Damages - Loss-of-Chance. Bhatnagar v. Cresco Labs Inc.
In Bhatnagar v. Cresco Labs Inc. (Ont CA, 2023) the Court of Appeal considered damages in an 'honest performance' contract case. In these quotes the court considers, and dismisses, the proposition that a cause of action grounded in breach of the duty of honest performance creates a presumption of lost oppourtunity (aka 'loss of chance'):
 On the Application, the Appellants submitted that, if the court found that Origin House had breached its duty of honest performance, the court was required to presume damages – its only task was to quantify those damages. Their submission was based on para. 116 of Callow, which reads, in part, as follows:. Jarbeau v. McLean
[E]ven if I were to conclude that the trial judge did not make an explicit finding as to whether Callow lost an opportunity, it may be presumed as a matter of law that it did, since it was Baycrest’s own dishonesty that now precludes Callow from conclusively proving what would have happened if Baycrest had been honest. [Emphasis added.] The application judge rejected the Appellants’ submission that the emphasized words in para. 116 of Callow (the “Emphasized Words”) create a legal presumption of loss once a breach of the duty of honest performance has been found: at paras. 83, 88 of the Reasons.
 I do not accept that Callow stands for the proposition that, where a party is found to have breached its duty of honest performance, the court must presume the aggrieved party is entitled to damages in the absence of an evidentiary foundation of a lost opportunity. I understand the majority decision in Callow to place the burden on the claimant to show some evidence on which the court can find that the breach of the duty of honest performance resulted in the claimant failing to have a fair opportunity to protect its interests or caused it to lose an opportunity.
 Before addressing para. 116 of Callow, it is useful to recall its facts. In that case, a group of condominium corporations (“Baycrest”) entered into two contracts with C.M. Callow Inc. (“Callow”), a corporation owned and operated by Christopher Callow. The contracts consisted of a winter maintenance agreement with a two-year term and a summer maintenance agreement. A clause in the winter contract gave Baycrest the right to terminate the contract, for any reason, upon giving ten days’ notice in writing. Baycrest decided to terminate the winter contract after the first winter. Callow was not informed of that decision and proceeded to fulfill its contractual obligations. During the spring and summer, Baycrest then engaged in a series of “active communications” with Mr. Callow that (a) suggested that a renewal of the winter contract was likely; and (b) deceived him into thinking that his “freebie” work would both improve his chances of earning a renewal and ensuring the contract would not be terminated. Callow was ultimately informed the contract was terminated in September of that year.
 At trial, Mr. Callow gave evidence that he typically bid on winter contracts during the summer and, thus, it was too late to find replacement work by the time he was notified of the termination. There was also evidence that Mr. Callow had opportunities to bid on other winter contracts but chose to forgo them due to his misapprehension about the status of the contract with Baycrest. After finding Baycrest breached the duty of honest performance, the trial judge awarded Callow damages equal to the profit lost under the winter contract. The Supreme Court upheld that damages award.
 I now return to the Appellants’ submission based on the Emphasized Words in para. 116 of Callow.
 The Emphasized Words are part of one sentence in para. 116. They must be read within para. 116 as a whole. In para. 116, Kasirer J. began by referring to the trial judge’s finding that Baycrest failed to provide Callow with a fair opportunity to protect its interest. He then stated that, had Baycrest acted honestly and corrected Mr. Callow’s false impression, he would have taken proactive steps to bid on other contracts for the upcoming winter. Next, Kasirer J. observed there was “ample evidence” before the trial judge that Callow had opportunities to bid on other winter maintenance contracts but chose to forego those opportunities due to its misapprehension about the status of its contract with Baycrest.
 Thus, it can be seen, in the sentences leading up to the one that contains the Emphasized Words, Kasirer J. explicitly found an evidentiary foundation for Callow’s claim of lost opportunity. This is significant when considering the full sentence in which the Emphasized Words are found. For ease of reference, I set it out again:
[E]ven if I were to conclude that the trial judge did not make an explicit finding as to whether Callow lost an opportunity, it may be presumed as a matter of law that it did, since it was Baycrest’s own dishonesty that now precludes Callow from conclusively proving what would have happened if Baycrest had been honest. [Emphasis added.] The Appellants’ submission that lost opportunity must be presumed fails to account for both the permissive language in the Emphasized Words and the qualifying language that immediately follows them.
 The Emphasized Words are permissive, not mandatory: they state that it “may” be presumed in law that a loss occurred. The use of the word “may” runs contrary to the Appellants’ submission that once the court found a breach of the duty of honest performance, it was obliged to presume that they had suffered a loss of opportunity.
 Further, and in any event, the Appellants’ submission fails to recognize that the Emphasized Words are followed by two qualifications: it might be presumed in law that Callow lost an opportunity (1) since it was Baycrest’s own dishonesty that precluded Callow from (2) conclusively proving what would have happened. In this case, neither qualifier applies.
 In terms of the first qualifier, it was not Origin House’s failure to advise the Appellants of the delayed closing date that precluded the Appellants from proving what would have happened had they been so advised. On the findings of the application judge, there was “little or no chance” of the Appellants achieving the 2019 revenue targets and nothing the Appellants could have done to force a change in the closing date.
 In terms of the second qualifier, as I have explained, in Callow there was an evidentiary foundation for the claim of lost opportunity and Baycrest’s dishonesty precluded Callow from “conclusively proving” lost opportunity. That was not this case: the Appellants had no evidentiary foundation for their claim of loss of opportunity.
 Accordingly, in my view, this ground of appeal fails.
In Jarbeau v. McLean (Ont CA, 2017) the Court of Appeal discusses the difference between assessing causation and damages on a 'but for' test versus a 'loss of chance' standard, all in the context of an extended discussion of solicitor's negligence:
 The “but for” test set out in the trial judge’s charge is the appropriate test for causation in negligence in all but rare cases. The test was set out in Clements v. Clements, 2012 SCC 32 (CanLII),  2 S.C.R. 181, at para. 8, as follows:. Berry v. Pulley
The test for showing causation is the “but for” test. The plaintiff must show on a balance of probabilities that “but for” the defendant’s negligent act, the injury would not have occurred. Inherent in the phrase “but for” is the requirement that the defendant’s negligence was necessary to bring about the injury ― in other words that the injury would not have occurred without the defendant’s negligence. This is a factual inquiry. If the plaintiff does not establish this on a balance of probabilities, having regard to all the evidence, her action against the defendant fails. [Emphasis in original.]..........
 In some cases of solicitor’s negligence, where it is practically impossible to determine what would have happened but for the solicitor’s negligent conduct, courts have allowed a plaintiff to advance a claim for loss of the chance to recover.
 Mr. McLean relies on two such cases: Kitchen v. Royal Air Force Association,  2 All E.R. 241 (C.A.), and Henderson v. Hagblom, 2003 SKCA 40 (CanLII), 232 Sask. R. 81, leave to appeal refused,  S.C.C.A. No. 278.
 In Kitchen, the plaintiff sued lawyers who missed a limitation period. There was a “trial within a trial” to determine what would have happened if the plaintiff had been able to sue. Lord Evershed did not accept that it must be “always all for the plaintiff or nothing” and posited three potential scenarios, at pp. 574-575:
If, in this kind of action, it is plain that an action could have been brought, and if it had been brought that it must have succeeded, of course the answer is easy. The damaged plaintiff then would recover the full amount of the damages lost by the failure to bring the action originally. On the other hand, if it be made clear that the plaintiff never had a cause of action, that there was no case which the plaintiff could reasonably ever have formulated, then it is equally plain that the answer is that she can get nothing save nominal damages for the solicitors’ negligence. In Hagblom, Mr. Hagblom was sued for negligent construction of a chimney in a home destroyed by fire. His lawyer was negligent in defending him, and the Saskatchewan Court of Appeal had to decide whether to allow Mr. Hagblom to advance a claim that, by reason of the lawyer’s negligence, he lost the chance to successfully defend the homeowners’ lawsuit. The court concluded that it was not feasible to send the case back for a trial within a trial and accordingly conducted a loss of chance analysis of Mr. Hagblom’s chances of success on the underlying action. It held that while Mr. Hagblom had a “potentially winnable” case, he could he not be assured of success because the cause of the fire remained a mystery even after examining the expert evidence.
But the present case falls into neither one nor the other of the categories which I have mentioned. There may be cases where it would be quite impossible to try “the action within the action”, as [counsel] asks. It may be that for one reason or another the action for negligence is not brought till, say, twenty years after the event and in the process of time the material witnesses or many of them may have died or become quite out of reach for the purpose of being called to give evidence.
In my judgment, what the court has to do (assuming that the plaintiff has established negligence) in such a case as the present, is to determine what the plaintiff has by that negligence lost. The question is, has the plaintiff lost some right of value, some chose in action of reality and substance? In such a case, it may be that its value is not easy to determine, but it is the duty of the court to determine that value as best it can.
 The court assessed the chances that Mr. Hagblom would have successfully defeated the homeowners’ action at 75%, and accordingly set his damages at that percentage.
 Mr. McLean also relies on Folland v. Reardon (2005), 2005 CanLII 1403 (ON CA), 74 O.R. (3d) 688 (C.A.). In that case, Mr. Folland claimed that he would have been acquitted of a criminal offence, but for the negligence of defence counsel.
 In Folland this court discussed the elements of a cause of action for breach of contract based on solicitor’s negligence. I extract the following principles from that decision, using the language used by Doherty J.A., at paras. 72-76:
1. In most cases of solicitor’s negligence, liability rests on both a tort and contractual basis. Where a plaintiff in a tort action arising out of solicitor’s negligence can establish on the balance of probabilities that but for the negligence he or she would have avoided the loss, he or she should be fully compensated for that loss.
2. The imposition of liability grounded in the loss of a chance of avoiding a harm or gaining a benefit is controversial in tort law, particularly where the harm alleged is not purely economic.
3. Whatever the scope of the lost chance analysis in fixing liability for torts claims based on personal injuries, lost chance is well recognized as a basis for assessing damages in contract. In contract, proof of damage is not part of the liability inquiry. If a defendant breaches his contract with the plaintiff and as a result the plaintiff loses the opportunity to gain a benefit or avoid harm, that lost opportunity may be compensable.
4. A plaintiff can recover damages for lost chance in an action for breach of contract if four criteria are met:
a. The plaintiff must establish on the balance of probabilities that but for the defendant’s wrongful conduct, the plaintiff had a chance to obtain a benefit or avoid a loss.
b. The plaintiff must show that the chance lost was sufficiently real and significant to rise above mere speculation.
c. The plaintiff must demonstrate that the outcome, that is, whether the plaintiff would have avoided the loss or made the gain, depended on someone or something other than the plaintiff himself or herself.
d. The plaintiff must show that the lost chance had some practical value.
 Where a plaintiff can only establish that but for the solicitor’s negligence he or she lost a chance to avoid a loss, a claim for breach of contract may permit recovery for the value of that chance.
 The case law is clear that a plaintiff in a solicitor’s negligence case can fully recover her loss in appropriate circumstances. The British Columbia Court of Appeal expressed it this way, in Nichols v. Warner, Scarborough, Herman & Harvey, 2009 BCCA 277 (CanLII), 95 B.C.L.R. (4th) 133, leave to appeal refused,  S.C.C.A. No. 355, at para. 26:
In a case of this kind, the court is required to essentially conduct a trial within a trial to the extent possible: the first to determine whether the solicitor has been negligent in respect of the litigation undertaken; the second to determine, if so, what loss the solicitor’s negligence has caused the client. In some instances, whether there has been a loss and what it was can be readily established. In others, however, the prospect of success and recovery may not be easily shown due to uncertainties of proof and perhaps legal consequences inherent in any given case. Indeed, the mere passage of time may render the conduct of a trial within a trial virtually impossible. What the court must do in such circumstances where the prospect of recovery in the original action is inconclusive is to quantify as best it can the value of what the authorities regard a lost opportunity. The Alberta Court of Appeal summarized the approach to be taken in Fisher v. Knibbe, 1992 ABCA 121 (CanLII) 3 Alta. L.R. (3d) 97, at pp. 7-8: In Folland, this court rejected the appellant’s alternative loss of chance claim for several reasons, including that public policy would not countenance a damage award based on a lost chance in a criminal case. If Mr. Folland could only establish a less-than-50% chance of acquittal, by implication the trier of fact would have found that it was more likely than not that he had been properly convicted: at para. 92.
