Contract Law--Nominal Damages Awarded to Plaintiff for Failure to Meet Commercial Contract Specifications--Diotte v. Consolidated Dev. Co., 2014 CarswellNB 410 (Can. N.B.C.A.) (WL).
On November 19,2007, Evariste M. Diotte and E.M. Diotte Construction Inc. (Diotte) and Consolidated Development Co. Ltd. (Consolidated) entered into a contract for Diotteto construct an office building and a garage for Consolidated. (6) The Federal Department of Fisheries and Oceans (DFO) had agreed to lease the premises, and the buildings were to be constructed according to the specifications of the DFO. (7) The original value of the contract for the work that was to be performed by Diotte was USD318,500 and later USD378,377.67. (8) During the construction phase, Consolidated received and paid invoices periodically submitted by Diotte for work performed. (9) The last invoice, including extras that had arisen during construction, was issued on February 4, 2007 in the amount of USD51,181.91. (10) Consolidated refused to pay the last invoice, alleging that Diotte was responsible for "office building fit-ups," despite having paid the invoices previously issued to them for "fit-ups" without incident. (11)
After Consolidated refused to pay the last invoice, Diotte filed a claim under the Mechanics' Lien Act. (12) Consolidated subsequently commenced an action claiming the work that had been performed was deficient and subsequently claimed right to set off. (13) Of the twelve deficiencies alleged, the trial court ruled in favor of Diotte on all but the loss of square footage of the garage claim for which the judge awarded Consolidated nominal damages of USD2,000 and an additional USD8,000 for strengthening a wall of the garage. (14) The trial judge also decided that Diotte had a valid lien in the amount of USD52,318.91. (15) In a matter of first impression, the New Brunswick Court of Appeal chose not to disturb the decision of the trial judge, and also awarded USD7,500 to Diotte in costs on appeal. (16)
Under common law, if a breach of contract occurs, the monetary damages awarded are typically the cost of reinstatement in order to place the plaintiff in the same position he would have been in had the breach not occurred. (17) Depending, however, on the underlying circumstances of the breach, it may be appropriate to use an alternative method of assessing damages resulting from the breach. (18) In the context of a building contract, other possible methods of assessment include diminution in the value, nominal damages for loss of amenity, personal preference and whether or not the builder saved money as a result of the breach. (19)
In Jacobs & Youngs, Inc. v. Kent, (20) Justice Cardozo stated that if the circumstances of the breach arise due to a failure of the builder to adhere to the specifications of the contract, the general rule is that the owner is to be awarded the costs of reinstatement unless the cost would be disproportionate to the benefit received. (21) In such a case, the owner will receive the difference in value between the work contracted for and the work performed, which is usually a nominal amount. (22) Courts have also looked to such factors as reasonableness and the intention of the owner to use the award to rebuild in compliance with the contract specifications. (23)
In order to determine how to properly assess the damages, courts will examine the severity of the failure to meet the specifications of the contract. (24) The decision of Ruxley Electronics & Construction Ltd. v. Forsyth (25) acknowledged that in the event a loss has been suffered that is not monetary in nature, but must be compensated, a flexible approach should be utilized to determine an appropriate award amount. (26) Courts have differed in opinion as to how such nominal awards should be measured economically. (27)
In Diotte v. Consolidated Development Co., the New Brunswick Court of Appeal awarded nominal damages for failure to adhere to the specifications of the building contract in favor of the reinstatement cost. (28) It was determined that Diotte had breached the contract, but it was unclear as to whether or not Consolidated had suffered a loss as a result of the breach. (29) The court considered the issues of contract deviation, defective workmanship, cases involving a consumer and a commercial party versus cases in which both parties are commercial and loss of amenity, or "personal preference," resulting from the builder's contract breach. (30) These factors were addressed in order to highlight the court's difficulty in measuring damages for breach of contract so as not to provide incentive for builders to deviate from the agreed upon terms of the contract. (31) Ultimately, the court applied the reasonableness standard in order to determine the appropriate award for damages. (32) The holding of the Appeal Court did not disturb the decision of the trial judge, and the appellant owner was awarded nominal damages. (33) The court reasoned that as no expert evidence was presented to support a claim of a negative impact to the property's value, it would therefore be unreasonable to award damages in the amount of the cost of reinstatement. (34)
