August 18, 2023
In a claim arising from a breach of contract, the goal is to put the injured party (the Plaintiff) back into the position that they would have been but for the breach.
In a typical claim for a breach of contract, this means that the Plaintiff seeks “expectation damages”, which are usually about the same as the loss of anticipated profits.
But what happens when the plaintiff cannot prove that they have a loss of profit?
In some cases, this leads to what is called nominal damages, which recognize the fact that the plaintiff was a victim of a breach that caused no damage. This happens more often in defamation cases than in breach of contract cases because in a defamation case, the vindication of the Plaintiff’s reputation is often as important as the damages. Breach of contract is normally all about money.
An alternative way to prove damages when expectation damages are impossible to prove is to seek “reliance damages”.
Reliance damages are usually measured by the wasted expenses the Plaintiff spent in reliance on the performance of the contract.
As the secondary option for proving damages, reliance damages are not very common. Defendants will argue that if expectation damages cannot be proven, only nominal damages should be granted.
The Ontario Court of Appeal reminded us in 2505243 Ontario Limited (ByPeterandPaul.com) v. Princes Gates Hotel Limited Partnership of the role played by reliance damages. The case involved a lease of restaurant space in the Defendant’s hotel. Because of low occupancy and other factors, the restaurants were not profitable. The Plaintiff sought a negotiated early termination of the leases, but the Defendant said it hoped to continue the relationship. The Defendant breached their duty of honest performance by pretending to negotiate amendments to the leases after already secretly deciding to lease to another restaurant operator. In reliance upon the negotiations, the Plaintiff spent money they would not have invested.
COVID then intervened. The Defendant argued that the restaurant would not have operated during COVID restrictions, and no profits were lost, so only nominal damages ought to be awarded.
The trial judge applied the concept of reliance damages and awarded the Plaintiff over seven million dollars in damages.
The Court of Appeal agreed, quoting an earlier leading decision which explained that:
In some breach of contract cases, an injured person cannot prove expectation damages or loss of profits, or the contract has been unprofitable. In those cases, an injured party may elect to claim reliance damages. In awarding reliance damages, the court recognizes that the injured party has changed its position in reliance on the contract. The court tries to put the injured party in the position it would have been in had it not entered into the contract at all. Thus, reliance damages amount to wasted expenditures – expenses that the injured party incurred in reliance on the contract but would not have incurred had it known that the contract would be or had been breached. [Citations omitted.]
The appeal was dismissed. Reliance damages are alive and well in Ontario.
- The goal of damages for breach of contract is to put the injured party back into the position they would have been if the breach had not occurred.
- Usually, this means a loss of profits.
- But it might instead be wasted expenses if no loss of profits can be proven.
- Nominal damages will be extremely rare in breach of contract cases.
WHAT WEILERS LLP CAN DO TO HELP YOU
If you have a complex breach of contract claim, you need lawyers who can understand issues like reliance damages.
At Weilers LLP, our counsel, Brian Babcock, has recently taught the law of damages multiple times as part of his Remedies course at the Bora Laskin Faculty of Law. As a partner previously and now as counsel, Brian has shared his expertise by training and continuing to mentor our litigation team. This training is unique in Thunder Bay and Northwestern Ontario.
If you want lawyers who love a challenge, give Weilers LLP a call and see if we are the right lawyers for you.