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In civil litigation for breach of contract, establishing a breach is only part of the battle. The primary remedy for a breach of contract is an award of damages, in an amount sufficient to put the aggrieved party into a position it would have been if not for the breach. In order to secure an award sufficient to compensate a party for its losses, the party must carefully and adequately demonstrate the quantum of damages it suffered as a result of the breach. Sometimes a party will secure the assistance of an expert to quantify damages, particularly in a complex case. When financial matters are complicated, the assessment and report of a certified expert may be necessary to satisfy the court as to the correct amount of the damages, as demonstrated by a recent decision of the Ontario Superior Court of Justice.

Facts:

Fermar Paving Limited (Fermar) is a construction company. It primarily works on large construction projects like roads, parking lots etc. Fermar was contracted to build a new highway for the Ontario Ministry of Transport. The contract required it to use Granular A and Granular B aggregate material. Fermar’s position was that it had entered into a contract for the supply of the needed aggregate with the defendant 567723 Ontario Limited.

Shortly thereafter, the defendant advised Fermar that it was not prepared to continue the supply of aggregate as its license was restricted with respect to the amount of stone it could use, which amounted to less than Fermar required on an annual basis. They proposed to release Fermar from the contract. Fermar was not prepared to terminate the contract and was forced to source the additional aggregate elsewhere at an additional cost.

Fermar Paving Limited v. 567723 Ontario Limited is an interesting case on proving damages following a breach of contract. The plaintiff, Fermar, relied on the evidence of its Project Manager to establish a quantum of damages. His evidence was that the total cost to Fermar of the outsourced aggregate was $3,917,188.92. He then compared that total to the cost of the same volume of aggregate had it been supplied by the defendant. The difference was said to be $762,849.92. Additional costs for rentals and labour amounted to $54,586.25. That was the plaintiff’s evidence on damages. Was it enough? No, it was not. The failure appears to be the approach taken by Fermar to prove its case.

Cross-Examination on Damages

This summary is extracted from the trial decision as follows:

Mr. Ezomo is not an accountant. He has no other accounting experience than the day-to-day accounting which he is required to use in his position. To prepare the cost analysis, he relied on the costs that were prepared, analyzed and put together by the Accounting Department. He did not do an independent analysis himself, as the information came from a reliable source. He reviewed the financial statement and documentation as regards the costs from the alternate sources provided by his Accounts Department. In the summary, the Accounts Department ran all costs by the supplier. He believes that the dates on the Cost Summary were those that were on the original invoices. The cost analysis includes amounts incurred by Fermar beyond September 1, 2012, which was the completion date for the contract between the parties. There were also incidental extra costs for equipment rental and labour.

This damage evidence was challenged by the defence. They argued the calculation of damages could not be verified or relied upon as it was not provided by a professional accountant. The defendant claimed the calculations provided by the plaintiff were masquerading as expert evidence without a expert’s report. Both of these arguments were dismissed by the trial judge who then awarded damages in the amount of $816,436.37.

Appeals Court Requires More Than Internal Accounting

The defendant appealed both liability and damages to the Ontario Court of Appeal (ONCA). The liability issues were dismissed. The damage appeal was successful and a new trial was ordered to assess the damages. The ONCA was concerned that there had been no agreement on damages or the accuracy of the supporting documents, no expert evidence had been given and the fact that not all of the source documents had been produced or made exhibits at trial. As this made it impossible for the ONCA to assess damages, the case was returned to the lower court for a proper assessment of damages.

Litigants seeking damages for breach of contract should be prepared to fully satisfy the court as the calculation of damages. This may require the assistance of an outside expert, particularly in situations involving complex accounting requirements.

The highly skilled Toronto corporate lawyers at Milosevic Fiske LLP are litigators with the experience necessary to guide clients through any litigation, no matter how complex. We have litigated before all levels of Canada’s court system including the Ontario Court of Appeal and can provide you with advice and guidance suited to your unique situation. Call us at 416-916-1387 or contact us online to learn more about how we can help.