Remedies for Breach of Contract
To avoid contract disputes and the domino effect of a badly written contract, it is important to hire an experienced and detail-oriented contract lawyer to professionally draft your contracts. That would be the best preventative measure to ensure that you are legally protected years ahead. However, if there has been a breach of contract, this is what you need to know. Broadly speaking, the remedies for breach of contract are threefold.
Monetary Awards
A monetary award in Canadian dollars or damages is the standard remedy for breach of contract. When calculating this award, the importance lies in considering the recognizable heads of damages under which these awards will be granted. They are found in common Law, also known as Case Law rendered by judges through cases or “decisions”.
Heads of Damages
The Compensation Principle
For a fair monetary award, judges apply the compensation principle which stipulates that the amount of damages awarded in each circumstances should be equal (so far as an amount of money can be) to what is required to compensate the innocent party for the loss it has suffered as a result of the breach. In essence, the principle is attempting to place the Plaintiff (the victim) in the same situation, with respect to damages, as if the contract had been performed.
Is the requested compensation based on lost profits? Or additional expenses incurred because of the breach? Judges will want to know and differentiate that.
To avoid Defendants from having an incentive to postpone payment, judges accept calculating compensation from the period of the breach until the day of judgment, which leads to greater awards.
Common issues and obstacles that Plaintiffs face when requesting monetary awards are listed below:
- Defendants will always argue against putting the Plaintiffs in a better position than they would be in because of the context.
- Where one or more ways of performing a contract is open to a party who breached the contract, the losses will be calculated on the assumption that the party would have had performed the contract in the most financially advantageous manner to it and the least financially advantageous manner to the innocent party.
- Courts do not award unreasonable amounts, regardless of the significant difference between what was promised and what was actually paid because of the breach.
- Damages will be limited to that which can be said to arise naturally (this is the concept of foreseeability) — the loss must have been in the contemplation of both parties at the time they entered into their contract.
- Plaintiffs have a duty to mitigate the loss. This means that Plaintiffs will not be compensated for losses incurred that could have been reduced by taking action to solve the issue. Defendants will attempt to counterargue requested amounts based on this legal principle.
Regardless, it is important for Courts to avoid making breaches of contracts more profitable for the party breaching the contract than it is to perform it, which is why, in exceptional cases, Courts will award damages measured not by the innocent party’s loss but by a gain that the party who breached the contract made as result of the breach. This was confirmed by the Supreme Court of Canada in Atlantic Lottery Corp. Inc. v. Babstock, 2020 SCC 19.
Disappointment
A consumer’s disappointment is compensable even if there was no financial loss suffered. If the cost of replacing the contracted item is out of all proportion to the financial loss suffered, yet the consumer was disappointed for a certain reason, the disappointment could be compensated. We will discuss this head of damage in more detail in other articles and dive deeper into case studies.
Mental Distress or Loss of Enjoyment
This is compensable if the promisee was promised peace of mind or enjoyment. An unreasonable denial of coverage by an insurance company could for example cause such harm. However, a major or important object of the contract in question must be to give pleasure, relaxation or peace of mind; or where an object of the contract is to secure a psychological benefit, just as they may be awarded where an object of the contract is to secure a material one.
Loss of Chance
If a breach of contract deprives a party of a chance of success in an opportunity, courts are prepared to compensate a party for that loss (Parabola Investments Ltd. v. Browallia Cal Ltd, 2011 Q.B. 477 (CA)). The importance here is the chance that is lost, not the actual secured opportunity itself; this is calculated as a percentage of the actual gain coming from the positive entitlement to the opportunity. A chance is not the actual opportunity secured. This is an important difference.
Punitive Damages
Exceptionally, Canadian courts will award punitive damages for breach of contract as punishment for the party’s behaviour. The award must be proportionate with respect to:
- (i) the blameworthiness of the defendant’s conduct;
- (ii) the degree of vulnerability of the plaintiff;
- (iii) the harm or potential harm directed specifically at the plaintiff;
- (iv) the need for deterrence; and
- (v) the advantage wrongfully gained by a defendant from the misconduct. It must also be proportionate, even after taking into account the other penalties, both civil and criminal, which have been or are likely to be inflicted on the defendant for the same misconduct.
Insurance companies for example often pay punitive damages for failing to cover insurance claims, so do landlords for causing illegal distress (see: Canadian National Railway Co. v. Huntingdon Real Estate Investment Trust, 2013 MBCA 3, [2013] 8 W.W.R. 345, [2013] M.J. No. 44 (Man. C.A.)).
Fraudulent acts often attract punitive damages.
Equitable Remedies
Judges use Equity and set aside the hard Law when they decide to remedy an injustice that the strict application of the “hard” Law has caused. Courts are prepared to apply discretionary power (also known as “equitable remedies” that are outside the strict rules of Law) and order a “specific performance”, the “forced performance of a contract”, or an “injunction”.
Specific Performance
This remedy is available on a judge’s discretionary basis only when monetary awards are inadequate or inappropriate. Inadequacy could be for example the impossibility of duplicating the product or object in the contract anywhere else. A judge’s order of specific performance obliges the defendant to perform their obligation under the contract. The concept of mitigation mentioned above applies here too.
The obstacle to this remedy is that judges also look at whether specific performance would cause the Defendant any hardship. Hardship could negate specific performance on a case-by-case basis.
Injunction
An injunction is a temporary or permanent order that a party refrain from some activity.
Proprietary Remedy
In exceptional cases, courts are prepared to grant a proprietary remedy, which is a transfer or recognition of some property rights in some asset, for breach of contract.
According to the Supreme Court case Atlantic Lottery Corp. Inc. v. Babstock, 2020 SCC 19, at paras. 49 and 91, in order to successfully seek these remedies, one must first prove a breach of contract which is broken down to proving:
- The existence of the contract; then
- The breach of a term in it; -Proving a breach stops here-
Next comes dealing with and compensating the loss, which entails proving:
- Causation: When it comes to losses, the party seeking a remedy for breach of contract bears the burden, on a balance of probabilities (which means on a scale of “which evidence is more likely than not to prove a fact?”), of showing that the breach caused its loss;
- The amount of loss is only relevant to calculating damages/the monetary awards. If no amount of loss is proved, the Plaintiff would only receive nominal damages (a symbolic amount which is not significant); except if the Defendant is making it extremely difficult for the Plaintiff to gather evidence, in which case, judges will be favoring more damages to benefit the Plaintiff. Imprecise estimates of loss are acceptable (Houweling Nurseries Ltd. v. Fisons Western Corp., 1988 BCCA No. 306). However, this leads judges to often significantly cut the amounts requested by Plaintiffs in their judgments.
A Contract Lawyer specializing in Contract Drafting and Contract Disputes prevents you from facing common contract issues by leveraging their legal expertise when drafting a protective contract for you. It is important to invest in legal advice and legal fees when drafting an agreement. The more detailed a contract is, which takes more time on the short term, the less complicated and litigation-worthy issues would come up on the long term. Contract lawyers foresee these legal issues and find preventative ways around them which ultimately saves you a significant amount of money on the long term.
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