In Canada, damages are awarded to successful parties for their pecuniary and non-pecuniary losses. Non-pecuniary losses generally include pain and suffering or mental distress. A pecuniary loss generally includes losses that can be measured in a monetary sum, arising from loss of property, loss of services, personal injuries, loss of reputation or money, and damage to economic interest. This chapter will primarily focus on Canadian compensatory damages for pecuniary losses that are caused by breaches in Canadian contract or tort law.
The fundamental principle underlying Canadian private law remedies is restitutio in integrum, meaning 'restoration to original condition'.2 Private law damages arising from tort or contractual breaches are meant to be compensatory in nature. The award aims to restore a successful plaintiff to the position it occupied before the legal wrong occurred.3 Further, compensatory damages do not seek to punish the defendant.4 There is also an emphasis in Canadian law that damages awards should always be consistent, fair and rational.5 These principles have informed many, if not all, of the aspects comprising the law of damages in Canada.
Non-compensatory damages, while available in Canada, apply only in certain circumstances where the facts of the case and the defendant's conduct require it.6 For example, exemplary, nominal, punitive and restitutionary damages fall under the umbrella of non-compensatory damages. If equitable principles are found to apply, then monetary relief may be available by way of equitable damages that compensate for losses where a legal common law award would be insufficient.7
II QUANTIFICATION OF FINANCIAL LOSS
Generally, Canadian courts quantify financial loss and assess damages by valuing what the plaintiff's position would have been 'but for' the defendant's wrong.8 A successful plaintiff is awarded monetary damages to replace its loss; and, if applicable, its lost opportunity, income, or profit that it would have otherwise earned.9
In some cases, it is not always clear what the value of the plaintiff's loss is. Once liability is established, a plaintiff has the onus of proving its damages with cogent facts and expert evidence where necessary.
Canadian law recognises that the evidence available in a particular case may not precisely quantify the damages award. In these cases, although the plaintiff still bears the onus to prove the facts upon which damages are estimated, the difficulty in quantifying damages does not bar the court from assessing and, if appropriate, awarding damages. A liable defendant is never excused from paying damages because of evidentiary flaws, so long as there is some evidence upon which a court can draw facts to appropriately quantify the loss.10
In cases involving breach of contract, the contract may provide the best evidence of the plaintiff's financial loss. Where a contract has not provided for the value of the agreement as a whole or certain terms, the court will determine value by the market price of the goods or services offered.11
iii Date of assessment
The date of assessment for damages is context specific and depends on the wrong that has been perpetrated. The following is an overview of the general principles that guide how the date of assessment is determined in certain instances.
Absent special circumstances, the appropriate date to assess damages for breach of contract or a tort is at the date of the breach.12 Although there are exceptions to this where fairness requires it, the presumption is not easily displaced.13 Canadian law focuses on the early crystallisation for dates of assessment, for the following reasons.
An early crystallisation of the plaintiff's damages promotes efficient behaviour: the litigants become as free as possible to conduct their affairs as they see fit. Early crystallisation also avoids speculation: the plaintiff is precluded from speculating at the defendant's expense by reaping the benefits of an increase in the value of the goods in question without bearing any risk of loss.14
The date of assessment is most commonly disputed when the property that the plaintiff was deprived of has changed in value between the date of the breach and the date of the judgment. This commonly occurs in the context of speculative property, such as shares or other ownership interests in corporations or real estate. If the value of the property in issue has declined during the period leading to trial, the plaintiff is advantaged by the damages being assessed at the date of the breach. For example, consider that a plaintiff enters into an agreement to purchase property for C$1,000, and the defendant then breaches the contract. At the trial, the property is worth only C$500. If damages are awarded as assessed on the date of the breach, the plaintiff will receive double the present value of the property. Such an outcome is often criticised as violating the fundamental principle of damages that the plaintiff is not to be put in a better position.15 On the other hand, if the value of the property increases between the date of the wrong and the date of the judgment, the defendant benefits.
If the fluctuation in value would violate principles of equity or would work an unfairness on either party, Canadian courts may exercise their discretion and alter the date of assessment. Canadian courts have done so where no market exists to replace undelivered shares at the date of breach16 or in relation to speculative property, including shares, whose value is subject to sudden and constant fluctuations of unpredictable amplitude.17
iv Financial projections
Financial projections are often used to assist the court in quantifying the correct damages award for a prospective loss. For example, financial projections are often used in the context of quantifying future losses from income or profit from a business. Although financial projections may be used to assist in quantifying a plaintiff's loss, Canadian courts recognise that calculating damages is not a precise science.18 The court has wide discretion to draw its own inferences from the facts to determine what a reasonable projection of the future loss is.
Expert evidence is typically required to prepare a financial projection. The methodology used to provide the financial projection is of critical importance. Soundly calculated projections will be given more weight by the court.19
Although it is ultimately up to the expert and the party's counsel to determine what methodology is to be used, it should aim to be as realistic as possible.20 For example, where a contract has alternative modes of performance, the financial projection should ensure that it adopts the Canadian presumption that the defendant would have performed the contract in the manner that is least burdensome to it.21 Second, the financial projection should be based on objective facts known at the time of the loss, rather than hypotheticals or information that was obtained with the benefit of hindsight.22 This is in line with the general Canadian principle that damages ought to be reasonable and not overcompensate the plaintiff.
In a similar vein to financial projections, assumptions are a necessary and important element in the quantification of prospective losses such as future income, care, financial loss and business.
It is common in Canada for a party to clearly outline the key assumptions a valuator has made in its written expert report. The basis of the valuator's conclusions ought to be clearly understood if the court is to base its damages award on the report.23
Parties can offer damages reports containing different assumptions and calculations to allow the court to assess a number of options.24 Canadian courts are free to accept or reject the assumptions that underlie the party's submission quantifying their damages. To challenge the quantification of a damages assessment, the party may critique the assumptions made by another party in their submitted damages calculation. The assumption that is to be accepted by the court ought to be reasonably supported by the evidence and the facts of the case.25
vi Discount rates
Discount rates are applied to Canadian judgments to account for the fact that money may be paid in advance of when it otherwise would have been received, thus generating interest that would otherwise not have been earned.26 The discount rate reflects the rate of interest that the award of damages will earn, the effect of inflation and the effect of income taxes on the award, known as the time value of money.
In Canada, the regimes in various provinces and territories differ on whether the discount rate is legislated or if the rate is determined by the court having heard the evidence. Where imposed by legislation, evidence may be led to rebut the statutory discount rate.
The following table outlines the current discount rates that apply to each province or territory.
|Discount rates applicable for tort cases across the country||Item of pecuniary loss||Source||Discount rate|
|British Columbia||Future care||Law and Equity Act, at Section 56(2)(b), BC Reg 352/81||2%|
|Future wage loss||Law and Equity Act, at Section 56(2)(a), BC Reg 352/81||1.5%|
|Alberta||Future care and wage loss||No mandatory discount rate|
|Saskatchewan||Future care and wage loss||Queen's Bench Rules, at Section 284B(1)(b)||3%|
|Manitoba||Future care and wage loss||Court of Queen's Bench Act, at Sections 83(1) and 83(2)||3%|
|Ontario||Future pecuniary loss||Rules of Civil Procedure, RSO 1990, Chapter C-43 at Section 53.09 (Ontario Rules of Civil Procedure)||0% for first 15 years, 2.5% thereafter for any later period covered by the award|
|Quebec||Future wage loss||Civil Code , Regulation under Article 1614||2%|
|Other future pecuniary loss||3.25%|
|New Brunswick||Future pecuniary loss||Rules of Court, NB Reg. 82-73, at Section 54.10(2)||2.5%|
|Nova Scotia||Future pecuniary loss, other than loss of business income||Civil Procedure Rules, at Section 70.06(1)||2.5%|
|Future loss of business income||Civil Procedure Rules, at Section 70.06(2)||A party may prove a discount rate to be used in calculating the difference between estimated investment and price inflation rates for calculating the value of damages for future loss of business income|
|Prince Edward Island||Future pecuniary loss||Rules of Civil Procedure, at Section 53.09(1)||2.5%|
|Newfoundland and Labrador||Future pecuniary loss||No mandatory discount rate|
|Northwest Territories||Future pecuniary loss||Judicature Act, RSNWT 1988, Chapter J-1, at Section 57(1)||2.5%|
|Nunavut||Future pecuniary loss||Judicature Act, SNWT 1998, Chapter J-1, at Section 56(1)||2.5%|
|Yukon||Future pecuniary loss||No mandatory discount rate|
vii Currency conversion
The Canadian Currency Act27 requires that any monetary award in a legal proceeding in Canada be stated in Canadian currency. As a result, many Canadian courts convert awards for loss into Canadian dollars, even if the loss stems from a foreign currency.
Because the date of the assessment of damages is typically the date of breach, fluctuations in foreign exchange rates between the date of the breach and the trial date can become an issue in cross-border litigation. For example, if a plaintiff is wronged and commences an action to recover judgment to satisfy a debt denomination in US currency, and the value of the Canadian dollar decreases between the date of the wrong and the date of the trial, the defendant benefits as fewer US dollars will be required to satisfy the judgment. In the past, Canadian jurisprudence has stubbornly clung to the date of the breach for the currency conversion.28 However, some provincial jurisdictions, such as Ontario and British Columbia, have statutorily prescribed that the currency conversion occurs on the date of judgment.
Courts typically recognise that a plaintiff should be subjected to the risk of a fluctuating exchange rate.29 For example, in the British Columbia Supreme Court decision of Naturex Inc v. United Naturals Inc, United Naturals had contracted to have Naturex deliver plant extract products.30 The shipments were payable in US dollars. When United Naturals stopped paying Naturex, Naturex sued to recover US$248,000 from United Naturals. Between the date the tort occurred and the claim was commenced, the value of the Canadian dollar fell against the US dollar. Unless adjusted, on the date of judgment, United Naturals would have received a 'windfall', as it would require far fewer US dollars to pay the judgment in Canadian dollars.31 The court held that the most appropriate date upon which to order the conversion calculation was the date the claim was actually commenced.
viii Interest on damages
In Canada, pre-judgment interest is typically added to a damages award to acknowledge that if a cause of action arises, and the wronged party waits for years to receive its judgment, the wronged party has been dealt two wrongs.32 Accordingly, pre-judgment interest is typically calculated from the day the cause of action arose to the date of the judgment.
Post-judgment interest may also apply to damages awards to account for the period of time between the date of the judgment and the date of actual payment.33
The application and calculation of interest rates may be provided by the agreement between the parties, which the court will likely uphold.34 For example, the Ontario Superior Court of Justice recently upheld a post-judgment interest rate of 24 per cent.35 Although the Court noted this appeared to be 'excessive', it held it was necessary to enforce this clause to uphold the principle of freedom of contract between parties.36
The applicable statutory regimes govern where there is no agreement, or where the agreement is silent as to interest rates. Legislation from each provincial or territorial jurisdiction within Canada permits or requires the court to award interest on monetary judgments, and provides the applicable rates.37 Some provinces specify the rate to be applied, but the court is free in all provinces to award interest at commercial rates.38 Although the courts retain their discretionary power to adjust the amount of interest that is payable under statute, the legislation in each jurisdiction contains different language, which may limit how a court exercises its discretion.39
Parties should therefore be mindful of the legislation in each province or territory that both specifies a party's entitlement to interest and may impose limits on whether a court will deviate from the interest award under statute.
The well-established principle in Canadian law is that costs of the litigation follow the result.40 This means that, generally, the successful party to the litigation is awarded its costs of the action for damages, subject to exceptional circumstances that require the court to exercise its discretion.41
Costs are typically awarded on a partial indemnity scale, which typically amounts to 55 to 60 per cent of a reasonable actual rate.42 Costs may be awarded on an elevated scale in exceptional circumstances. For example, if a party has engaged in conduct during the course of litigation that is worthy of rebuke from the court, such as tactical motions to delay the disposition of the matter, the scale of costs may be adjusted.43 In proceedings where an offer to settle has been made by a party, and that offer is not accepted, and the action is disposed of by the Court in an amount equal to or worse than the settlement offer, the offering parties is entitled to its costs from the date the settlement offer was made, typically on an elevated scale.
In all cases, costs awards must be fair and reasonable in the circumstances.44 To give effect to this principle, the court may find that a different costs award is appropriate from what is specified in the legislation.45
The quantification of the damages award
In Canadian law, there is no deduction to the plaintiff's damages award for the income tax that would have been paid on a compensatory award for lost income, earnings, or profit.46 Canadian law rejects that the defendant can reduce the amount of damages owed to the plaintiff on the grounds of applicable taxes. Canadian courts have referred the question of how to tax damages awards to the Canadian legislature as a matter of tax policy.47
In very limited circumstances, a tax benefit may reduce a damages award where it is found that 'but for the loss', the plaintiff would otherwise not have received tax benefit.48 This is only where sufficient evidence is led to specifically calculate the tax benefit and it is not merely hypothetical.49
The taxation of the damages award
Once the plaintiff has received a damages award, how the award is taxed under Canada's Income Tax Act (ITA), from either the payor or payee's perspective, depends on how the award is characterised with reference to the provisions under the ITA and the existing jurisprudence, if any.50 Although the jurisprudence in this area is not always clear, general rules have emerged that can assist counsel in determining the tax liability that may arise from a damages award. Counsel must carefully scrutinise what type of damages award is being received.
Under the ITA, a taxpayer is liable to pay tax on any income arising from the non-exhaustive 'source' listed in the ITA, which is income from office, employment, business and property, or any other provision under the ITA that may give rise to tax liability.51 Further, the damages award may be taxable if it is compensation for taxable income under the ITA.52 If the award is compensation for a non-taxable capital receipt, then it is likely not taxable.53
Based on these principles, it is clear that if the damages award can reasonably be considered to be income that would otherwise be taxable under the ITA then it is taxable in the hands of the recipient.54 For example, the compensation for a finder's fee, loss of profits, or disability insurance benefits in arrears have all been held to be taxable as income.55 A payment for damaged or destroyed property is treated as a taxable capital receipt that would otherwise have been received had the property been sold.56 Punitive damages are considered to be 'windfalls' that are non-taxable.57
Damage awards for personal injury claims are treated differently. All amounts that qualify as pecuniary special or general damages are excluded from taxable income regardless of the fact that the amount of such damages may have been determined with reference to loss of earnings of the taxpayer.58
From the payer's perspective, as a general rule, a damages payment and related costs will be deductible if incurred for the purpose of earning, producing or protecting business income; acquiring or protecting a capital asset.59
III Expert evidence
The use of expert evidence is an exception to the 'opinion rule' established in Canadian common law that requires a witness to testify to facts gained from their senses.60 In addition to the principles discussed below, Canadian jurisdictions have legislated procedural preconditions that must be complied with in order for written and oral expert evidence to be admitted at trial.61
ii The role of expert evidence in calculation of damages
Expert witnesses are frequently retained in commercial and personal injury matters to assist the court in quantifying the plaintiff's loss. The purpose of expert evidence is to assist the court to understand the evidence regarding the party's loss so that the court can reach the correct damages award.
For example, accounting, financial or valuation experts are frequently called upon by parties to assist the court in the quantification of damages.62 In particular, courts routinely admit expert evidence in cases where the quantification of a financial loss or business value is complex, involves a significant dollar amount, or is in dispute between the parties.63
iii The court's role excluding and managing expert evidence
Admission of expert evidence for a damages assessment depends on whether it meets the following basic criteria established by the Supreme Court of Canada in R v. Mohan: (1) relevance; (2) necessity in assisting the trier of fact; (3) the absence of any exclusionary rule; and (4) a properly qualified expert.64 The evidence will not be admitted if the court finds that the expert opinion does not meet this criteria.
Once expert evidence is admitted, the trier of fact (typically a judge, as opposed to a jury, in commercial matters) determines how much weight is to be afforded to an expert's testimony when reaching its conclusion.65 For example, in Rousta v. MacKay, even though the court admitted the expert's opinion into evidence, it placed no weight on the opinion concerning the valuation of the plaintiff's future income-earning capacity.66 This was because the expert's methodology and assumptions had failed to account for certain factors when projecting for the plaintiff's businesses future income. In this case, the expert had made a projection assuming the plaintiff would work full-time, without considering that throughout the business' past performance the plaintiff had only worked part-time.67
iv Independence of experts
To be considered a properly qualified expert under the R v. Mohan framework, the expert must be able to fulfil his or her overriding duty to give an opinion that is impartial, independent and absent of bias.68 The impartiality and independence of an expert is a threshold requirement that the court considers in determining whether the expert is properly qualified to give an opinion on the issue in question prior to admitting his or her evidence.69 Expert evidence should be ruled inadmissible if the expert is not impartial, in the sense that they cannot objectively assess the questions at hand.70 Expert evidence is also inadmissible when it is established that he or she is providing evidence that is not the product of his or her independent judgement.71
Many provinces and territories also provide explicit requirements related to the independence of expert witnesses.72
Independence does not require that counsel and the retained expert do not consult with one another in preparing for litigation. For example, in Moore v. Getahun, the Ontario Court of Appeal determined that consultation and collaboration between counsel and expert witnesses is essential to ensure that the expert's report assists the court in determining the issues. Collaboration between counsel and a retained expert does not necessarily erode the ability of the expert to remain independent and objective.73
A recent example that illustrates the importance of an independent expert is Davies v. The Corporation of the Municipality of Clarington.74 In this case, a plaintiff who had been injured retained an accountant to give evidence regarding the plaintiff's past and future earning capacity.75 Finding that the expert's evidence was 'little more than a regurgitation of what he was told' by the plaintiff, the Ontario Superior Court excluded the evidence because the expert had not independently reviewed the evidence in reaching their conclusions.76 The exclusion of this evidence left the plaintiff without an expert to assist the court in quantifying his losses. Instead, the trial judge quantified damages after considering documentary and lay witness evidence. The trial judge made no award for past or future loss of income.77 The plaintiff had requested damages in excess of US$60 million, partly comprised by his request for US$2,555,136 per annum to age 65 for past and future loss of income.78 Instead, the plaintiff was awarded general damages of US$50,000.
v Challenging expert's credentials
As discussed, an expert must be properly qualified to give evidence on the subject matter to which his or her testimony relates. An expert's credentials are considered by Canadian courts in qualifying the expert.79 Once the trial judge rules that the witness has the requisite credentials to provide opinion evidence in relation to a damages assessment, the extent of the expert's accomplishments and experience is a matter of weight to be given to that expert's opinion.80
At the admissibility or qualification stage, whether the expert has the requisite credentials or not depends on particular facts of the case, the expert and the opinion that he or she is offering.81 Canadian courts do not apply a rigid analysis in assessing an expert's credentials. As long as the trial judge is satisfied that the witness is sufficiently experienced, the court will not focus on whether the expertise was derived from specific studies or by practical training, although that may affect the weight to be given to the evidence.82
On the issue of weight, the more tailored a party's expert's credentials are to the expert opinion he or she is providing, the more likely that the party's expert's opinion will be accepted or favoured by the court.83 This is especially important if the court is faced with opposing experts who are similarly qualified. For example, in Orr v. Metropolitan Toronto Condominium Corp No 1056, both experts were qualified to give an opinion regarding the valuation of the difference between a two-storey and three-story condominium unit. However, the court preferred the evidence of the plaintiff's expert. This was in part because one of the defendant's experts had testified that they were not familiar with the authoritative textbook for appraisers in Canada.84
vi Novel science and methods
An expert opinion that is based on novel science or a novel methodology must meet the same framework for admissibility as set out above. The Supreme Court of Canada has further held that a novel scientific theory or technique is subject to special scrutiny. Prior to being admitted, an opinion based on novel science must satisfy the basic threshold test of reliability.85 While there is a more intense investigation into the reliability and validity of the science underlying the opinion, there is no requirement that the science on which the opinion is based must be generally accepted in the scientific community.86
A court may evaluate the reliability of novel science or methods based on factors identified by the United States Supreme Court in Daubert v. Merrell Dow Pharmaceuticals, Inc, which has been adopted in Canada.87 These factors include whether the theory or technique can be and has been tested; whether the theory or technique has been subjected to peer review and publication; the known or potential rate of error or the existence of standards; and whether the theory or technique used has generally been accepted.88 This is a flexible analysis and these factors are non-exclusive.89 What factors the court considers and the weight given to each is case specific.90
vii Oral and written submissions
In Canadian litigation, the parties in a trial before a judge may make both oral submissions and written submissions regarding the appropriate damages award if liability is established. There are typically only oral submissions in trials before Canadian juries.
IV Recent case law
i Apotex v. Nordion (Canada) Inc
In January 2019, the Ontario Court of Appeal upheld a trial judge's award of C$8.3 million in damages to Apotex Research Inc (Apotex) arising out of breach of contract and negligence by a pharmaceutical company that Apotex had enlisted to conduct clinical research studies in support of Apotex's application to the Federal Drug Administration (FDA) for the approval of two drugs.91
The damages decision in Apotex is notable for the trial and appellate courts' consideration of the test for assessing lost profits based on market share, and the weight given to an expert's opinion on causation where that expert's credentials are tailored to the specific subject matter of the opinion.
The facts of the case
Apotex entered into agreements with MDS Pharma Services (MDS) (now Nordion), a full-service pharmaceutical contract research organisation, to carry out bioequivalence studies that were included in Apotex's US FDA applications for the approval of two generic drugs. As a result of MDS's failure to comply with the US regulatory framework for conducting research studies, the FDA refused to accept the MDS studies with Apotex's submissions, requiring Apotex to repeat the studies, which delayed US market entry. Apotex sued MDS for breach of contract and negligence in relation to its losses flowing from those delays.
The trial judge held that MDS's failure to meet US regulatory requirements amounted to both negligence and a breach of contract. This finding entitling Apotex to compensation for repeat study costs and lost profits arising from the delay in bringing the two drugs to market.
On the issue of damages, the determination of lost profits required a calculation of two variables: first, the period during which Apotex would have sold the two drugs on the US market 'but for' the delay caused by MDS's breaches (i.e., the delay period); and second, the net revenue Apotex would have earned during the delay period, based on its projected sales, less its projected costs of manufacturing and distribution. The determination of projected sales depended, in part, on Apotex's estimated market share for the drugs in the generic market. The greater its market share, the higher the estimated sales during the delay period, and the greater the damages.92
Both parties called expert evidence to establish the 'but for' world, including experts in business valuation that sought to quantify Apotex's loss. Both experts followed the same methodology to determine Apotex's net revenues, but disagreed on its estimated market share for the drugs.93
One of MDS's experts was qualified as an expert on the marketing and sales of pharmaceuticals, including generic drugs. He prepared a report on Apotex's estimated market share and critiqued the methodology used by Apotex's damages expert (who was not a pharmaceuticals expert). MDS's expert considered the best predictor of Apotex's market share in the 'but for' world to be its actual market performance, and calculated market share using a weighted average based on Apotex's actual market share for each drug. Apotex's expert estimated market share based on average and median market share achieved by 'comparator' drugs manufactured by Apotex, and exercised his professional judgement to create a 'smooth ramp-up' of market share over the delay period.94
The trial judge preferred the evidence and approach of MDS's experts, and rejected the approach to market share used by Apotex's expert.95 The trial judge awarded C$609,420.38 in lost profits arising from the delay in selling one of the drugs, C$7,729,781.10 in lost profits from the second drug, C$2,963,930.31 in reimbursement costs for the repeat studies and prejudgment interest of C$3.4 million.96
MDS appealed and Apotex cross-appealed the quantification of damages based on its original lost profits claim for C$12.6 million.97 The damages issue in the cross-appeal was the trial judge's finding concerning Apotex's prospective market share.
At the Court of Appeal, Chief Justice Strathy dismissed Apotex's cross-appeal and upheld the trial judge's C$8.3 million damages award.98 The court held that the 'palpable and overriding error' standard of review applies to a trial judge's assessment of conflicting expert evidence.99 On that standard, the court accepted the trial judge's reasons for accepting MDS evidence on the basis that MDS's expert had relevant expertise in matters of pharmaceutical sales and marketing that Apotex's expert lacked.100
The significance of the decision
The Apotex appeal illustrates the importance of ensuring an expert is properly qualified to give evidence on the issue of damages. As discussed above, the more tailored a party's expert's credentials are to the opinion they are providing, the more likely that the court will accept or favour that party's expert's opinion. As Apotex illustrates, this is especially important if the court is faced with opposing experts who are similarly qualified.
ii Oravital v. Aird & Berlis LLP
In February 2018, the Ontario Court of Appeal held that a lawyer's duty to his or her client includes the duty to advise clients of the quantum of recoverable damages notwithstanding the client's commercial sophistication.101 The plaintiff, Oravital, claimed its former lawyers, Aird & Berlis LLP, were negligent in failing to advise that its damages had crystallised years earlier and its lost profit and damages claims were no longer tenable.
The facts of the case
Oravital Inc is a private company that sells dental hygiene products to dental clinics throughout North America. In 2009, Oravital entered into discussions with an investor who signed a non-disclosure agreement and was given access to Oravital's proprietary information as part of its diligence exercise. The transaction did not proceed. Shortly after, the investor started two competing businesses that offered services nearly identical to those offered by Oravital.
Oravital retained Aird & Berlis as counsel to bring a lawsuit against the investor alleging misappropriation of Oravital's confidential information to launch competing businesses. Aird & Berlis prepared a claim seeking C$5 million in general damages, including damages for loss of profit and corporate opportunity and C$2 million in punitive damages.
A few months after Oravital commenced its action, the investor ceased operating its competing businesses. At the time, Oravital was still in start-up mode and had yet to make any profit. The investor advised Oravital that his competing businesses had also not made any money. Aird & Berlis advised Oravital that the closure of the competing businesses had 'no effect' on the strategy for the litigation, and spent the next four years pursuing Oravital's claim, billing over C$500,000 in legal fees. Aird & Berlis never advised Oravital that (1) its damages had been crystallised when the competing businesses closed, (2) its damages were negligible because no profit was lost, or (3) that the C$5 million general damages claim was no longer tenable.
Nearly five years after the commencement of litigation, Oravital terminated its retainer with Aird & Berlis. Aird & Berlis then sued Oravital to recover C$182,569.63 in unpaid legal fees. Oravital defended the claim by alleging that Aird & Berlis was negligent in failing to advise that damages had crystallised in March 2011 and were likely negligible. Oravital's expert opined that Aird & Berlis had breached the standard of care of a barrister practising in Ontario by failing to reassess the litigation after the competing businesses closed, and by failing to provide Oravital with any meaningful assessment of its recoverable damages.
