In the case of the Livingston Excavation and Trucking Inc. v. Maple Engineering and Construction Ltd., a decision of the Ontario Superior Court of Justice released on May 28, 2002, the Court was required to deal with two issues, the first being whether or not a breach of contract had occurred between the plaintiff and defendant, and secondly, if a breach of contract did occur, the appropriate measure of damages suffered as a result of the breach.
The facts of the case are as follows:
- In September, 1997, Maple Engineering and Construction Ltd. ("Maple") negotiated a contract with the Hamilton Harbour Commission to construct a pier in the Hamilton Harbour of Lake Ontario. The plaintiff, Livingston Excavation and Trucking Inc. ("Livingston") had done dredging work for Maple the year prior under a verbal contract at a different location.
- From July, 1997 onward, the parties had discussions surrounding the Hamilton Harbour project and the form of contract to be entered into. Maple wanted a contract based on a price per metre dredged, but Livingston did not want to enter into a "unit price" contract.
- The parties ultimately entered into some form of agreement to begin dredging operations of the Hamilton Harbour. Maple issued a purchase order and the work started the first week of March, 1998.
- On March 9, 1998, the Project Manager for Maple advised Livingston that another company had been hired and that Livingston’s equipment and operator were no longer required.
- Livingston argued that it had an oral contract with Maple to provide the dredging services at an hourly rate of $140.00 per hour to continue until the work was complete. Livingston relied on the written purchase order as evidence to the oral agreement.
- It was Maple’s position that the contract was for hourly services only with no fixed duration.
After reviewing the evidence, and assessing the credibility of the witnesses, the Court concluded that there was in fact an oral contract which was confirmed by the purchase order. In making this determination and in determining the terms of the contract, the Judge went on to state:
…I find the plaintiff has met its burden of proof establishing an oral contract that was subsequently fortified and confirmed by a written contract, in the form of the purchase order.
To establish the contract’s purpose I have reviewed its context. That context includes many weeks of planning between the parties, negotiating and compromising various terms like overtime and the cost of mats, transporting a giant piece of equipment from the Simcoe area to Hamilton, and a request by Maple that the equipment be left on-site. Applying a "common sense", objective interpretation of the parties’ intention and conduct within this context, I am satisfied that I can reasonably construe the nature of the contract.
Having concluded that there was in fact a contract between Livingston and Maple, the Court had to assess that the damages suffered as a result of the breach.
Livingston put forth expert testimony and argued that its claim for loss of profit should be based on the assumed number of days that the machinery would have worked multiplied by 10 hours per day. Livingston’s expert then gave a credit against that amount for the assumed labour costs and fuel costs which would have been incurred in carrying out the work. However, the expert failed to factor in contingencies such as wear and tear, depreciation and down time.
In rebutting the claim for damages, Maple’s expert argued that the damages should be calculated based on "industry" standards rather than the plaintiff’s assessment which was tied to the terms of the contract and the breach.
The Court rejected Maple’s argument and held that once the contract was established, the Court, in assessing damages, should base its calculation on the damages flowing from the breach rather than from "industry" standards.
The Court, in awarding the damages ultimately made its own assessment of the lost hours in determining the gross revenues earned. While evidence was led the number of hours worked by the replacement contractor was 1354 hours, the Court assessed the plaintiff’s loss at 1000 hours at a rate of $140.00 per hour.
After determining the gross amount of the loss incurred by the plaintiff, the Court also considered the issue of mitigation of damages, contingency and other deductions from the gross profit.
The Court confirmed that it was appropriate to make a deduction from gross revenues based on the theory of mitigation and the assumed ability of the contractor to utilize the equipment elsewhere. In so doing, the Court affirmed the legal principal that an aggrieved party has a positive duty to mitigate its damages. As is apparent from this case, the Court appears willing to make a reasonable deduction to arrive at an appropriate amount for mitigation. The Court further confirmed that it was appropriate to make a further deduction for unforeseen difficulties which would have been incurred in carrying out the work. However, in assessing the damages of Livingston, the Court concluded that this had already been taken into account in the establishment of the lost hours.
While the plaintiff was successful in establishing the breach of contract, as is apparent from the assessment of damages, it received damages in an amount far less than it initially claimed. While an aggrieved party is entitled to the damages which flow as a result of the breach, it appears clear that the Courts will look at various factors in determining the appropriate amount for damages. Unforeseen contingencies, risk factors and mitigation issues can lead to a large reduction in a claim for loss of profit.
This should be considered when pursuing claims of this nature.
The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.