In analyzing whether Consolidated was entitled to the costs of reinstatement or nominal damages resulting from Diotte's deviation from the contract specifications, the New Brunswick Court of Appeal correctly applied the reasonableness standard. (35) The presiding justices accurately established that a breach had in fact occurred and that the owner was entitled to some form of compensation stemming from said breach. (36) Diotte was aptly identified as a commercial case, not one in which the owner lost an amenity or a personal preference. (37) The court then began the difficult process of determining whether reinstatement costs or a lesser sum would be reasonable in light of the circumstances. (38) Contract damages are decided on a case-by-case basis, which has caused courts to struggle to find a suitable, streamlined method of assessment. (39) As there was no expert evidence provided by Consolidated to show the loss suffered, the court correctly awarded nominal damages based on the facts before it. (40) The cost of reinstatement was not clearly incommensurate with the benefit to be received; therefore, the intent of the injured party to use the award to cure the breach and the breaching party's attempt to mitigate damages by performing remedial work were not used to determine the reasonableness of the award. (41)
The well-established common law of contracts framework allowed the Appeal Court to use a wide range of sources from all over the world to determine the outcome of this case. (42) Established legal principles set forth in Jacobs & Youngs Inc. v. Kent and Ruxley Electronics & Construction Ltd. v. Forsyth were primarily relied on in deciding not to disturb the holding of the trial judge. (43) Though Consolidated did receive a nominal award, as compared to the costs of reinstatement, this case is cause for concern, as parties entering into a contract should be entitled to a final structure that is on par with the contract specifications. (44) While it may seem like a simple concept, it is actually quite complex, as is evidenced by the difficulty involved in measuring damages when a contract has been breached. (45) Courts should be searching for a common ground in the often extreme gap between an award of reinstatement damages and nominal damages. (46) Though punitive damages are generally not awarded for breach of contract, perhaps a carefully crafted, modified form of punitive damages would provide an aggrieved party with an award more adequate than nominal damages, while simultaneously serving as a deterrent for breach of contract. (47)
While the court's unanimous decision to award nominal damages was proper in the present case, it was a matter of first impression and has set precedent that could be troubling in terms of future decisions. (48) As Justice Robertson addressed twice in the analysis of his majority opinion, the law must not promote an incentive for builders to stray from contractual obligations. (49) Yet, the decision in Diotte v. Consolidated Development Co. seems to have opened the door to such an incentive. (50) Depending on the nature of the breach, a builder could only be ordered to pay nominal damages, which would not typically serve as a major deterrent for deviating from contract specifications. (51) In the instant case, the Department of Fisheries and Oceans was still willing to lease the space that had been constructed for them despite the fact that the garage had been built smaller than they had specified, and Consolidated did not suffer a monetaryloss based on the lack of evidence presented on the matter. (52) Cases, however, will continue to arise involving similar breaches to those decided on in Diotte but with different surrounding circumstances, and the courts still have a tremendous amount of work to do with respect to determining fair awards for the breach of a building contract as a result of failing to adhere to contract specifications. (53)
Diotte v. Consolidated Development Co. addressed whether an owner was entitled to the costs of reinstatement or nominal damages for a breach of contract due to contract deviation. (54) In a matter of first impression for this Canadian jurisdiction, the holding was consistent with the existing common law framework for breach of contract damages. (55) The New Brunswick Court of Appeal awarded the owner nominal damages for the loss of space. (56) Although the structure was not built to the proper specifications, the reasonableness standard was properly applied by the court, as it would have been unreasonable to award reinstatement costs in this particular case. (57) In subsequent decisions, however, courts should seek to implement a form of contract damages that are more likely to provide deterrent effects on parties to contracts. (58)
(1.) See Restatement (Second) of Contracts [section] 347 cmt. a (1981) (defining expectation interest).