The motion judge ruled in favour of Aird & Berlis on summary judgment. The Court did not determine whether Aird & Berlis met the standard of care, but held that even if Aird & Berlis had breached the standard by failing to advise Oravital as to the quantum of recoverable damages, the breach did not cause Oravital damage. According to the motion judge, Oravital's principals were sophisticated businesspeople who were actively involved in the litigation and therefore knew, or ought to have known, of the nominal value of their claim.
Oravital appealed. It claimed that the motion judge erred in law in concluding that sophisticated businesspeople are presumed to understand their entitlement to damages in a complex commercial proceeding. Damages are a legal concept, not simply a financial one, and a lawyer has a positive obligation to advise even sophisticated commercial clients of the quantum of recoverable damages.
The Court of Appeal agreed with Oravital, overturning the lower Court's decision. In a brief decision, it held that:
the motion judge erred in law in finding that the appellants as sophisticated businesspeople were aware of the value of the damages and risks of litigation. This finding reflects a misapprehension of the solicitors' duty of care to advise the clients about the legal basis for the damages and the risks of litigation.
The significance of the decision
Oravital appears to be the first time a Canadian appellate court has held that lawyers have a duty to advise clients on the issue of damages at an early stage of litigation. The decision demonstrates the importance for counsel to advise even sophisticated clients of the prospective value of a claim and the risks of litigation, both from the outset of the litigation and as circumstances change and evolve.
1 Junior Sirivar is a partner in McCarthy Tetrault's Litigation Group and co-chair of the firm's International Arbitration Group. Andrew Kalamut is a partner in McCarthy Tétrault litigation group and a member of the firm's International Arbitration Group. With assistance from Bonnie Greenaway and Morgan Watkins, student-at-law.
2 2105582 Ontario Ltd (Performance Plus Golf Academy) v. 375445 Ontario Limited (Hydeaway Golf Club), 2017 ONCA 980 at Paragraph 58 (CanLII) [Performance Plus]; citing Milina v. Bartsch (1985), 49 BCLR (2d) 33 at p. 78, 1985 CanLII 179 (BC SC), McLachlin J. (as she then was); Barber v. Vrozos, 2010 ONCA 570 at Paragraph 86 (CanLII); Rougemont Capital Inc v. Computer Associates International Inc, 2016 ONCA 847 (CanLII), at Paragraph 44 (CanLII) [Rougemount].
3 S M Waddams, The Law of Damages (Carswell: 2018) (loose-leaf, online version) at Chapter 1.10 [Waddams].
4 Performance Plus, note 2 at Paragraph 58.
5 Andrews v. Grand & Toy Alberta Ltd,  2 SCR 229 at p. 230, 1978 CanLII 1 (SCC) [Andrews].
6 Performance Plus, note 2 at Paragraph 60.
7 Jeffrey Berryman, Remedies: Cases and Materials (Toronto: Emond Montgomery Publications, 2012) at p. 1038.
8 Waddams, note 3 at Chapter 1.30.
9 id. at Chapter 1.10.
10 Borrelli v. Chan, 2018 ONSC 1429 at Paragraph 942 (CanLII) [Borrelli], aff'd SFC Litigation Trust v Chan, 2019 ONCA 525.
11 Waddams, note 3 at Chapter 1.660
12 Rougemount, note 2 at Paragraphs 45, 47 and 50; Waddams, note 3 at Chapter 2.270; Asamera Oil Corp Ltd v. Sea Oil & General Corp,  1 SCR 663 at pp. 664–65, 1978 CanLII 16 (SCC) [Asamera Oil].
13 Rougemount, note 2 at Paragraph 50;
14 Kinbauri Gold Corp. v. Iamgold International African Mining Gold Corp,  246 DLR (4th) 595 at Paragraph 125, 2004 CanLII 36051 (ONCA) [Kinbauri].
15 Waddams, note 3 at Chapter 1.660.
16 Kinbauri, note 14 at Paragraph 126.
17 Asamera Oil, note 12 at pp. 664–65.
18 Agribrands Purina Canada Inc v. Kasamekas, 2011 ONCA 460 at Paragraphs 56,68 (CanLII).
19 id. at Paragraphs 44–70; Expert evidence is discussed in full, below.
20 For a full discussion regarding expert methodology, see Farley J Cohen & Prem M Lobo, 'Business value as a measure of loss in litigation contexts: reflecting business 'reality' over hypothetical 'fantasy' (2011) Adv J [Cohen & Lobo].
21 Hamilton v. Open Bakery, 2004 SCC 9 at Paragraph 20 (CanLII).
22 Ford Motor Company of Canada, Ltd v. Ontario Municipal Employees Retirement Board, 79 OR (3d) at Paragraphs 38–40, 2006 CanLII 15 (ONCA).
23 Cohen & Lobo, note 20.
24 Schenker v. Scott, 2014 BCCA 203 at Paragraph 72 (CanLII) [Schenker]; El-Khodr v. Lackie, 2017 ONCA 716 at Paragraph 9 (CanLII).
25 IBM Canada Limited v. Waterman, 2013 SCC 70 at Paragraphs 90–91 (CanLII); Schenker, note 24 at Paragraph 76; Hallatt v. The Queen, 2001 CanLII 590 at Paragraph 30;  1 CTC 2626.
26 Waddams, note 3 at Chapter 3.990.
27 RSC, 1985, Chapter C-52, Section12.
28 Gatineau Power Co v. Crown Life Insurance Co,  SCR 655 at p. 657,1945 CanLII 33 (SCC); Batavia Times Publishing Co v. Davis, (1978), 20 OR (2d) 437 (HC), aff'd (1979), 26 OR (2d) 249 and 800 (CA).
29 Wei v. Mei, 2018 BCSC 1057 at Paragraph 54 (CanLII), aff'd Wei v. Li, 2019 BCCA 114.
30 Naturex Inc v. United Naturals Inc, 2016 BCSC 1502 at Paragraph 21 (CanLII).
32 Waddams, note 3 at Chapter 7.330.
33 Waddams, note 3 at Chapter 7.1000.
34 241 Pizza (2006) Ltd v. Loza, 2017 ONSC 4171 at Paragraphs 16-17 (CanLII).
36 id. at Paragraph 16.
37 Judgment Interest Act (Alta); Court Order Interest Act (BC); Court of Queen's Bench Act (Man); Judicature Act (NB), Section 45; Judgment Interest Act (Nfld & Lab); Judicature Act (NWT), Sections 55, 56, 56.1, 56.2; Judicature Act (NS), Section 41; Courts of Justice Act (Ont), Sections 127-8; Judicature Act (PEI), Sections 56-60; Pre-judgment Interest Act (Sask). Also see Waldron, The Law of Interest in Canada (Toronto, Carswell, 1992) at pp. 131–59.
38 Waddams, note 3 at Chapter 7.470. See Ontario, for example, which sets out the applicable interest rate in the Courts of Justice Act, RSO 1990, Chapter C. 43 at Section 127(1).
39 See Bank of America Canada v. Mutual Trust Co, 2002 SCC 42 (CanLII). In that case, the Supreme Court of Canada held, despite Ontario's Courts of Justice Act, compound interest could be awarded in some circumstances at common law.
40 For a full discussion, see Mark M Orkin, The Law of Costs, 2ed (Aurora, Ontario: Canada Law Book, 2015) (Carswell: 2018) at Chapter 205.2 [Orkin].
41 For example, see Ontario's Courts of Justice Act, RSO 1990, Chapter C-43, at Section 131(1); Rules of Civil Procedure, RSO 1990, Chapter C-43 at Section 57.01(1). In The Law of Costs, Orkin has also classified several categorical exceptions to the general rule that costs follow the result, following the case of Cooper v. Whittingham: (1) misconduct of the parties; (2) miscarriage in the procedure; (3) oppressive and vexatious conduct of the proceedings; and (4) other cases.
42 Inter-Leasing, Inc v. The Minister of Revenue, 2014 ONCA 683, at Paragraph 5.
43 Orkin, note 40 at Chapter 205.2
44 Boucher et al. v. Public Accountants Council for the Province of Ontario et al., 2004 CanLII 14579 at Paragraphs 24, 71 OR (3d) 291 (ONCA).
46 The Queen in Right of Ontario v. Jennings,  SCR 532 at p. 541, 966 CarswellOnt 61; Cunningham v. Wheeler; Cooper v. Miller; Shanks v. McNee  1 SCR 359 at pp. 417-18, 1994 CanLII 120 [Cunningham].
47 Cunningham, note 45; Waddams, note 3 at Chapter 3.950.
48 Hodgkinson v. Simms,  3 SCR 377 at p. 399, 1994 CanLII 70.
50 RSC, 1985, c. 1 (5th Supp) [ITA]; Schwartz v. Canada,  1 SCR 254 at Paragraph 52, 1996 CanLII 217 [Schwartz].
51 ITA, note 49 at Section 3.
52 See Canada Revenue Agency, Interpretation Bulletin IT-365R2, 'Damages, Settlements and Similar Receipts' online: https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/it365r2/archived-damages-settlements-similar-receipts.html. [Bulletin IT-365R2].
53 Windfalls, such as lottery winnings, inherited amounts, gifts and other gratuitous payments are not taxable because they lack the essential elements of 'income'. See See David Wentzell, 'Taxation of Income from Unlisted Sources: An Analysis of Schwartz v. The Queen', Report of Proceedings of Forty-Eighth Tax Conference, 1996 Tax Conference (Toronto: Canadian Tax Foundation, 1997), 67:1-15.
54 Bulletin IT-365R2, note 51; Schwartz, note 50 at Paragraph 52.
55 CED 4th (online), Income Tax, 'Damages and Settlements' at (IV.7.(a)) Section 301 [CED].
57 Bellingham v. R,  1 CTC 187 at Paragraphs 2, 46, 1995 CarswellNat 881 (FCA) [Bellingham].
58 Bulletin IT-365R2, note 51; Bellingham, note 57 at Paragraph 45; CED, note 55 at (IV.7.(b)) Section 303.
59 See Canada Revenue Agency, Interpretation Bulletin IT-467R2 'Damages, Settlements and Similar Receipts' online: https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/it467r2/archived-damages-settlements-similar-payments.html.
60 Gordon D. Cudmore, Civil Evidence Handbook (Carswell: 2018) (loose-leaf, online version) at Chapter 14.1 [Cudmore].
61 For more information relating to the jurisdiction, see the Provincial Rules of Practice and Provincial and Federal Evidence Acts.
