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Damages - Expectation Damages. Tega Homes (Attika) Inc. v. Spencedale Properties Limited
In Tega Homes (Attika) Inc. v. Spencedale Properties Limited (Ont CA, 2023) the Court of Appeal considered what are normally called the 'expectation' measure of breach of (contract) damages:(i) Did the trial judge overcompensate the respondent?
[15] The appellants do not challenge the award of the increase in land value of $323,000 to the date of breach that the trial judge granted to the respondent. However, they submit that the trial judge erred in also awarding to the respondent its development expenses as a category of damages. They argue that the trial judge erred in effectively awarding the respondent damages for loss of profit, as well as the development expenses incurred to generate those profits. They say the trial judge erred in thus trying to make the respondent “whole”, which resulted in overcompensating and putting the respondent into a better position than it would have occupied had the transaction closed.
[16] I do not accept these submissions.
[17] For the reasons expressed below, I agree that the trial judge erred in his determination of the amount of the damages awarded to the respondent. However, the trial judge made no error in awarding, as categories of damages, the increased value of the properties as at the date of the appellants’ breach, as well as the respondent’s wasted expenditures. The trial judge applied the correct contractual principles in his assessment of the respondent’s damages. He recognized that the ordinary measure of damages for breach of contract in the context of a failed real estate transaction is to put the innocent party in the position it would have occupied had the contract been performed and to assess the damages as at the date of breach: Akelius Canada Ltd. v. 2436196 Ontario Inc., 2022 ONCA 259, 161 O.R. (3d) 469, at para. 22, leave to appeal denied, [2022] S.C.C.A. No. 183; 6472047 Ontario Ltd. v. Fleischer (2001), 2001 CanLII 8623 (ON CA), 56 O.R. (3d) 417 (C.A.), at para. 41; 100 Main Street Ltd. v. W.B. Sullivan Construction Ltd. (1978), 1978 CanLII 1630 (ON CA), 20 O.R. (2d) 401 (C.A.).
[18] Nor do I agree that the trial judge awarded the respondent “double-recovery” damages for loss of profit and the related expenses incurred to bring about those profits. The trial judge expressly rejected the respondent’s claim for loss of profits from the failed project because the respondent was unable to prove that the project would have been profitable. Instead, the trial judge accepted the respondent’s alternative claim for the increase of the market value of the properties as at the date of breach, as well as its wasted development expenses related to the project.
[19] The trial judge’s approach to the respondent’s wasted development expenses was consistent with this court’s guidance in PreMD Inc. v. Ogilvy Renault LLP, 2013 ONCA 412, 302 O.A.C. 139, at paras. 67-68, that a plaintiff may only recover those expenses that were truly wasted and that would not have been wasted regardless of the breach. If the expense would not have been recouped even if the contract had been performed, then the expense is not recoverable because it was not caused by the breach of contract.
[20] The trial judge was therefore obliged to consider, and did consider, whether the claimed development expenses could have been recouped from the increase in the market value of the properties and were therefore truly wasted expenditures. He found that it was highly probable that the respondent would have recouped its expenses had the transaction closed, not from the future profits of the project, but from the increased market value of the properties. The properties, at the date of trial, were worth more than $9 million. The trial judge’s findings were open to him and are not challenged by the appellants on appeal.
[21] I do not find the appellants’ rigid damages characterization as “expectation” or “reliance” damages to be helpful here. I agree with the trial judge’s observation that the respondent’s damages are not properly assessed “by adopting arbitrary categories or airtight silos”: at para. 59.
[22] Rather, the question to be asked, as the trial judge correctly did, is: having rejected the claim for future profits, what amount of damages will put the respondent in the position it would have occupied had the 2013 APS closed? The answer, as the trial judge also correctly stated, was to award the respondent the increased value of the properties as well as the respondent’s wasted development expenses that the appellants knew the respondent had incurred after entering into the 2013 APS. He did not award the respondent damages for making a bad bargain nor did he make the appellants the insurer of the respondent’s project. The award of damages did not place the respondent in a better position than if it had closed the transaction on April 17, 2015.
