parties, each acting in its own best interest; in equity, one party of the relationship has a positive obligation to look out for the other party’s interest. The higher level of obligation imposed on parties in an equitable relationship is reflected in the types of remedy available. Although the common law principles of mitigation and remoteness don’t apply in equity, there are limits to a defendant’s liability. The consequence need not be foreseeable at the time of breach; however, it must be a common sense consequence of the breach. The plaintiff need not mitigate, but losses occurring from the plaintiff’s clearly unreasonable behaviour will be attributed to the plaintiff’s action, not the defendant’s breach (Maxim: He who seeks equity must do equity). In this case, there was no causal link between the lawyer’s breach of fiduciary obligation and the building’s collapse.Both: The lawyer is not liable for more than the $125K from the land flip.Swan: This case demonstrates two different approaches to the law (McLachlin & LaForest). These same two have differences in London Drugs. LaForest feels that there is no value in compartmentalizing the law. Contract, tort, and fiduciary duty are all simply alternative bases for liability and there’s nothing special about breach of a fiduciary obligation. He borrows language from the British courts on the subject of unification of common law and equity. McLachlin sees the law as compartmentalized. To her, contract, tort and fiduciary obligation are all different. She comes to the same result as LaForest, using causation (the losses suffered by the plaintiff were not caused by the defendant’s breach). In this case, the differences in their perspectives did not matter; however, in London Drugs it certainly did.

London DrugsThe plaintiff stored its goods with the defendant. The defendant’s careless employees destroyed the goods. The plaintiff sued the employees directly. In finding that the plaintiff was a third


party beneficiary, the court relies on Greenwood Shopping. LaForest collapses the distinction between the defendant and its employees. He says that they owe no duty to the plaintiff because they don’t exist except as employees of the defendant. McLachlin says that the employees do owe a duty to the plaintiff; however, the plaintiff consented to the risk that the employees might be careless.Swan: Now that LaForest is gone from the court, McLachlin’s approach will survive despite being less satisfactory.

Swan HypotheticalA bank manager turns down a loan to a borrower and uses the idea himself, making profits. The borrower sues the bank for the profits made by the bank manager. Courts tend to accept this, even though the bank never made any profits.

Target Holdings Ltd. v. Redferns (HL, 1996)Facts: Target forwarded money to Redferns, its solicitor, to hold in trust and pay out to a company called Crowngate, once Crowngate had purchased a certain property. The whole thing was based on a scam, involving several different companies. Redferns forwarded the trust money to one of the other companies involved in the scam. In the end, the transaction was completed and Crowngate held the mortgaged property, which was security for the loan. Unfortunately, the market collapsed and the property was no longer worth much money. Target can’t sue Crowngate because its now insolvent, so it turns to the solicitor. It is agreed that Redferns breached its trust when it forwarded the money to the other company.Issue: Can Target get restitution of the trust moneys that were paid out in breach of trust?CA: The lawyer is liable and bound to return the money that had been given in trust by the mortgagee.HL: No.Reasoning: Once a trust has been exhausted and the fund has become absolutely vested, the beneficiary is not normally entitled to have the exhausted trust reconstituted. His right is to be compensated for the loss he has suffered by reason of the breach. Until the commercial transaction has been completed, the solicitor can be required to restore to the client the account moneys wrongly paid; however, there is no obliation to restore the trust fund once the transaction has been completed. Target obtained exactly what it would have obtained had no breach occurred, a valid security for the sum advanced.The common law rules of remoteness and causation do not apply; however, there must be some causal connection between the breach of trust and the loss for which compensation is recoverable. Equity is also a fault-based system, so the defendant is not liable for losses not caused by his wrong.On the other hand, if the money made available by Redferns’ breach of trust were essential to enable the transaction to go through, then there is causation because but for Redferns’ breach of trust, Target would not have advanced any money. In that case, the loss suffered by Target by reason of breach of trust will be the total sum advanced to Crowngate less the proceeds of that security.