Contract damages are ordinarily based on the injured party's expectation interest and are intended to give him the benefit of his bargain by awarding him a sum of money that will, to the extent possible, put him in as good a position as he would have been in had the contract been performed. See [section] 344 (1)(a). In some situations the sum awarded will do this adequately as, for example, where the injured party has simply had to pay an additional amount to arrange a substitute transaction and can be adequately compensated by damages based on that amount. In other situations the sum awarded cannot adequately compensate the injured party for his disappointed expectation as, for example, where a delay in performance has caused him to miss an invaluable opportunity. The measure of damages stated in this Section is subject to the agreement of the parties, as where they provide for liquidated damages ([section] 356) or exclude liability for consequential damages.
(2.) See Diotte v. Consolidated Dev. Co., 2014 CarswellNB 410, [paragraph] 2 (Can. N.B.C.A.) (WL) (detailing rule applied to building contracts). The law also allows for alternative methods of assessment including "diminution in value," nominal damages for "loss of amenity," "personal preference," or "consumer surplus." Id. In the event the breach of contract resulted in a cost-saving for the contractor, the plaintiff may also seek to recover those gains. Id.
(3.) 2014 CarswellNB 410 (Can. N.B.C.A.) (WL).
(4.) See id. 1 3 (stating issue of case). The cost of reinstatement would have been approximately USD54,000 whereas the nominal amount awarded at trial was USD2.000. Id.
(5.) See Diotte, 2014 CarswellNB, [paragraph] 4 (discussing court's holding). The court opted not to disturb the decision of the lower court. See id. The trial judge stated, "the difficult question with which the Court must grapple is what and how to compensate Consolidated for this particular loss. Under the circumstances, I accord Consolidated USD2,000 for the loss of square footage in the garage." Id. [paragraph] 40 (quoting Diotte v. Consolidated Dev. Co., 2013 CarswellNB 748, [paragraph] 81 (Can. N.B.Q.B.) (WL)). Based on the facts of the case, an award of reinstatement would not have been reasonable. Id. [paragraph] 4. As it was unclear as to whether the value of the garage was diminished, nominal damages were the only appropriate award. See id. The court found the award "justified in terms of either lost expectation or a presumed diminishment in the property's value." Id.
(6.) See Diotte v. Consolidated Dev. Co., 2013 CarswellNB 748, [paragraph] 1 (Can. N.B.Q.B.) (WL) (identifying parties to contract); Diotte, 2014 CarswellNB, [paragraph] 5 (explaining work Consolidated Development Co. Ltd. (Consolidated) was to perform pursuant to contract).
(7.) Diotte, 2014 CarswellNB, [paragraph] 5 (explaining agreement between Consolidated and Department of Fisheries and Oceans (DFO)). See also Diotte, 2013 CarswellNB, [paragraph] 81 (stating DFO agreed to accept premises as built after breach).
(8.) See Diotte, 2014 CarswellNB, [paragraph] 5 (laying out costs of contract).
(9.) Id. (noting at no time did Consolidated dispute these invoices).
(10.) See id. (detailing money owed to Evarise M. and E. M. Diotte Construction Inc. (Diotte)). The extras totaled USD100,819.49, increasing the total contract price up to USD479,197.16. Id. At the time the last invoice was issued, Consolidated had already paid USD433,903.43. Id.
(11.) See Diotte, 2014 CarswellNB, 11 5-6 (describing billing and payments between Diotte and Consolidated). Diotte had previously quoted Consolidated USD68,438 for "fit-ups." Id. [paragraph] 6. An invoice dated March 25, 2008 for "fit-ups" in the amount of USD47.419 from Diotte was paid without protest by Consolidated. Id. Another invoice was issued on April 28, 2008, which was also paid. Id. It was not until the last invoice was issued that Consolidated raised the issue that Diotte was contractually obligated to pay such costs. Id.
