Breach of Contract

Remedies for Breach of Contract

Canadian law provides several remedies, both at common law and in equity, for breach of contract. The choice of remedy depends on the nature of the breach, the type of loss suffered, and what is necessary to adequately compensate the innocent party or restore the position they would have been in had the contract been performed.

Expectation and Reliance Damages

The primary remedy is monetary damages designed to protect the plaintiff's expectation interest. This means placing the innocent party in the position they would have been in had the contract been properly performed. Damages are compensatory, not punitive, and do not seek to enrich the plaintiff beyond what they would have received from performance.

Expectation damages typically include the value of the promised performance, any lost profits that would have been earned, and consequential losses that flow naturally from the breach. The plaintiff bears the burden of proving these losses with reasonable certainty.

Reliance damages protect the plaintiff's reliance interest by compensating for expenses incurred in reliance on the contract. This measure is appropriate where expectation losses are too speculative to prove or where the plaintiff's position would have been no better had the contract been performed. In Bowlay Logging Ltd. v. Domtar Ltd., [1978] 4 W.W.R. 105 (B.C.S.C.), the court awarded reliance damages where the plaintiff could not prove the profit it would have made.

Specific Performance and Injunctions

While damages are the usual remedy, equity will sometimes intervene where monetary compensation is inadequate. Specific performance compels the breaching party to perform exactly as promised. This remedy is most often granted for contracts involving unique goods, real estate, or shares where the subject matter has no true substitute.

Following Semelhago v. Paramadevan, [1996] 2 S.C.R. 415, courts have emphasized that specific performance is discretionary and will only be granted where damages are inadequate to do justice. The remedy is particularly appropriate for land transactions, as each piece of real property is considered unique.

Courts may also grant injunctions to restrain a party from breaching a negative covenant, such as non-competition, non-solicitation, or confidentiality clauses. These remedies protect the integrity of contractual promises where ongoing obligations or proprietary interests are at stake. Interlocutory injunctions may be granted urgently under Rule 40 of the Rules of Civil Procedure where there is a serious issue to be tried, irreparable harm, and the balance of convenience favours the order.

Restitutionary and Gain-Based Awards

In limited cases, Canadian courts may award restitutionary or gain-based relief, focusing on the defendant's unjust gain rather than the plaintiff's loss. These awards are exceptional but serve an important function in deterring opportunistic breaches and preventing enrichment through wrongdoing.

Gain-based recovery is typically available where the breach involves wrongful use of property, confidential information, or other assets of particular value to the defendant. In such cases, the plaintiff may claim an account of profits or, in appropriate circumstances, a constructive trust over the benefit obtained.

The Supreme Court of Canada in Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574, imposed a constructive trust over mining property acquired through misuse of confidential information. This demonstrates the flexibility of equitable remedies in addressing unjust enrichment arising from breach.

Punitive and Aggravated Damages

Punitive damages are rare in contract law but may be awarded where the breach involves conduct that is malicious, oppressive, or high-handed. Their purpose is to punish and deter behaviour that departs markedly from ordinary standards of decency.

In Whiten v. Pilot Insurance Co., [2002] 1 S.C.R. 595, the Supreme Court confirmed that punitive damages may be appropriate where a breach is accompanied by bad faith or deceitful conduct, particularly in contracts of utmost good faith such as insurance agreements. The Court emphasized that such damages must be proportionate and serve the purposes of retribution, deterrence, and denunciation.

Calculating Damages

Calculating damages for breach of contract involves applying principles that have developed over centuries of commercial practice and judicial interpretation. The goal is to provide fair and predictable compensation while preventing windfall gains and discouraging wasteful litigation.

The Compensation Principle

The foundational principle, stated by Parke B. in Robinson v. Harman (1848), 1 Exch. 850, 154 E.R. 363, is that damages should, as far as money can do it, place the plaintiff in the same situation as if the contract had been performed. This requires identifying what the plaintiff would have received had there been no breach and awarding compensation for the difference between that and their actual position.

