Legal Blog

Punitive Damages

It seems that punitive damages are being claimed with increasing frequency. They have even insinuated their way into breach of contract actions. The case of Kaur v. Moore Estate [2003] O.J. No. 1588, a decision of the Superior Court of Justice, dealt with this issue.

The Players

The vendor was a 91-year old man who owned an unoccupied farm. Within two years of the sale, the vendor died. His estate was a defendant. Its co-defendant was his son-in-law, the second purchaser of the farm. The plaintiffs, the first purchasers, were upset because the vendor sold the farm to son-in-law, notwithstanding an existing agreement to sell the farm to the plaintiffs.

Chronology

Although the vendor may have been 91, the evidence from all of those who testified was that his mind was still sharp.

He retained a real estate agent. After the farm, which had been in a deplorable condition, was exposed to the market, the vendor sold the farm to the plaintiffs for $131,000, payable in cash with a mortgage back for $106,000. The vendor did not want a mortgage, but agreed because the farm was a headache that he wished to unload.

Son-in-law, a wealthy businessman and auctioneer, discovered the deal shortly afterwards. After speaking to the vendor, son-in-law felt that the vendor had been fleeced because of a fast-talking real estate agent. He proposed to purchase the farm for a cash payment of $135,000. We were not told why the two agreed on that particular price. However, at trial all witnesses indicated that $131,000 was a market price. It seemed that the real purpose of the sale was to ensure that the vendor was paid in cash.

Before the first agreement closed, son-in-law took the vendor to son-in-law’s lawyer, had the transfer executed, registered the transfer, and paid the vendor the sale price – all on the same day. Son-in-law anticipated that the plaintiffs might be displeased, but did not care. He signed an agreement with the vendor such that if the plaintiffs sued, son-in-law would pay half of the legal costs.

The plaintiffs discovered that the farm had been sold out from under them only by happenstance. The plaintiffs, who were immigrants and were allegedly devastated by the vendor’s perfidy, sued both the vendor and son-in-law.

Causes of Action

Contract

The most obvious cause of action is breach of contract. The vendor’s estate argued that the agent breached his duty to the vendor because of the agent’s misconduct. The alleged impropriety of the vendor’s agent somehow tainted the blameless purchasers, because the agent also acted for the purchasers. We fail to understand how this defence could be viable.

The judge did not need to determine this issue, because he held that the agent’s conduct was without reproach. The price had been reasonable, the vendor’s bargaining power had not been impaired due to age or frailty, and there was no proof of any undue influence.

The real fight dealt with the plaintiffs’ demand for specific performance. As a result of the Supreme Court of Canada’s decision in the Semelhago case, a claim for specific performance is no longer a slam dunk just because land is involved. The plaintiffs still had to prove that the land was unique to them and they could not do so. They led no evidence to demonstrate that there was no similar land in that price range in the farm’s vicinity. They had not attempted to purchase a farm either before or after the aborted purchase. Indeed, they had never farmed and really had not intended to farm the land.

Accordingly, the judge denied their claim for specific performance. Damages were an adequate remedy.

Without specific performance, the court should normally calculate damages as of the date the contract was breached, although the court has discretion to use another date. For some reason, the plaintiffs led no evidence regarding the value of the farm at the date of the agreement, the date of the breach, or the date of trial.

The judge held that the damages consisted of $4,000 (the difference between $135,000 and $131,000) and $5,000 (the nominal value that the judge felt represented the difference between a cash deal and a mortgage). The judge then added the numbers and arrived at $11,000 (we kid you not).

Conspiracy

The plaintiff needed more than just breach of contract to obtain a judgment against son-in-law. Hence, the allegation of conspiracy.

To establish this tort, the plaintiffs had to prove:

a)   The defendants agreed to act unlawfully;

b)   They directed their conduct against the plaintiffs;

c)   They should have known that their conduct was likely to harm the plaintiffs; and

d)   The plaintiffs suffered damages.

The judge held that the plaintiffs had proven all of the conditions and held the defendants liable for conspiracy. The judge decided that, for the first condition, “unlawfully” included a breach of contract. This, of course, is not the usual meaning of unlawful, but we have seen previous cases expanding the meaning of unlawful in this manner.

Inducing Breach

The judge held that son-in-law was also liable for inducing the vendor to beach his contract with the plaintiffs. He knew of the enforceable contract and intentionally and wrongfully interfered to cause a breach of that contract. Although son-in-law’s motive was to assist the vendor, the judge held that this did not justify the act; it is not in the public interest to encourage persons to help relatives breach legal contracts so that the relatives can make a better deal.

The judge allowed damages regarding the tort claims in the same (arithmetically incorrect) amount of $11,000.

Aggravated Damages

The judge then turned his mind to aggravated damages. These damages account for “the additional harm caused to the plaintiff(s)’ feelings by reprehensible or outrageous conduct on the part of the defendant(s).”

The judge noted that the plaintiffs were upset and affronted because the defendants had acted behind their backs and with no notice after the fact. It also caused worry and inconvenience. The judge considered this to be a “modest intangible injury” and assessed aggravated damages at $5,000. We feel that the judge stretched the test for this aspect of the award. There should have been no award for aggravated damages.

Punitive

Finally, we get to the issue driving this article.

The judge held that the conduct of son-in-law was “high-handed, arbitrary and highly reprehensible.” He also held that although the vendor was not the motivator, he acquiesced to the conduct and did nothing to ameliorate its effects.

The mindset of the judge is illustrated in the following passage: “To permit him to act as he did without any cost greater than the modest compensatory damages I have assessed and the possible costs in this lawsuit would obviously only be seen by him and others learning of his conduct as a licence fee – and for a nuisance sum. As said by the court in Whiten, it takes a whack to wake up a wealthy defendant to his responsibilities.” The judge awarded $25,000 against son-in-law and $10,000 against the vendor.

We expect that, ultimately, the judge will award substantial indemnity costs.