(12.) See Diotte, 2014 CarswellNB, [paragraph] 7 (finding Diotte had cause for filing lien); see also Mechanics' Lien Act, R.S.N.B. 1973, c. M-6, s. 4 (Can.) (defining scope of Mechanics' Lien Act). This act is a statutory remedy available to those, such as contractors and sub-contractors, who have performed work or provided materials to file a lien for the amount owed to them in the event they do not receive full payment for the amount agreed upon. See Diotte, 2014 CarswellNB, [paragraph] 7.
(13.) Id. (discussing Consolidated's cause for action).
(14.) Id. (outlining trial court's holding).
(15.) Id. (stating trial court's finding).
(16.) See id. [paragraph][paragraph][paragraph] 33, 45, 47 (identifying issue as matter of first impression). The court emphasized the importance of deciding matters of first impression. Id. [paragraph] 33. Justice Robertson stated:
In cases of first impression, care must be taken not to lay down rules or frameworks that are too distant from the trial judge's factual determinations. Appellate judges are aware that reasons for decision should respond to those issues squarely raised within the factual matrix presented. While these reasons seek compliance with that caution, the substantive issue at hand forces the writer to make general observations with respect to matters that may become relevant in future cases. Experience teaches that the articulation or development of legal rules or principles or legal frameworks is rarely achieved with the issuance of a solitary set of reasons. These reasons for decision should be interpreted accordingly.
Diotte, 2014 CarswellNB, [paragraph] 33. See id. [paragraph][paragraph] 45, 47 (setting forth New Brunswick Court of Appeals holding written by Justice Robertson). Both Justice Bell and Justice Green concurred with Justice Robertson, making this a unanimous decision. Id. [paragraph] 47 (Bell, J., concurring) (Green, J., concurring).
(17.) See Al Vogel Constr. Ltd. v. Forbes, 1998 CarswellSask 657, [paragraph] 18 (Can. Sask. Q.B.) (WL) (quoting Dalway Constr. Ltd. v. Moore (1991), 44 C.L.R. 176 (B.C. S.C.) on appropriate time to award reinstatement costs); see also Matthew Bell, After Tabcorp, For Whom Does the Bellgrove Toll? Cementing the Expectation Measure As the 'Ruling Principle' For Calculation of Contract Damages, 33 Melb. U. L. Rev. 684, 691 (2009) (discussing history of common law damages for breach of contract). But see Melvin A. Eisenberg, Note, Conflicting Formulas for Measuring Expectation Damages, 45 Ariz. St. L.J. 369, 369 (2013) (describing difficulties of measuring expectation damages). Generally, expectation damages formulas revolve around "replacement cost," diminished value," or "lost profit." Id. When the expectation measure is applied by courts to various common occurrences of breach, "it mutates into a number of different formulas, and these formulas often conflict." Id. at 408. See also Shawn J. Bayern & Melvin A. Eisenberg, The Expectation Measure and Its Discontents, 2013 Mich. St. L. Rev. 1, 18 (2013) (discussing solutions for problems measuring breach of contract damages). A suggested solution to deal with problems arising from measuring contract damages is a formula to be applied to all defendants, rather than determining each amount on a "case-by-case basis." Id.
(18.) See Jacob & Youngs v. Kent, 129 N.E. 889, 891 (1921) (awarding difference in value of defect). When the builder failed to use the proper piping as was specified in the contract, the owner was entitled to the difference in value, not reinstatement. Id. C.f. Ruxley Elec. & Constr. Ltd v. Forsyth,  A.C. 344 (H.L.) 349-50, 356, 358-59, 365 (appeal taken from Eng.) (discussing damages for personal preference). Owner's pool was not built as deep as it was supposed to be per the contract, and he was not entitled to reinstatement because it would have been unreasonable as the pool was still usable. Id. at 344. He was, however, entitled to nominal damages. Id. C.f. Al Vogel Constr. Ltd., 1998 CarswellSask, [paragraph] 7 (suggesting "aesthetic loss" to owner should be compensated because it may affect value). If an owner is offended aesthetically with the work arising out of the contract, the contractor should redo the work or provide for reinstatement when reasonable. Id. [paragraph][paragraph] 14, 18.