Hodgkinson v. Simms (SCC, 1994)Facts: The plaintiff told the defendant investment counsellor that he wished to minimize taxes and acquire stable, long-term investments. On the defendant’s advice, the plaintiff invested in real estate. The defendant received a commission for each unit purchased. The investments were worthless after the real estate market crash in 1981. The plaintiff claims that he would not


have invested if he had known of the defendant’s relationship with the developers. He is suing for breach of fiduciary duty, breach of contract and negligence.Issue: Is this a relationship of fiduciary obligation?Held: Yes. There are two ways a fiduciary obligation can exist:(1) There is a rebuttable presumption of fiduciary obligation in the traditional fiduciary

relationships; (2) Almost any relationship or transaction can give rise to a fiduciary obligation if the facts show

that one party could reasonably have expected that the other will act solely in their interest with respect to the subject-matter. Evidential factors include discretion, influence, vulnerability, and trust.

Investment counselling is not one of the traditional fiduciary relationships, so the Court must search for a factual basis to establish a fiduciary obligation. There must be more than just an undertaking to provide information and execute orders for the client (as in a discount brokerage). Here, the client reasonably expected that the defendant was acting in his sole interest. He reposed trust and confidence in his counsellor and gave him the power to advise.LaForest distinguishes between fiduciary duty and unconscionability, etc. Reliance and vulnerablility are common facts; however, only the fiduciary duty has an obligation of loyalty.Issue: Is the investment counsellor liable for the losses due to the market crash?Majority (LaForest): The accountant is liable for the whole loss, even though part of the loss was due to the collapse of the real estate market.Minority (McLachlin): The accountant is only liable for the loss caused by the breach.Swan: This is a strongly divided SCC. The minority’s view is the correct one. The majority decision is scary because it expands who a fiduciary is and also expands the liability of fiduciaries. There seems to be a strong element of deterrence involved in the decision (and we know how Swan feels about civil courts trying to deter). It is hard to justify the size of the cheque the plaintiff gets. If you forget about deterring, the plaintiff suffered no loss (the investment advice was sound; it’s not the defendant’s fault that the real estate market crashed).

Injunctions

IntroductionAn injunction is an order requiring a person to refrain from or to take a course of action. Specific performance may result in the court issuing an injunction. A prohibitive injunction orders a person to refrain from specified conduct (Nelson v. Warner Bros.). A mandatory injunction orders a person to take positive action (Dynamic Transport v. O.K.). Injunctions may be permanent or interim (valid for a fixed term).Interlocutory injunctions are given pre-trial. They are generally binding until trial.An injunction is normally sought to restrain a continuing violation of rights; however, it may also be sought quia timet, before the wrong has occurred or any damage suffered.Injunctions can be obtained ex parte. They may be given at any time of day or night (there’s always a judge on duty).Injunctions are extraordinarily effective because you can go to jail for disobeying.


Quia Timet Injunctions and the Problem of RipenessWhen a plaintiff seeks an injunction before the wrong has been committed or before he has suffered harm, it is a quia timet (“since he fears”) injunction. The plaintiff must show imminent danger of rights being violated.

Fletcher v. Bealey (Ch., 1885)Facts: A factory dumped crud next to a river. It is shown that if the crud gets into the river, it will be devastating. The plaintiff has a business downstream which uses the river water.Issue: Can the plaintiff get a quia timet injunction to prevent the defendant from dumping?Held: No. This application is premature, since science will find a way to deal with that, if it happens.

Palmer v. Nova Scotia Forest Industries (NSTD, 1984)Facts: Environmentalists want to prevent the spraying of TCDD. They cite that it would drift onto their lands and contaminate their drinking water.Issue: Can they get a quia timet injunction?Held: No.Swan: For a quia timet injunction, the standard of proof doesn’t change (balance of probability); however, the bar of what you have to prove on the balance of probability is higher (imminent danger).

Hooper v. Rogers (CA, 1975)Facts: Two neighbours hate each other. The plaintiff’s house is at the top of a steep slope, at the bottom of which the defendant lives. The defendant bulldozed out the bottom of the hill, so that the soil would erode and the plaintiff’s house would collapse. The plaintiff sued for damages in order to shore up the hill and prevent future harm.Held: It’s too late for a quia timet injunction; however, damages were awarded to the plaintiff in lieu of an injunction.

Mandatory Injunctions: Definition and SupervisionRedland Bricks v. Morris (HL, 1970)Facts: The plaintiffs own eight acres of land worth about 12,000, on which they carry on the business of strawberry farming. The defendants uses the land next door to dig for clay for its brick-making business. It quarries down to a considerable depth, and there is always a danger of withdrawing support from the plaintiffs’ land. It ceased excavating in 1962. At the end of 1964, the plaintiff’s land started slipping down into the defendant’s land, due to lack of support. The trial judge awarded damages and granted an injunction ordering the defendant to “take all necessary steps to restore the support to the land”. The defendant appealed the injunction.Issue: Should the injunction be upheld?Held: No.Reasoning: If a person withdraws support from his neighbour’s land, and damage ensues, the neighbour is entitled to damages, and equity will grant an injunction to restrain the continuance of any acts which may lead to further withdrawal of support. Such an injunction is a discretionary remedy; however, the plaintiff is entitled to it “as of course”. It doesn’t matter if the tortfeasor incurs great costs to comply with the injunction. However, that is only with respect to negative injunctions. A mandatory quia timet injunction is entirely discretionary and is never given “as of course”. There are some requirements that must be met:


1. The plaintiff must show a very strong probability upon the facts that grave damage will accrue to him in the future [This sounds like it is changing the balance of probabilities test; however, according to Swan, it is just that the person must prove that there is imminent danger of loss].

2. Damages will not be adequate if such damage does happen.3. Consideration of the costs to the defendant. If the defendant has acted with bad intent, then

he should pay to repair his wanton and unreasonable acts even if the expense to him is all out of proportion to the plaintiff’s benefit. If the defendant has acted accidentally, he should only be ordered to these positive actions if the cost is reasonable considering the potential damage to the plaintiff if they are not done.

4. If the court, in its discretion, decides that a mandatory injunction is appropriate, then it must give very specific and careful orders so that the defendant knows exactly what is required.

In this case, the first requirement is obviously fulfilled because some slippage has already occurred. The second requirement is fulfilled because no one knows where or upon what scale any further damage might occur. However, the third requirement is not fulfilled. The defendants tried to protect the plaintiffs during their excavations, and restoring the land would cost 30,000 to protect land only worth 12,000 (and the acre in danger is only worth 1500).Notes: Why should the plaintiffs be left to bear the risk of an acre of their property slipping? Would an award of the market value of the property provide adequate compensation to the plaintiffs? Why does Lord Upjohn sat that the cost of compliance matters when it’s a mandatory injunction (unless the defendant has acted wantonly or unreasonably), but does not matter when it’s a negative injunction?Swan: This case raises all the problems we looked at before in Peevyhouse. It puts the costs on the plaintiff because it assumes that the plaintiff will get adequate compensation in damages. This case uses “weasel-words”. What cost would be “unreasonable” for the defendant to pay? “Unreasonable” means that the court thinks the plaintiff will be adequately compensated by damages (yet that is a different part of the test/requirements!).

Injunctions to Protect Property InterestsAlthough courts constantly say that equitable remedies are only available when damages would be inadequate to protect the plaintiff’s rights, when it comes to protecting property rights, it is only in exceptional cases that the plaintiff will be limited to damages. Injunctions are almost always available to restrain trespass and nuisance.These are the classic cases for injunctions. For example, if you can get an injunction to prevent trespass, it’s perfect protection.

ChattelsIf a chattel is unique or has a special value to its owner (such as an heirloom or piece of art), an injunction will generally be granted. Where the chattel is not unique, the courts in most provinces will grant pre-trial injunctions to restrain the disposition of assets that are the subject matter of litigation.

Trespass to LandGoodson v. Richardson (Ch., 1874)Facts: The defendant began laying pipes along a public highway. The plaintiff’s lands abutted the highway, so he was owner of an undivided moiety of the adjoining half of the highway. He and other landowners served the defendant with notice not to lay pipes on their lands and that


they intended to apply for an injunction. He brought a suit, asking for a permanent injunction to restrain the defendant from laying pipes and from allowing them to remain.Issue: Should the plaintiff get the injunction?Held: Yes.

Woollerton and Wilson Ltd. v. Richard Costain Ltd. (Ch., 1970)Facts: The defendant erected a crane, the jib of which swung over the plaintiff’s land. The defendant offered the plaintiff 250, which was refused. The plaintiff seeks an injunction to prevent the defendant’s crane swinging over its premises.Issue: Should an injunction be granted?Held: Yes, but its operation is postponed until after the construction is finished.Reasoning: In an action for nuisance, the court may refuse an injunction if the injury to the plaintiff’s legal rights is small, capable of being estimated in money and can be adequately compensated by money, and it would be oppressive to the defendant to grant an injunction. That does not apply to trespass, because there is no loss which can be compensated for by money. Losses or damages are not the issue. An injunction is therefore appropriate. However, it should be suspended because the defendant seems really nice and offered 250 to the plaintiff. The plaintiff is just being greedy and unreasonable, so the operation of the injunction is suspended until the end of the construction.Swan: The court ignores the economic issues at stake. If the plaintiff got an injunction, it could bargain with the defendant. If the plaintiff had accurate information, it could get the amount by which the defendant is profitting by the trespass, minus $1.

Lewvest Ltd. v. Scotia Towers Ltd. (NfldSC, 1981)Facts: The plaintiff sought an injunction to prevent the defendant from swinging a crane over its property in the course of constructing a building. By placing the crane at a position where it swung over the plaintiff’s lands, the defendant saved $500,000.Held: Injunction granted on the basis of trespass.Swan: The fact that the defendant saves $500,000 means that the court gets to decide who gets to keep that savings. If you grant an injunction, then Lewvest gets at least part of the money; if you pull a Woollerton, then Scotia gets the lot. This is an issue of efficient trespass. There is no conceivable damage to the plaintiff, so why should it get $500,000. The plaintiff can argue, “I don’t necessarily deserve $500,000; however, why should the defendant get it by trespassing on my property.” The issue is merely allocation of that savings. There is an incongruity: If the plaintiff only found out afterwards, it could only sue for damages, which would be nil. That’s when courts start talking about punitive damages. Generally, when someone profits from deliberate trespass, the plaintiff can disgorge their profits. Unless you talk about punitive damages and damages measured by the defendant’s gain, you encourage efficient breach.

John Trenberth Ltd. v National Westminster Bank Ltd. Ch., 1979)Facts: The plaintiff and defendant owned adjoining property. The defendant had to repair its property, and the only way to do so was by trespassing on the plaintiff’s property. The defendant and plaintiff were unable to come to any agreement, so the defendant deliberately trespassed.Issue: Is an injunction the appropriate remedy?Held: Yes. Woollerton is no longer good law. “I do not think I am really concerned with that, that the refusal of the plaintiff s to grant permission was irrational. But it certainly was made in good faith and it certainly was not made, as the evidence makes perfectly clear, as a bargaining counter in order to extract concessions from the defendants.”


Swan: The judge specifically says that the plaintiff’s refusal was made in good faith, and not as a bargaining counter to extract concessions from the defendant. In Michael Santarsieri Inc. v. Unicity Mall Ltd., the CA overruled an injunction granted by the trial judge because its only purpose was to give the tenant bargaining power. The pattern of cases is very uneven. It seems that a fee simple owner can be as bloody-minded as he likes, whereas a leasehold owner can’t. We are ready to force people to act in good faith (honestly), but we don’t like to force people to be reasonable; it’s perfectly honest to say, “No way! I’ll see you in hell first!” The difference betweeen Santarsieri and Lewvest is interesting: Grade A ownership gets an injunction for trespass over its airspace; whereas a tenant can’t even get an injunction against severe violation.

Alternatives to Injunctive Relief

Interlocutory Injunctions

IntroductionInterlocutory injunctions are extremely important from a strategic point of view. They confer huge tactical advantage on the plaintiff. Interlocutory proceedings are proceedings which precede the trial (there is a huge amount of law on just what is an interlocutory proceeding, since you cannot appeal an interlocutory order).Interlocutory injunctions will almost always be an interim injunction (usually until the trial).The ability to get an interlocutory injunction may well affect the outcome of the trial. For example, by the time of trial, the time of a non-competition clause may have ended or no longer be an issue.You can ask for an injunction to prevent the commission of a criminal offence, but the court may say that you don’t have standing (then again, they may not).

ProcedureInterlocutory proceedings move the ????? (get notes off Melissa) to statement of chambers. There is a defence of delay because this is an equitable remedy, so a delay of even one week may lose your remedy. Interlocutory proceedings are governed by affidavits. The plaintiff’s affidavit must say why the injunction is necessary.An interlocutory injunction may be granted ex parte; however, only if

Litigation ManagementThere are three essential characteristics which ensure the importance of interlocutory injunctions and their influence on litigation management: (1) speed of application – they can be obtained at any time of day; (2) they can be applied for ex parte (without notice to the defendant); and (3) they can be granted in advance of any final determination of the dispute.This makes the interlocutory injunction a powerful weapon in the plaintiff’s hands. If the element of surprise is important, the application can be made ex parte. By gaining preliminary judicial recognition of the merits of his case, the plaintiff may use the injunction to advance his settlement prospects. They can prevent broadcasting of a defamatory report or prevent picketing in a labour dispute.The attributes that make the interlocutory injunction so desirable for the plaintiff may threaten the interest of the defendant or third parties. The element of surprise from an injunction granted ex parte may deprive the defendant of legal advice. An interlocutory injunction to prevent


broadcasting or picketing will involve the public interest or disturb a sensitive bargaining process without the court hearing all the parties involved. Therefore, courts must go out of their way to balance the competing interests of litigants and other parties.

Balancing InterestsSince the injunction remedy is one of the most coercive powers a court can exercise, and the risks of its use are heightened by the fact that the interlocutory injunction is granted in advance of hearing all the evidence and issues, there is a high threshold that an application must attain.Interlocutory injunction may be obtained ex parte (without notice to the defendant). These will be of quite short duration to allow the plaintiff to give notice to the defendant, so that an inter partes proceeding may occur.There are other procedures in place to protect the defendant. The plaintiff must undertake to pay damages to the defendant if the trial finds that the injunction was not justified (if you want to close down someone’s business, you’d better be prepared to pay for it if you were wrong).If you get an injunction ex parte (without notice to the defendant), you had better present the evidence in an unbiased manner, or else the injunction will generally be dissolved. Moreover, ex parte injunctions are granted for a very short amount of time – just enough to give notice to the defendant, so that an inter partes proceeding may occur.Since the interlocutory injunction is an equitable remedy, all the defences are available to the defendant, including laches (delay).

Accessibility ThreshholdsWhat must a plaintiff show in order to get an interlocutory injunction?The base case for this is Feigelman (the case upon which all others depend). When a plaintiff seeks an interlocutory injunction, it’s tempting for the court to decide on the basis of the strength of the case. That’s what happened before American Cyanamide. The case for interlocutory injunction was a mini-trial. There were three elements that the plaintiff had to show: (1) a good prima facie case (good likelihood of success at trial); (2) irreparable harm (that common law damages would be inadequate to repair losses suffered because injunction wasn’t granted); and (3) consider whether the defendant would suffer irreparable harm that could not be compensated by damages if the injunction were granted; (4) that it was favoured by the balance of convenience.

American Cyanamide v. Ethicon (HL, 1975)Facts: American Cyanamide had a patent for absorable sutures. Ethicon launched its own absorbable sutures. American Cyanamide wants an interim injunction until the patent issue is settled at trial.Issue: Should an injunction be granted?Held: Test: The new test is:1. There’s a serious question to be tried (the plaintiff’s claim is not frivolous or vexatious).2. Irreparable harm (inadequacy of damages) to the plaintiff if the injunction is not granted vs.

irreparable harm (inadequacy of damages) will not occur to the defendant if the injunction is granted.

3. If damages would be inadequate to both parties, then the question of balance of convenience arises. There are a number of factors, which cannot all be decided here.


Class NotesIf damages are insufficient for both parties, who would be the most inconvenienced – this test tends to favour the plaintiff. If damages are insufficient for both parties, the court may go back to see if the plaintiff has a good prima facie case. This will be a mini-trial based on affidavits.on of irreparable harm is evenly balanced, then it’s a question of balance of convenience.

Yule Inc. v. Atlantic Pizza Delight Franchise (1968) Ltd. (OHC, 1977)Facts: Franchise case.Issue: Should an interlocutory injunction be granted?Held: Reasoning: American Cyanamide is good law in Canada.

Owen M. Fiss, The Civil Rights Injunction (1978)“Irreparable harm” requires the applicant to prove that damages, being the most common civil law remedy, are inadequate. However, there are ambiguities latent in the doctrine. Firstly, inadequacy is not a dichotomous quality, but rather one of degree, and yet the degree required is never specified. It is unclear how inadquate the alternative remedy must be before entitlement to an injunction is established. Secondly, there is uncertainty as to which types of inadequacies are to count for the purpose of applying the test. What about the retrospective nature of the damage action, the interposition of the jury, or the future financial unresponsiveness of the defendant?

Interlocutory Injunctions to Restrain the Disposition of Assets Pending TrialThe Mareva InjunctionThe Mareva injunction is an injunction granted ex parte to freeze the defendant’s assets. It balances two competing interests: (1) that the assets of the defendant are sacrosanct until judgment (the rule in Lister v. Stubbs); and (2) the need to prevent the defendant from removing assets from the jurisdiction of the court in an attempt to thwart the legitimate claims of the plaintiff.The Mareva injunction has become a potent weapon in the hands of plaintiffs against defendants who seek to take advantage of technology that has allowed for electronic transfer of assets away from the court’s jurisdiction. A further innovation has been the worldwide Mareva injunction, which seeks to prevent the defendant from transferring assets from one foreign jurisdiction (e.g., U.S.) to another, where there would be no hope of recovering them (e.g., Canary Islands).The plaintiff in such a case must undertake to pay damages if the injunction turns out to have been wrong. It will also probably have to put up security for such damages. It must give notice to third parties, such as a bank (Z Ltd. v. A-Z and AA-LL Ltd.). The plaintiff must provide indemnity to the bank if it’s held liable for not giving, it must pay the bank’s costs, must give full disclosure…

Mareva Compania Naviera S.A. v. International Bulkcarriers S.A. (CA, 1975)Facts: The defendant had been paid by a shipper. The defendant claimed bankruptcy. It had an English bank account. The plaintiff shipper said, “I want an injunction to prevent the defendant from taking those funds out of the jurisdiction.”Held: Injunction granted.Reasoning (Dennning): The Judicature Act, 1875 states that an injunction may be granted by an interlocutory order “in all cases in which it shall appear to the court to be just or convenient.”


Notes: The Mareva injunction has received legislative approval in s. 37 of the Supreme Court Act, 1981 (UK).Swan: This is a form of execution (action made under order) before the trial. There are problems with it. It is a drastic remedy. It may be obtained ex parte. You have to ask what form the order took, since it would be unfair to prevent the defendant from meeting its ordinary expenses during that time (paying its employees, etc.).

Aetna Financial Services v. Feigelman (SCC, )Facts: Aetna proposed to close down its Manitoba operation and move. The plaintiff sought an injunction to prevent Aetna from moving its assets from Manitoba to Quebec.Issue: Should an injunction be granted?Held: No.Reasoning: There have always been exceptions to the rule in Lister v. Stubbs: (1) to preserve an asset (e.g., order that chattel be preserved and not destroyed); (2) to protect the processes of the court (e.g., want to preserve assets in case of specific performance award); (3) to prevent fraud on the court and on the plaintiff (e.g. to preserve proceeds of assets received by fraud); (4) quia timet injunctions to prevent a real or impending threat to remove contested assets from the jurisdiction.For a Mareva injunction, there must be a genuine risk of the assets disappearing. There is no such risk here because a Manitoba judgment can be enforced in Quebec. However, the Mareva injunction can be used to prevent assets from leaving Canada.Swan: A Mareva injunction goes a lot farther than the other exceptions to Lister that Estey cites. Courts often say that the Mareva must be used sparingly. It has even be used in family law to prevent a spouse from destroying property to prevent others from getting it.

Mareva Injunctions and Third PartiesWhile the Mareva injunction is a remedy in personam (addressed to the person, rather than attached directly to the assets), it is common to have the order address agents or servants of the defendant. Failure to comply with the order can result in contempt proceedings, so third parties are interested in what obligations are imposed upon them.

Z Ltd. v. A-Z and AA-LL Ltd. (CA, 1982)Facts: The defendants defrauded the plaintiff of 2 million. These were paid into several bank accounts and used to purchase other assets. The plaintiffs successfully obtained Anton Piller and Mareva injunctions against the defendants. Five chartered banks brought an action to get elucidation of their responsibilities under a Mareva injunction.Issue: What are a bank’s responsibilities?Held: A s soon as the bank is given notice of the injunction, it must freeze the defendant’s bank account. It must not allow any drawings made on it. [The case goes into much more detail].

World-wide MarevaAn English court later issued a world-wide Mareva injunction, which was an order to prevent the defendant from moving assets anywhere in the world. Since Morguard?????, it’s easy to enforce a money judgment given in one jurisdiction in another jurisdiction. The world-wide Mareva is still difficult to enforce. It rests on the conscience of the defendant; there are no reciprocal statutes with respect to equitable remedies.


Anton Piller InjunctionsThe Anton Piller injunction has been called a civil search warrant. It allows the applicant to seize property or evidence where there is a reasonable belief that the defendant will destroy it before the trial. The Anton Piller injunction has become particularly important to gather evidence of pirating and bootlegging, which can be easily destroyed.These generally must be granted ex parte to be effective because their purpose is to allow the plaintiff to seize evidence before it is destroyed.

Anton Piller K.G. v. Manufacturing Processes Ltd. (CA, 1976)Facts: Anton Piller makes computer hardware. M.P. is their English agent. They have recently discovered the M.P. has been in secret communication with other German companies to supply them with confidential information so that they can manufacture the same hardware. Anton Piller is asking for an injunction that they might be permitted to enter the defendant’s permises to inspect their documents and remove them.Issue: Should the court issue an injunction?Held: Yes.Reasoning: The court has no power to issue a search warrant to enter a man’s house so as see if there are incriminating papers or documents. No constable or bailiff can demand entry to inspect papers or documents. The householder is at liberty to shut the door in his face. However, the order sought is not a search warrant. It does not authorize the plaintiff’s solicitors to enter the defendant’s premises against their will. It only authorizes the entry and inspection by permission of the defendant. It also orders the defendant to give permission.Swan: The reasoning is pretty ridiculous: We’re not authorizing the plaintiff to enter and search; we’re simply ordering the plaintiff to grant them permission to do so. To get an Anton Piller order, you had better show an extremely strong prima facie case and a serious potential or actual damage. The plaintiff must show that the defendant has this evidence and could destroy it before an inter partes hearing. The plaintiff must undertake to pay damages and put up security for it.

Documents

Introduction - McGill Universitylsa.mcgill.ca/pubdocs/files/remedies/183-unknown... · Web viewIn a case like Ruxley, it is clear that the owner got something that the judge held