Legal Blog: Commercial Matters

Lease Damages – Foreseeability

Saramia Crescent General Partner Inc. v. Delco Wire and Cable Limited 2018 Ont CA

Tenant repudiated lease and landlord subsequently sold the property because it could not afford the maintenance and mortgage expenses without tenant’s rental income. Only damages were in issue. The trial judge awarded damages not only for lost rental profits, but for the capital appreciation that landlord would have enjoyed had it not been forced to sell the property. The court considered Hadley v. Baxendale, noting that damages could be recovered, if, in the usual course of things, the damages fairly, reasonably, and naturally resulted from the breach of contract or if they were reasonably contemplated by the parties at the time of the contract. The test under the first branch of remoteness is objective. The court held that the inherent bargain in a commercial lease does not include the opportunity to profit from speculative capital appreciation and damages for lost capital appreciation do not fairly and reasonably arise for breach of a commercial lease. Under the 2^nd test, there was no evidence that, at the time of the lease, the parties contemplated capital appreciation would be something for which the tenant would be liable if the lease were breached.

Damages – Minimum Performance Principle

Atos IT Solutions v. Sapient Canada Inc. 2018 Ont CA

A technology subcontract was comprised of different rushes of work. The contractor was allowed to terminate one of those tranches for convenience upon payment of an amount as set out in a formula in the contract. The contractor purported to terminate the entire subcontract for cause. The trial judge held that there was no cause and allowed full damages. The Court of Appeal reduced the damages for the portion of the contract for which the contractor could have terminated for convenience. The minimum performance principle was articulated by the SCC in Hamilton v. Open Window Bakery Ltd. Under that principle, a wrongdoer is liable for damages in accordance with the minimum or least expensive contract performance. The trial judge had also allowed damages for lost profits in the face of a clause that stated that there would be no liability for “indirect, special, consequential or punitive damages or for lost profits.” The trial judge interpreted loss of profits to mean loss of profits from other work foregone as a result of the breach. Relying on Satva and the principle of deference to a trial judge’s contract interpretation, the court refused to set aside this interpretation – even though it may have come to a different interpretation.

Fixed Term Employment Contracts: Court of Appeal Decision Addresses the Interpretation of Termination Clauses, Acting in Good Faith, and the Measure of Damages

Mohamed v. Information Systems Architects Inc. 2017 Ont SCJ

Newsletter Feb 2018 “Bad Drafting”

Dependent/independent contractor (whom we will refer to as an employee) fired when employer’s client, as was its right, requested that employee not work at its project for security reasons. Before employer had retained employee, employee had informed employer that he had been convicted of assault with a weapon 17 years ago when in high school. Employer relied on the termination clause in the employment agreement. Judge held that the termination provisions were vague or uncertain and struck the provisions. They were vague because one part of termination provisions allowed the employer to terminate for breach of the agreement and another part allowed the employer to terminate if it were in the employer’s best interests. The employer wanted that clause to be interpreted as if employer had ultimate discretion to do anything it wanted. The judge noted that, if this were the case, there would be no need for the clause allowing termination upon breach of the agreement. In essence, the judge held that the clause was vague and inconsistent because the termination clause was “illogical and inconsistent.” The judge also held that there was no need to mitigate because the employer had terminated a fixed term contract. The judge held that there was no difference between an employment contract and independent contractor contract with regard to mitigation.

Mohamed v. Information Systems Architects Inc. 2018 Ont CA

The Court of Appeal agreed with the employer that, once the motions judge determined that the clause on which the employer relied was clear on its face, he could not then say that, because of other contractual provisions and the contra proferentum rule, that the clause was vague or uncertain. However, the Court read the judge’s decision as one that relied solely on the organising principle of good faith in the performance of contracts applied to an already existing principle (i.e. there had to be an element of good faith or trust in the exercise of discretion). The Court agreed that the employer breached its obligation to perform in good faith by terminating the employment contract without trying to secure the client’s agreement to allow the employee to continue on the project and by not offering him any other consulting project. The Court held that mitigation was not necessary after the breach of a fixed term employment contract and that, in this case, it did not matter whether the employee was a true employee or a dependent or independent contractor. He had given up his permanent full-time job to accept the fixed term contract and it was therefore reasonable to infer that the parties intended that, if the employer did not terminate that contract in good faith, then damages would be based on the wages for the remaining term.