(19.) See Peter Linzer, On the Amorality of Contract Remedies-Efficiency, Equity, and the Second Restatement, 81 Colum. L. Rev. 111, 115 (1981) (considering contracts in commercial settings). Commercial contracts are usually entered into exclusively for economic reasons. Id. In the event of a breach, the aggrieved party can be fully compensated. Id. Cf. Ruxley,  A.C. at 344 (holding damages were diminution in value arising from breach). The decision to award nominal damages for a breach of contract relating to the owner's loss of amenity was upheld. Id. See Al Vogel Constr. Ltd., 1998 CarswellSask, [paragraph] 20 (awarding costs based on diminution in value); see also Jackson v. Horizon Holidays Ltd.  1 W.L.R. 1468, 1473 (Eng. A.C.) (awarding damages for disappointment due to breach of contract); Jarvis v. Swan Tours Ltd.,  Q.B. 233, 238 (Eng. A.C.) (holding damages may be awarded for disappointment due to breach of contract). But see Addis v. Gramophone Co. Ltd,  A.C. 488 (H.L.) 488 (holding no damages for breach of contract awarded to compensate for "injured feelings").
(20.) 129 N.E. 889 (1921).
(21.) See id. at 891 (awarding nominal damages). The cost to replace the pipe, which was comparable to that specified in the contract, would be unreasonable. Id.
(22.) Id. at 891-92 (discussing nominal damages). In a case where there has been substantial performance of the contract and compensation for said services, nominal damages will be awarded for minor defects. Id. at 891-92.
(23.) See Ruxley,  A.C. at 365-73 (opinion of Lord Lloyd) (using standards of reasonableness and intention to assess damages for breach of contract). Additionally, the opinion of Lord Bridge stated that reinstatement should not be awarded if it would "fly in the face of common sense." Id. at 354. But see Marcus Roberts, Contractual Damages and the Supreme Court--Altimarloch and the Shifting Sands of "Reasonableness," 19 NZBLQ 11, 21 (2013) (highlighting difficulty of measuring reasonable damages). It is difficult to discern damages that are "'reasonable,' distinct from 'appropriate' to compensate for the loss suffered by the plaintiff." Id. See Tito v. Waddell,  Ch. 106 (Eng. Ch. Div.) 332 (holding no damages should be awarded if no intention to cure breach). If a breach of contract occurs that has not caused a monetary loss and the aggrieved party has no intention of using the award to do the work in accordance with the contract specifications, no damages should be awarded. Id. See Bellgrove v Eldridge, (1954) 90 CLR 613, para. 9 (Austl.) (asserting remediation must be reasonable). The course taken to remedy the damages caused by failure to meet contract specifications resulting in a defect must be reasonable under the circumstances so as not to create "economic waste." Id. See also F. James Robinson, Jr., If Wishes Were Horses: The Economic-Waste Doctrine In Construction Litigation, 70 J. Kan. B. Ass'n. 28, 28 (2001) (discussing purpose of economic waste doctrine). The economic waste doctrine ensures the owner will not be granted a windfall. Id. It places a limitation on the owner's expectation interest by allowing an award in the amount of the difference in value had the contract been properly performed and the value as the contract was actually performed. Id. This doctrine has been criticized, as some feel it "may not sufficiently compensate a party injured by breach of contract." Id. at 33. But see Ruxley,  A.C. at 359 (opinion of Lord Jauncey) (discrediting intention standard). Courts should not be concerned with the way in which the aggrieved party uses the award if a loss has been established. Id.