62 For further discussion on how Canadian courts weigh the evidence of parties, please see Cudmore, supra note 60 at Recommended Readings: Prem M. Lobo and Peter J. Henein, 'Credibility under scrutiny: A study of the weight placed on expert valuation and damages evidence in Canadian court judgments.'
64 R v. Mohan,  2 SCR 9 at pp. 20-25, 1994 CanLII 80 [Mohan].
65 Cudmore, note 59 at Chapter14.1; Mohan, note 64 at Paragraph 149.
66 Rousta v. MacKay, 2018 BCCA 29 at Paragraph 22-28 (CanLII).
68 White Burgess Langille Inman v. Abbott and Haliburton Co, 2015 SCC 23 at Paragraphs 32, 46 (CanLII).
69 id. at Paragraphs 52–54.
70 id. at Paragraph 11.
72 In Nova Scotia, for example, the Civil Procedure Rules require that an expert's report be signed by the expert who must make (among others) the following representations to the court: that the expert is providing an objective opinion for the assistance of the court; that the expert is prepared to apply independent judgement when assisting the court; and that the report includes everything the expert regards as relevant to the expressed opinion and draws attention to anything that could reasonably lead to a different conclusion (Section 55.04(1)(a), (b) and (c)). The Queen's Bench Rules (Saskatchewan), Section 5-37; Supreme Court Civil Rules, B.C. Reg. 168/2009, Section 11-2(1); Rules of Civil Procedure, RRO 1990, Regulation 194, Section 4.1.01(1); Rules of Court, YOIC 2009/65, Section 34(23). Moreover, the rules in Saskatchewan, British Columbia, Ontario, Nova Scotia, Prince Edward Island, Quebec and the Federal Courts require experts to certify that they are aware of and will comply with their duty to the court: Saskatchewan Queen's Bench Rules, Section 5-37(3); British Columbia Supreme Court Civil Rules, Section 11-2(2); Ontario Rules of Civil Procedure, Section 53.03(2.1); Nova Scotia Civil Procedure Rules, Section 55.04(1)(a); Prince Edward Island Rules of Civil Procedure, r. 53.03(3)(g).
73 2015 ONCA 55 at Paragraphs 56, 63–66, leave to appeal dismissed, 2015 CanLII 58374 (SCC).
74 2018 ONSC 4370 (CanLII)
75 id. at Paragraph 79.
76 id. at Paragraphs 95–96, 113–114.
77 id. at Paragraph 451.
78 id. at Paragraph 6.
79 Sopinka, Lederman & Bryant, The Law of Evidence in Canada (Toronto: LexisNexis 2018) at p. 854. [Sopinka].
81 R v. Pham, 2013 ONSC 4903 at Paragraph 31. In the context of a drug case involving a large quantity of heroin, Durno J set out a lengthy list to consider in determining whether a proposed expert witness is adequately qualified. The factors listed are as follows: the manner in which the witness acquired the special skill and knowledge upon which the application is based; the witness' formal education (i.e., degrees or certificates); the witness' professional qualifications (i.e., a member of the College of Physicians and Surgeons); the witness' membership and participation in professional associations related to his or her proposed evidence; whether the witness has attended additional courses or seminars related to the areas of evidence in dispute; the witness' experience in the proposed area or areas; whether the witness has taught or written in the proposed area or areas; whether, after achieving a level of expertise, the witness has kept up with the literature in the field; whether the witness has previously been qualified to give evidence in the proposed area or areas, including the number of times and whether the previous evidence was contested; whether the witness has not been qualified to give evidence in the proposed area or areas and if so, the reason or reasons why; and whether previous case law or legal texts have identified the contested area as a proper area for expert evidence and, if so, who might give the evidence. After considering these factors, Durno J found that a police officer could testify (with the exception of a few issues) based on his years of experience dealing with heroin users, although he had no scientific background.
82 Sopinka, note 79 at p. 853 (emphasis added).
83 See for example: Municipal Property Assessment Corp, Region No. 15 v. Clublink Corp, 2009 64 OMBR 225; CarswellOnt 8241. The defendant put forth an expert to opine on the valuation of golf course facilities. The expert had numerous professional certifications specifically regarding the appraisal of golf courses, and was considered a 'leading authority'.
84 Orr v. Metropolitan Toronto Condominium Corp No. 1056, 2016 ONSC 7630 at Paragraphs 28, 33, 2016 CarswellOnt 19819.
85 Mohan, note 64 at Paragraph 28.
86 R v. J-LJ,  2 SCR 600 at Paragraph 34, 2000 SCC 51 (CanLII).
87 id. at Paragraph 33.
89 R v. Trochym, 2007 SCC 6 at Paragraph 139 (CanLII).
90 id. at Paragraphs 139–141.
91 Apotex v. Nordion (Canada) Inc, 2019 ONCA 23 [Apotex].
92 id., at Paragraphs 130–13.
93 id., at Paragraphs 133–134.
94 id., at Paragraphs 134–135.
95 id., at Paragraph 136.
96 Apotex v. Nordion (Canada) Inc, 2017 ONSC 1323 (trial decision) at Paragraph 318.
97 Apotex, note 96 at Paragraph 139.
98 id., at Paragraphs 129–139.
99 id., at Paragraph 139.
100 id., at Paragraph 138.
101 Oravital v Aird & Berlis LLP, 2018 ONCA 164.