The plaintiff must prove their loss with reasonable certainty. Speculation or conjecture will not suffice. Where losses cannot be proven with precision, courts may draw reasonable inferences from available evidence, but some losses may be too remote or uncertain to recover.

Mitigation and Avoidable Harm

The injured party has a duty to take reasonable steps to mitigate their loss once a breach occurs. They cannot recover damages for losses that could have been avoided through reasonable efforts or alternative arrangements. This principle, sometimes called the "duty to minimize loss," ensures fairness and discourages plaintiffs from allowing damages to accumulate unnecessarily.

What constitutes reasonable mitigation depends on the circumstances. The plaintiff is not required to take extraordinary measures, incur significant expense, or act in a way that undermines their dignity or commercial reputation. They must, however, take steps that a reasonable person in their position would take.

In employment contexts, a dismissed employee must seek comparable alternative employment. In sale of goods cases, a buyer who does not receive contracted goods must attempt to purchase substitute goods in the market if available. Ontario's Sale of Goods Act reflects this approach in sections governing buyer and seller remedies.

Remoteness and Foreseeability

Not all losses caused by breach are recoverable. Damages are limited to those that were reasonably contemplated by the parties at the time of contracting as a probable result of breach. This principle, established in Hadley v. Baxendale (1854), 9 Exch. 341, 156 E.R. 145, prevents parties from being liable for unforeseeable and disproportionate losses.

The test has two limbs. First, losses arising naturally from the breach according to the usual course of things are recoverable. Second, losses that may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of breach, are also recoverable.

The test is objective and focuses on what a reasonable person in the defendant's position would have contemplated. Special circumstances known to the defendant at the time of contracting may bring losses within the scope of recovery even if they would not normally be foreseeable.

Lost Profits and Opportunity Costs

Lost profits are recoverable as expectation damages where they can be proven with reasonable certainty and were within the reasonable contemplation of the parties. The plaintiff must establish not only that profits would have been made, but their amount, deducting expenses that would have been incurred in earning them.

Opportunity costs—the value of alternative contracts the plaintiff could have made but for the breach—may also be recoverable. In V.K. Mason Construction Ltd. v. Bank of Nova Scotia, [1985] 1 S.C.R. 271, the Supreme Court awarded lost profits on the basis that, had the plaintiff not made the contract with the defendant, it would have made an equally profitable contract with another party.

Common Scenarios in Breach of Contract

Breach of contract disputes arise across many industries and contexts. While each case depends on its particular facts and the terms of the agreement, certain patterns recur frequently in commercial and consumer settings.

Construction and Service Contracts

Construction and service contracts frequently give rise to claims of non-performance, defective work, or delay. Disputes often centre on whether performance meets contractual specifications, whether delays are excusable, and who bears responsibility for cost overruns.

Issues of substantial performance are common in this context. Where a contractor has completed most of the work but with minor defects, courts must balance the interest in strict compliance with fairness to a contractor who has conferred substantial benefit. The doctrine allows recovery of the contract price less the cost of remedying defects.

Delay claims engage questions of causation and proof. The plaintiff must show that the delay was caused by the defendant's breach and must quantify the resulting losses, whether loss of use, increased financing costs, or consequential business losses.

Sale of Goods and Supply Agreements

Sales and supply agreements may involve failures to deliver goods conforming to contractual specifications or within agreed timelines. The Sale of Goods Act provides a statutory framework for buyer and seller remedies, including damages measured by the difference between contract and market price.

Where goods are defective or non-conforming, the buyer's remedies depend on whether the breach is a breach of condition (allowing rejection) or warranty (allowing damages only). This distinction turns on the seriousness of the defect and its impact on the goods' usability for their intended purpose.

Supply chain disruptions raise issues of force majeure, frustration, and excuse. These defences may apply where external events beyond the parties' control prevent performance, but the bar for establishing them is high.

Real Estate Transactions

Real estate transactions often produce litigation when a purchaser or vendor fails to close. The court may award damages for lost bargain or, where appropriate, specific performance. Given the unique nature of each property, specific performance is readily available in land transactions, though courts retain discretion to refuse it where damages would be adequate or the order would cause undue hardship.

