In Ontario, there is a legal presumption that damages for breach of contract are calculated from the date of the breach. In some cases, however, it is possible to set this presumption aside when it would be unfair to use the date of breach as the basis for calculation. In a recent case from the Ontario Court of Appeal, the Court examined the interplay between the presumption established by the courts and the legislative mandate to consider what outcomes would be reasonably foreseeable by the parties at the time of the breach.
Farmers Sue Supplier for Breach of Contract, Breach of Warranty
The appellants in Maple Leaf Foods Inc. v. Ryanview Farms were pig farmers by trade. In 2004, they decided to replenish their stock and purchased over 1100 gilt (breeding pigs) as well as 10 boars from the respondent supplier. The pigs were delivered in February 2006. In anticipation of the breeding program the farm would run using the newly purchased pigs, the appellants entered into a contract with another farm in July 2006 to provide 550 young pigs per week.
As part of the process of bringing new animals to a working farm, the new animals were sequestered in isolation barns to avoid the introduction of health issues to the existing population. One truck was delayed in the delivery, and as a result, the pigs in that shipment suffered from a respiratory infection which spread to the other healthy pigs in the isolation barn. The infection rate became so severe that the appellant farm was unable to fulfill the weekly contract it had entered with the other farm.
Supplier Sends Several Replacement Shipments, but all are Problematic
The respondent supplier agreed to send a replacement shipment of 300 gilts, and a shipment of 158 arrived in November 2006. However, due to transport issues, the animals were again in poor health, this time infected with strep suis, a virus that can cause meningitis, endocarditis, arthritis, and death in pigs. Further, a portion of the shipment of pigs became ill with Porcine Reproductive and Respiratory Syndrome (PRRS) shortly after they were delivered, which causes reproductive impairment or failure.
The respondent again agreed to provide replacements for the animals in ill health and delivered 350 new gilts and 87 purebred animals to the farm in the spring and summer of 2007. However, that fall, there were more outbreaks of PRRS and strep suis. Eventually, the cost of raising and caring for the animals became too much to bear, and the appellant entered into a government program to cease production in exchange for a subsidy. They eventually lost the farm due to foreclosure.
The respondent brought a claim against the appellant for payment for the 2007 shipments, and the appellant cross-claimed for losses suffered due to the poor quality of the animals they received. The respondents were favoured on first instance, however, the appellants successfully appealed, and were awarded $564,324.42 in damages.
The appellants appealed this decision, claiming the judge had erred in calculating the damages owed. Specifically, the appellants claimed that the judge had erred by assessing damages as of the date of the trial rather than the date of the initial breach and by considering post-breach events in the assessment of damages; namely outbreaks of PRRS which were unrelated to the delivery, as well as a declining market for young pigs.
Date of Breach is the Presumptive Date for Assessing Damages
It is established in Ontario contract litigation that the date of breach is the default to be used when conducting an assessment of damages for breach of contract. This presumption was confirmed in the 2016 decision Rougemont Capital Inc. v. Computer Associates International Inc. In that case, the Ontario Court of Appeal also addressed circumstances which would allow a court to deviate from the accepted presumption when it would be unfair to do otherwise.
The Court confirmed that it is important for damages for breach of contract to remain predictable and consistent, and so the presumption should only be displaced under “special circumstances”.
In the case at hand, the Court of Appeal also considered the legislative direction for measuring damages for a breach of warranty under s. 51(2) of the Sale of Goods Act, which states:
The measure of damages for breach of warranty is the estimated loss directly and naturally resulting in the ordinary course of events from the breach of warranty.
Assessment of Damages Should Consider Reasonably Foreseeable Losses
Using commentary on this section provided by G.H.L. Fridman in the book Sale of Goods in Canada, 6th ed., the Court noted that the legislation indicates that an assessment of damages should include a consideration of “reasonably foreseeable” losses which are likely to stem from the breach, or which might be a serious possible consequence of the breach.
As a result, the Court concluded that an assessment of damages may examine post-breach events to determine whether such events were “within the reasonable contemplation of the parties” at the time of the breach.
Post-Breach Events & Assessment of Damages
In the case at hand, the trial judge had set the date of the assessment as the date of the trial in order to take post-breach events into consideration, such as the post-delivery outbreak of PSSR, as well as the declining market for young pigs. The Court referred to both as “significant intervening events” which had to be considered in order to fairly assess the respondent’s contribution to the appellant’s losses and avoid “burdening the respondent with more than its fair share of liability”. Ultimately, the Court of Appeal found that the judge had not erred in setting the date of assessment as of the date of the trial.
As demonstrated by this case, while the jurisprudence has made it clear that deviation from the presumptive date of assessment should be rare, the requirements for assessment of damages under the Sale of Goods Act may require courts to be more generous in considering post-breach events.
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