Oppression

Wilson v. Alharayeri 2017 SCC

A disgruntled diluted shareholder commenced an oppression application for losses under section 241(3) of the Canada Business Corporations Act against the directors of a corporation, rather than the corporation itself, for the damages that the shareholders suffered as a result of a reorganisation of the corporation. The court held that 2 directors, who personally benefited from the reorganisation, were liable for the applicant’s losses. In making the award, the court was guided by 2 requirements: the director or officer must be implicated in the oppressive conduct and the order must be fit in all the circumstances. Four criteria inform whether the order is fit: (1) the oppression remedy must in itself be a fair way to deal with the situation (resulting in 4 subcategories: personal benefit to the directors; breach of the personal duty they owed as directors; misuse of a corporate power; or a remedy against the corporation would unduly prejudice other security holders); (2) the order should go no further than necessary to rectify the oppression; (3) the order should serve only to vindicate the reasonable expectation of the complainant; and (4) director liability should not be a surrogate for other forms of statutory or common law relief that may be more fitting in the circumstances.

Costs Indemnity

Michele’s Italian Ristorante Inc. v. 1272259 Ontario Ltd. 2016 Ont SCJ

Landlord brought a motion for possession of leased premises; tenant brought a motion for relief from forfeiture and for an order requiring the landlord to renew the lease. Landlord was successful. Judge granted substantial indemnity costs of $51,000 because a clause in the lease required the tenant to pay “all costs and expenses including legal fees on a substantial indemnity basis incurred by the Landlord in enforcing the lease.”

Good Faith

2336574 Ontario Inc. v. 1559586 Ontario Inc. Ont SCJ

Parties entered into an agreement of purchase and sale for a commercial condominium. There was an interim closing. The builder vendor then set a closing date, as it was entitled to do. The purchaser requested an extension without giving reasons and the vendor refused the extension without giving reasons. The closing date came and, after a partial tender, the vendor’s lawyer claimed that the purchaser was in breach. The next business day, the purchaser’s lawyer notified the vendor’s lawyer that the purchaser would be in funds a day later and would complete the transaction. The vendor refused to close and claimed the $70,000 that the purchaser had previously paid. Each claimed that the other failed to act in good faith. The judge noted that good faith depended upon the relationship of the parties. If the parties had a long-term, ongoing relationship, a level of good faith might have been flexibility beyond the letter of the contract. However, commercially experienced buyers and sellers in a one-off transaction would not be expected to vary from the strict contractual terms. Accordingly, the judge held that the purchaser breached the agreement and that the vendor properly terminated it. The judge awarded the vendor the deposits of $40,000, but held that the $30,000 occupancy closing amount was not a deposit; rather, it was a payment towards the balance due on closing and had to be returned because there was no closing.

Damages and the Duty to Mitigate in Fixed Term Employment Contract Situations

In the recent Court of Appeal decision in Howard v. Benson Group Inc., 2016 ONCA 256, the employer learned a very costly lesson when it was ordered to pay an employee more than $200,000.00 following the employee’s termination under a fixed term contract. The decision highlights the need for employers to pay very close attention when drafting early termination clauses in fixed term contracts.

The employee had entered into an employment contract for a 5-year fixed term. His employer terminated his employment, without alleging cause, 23 months into the contract. Employee sued for breach of contract claiming payment of compensation for the unexpired term of the contract i.e more than three years’ salary. On the employee’s motion for summary judgment, the judge granted the motion but not the relief sought by the employee. Instead the motions judge awarded the employee common law damages for wrongful dismissal.

The contract in issue contained an early termination provision that stated as follows: