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Aggravated-Damages

In Nissen v. Durham Regional Police Services Board (Ont CA, 2017) the Court of Appeal commented briefly on the nature of aggravated damage awards, and in particular that 'post-incident' behaviour counts toward aggravation:
[55] I am not persuaded by the Police argument that this passage reveals an error of law. Aggravated damages aim not at punishing wrongful behaviour, but at compensating the injured plaintiff for the full extent of the plaintiff’s loss. Very often, aggravation of the plaintiff’s loss will be caused by outrageous or reprehensible conduct, as it is that quality of the defendant’s conduct that causes additional distress or humiliation that calls for compensation not captured by a purely conventional award. I am not persuaded, however, that a trial judge can only take aggravating features into account where there has been outrageous or reprehensible conduct. I agree with the observation made by this court in Weingerl v. Seo (2005), 2005 CanLII 21356 (ON CA), 256 D.L.R. (4th) 1, at para. 70 that “post-incident conduct which aggravates the harm to the victim” may also be taken into account.
In Tim Ludwig Professional Corporation v. BDO Canada LLP (Ont CA, 2017) the Court of Appeal had this to say about aggravated damages for intangible harm:
(b) Aggravated Damages

[58] The motion judge awarded aggravated damages for “intangible harms” that Ludwig suffered, particularly embarrassment and reputational harm. BDO submits that such damages cannot be awarded for a breach of contract arising out of a partnership.

[59] I begin with a review of the jurisprudence regarding aggravated damages for intangible harm. Then I review the facts before the motion judge and apply the principles arising out of the jurisprudence to those facts.

[60] Contract damages for intangible harm may be awarded under the principle established in Hadley v. Baxendale (1854), 156 E.R. 145 (Eng. Exch.), where the intangible harm was in the reasonable contemplation of the parties when they entered into the agreement. In Fidler v. Sun Life Assurance Co. of Canada, 2006 SCC 30 (CanLII), [2006] 2 S.C.R. 3 at paras. 44-45, the Supreme Court stated that all types of damages for breach of contract are awarded on the basis of the “reasonable foreseeability” principle: damages are meant to compensate the victim of the breach by reference to what was in the reasonable contemplation of the parties at the time the contract was made.

[61] In Fidler, at para. 52, the court distinguished contract damages for intangible harm from damages for intangible harm arising out of circumstances that aggravate the breach of contract, referring to the latter as “true aggravated damages”:
[These damages] are not awarded under the general principle of Hadley v. Baxendale, but rest on a separate cause of action — usually in tort — like defamation, oppression or fraud. The idea that damages for mental distress for breach of contract may be awarded where an object of a contract was to secure a particular psychological benefit has no effect on the availability of such damages. If a plaintiff can establish mental distress as a result of the breach of an independent cause of action, then he or she may be able to recover accordingly. The award of damages in such a case arises from the separate cause of action. It does not arise out of the contractual breach itself, and it has nothing to do with contractual damages under the rule in Hadley v. Baxendale.
[62] In the employment context, damages for intangible harm arising out of the manner of termination may be awarded pursuant to the Hadley v. Baxendale principle. In Keays v. Honda Canada Inc., 2008 SCC 39 (CanLII), [2008] 2 S.C.R. 362, the Supreme Court confirmed the rule established in Wallace v. United Grain Growers Ltd., 1997 CanLII 332 (SCC), [1997] 3 S.C.R. 701, that employers owe an obligation of good faith and fair dealing in the manner of dismissing an employee, such that an employment contract creates an expectation that the employer will be “candid, reasonable, honest and forthright with its employees”: Keays, at para. 58. Breach of this obligation therefore gives rise to damages for intangible harm, which is reasonably foreseeable and in the contemplation of the parties as a consequence of the breach. In Keays the Supreme Court stated, at para. 58:
Fidler provides that “as long as the promise in relation to state of mind is a part of the bargain in the reasonable contemplation of the contracting parties, mental distress damages arising from its breach are recoverable”. In Wallace, the Court held employers “to an obligation of good faith and fair dealing in the manner of dismissal” and created the expectation that, in the course of dismissal, employers would be “candid, reasonable, honest and forthright with their employees”. At least since that time, then, there has been expectation by both parties to the contract that employers will act in good faith in the manner of dismissal. Failure to do so can lead to foreseeable, compensable damages. [Citations omitted.]
[63] Intangible damages for bad faith in the manner of dismissal of employment are therefore not awarded for an independently actionable wrong and are not “true aggravated damages”, as defined in Fidler. They arise from the breach of the employment contract – specifically, the employer’s implied contractual obligation to act in good faith when dismissing an employee.

[64] The decision in Keays overturned that in Vorvis v. Insurance Corp. of British Columbia, 1989 CanLII 93 (SCC), [1989] 1 S.C.R. 1085, in which the court held that damages for intangible harm in the employment context were only available if the employer committed an independently actionable wrong. Keays also overturned the proposition established in Wallace that bad faith in the manner of dismissal entitles the employee to an increase in damages in lieu of proper notice of termination. As the court wrote in Keays, at para. 59:
[T]here is no reason to retain the distinction between “true aggravated damages” resulting from a separate cause of action and moral damages resulting from conduct in the manner of termination. Damages attributable to conduct in the manner of dismissal are always to be awarded under the Hadley principle. Moreover, in cases where damages are awarded, no extension of the notice period is to be used to determine the proper amount to be paid. The amount is to be fixed according to the same principles and in the same way as in all other cases dealing with moral damages. Thus, if the employee can prove that the manner of dismissal caused mental distress that was in the contemplation of the parties, those damages will be awarded not through an arbitrary extension of the notice period, but through an award that reflects the actual damages.
[65] More recently, this court summarized the availability of intangible damages for breach of employment contracts, along the same lines as those presented above, in Strudwick v. Applied Consumer & Clinical Evaluations Inc., 2016 ONCA 520 (CanLII), 349 O.A.C. 360, at paras. 90-91.

[66] I pause to note that caution must be exercised when directly applying the rules governing intangible damages in the employment context to partners. Courts have held that partners are typically not employees and are governed by a separate legal regime at common law and have specialized legislation, particularly the Partnerships Act: see SMI Sales Inc. v. Ontario (Minister of Finance), 2007 ONCA 451 (CanLII), 226 O.A.C. 169; Weibe Door Services Ltd. v. Minister of National Revenue, [1986] 3 F.C. 553 (C.A.); and McCormick v. Fasken Martineau DuMoulin LLP, 2014 SCC 39 (CanLII), [2014] 2 S.C.R. 108.

[67] However, the reasoning of the court in Keays, in combination with the principles of partnerships law discussed above, suggests that damages for intangible harm are available in the partnerships context on the Hadley v. Baxendale principle where the harm was in the reasonable contemplation of the parties when they made their contract.

[68] Keays holds that, because employers have an implied contractual obligation of good faith in the manner of dismissal, damages for bad faith in the manner of dismissal are within the contemplation of the parties when they enter into the contract. Given the duty of utmost good faith owed between partners, confirmed in Rochwerg, the reasoning in Keays should apply in the partnerships context: damages flowing from bad faith in the manner of a partner’s expulsion are within the reasonable contemplation of the parties when they enter into the partnership agreement. Such damages can be awarded on the Hadley v. Baxendale principle.

[69] In other words, part of what the parties agree to when they enter into the partnership agreement is that they must treat each other with utmost good faith. The intangible harm resulting from a bad faith expulsion is reasonably foreseeable and flows from the breach of the duty of good faith, which is an implied term of the partnership agreement.

[70] The motion judge awarded aggravated damages on the basis of BDO’s conduct and the humiliation it caused. He said, at para. 93:
[T]he circumstances of Mr. Ludwig’s removal, including the “negotiation” that was not, in fact, a negotiation (at least vis-à-vis the fundamental issue of the termination of Mr. Ludwig’s partnership), the unilateral announcement of his “retirement” by BDO, his subsequent ejection (“deemed” resignation) from the partnership and BDO’s invocation of the non-competition clause in the Partnership Agreement, warrant an award of aggravated damages reflecting the embarrassment and reputational harm which he experienced. I fix those damages at $100,000.
[71] I see no error in the motion judge’s award of aggravated damages.
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