In Canada, it is difficult to get punitive damages for breach of
contract. Awards are uncommon and the amount will usually be
relatively small. A recent Ontario Court of Appeal case
addressed when punitive damages may be awarded for a breach of
contract (Ottawa Community Housing Corporation v.
Foustanellas (Argos Carpets), 2015 ONCA 276). This case
involved a carpet company that overbilled the Ontario government
for work done, and also installed lower quality carpet than
specified in the agreement. The government was ultimately awarded
over $1.5 million in damages. The punitive damages component
was $250,000 because the court found that a fraudulent scheme was
perpetrated against OCHC in carrying out the contract.
Specifically, the trial judge found, "continued, intentional
and deliberate defrauding of the government. Over 1000 invoices
were falsified." The government also received $630,000
for its costs of the trial, which was a full indemnity basis.
Finally, OCHC received its costs of the trial, on a full indemnity
basis, in the amount of $630,475.47.
The Appeal Court stated that punitive damages are limited to,
"misconduct that represents a marked departure from ordinary
standards of decent behavior." Such awards are intended to
punish the defendant, rather than compensate a plaintiff. The
Appeal Court also approved of the trial judge's reasoning on
the distinction between compensatory and punitive damages. The
objectives of punitive damages are punishment, deterrence and
denunciation. The trial judge's approach to assessing
proportionality of the punitive damages was line with Supreme Court
of Canada precedent 1. An award of punitive damages must
rationally relate to the amount fraudulently taken or the cost of
the harm inflicted. It should not be overly punitive, but should
not appear to be a mere license fee. General deterrence, as well as
specific deterrence, are considered. Other factors also come into
play, such as whether the defendant may be subject to civil fines
(not applicable to this case).
The sole owner of the company was also found personally liable
for the punitive damages. His company was merely the conduit
through which the fraudulent activities were channeled.
Early detection of bad conduct by business partners, followed by
contract termination, is critical to limit losses. In most cases,
damages for losses will be the only resort. In cases of deliberate,
egregious misconduct, keep in mind the potential for punitive
damages to punish the business partner and deter others from such
behaviour in future.
As a construction company that actively bids and works on larger infrastructure projects, you will likely be required to provide a signed certification in response to future Requests for Qualifications.
On November 14, 2016, the Securities and Exchange Commission ("SEC") announced an award of more than $20 million to a whistleblower who promptly provided the regulator with valuable information that allowed the SEC to commence an enforcement action against the wrongdoers before they could squander the money.
In the recent decision, 3716724 Canada Inc. v Carleton Condominium Corporation No. 375, the Ontario Court of Appeal found that the "business judgment rule" applies to decisions of boards of condominium corporations.
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