(24.) See Ruxley,  A.C. at 362-63 (indicating reinstatement costs should not be awarded if purpose has not been frustrated). The pool was still deep enough for diving purposes; therefore, the owner should not be awarded reinstatement costs. Id. See Bellgrove 90 CLR, at para. 8 (asserting reinstatement damages should be awarded). Reinstatement costs should be awarded to owners when structures contracted for are built in such a way that they differ substantially from the contract. Id. See also Howard O. Hunter, Modern Law of Contracts [section] 11:6 (Warren, Gorham & Lamont, 2014 ed. 1986) (detailing measurement of damages). In order to establish damages from a breach of contract, sufficient evidence of the damages must be shown. Id. See also Josh M. Leavitt & Daniel G. Rosenberg, Toward A Unified Theory of Damages in Construction Cases: Part I--Navigating Through the Diminution of Value vs. Cost of Repair Debate in Defect Cases and Allocating Burdens of Proof, 2 No. 1 J. Am. C. Construction Law. 1, at para. 41 (2008) (listing categories of damage measurement). There is no "unified statement of the proper measure." Id. Cases have fallen into the following six categories: "(1) cost of repairs only; (2) diminution in value only; (3) either cost of repair or diminution in value; (4) both cost of repair and diminution in value; (5) the lesser of cost of repair or diminution in value; and (6) cost of repair as first choice, unless 'economic waste' would result." Id. It should also be noted that the first two editions of the Restatement on Contracts differ in measurement approaches. Id. The First edition expressly adopts the economic waste doctrine, whereas the second edition places more emphasis on the expectation principle. Id. at para. 42-46.
(25.)  A.C. 344 (H.L.) 374.
(26.) See id. (discussing difficulty in assigning economic value to damages). Lord Lloyd stated:
What is then to be the position where, in the case of a new house, the building does not conform in some minor respect to the contract, as, for example, where there is a difference in level between two rooms, necessitating a step. Suppose there is no measurable difference in value of the complete house, and the cost of reinstatement would be prohibitive. Is there any reason why the court should not award by way of damages for breach of contract some modest sum, not based on difference in value, but solely to compensate the buyer for his disappointed expectations? Is the law of damages so inflexible, as I asked earlier, that it cannot find some middle ground in such a case?
(27.) See id. at 353-74 (issuing opinions on proper method for assessing breach of contract damages). Lord Bridge of Harwich asserted that due to the fact that common law breach of contract damages evolved in a commercial context, the loss should be measured in economic terms. Id. at 353. He also recognized that the law did not forbid damages stemming from work that does not satisfy a "personal preference" of the owner for "amenity, convenience or aesthetic satisfaction." Id. Lord Jauncey of Tullichettle stated that "personal preference" goes to the reasonableness of the award, but should not by itself be determinative of the loss suffered. Id. at 358-59. Finally, Lord Lloyd of Berwick stated that "personal preference" cases, while deserving of damages, should not be "elevated into a separate category with special rules." Id. at 370. See generally Pioneer Coop. Ass'n. Ltd. v. Horseshoe Lodge Inc., 2000 CarswellSask 290 (Can. Sask. Q.B.) (WL) (acknowledging difficulty in assessing contract damages so as not to give contractors incentive to deviate from their contractual obligations). See generally Byrne Architects Inc. v. A.J. Hustins Enterprises Ltd., 2003 CarswellNS 30 (Can. N.S. C.A.) (WL) (discussing difficulty in assessing contract damages so as not to entice contractors to breach their contracts). See generally PSR & Construction v. Dagenais,  O.J. No. 2741 (Ont. S.C.J.) (identifying difficulty in assessing contract damages so as not to promote breach of contract by contractors). See generally Ralph M. Cunnington, The Inadequacy of Damages as a Remedy for Breach of Contract, in Justifying Private Law Remedies 115 (Charles Rickett ed., 2008), available at http://www.academia.edu/1548128/The_Inadequacy_of_Damages_ as_a_Remedy_for_Breach_of_Contract (analyzing issues arising from available contract remedies). Damages from a breach of contract have been viewed as inadequate for various reasons including no market