Damages for breach of a real estate contract typically include the difference between the contract price and the market value at the date of breach, plus any expenses incurred in reliance on the contract. Consequential losses, such as lost profits from a business venture dependent on acquiring the property, may be recoverable if they were reasonably foreseeable.

Employment and Independent Contractor Agreements

Employment and independent contractor relationships frequently generate breach claims, particularly where one party repudiates prematurely or fails to honour payment obligations. Wrongful dismissal claims are, in essence, breach of contract claims where the employer terminates without providing reasonable notice or pay in lieu.

Damages for wrongful dismissal typically equal the salary and benefits the employee would have earned during the reasonable notice period, less amounts earned or that could have been earned through reasonable mitigation. The duty to mitigate requires dismissed employees to seek comparable alternative employment.

Non-competition and non-solicitation covenants raise issues of enforceability and breach. These clauses are enforceable only if reasonable in scope, duration, and geographic extent, and if they protect a legitimate proprietary interest. Breach may give rise to injunctive relief and damages.

Defending a Breach of Contract Claim

Defending a breach of contract action requires a clear understanding of both the formation of the contract and the conduct alleged to constitute breach. Multiple defences may be available, ranging from challenges to formation to arguments that excuse or justify non-performance.

No Enforceable Contract Formed

A party may deny liability on the basis that no enforceable contract was formed due to lack of offer, acceptance, consideration, or certainty of terms. If any essential element is missing, there is no contract to breach.

Lack of certainty arises where essential terms are too vague or incomplete to be enforced. An "agreement to agree" is generally not enforceable unless sufficient framework exists to fill gaps. Courts distinguish between essential terms that must be certain and ancillary matters that can be implied or determined by objective standards.

Lack of consideration arises where one party's promise is not supported by a corresponding benefit or detriment. While consideration need not be adequate, it must be sufficient in law—that is, something of value in the eyes of the law must move from each party.

Frustration and Impossibility

Performance may be excused where external circumstances render it impossible or radically different from what was contemplated. The doctrine of frustration discharges both parties from further obligations when, without fault of either, an unforeseen event makes performance impossible, illegal, or so different as to constitute a fundamentally different undertaking.

The test for frustration is strict. The event must be unforeseen, beyond the parties' control, and so fundamental that it goes to the root of the contract. Increased difficulty or expense does not suffice. In Victoria Wood Development Corp. v. Ondrey, [1978] 2 S.C.R. 1144, the Supreme Court held that frustration requires circumstances so fundamentally different that the contract must be regarded as having ceased to exist.

Where frustration is established, the contract is automatically discharged. Neither party is liable for breach. The Frustrated Contracts Act, R.S.O. 1990, c. F.34, provides for adjustment of rights and liabilities, including recovery of deposits and compensation for partial performance.

Performance Completed or Substantially Completed

A defendant may assert that performance was completed or substantially completed in accordance with the contract. If proven, this defence defeats the claim or limits damages to the cost of remedying minor defects.

Substantial performance does not require perfection. The essential obligations must be fulfilled and any defects must be minor relative to the contract's overall purpose. Courts assess whether the innocent party has received substantially what they bargained for.

Limitation Periods and Procedural Defences

Procedural defences under the Limitations Act, 2002, S.O. 2002, c. 24, Sch. B, are significant. Most breach claims must be brought within two years of the date on which the claim was or ought reasonably to have been discovered. The Act provides for a 15-year ultimate limitation period from the date the claim arose.

Discovery occurs when the plaintiff knows or ought reasonably to know that the loss occurred, was caused by the defendant's act or omission, and that a proceeding would be an appropriate means to seek a remedy. These are objective tests focusing on when a reasonable person in the plaintiff's position would have known these facts.

Other procedural defences include waiver, where the plaintiff by words or conduct indicates they will not insist on strict performance; estoppel, where it would be unfair to allow the plaintiff to resile from a representation that induced the defendant's reliance; and accord and satisfaction, where the parties have agreed to settle their dispute for different consideration.