After conducting the “trial within a trial” to determine what damages, if any, a negligent solicitor is liable for missing a limitation period, three results are possible. First, the trial judge could find that had the case gone to trial the plaintiff would have been successful and in such case 100 per cent of the lost damages would be awarded against the solicitor. Second, the trial judge could find that the plaintiff would not have been successful therefore only nominal damages may be awarded against the solicitor. Finally, where time has passed to such an extent that a “trial within a trial” would be impossible, then the court must to the best of its ability calculate the value of the opportunity lost to the plaintiff and award damages against the solicitor on that basis.
 Where a plaintiff advances a tort claim for damages founded on the “but for” causation test, Folland does not support Mr. McLean’s argument that some degree of probability between 50% and 100% should reduce a defendant’s liability.
 In short, none of the cases cited to us involved a defendant attempting to reframe a plaintiff’s case as a loss of chance, where the loss the plaintiff claims is the opportunity successfully litigate or settle a claim in full and the “trial within a trial” approach allows the plaintiff to test that claim. In such circumstances the plaintiff is entitled to advance the trial within a trial on the balance of probabilities standard, and to fully recover if that standard is met.
 This is not to say that some contingencies will not affect the assessment of damages. A jury could, in its assessment of damages, properly be invited to consider future contingencies in assessing the losses that properly flow from the lawyer’s negligence.
 For example, if a plaintiff successfully recovered judgment against an at-fault party but there was no possibility of collection of that judgment, the plaintiff may recover nominal damages against a negligent solicitor who caused the loss of the opportunity to sue the at-fault party: see Melanson v. Cochrane, Sargeant, Nicholson & Paterson (1985), 63 N.B.R. (2d) 91 (Q.B.), aff’d (1986), 68 N.B.R. (2d) 370 (C.A.); Islington Investments Ltd. v. Day, Ault & White,  O.J. No. 1322 (H.C.). As noted by Sean Campbell, Stephen Grant and Linda Rothstein in Lawyers’ Professional Liability, 3d ed. (Toronto: LexisNexis, 2013), at p. 222:
In Page v. Solicitor, 1971 CanLII 1075 (NB CA),  N.B.J. No. 65, 3 N.B.R. (2d) 773, 20 D.L.R. (3d) 532 (N.B.C.A.), aff’d  S.C.J. No. 24,  S.C.R. vi, (sub nom. Pelletier v. Page) 29 D.L.R. (3d) 386n (S.C.C.), the Court held that in the absence of any evidence as to any other funds available to satisfy the hypothetical judgment against the original tortfeasor, the maximum loss proven was the sum for which the original tortfeasor had been insured..........
 The trial judge characterized both jury assessments of diminution of value and cost to repair as perverse, and reluctantly gave judgment for the lesser amount. As shown above, there was evidence before the jury justifying both assessments. Absent a reasoned basis for deciding whether to grant judgment for diminution in value or cost to repair, it falls to this court to make that decision.
 The general rule for resolving a question as to the measure of damages was set out in James Street Hardware and Furniture Co. v. Spizziri (1987), 1987 CanLII 4172 (ON CA), 62 O.R. (2d) 385 (C.A.). At para. 54, this court held that the general proposition is that the damages awarded to a plaintiff should put him or her in the same position as they would have been in had they not sustained the wrong for which they are receiving compensation or reparation.
 The Jarbeaus purchased a new home in 2007. They ended up with a home with many deficiencies that is not building code compliant and should never have been built. The fairest measure of damages is that which would provide the Jarbeaus with what they bargained for – a home free of defects.
 Accepting the jury’s assessment that the home itself had no value, damages should not be awarded on the lesser diminution in value basis because this does not take into account the very real difficulty of selling this home and the cost of demolition, if the property were to be sold as vacant land.
 In the context of this case, there is no issue of a windfall or betterment if the cost to repair is awarded. Many courts have concluded that the measure of damages may properly be fixed at the cost to repair the deficiencies in a home or rebuild a home: Nan v. Black Pine,  B.C.J. No. 910 (C.A.); Fors v. Overaker & Mallon, 2014 ONSC 3084 (CanLII),  O.J. No. 3108; Galan v. Finch, 2015 ONSC 2455 (CanLII),  O.J. No. 2275; Gemeinhardt v. Babic, 2016 ONSC 4707 (CanLII),  O.J. No. 3883.
In Berry v. Pulley (Ont CA, 2015) the court outlined the approach to be taken when assessing damages for 'loss of chance':
The loss of chance doctrine. Trillium Motor World Ltd. v. Cassels Brock & Blackwell LLP
 A two-step framework applies when a plaintiff alleges injury consisting of the loss of the chance to achieve a benefit or avoid a loss. Folland v. Reardon (2005), 2005 CanLII 1403 (ON CA), 74 O.R. (3d) 688 (C.A.), at para. 73, outlines the four criteria the plaintiff must meet at the first step:
First, the plaintiff must establish on the balance of probabilities that but for the defendant’s wrongful conduct, the plaintiff had a chance to obtain a benefit or avoid a loss. Second, the plaintiff must show that the chance lost was sufficiently real and significant to rise above mere speculation. Third, the plaintiff must demonstrate that the outcome, that is, whether the plaintiff would have avoided the loss or made the gain, depended on someone or something other than the plaintiff himself or herself. Fourth, the plaintiff must show that the lost chance had some practical value. [Citations omitted.] As Doherty J.A. noted in Folland, at para. 74, the second criterion is “somewhat nebulous. There is no bright line between a real chance and a speculative chance. An empirical review of the case law suggests that chances assessed at less than 15 percent are seldom viewed as real chances.” This de minimis threshold has also been described as requiring the plaintiff to prove she had “some reasonable probability” of realizing “an advantage of some real substantial monetary value”: Kinkel v. Hyman, 1939 CanLII 7 (SCC),  S.C.R. 364, at p. 383; see also Eastwalsh Homes Ltd. v. Anatal Developments Ltd. (1993), 1993 CanLII 3431 (ON CA), 12 O.R. (3d) 675 (C.A.), at pp. 689-90, leave to appeal refused,  S.C.C.A. No. 225.
 If these four criteria are met, the court proceeds to the second step and will award damages equal to the probability of securing the lost benefit (or avoiding the loss) multiplied by the value of the lost benefit (or the loss sustained): see Wong v. 407527 Ontario Ltd. (1999), 1999 CanLII 3788 (ON CA), 179 D.L.R. (4th) 38 (Ont. C.A.), at para. 27.
In Trillium Motor World Ltd. v. Cassels Brock & Blackwell LLP (Ont CA, 2017), a complex class action case, the Court of Appeal considers damages for loss of chance, in both contract and tort:
 Trillium’s loss of chance claim raises issues of concurrent liability in contract and tort. The question whether an action for damages for a lost chance sounds in tort is unsettled under the current Canadian jurisprudence. However, the doctrine of lost chance in contract law has been expressly recognized both in Canada and England: Chaplin v. Hicks,  2 K.B. 786; Webb & Knapp (Canada) Limited v. City of Edmonton, 1970 CanLII 173 (SCC),  S.C.R. 588; St. Thomas Subdividers Ltd. v. 639373 Ontario Ltd. (1996), 1996 CanLII 575 (ON CA), 91 O.A.C. 193 (C.A.).
 The distinction between loss of chance claims in contract and claims for damages in tort is important because, in contract law, proof of damage is not part of the liability inquiry. In contrast, in tort law, liability rests not only on proof of a breach of the applicable duty of care but, as well, on a showing by the plaintiff that the defendant’s conduct caused a loss.
 In a solicitor’s negligence case like this one, where there is concurrent liability in contract and tort, the law is clear that a plaintiff may advance a claim for damages for “loss of chance”. The leading case on the loss of chance to obtain a benefit or avoid a loss in the solicitor’s negligence context is the English Court of Appeal’s decision in Allied Maples Group Ltd. v. Simmons & Simmons (a firm),  4 All E.R. 907. In Allied Maples, the defendant solicitors negligently failed to warn their clients of the consequences of deleting a warranty in an agreement of purchase and sale. The warranty stated that there were no existing or contingent liabilities on any leaseholds held by the vendor’s subsidiary. In fact, there were such liabilities, and the plaintiff was bound by them.
 The plaintiff sued its solicitors, arguing that if it had been properly advised, it would have successfully negotiated some level of protection from liability or, alternatively, walked away from the transaction. In an argument that mirrors Cassels’ position on this appeal regarding the Canada Conflict, the solicitors countered that they were not liable because there was no causal link between the breach and the damages.
 The Court of Appeal held that this argument confused the issues of causation and damages. The headnote of the case captures the court’s key holdings:
Once the plaintiff proved on the balance of probability as a matter of causation that he would have taken action to obtain a benefit or avoid a risk, he did not have to go on to prove on the balance of probability that the third party would have acted so as to confer the benefit or avoid the risk to the plaintiff. Instead, the plaintiff was entitled to succeed provided he showed that there was a substantial, and not merely a speculative, chance that the third party would have taken the action to confer the benefit or avoid the risk to the plaintiff. The evaluation of a substantial chance was a question of quantification of damages, the range lying somewhere between something that just qualified as real or substantial on the one hand and near certainty on the other. The majority dismissed the solicitors’ appeal because the plaintiff had established that it would have negotiated the warranty issue if it had been properly advised, and there was a substantial chance that it would have obtained partial or full protection from the leasehold liabilities: see Lawyers’ Professional Liability, supra, at p. 227.
 In Ontario, Folland v. Reardon (2005), 2005 CanLII 1403 (ON CA), 74 O.R. (3d) 688 (C.A.), is the leading case on loss of chance in solicitor’s negligence. In Folland, the plaintiff sued his former lawyer for the alleged negligent conduct of a sexual assault trial. The plaintiff argued that, but for his lawyer’s negligence, he would have been acquitted. This court held that the claim raised a genuine issue for trial.
 Justice Doherty, writing for the court, went on in obiter to consider the plaintiff’s additional argument that, as a result of his lawyer’s negligence, he had lost the chance to be acquitted. This claim was novel, arising as it did in the criminal law context. The court considered the relevant case law and held, at para. 73:
Whatever the scope of the lost chance analysis in fixing liability for tort claims based on personal injuries, lost chance is well recognized as a basis for assessing damages in contract. In contract, proof of damage is not part of the liability inquiry. If a defendant breaches his contract with the plaintiff and as a result a plaintiff loses the opportunity to gain a benefit or avoid harm, that lost opportunity may be compensable. As I read the contract cases, a plaintiff can recover damages for a lost chance if four criteria are met. First, the plaintiff must establish on the balance of probabilities that but for the defendant’s wrongful conduct, the plaintiff had a chance to obtain a benefit or avoid a loss. Second, the plaintiff must show that the chance lost was sufficiently real and significant to rise above mere speculation. Third, the plaintiff must demonstrate that the outcome, that is, whether the plaintiff would have avoided the loss or made the gain, depended on someone or something other than the plaintiff himself or herself. Fourth, the plaintiff must show that the lost chance had some practical value. The Folland court concluded that a lost chance claim was not available to the plaintiff on the facts of the case; among other reasons, it held, at para. 92, that “public policy would not countenance a damage award” in circumstances where, on the trial court’s findings, the plaintiff probably committed the crime for which he was charged.
 Recently, in Berry v. Pulley, 2015 ONCA 449 (CanLII), 335 O.A.C. 176, at para. 70, this court described a “two-step framework” for the determination of a loss of chance claim. Associate Chief Justice Hoy explained, at para. 72, that the court must first determine if the four criteria set out in Folland are met. If they are, then the court proceeds to the second step and “will award damages equal to the probability of securing the lost benefit (or avoiding the loss) multiplied by the value of the lost benefit (or the loss sustained)”.
 More recently still, in Jarbeau v. McLean, 2017 ONCA 115 (CanLII), this court restated the principles that govern a loss of chance claim in the context of an action for solicitor’s negligence. Justice Pardu, writing for the court, quoted from para. 73 of Folland, set out above, and stated, at paras. 27-28:
Where a plaintiff in a tort action arising out of solicitor’s negligence can establish on the balance of probabilities that but for the [solicitor’s] negligence he or she would have avoided the loss, he or she should be fully compensated for that loss.
Where a plaintiff can only establish that but for the solicitor’s negligence he or she lost a chance to avoid a loss, a claim for breach of contract may permit recovery for the value of that chance.