[23] If the 2013 APS had been performed, the respondent would have owned properties that had appreciated in value to the date of breach, as well as the benefit of the development expenses it had sunk into the project. Without performance, the respondent lost both the increase in value and its development expenses. The damages awarded at trial restored the respondent to the position it would have occupied had the 2013 APS closed, in which case the development expenses incurred by the respondent would not have been wasted. As the trial judge explained, at para. 72:Awarding the [respondent] the increase in value at the time of closing, but also providing for significant recovery of the funds it invested to pursue the project honours the principle of “efficient breach”. The [appellants] still reap a benefit by retaining the land and its subsequent increase in value, but the plaintiff is fully compensated and put in the position it would or should have been had the transaction closed. [24] I therefore see no reversible error in the trial judge’s award of the properties’ increased market value to the date of breach as well as the respondent’s development expenses related to the 2013 APS as categories of damages. . Bank of America Canada v. Mutual Trust Co.
In Bank of America Canada v. Mutual Trust Co. (SCC, 2023) the Supreme Court of Canada set out the basic principle that damages for breach of contract are normally calculated on an 'expectation' basis:(2) Contract Damages
25 Contract damages are determined in one of two ways. Expectation damages, the usual measure of contract damages, focus on the value which the plaintiff would have received if the contract had been performed. Restitution damages, which are infrequently employed, focus on the advantage gained by the defendant as a result of his or her breach of contract.
(a) Expectation Damages
26 Generally, courts employ expectation damages where, if breach is proved, the plaintiff will be entitled to the value of the promised performance (S. M. Waddams, The Law of Damages (3rd ed. 1997), at p. 267).
27 See Haack v. Martin, 1927 CanLII 57 (SCC), [1927] S.C.R. 413, per Rinfret J., at p. 416:The case is governed by the general rule applicable to all breaches of contract, and laid down as follows by Parke B. in Robinson v. Harman (1848) [1 Ex. 850, at p. 855]. The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed. . Tim Ludwig Professional Corporation v. BDO Canada LLP
In Tim Ludwig Professional Corporation v. BDO Canada LLP (Ont CA, 2017) the court awarded 'expectation damages', which occur sometimes in wrongful dismissal when the plaintiff is hired away from a good job on promises of a better, and the new job falls through. Commonly it is awarded for claims of negligent misrepresentation:(3) Damages
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(a) Expectation damages
[50] The motion judge noted that although damages are generally not available to a partner who has been wrongfully expelled, in this case reinstatement was “unrealistic”. He therefore awarded damages on an expectation basis.
[51] BDO submits that the motion judge erred in awarding damages that reflect the profits that Ludwig would have received had the contract not been breached. The motion judge acknowledged that Ludwig could have been expelled without cause had BDO properly followed the directives of Article 17.4. In other words, the Policy Board could have forced Ludwig out if it acted in good faith and relied on sufficient evidence in making an independent determination that it was in the best interest of the partnership for Ludwig to retire. BDO argues that, in terms of damages, Ludwig was only entitled to be put in the position he would have been in had the contract been performed. That is, if the Policy Board had properly executed its power to expel him from the partnership.
[52] BDO also alleges that the motion judge erred by failing to reduce Ludwig’s damages for failing to mitigate. Although Article 19.1 is a non-competition clause, BDO submits that the clause was limited to a 40 kilometre radius from the Edmonton office and expired two years from the date of Ludwig’s expulsion. In any event, BDO argues, there were other options available to Ludwig to mitigate his losses.
[53] These submissions by BDO were made for the first time on appeal without supporting evidence. Before the motion judge, BDO did not contest Ludwig’s analysis with respect to damages, and there was no evidence before the motion judge to contradict any element of Ludwig’s claim for damages. Neither party raised the issue of mitigation in the proceedings below.
[54] The evidentiary obligation on a summary judgment motion is well established. Each side must “put its best foot forward”: see Transamerica Life Insurance Co. v. Canada Life Assurance Co. (1996), 1996 CanLII 7979 (ON SC), 28 O.R. (3d) 423, at p. 434, aff’d [1997] O.J. No. 3754 (Ont. C.A.). The motion judge is entitled to presume that the evidentiary record is complete and there will be nothing further if the issue were to go to trial: see Dawson et al. v. Rexcraft Storage and Warehouse Inc. et al. (1998), 1998 CanLII 4831 (ON CA), 111 O.A.C. 201 (C.A.), at para. 17.
[55] In these particular circumstances, it was open to the motion judge to accept Ludwig’s uncontradicted evidence, and I would not interfere with his conclusion.
[56] I note that the availability of damages arises from the particular facts of this case and the motion judge’s finding that Ludwig cannot feasibly return to the firm. The general principle – articulated in Lindley & Banks – that a wrongful expulsion does not affect the status of the expellee, still governs.
[57] Likewise, although in this case the motion judge found that the Partnership Agreement’s non-compete clause effectively prevented Ludwig from mitigating his losses, this will depend upon the particulars of the case.
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