Originally published in Blakes Bulletin on Litigation
& Dispute Resolution, June 2011
On June 20, 2011, the Ontario Court of Appeal released its
decision in Agribrands Purina Canada Inc. v. Kasamekas. This
bulletin focuses on an aspect of the Agribrands decision
that will impact damage awards in breach of contract cases and, as
a result, on how breach of contract cases will be litigated in the
Before Agribrands, the 2004 leading Supreme Court of
Canada case in Hamilton v. Open Window Bakery Ltd.
established that where there are multiple ways in which a contract
might be performed, for purposes of assessing damages, courts
should adopt the mode that is least profitable to the plaintiff and
least burdensome to the defendant. There was uncertainty, however,
as to whether this approach to assessing damages would apply even
in the absence of good faith on the part of the party found to be
in breach. As a result, plaintiffs in breach of contract cases
would invariably claim that there had been bad faith and that, as a
result, damages could not be capped.
The Court in Agribrands has now clarified that damages
should always be calculated on the assumption that the defendant
would have performed the agreement in the least burdensome fashion,
even absent good faith. This finding brings greater certainty as to
how damages will be calculated in breach of contract cases and will
impact how breach of contract cases are litigated going
At issue in Agribrands was a dealership agreement
giving territorial exclusivity to the plaintiff. The terms of the
dealership agreement allowed either party to terminate the contract
on 60 days' notice.
The trial judge found that Agribrands Purina Canada Inc.
(Purina) had breached the territorial exclusivity provisions of the
On application of the principle from Hamilton, assuming
that the agreement would have been performed in the mode least
burdensome to the defendant, the maximum amount of damages that the
plaintiff could recover against Purina were those that would have
been suffered had the defendant given 60 days' notice to
terminate. The trial judge found, however, that as there had been
an absence of good faith on the part of Purina, the damages were
not limited to 60 days. Instead, he found that, absent a breach,
the contract would have continued indefinitely and ordered damages
for breach of contract in the amount of C$2,096,406 and punitive
damages of C$30,000.
Court of Appeal Decision
The Court of Appeal found that the trial judge erred in finding
that absent good faith damages should be calculated as if the
contract would have been renewed indefinitely. The Court stated
that "there was no finding by the trial judge in
Hamilton that Open Window had acted in good faith at all
material times. Nor is there any suggestion in the Supreme
Court's decision that good faith conduct is a pre-requisite for
the least burdensome principle to apply." The Court went on to
note that "the contract gave Purina the unconditional right of
cancelling the agreement on sixty days' notice. This was the
mode of performance least burdensome to Purina and therefore
constituted its maximum exposure for damages for breach of the
contract with Raywalt."
On the basis of these findings, the Court of Appeal reduced
damages significantly to C$198,655.83. The punitive damage award of
C$30,000 was upheld.
Following Agribrands, the value of most pure breach of
contract cases should be more readily determinable, as it is now
clear that the conduct of the defendant will not impact the general
damage award. The conduct of the party in breach can still lead to
punitive damage awards, as it did in Agribrands. On the
whole, however, the case brings greater certainty to this area of
Greater certainty respecting the value of such claims may
facilitate resolution. It is fair to expect, however, that
claimants will continue the trend of disguising breach of contract
claims as tort claims in an attempt to avoid the limits that the
terms of the underlying agreement impose on the value of their
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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