substitute, difficult damage quantification, insolvency of the defendant, availability of only nominal damages, and insufficient deterrence. Id. at 127-33. A situation in which only nominal damages are available is "the most significant basis for finding compensatory damages to be inadequate." Id. at 130. Additionally, damages are inadequate when they do not promote deterrence. Id. at 132. Courts should denounce and deter breach of contracts. Id. See Availability of Punitive Damages for Breach of Contract, Exec. L. Summ. 327, at para. 4 (2014) (setting forth purpose of awarding punitive damages). "The reasons for awarding punitive damages are to punish a party for morally culpable conduct, and to deter that party and others from engaging in that kind if conduct in the future." Id. Punitive damages are generally not available for a breach of contract because they put the aggrieved party in a better position than if there had been no breach. Id. at para. 1. Punitive damages should not be awarded for an ordinary breach of a contract, but only in cases in which there has been outrageous conduct or ill motive. Id. at para. 5. Additionally, defendants often challenge awards for punitive damages claiming they are a violation of "due process under the Fourteenth Amendment because the jury may have been given too much discretion and not enough guidance in awarding punitive damages." Id. at para. 24. See also Restatement (Second) of Contracts [section] 355 (1981) (asserting punitive damages not available for breach of contract). "Punitive damages are not recoverable for a breach of contract unless the conduct constituting the breach is also a tort for which punitive damages are recoverable." Id. While the purpose of awarding damages for breach of contract is to compensate the injured party, "[c]ourts are sometimes urged to award punitive damages when, after a particularly aggravated breach, the injured party has difficulty in proving all of the loss that he has suffered." Id. at cmt. a. See also James L. Isham, Recovery of Punitive Damages for Breach of Building or Construction Contract, 40 A.L.R. 110, [section] 2[a] (1985) (stating punitive damages generally unavailable for breach of contract). Exceptions for awarding punitive damages in contract cases have been recognized if a breach of contract "amounts to, or is accompanied by, an independent tort smacking of fraud, malice, oppression, or gross negligence." Id. In cases of a breach of a building contract, courts will award punitive damages if the breach "amounts to, or is accompanied by, a willful or intentional tort." Id. Such damages have been awarded in cases involving "fraud, willful violation of building codes, deliberate variance from contract specifications, poor workmanship, and use of inferior materials." Id. In addition to the circumstances surrounding the breach, the decision to award punitive damages will also turn on how the "builder's willful or deliberate conduct is pleaded and proved." Id. See William S. Dodge, The Case for Punitive Damages in Contracts, 48 Duke L.J. 629, 634 (1999) (arguing "punitive damages should be available for any willful breach"). Dodge states punitive damages, however, should not be available for involuntary breaches of contract. Id. at 687. He does acknowledge that such a concept could prevent breaches by causing parties to take additional precautions so as to avoid deviating from a contract. Id. at 688. See also Linzer, supra note 19, at 116 (asserting breach of contract has been permissible). Though there is concern over the fact that parties should be held to their word, "law, economics, and arguably common sense" have all permitted "deliberate and willful breach." Id.
(28.) See Diotte, 2014 CarswellNB, [paragraph] 45 (stating court's holding). See id. at [paragraph] 3 (declaring starting point for court's analysis). The court stated:
The search for the answer takes us back to the seminal decision of Cardozo J. in Jacobs & Youngs Inc. v. Kent, 129 N.E. 889 (U.S. N.Y. Ct. App. 1921), and then forward to the equally influential, and more recent, decision of the House of Lordsin Ruxley Electronics and Construction Ltd. v. Forsyth,  UKHL 8 (U.K. H.L.). While those precedents provide the starting point of any legal analysis, thejurisprudence reveals there is still work to be done.
(29.) Id. at [paragraph][paragraph] 34-45 (outlining court's reasoning for holding). The garage was built too small by 6.5 meters of 150. Id. at [paragraph] 34. The case at hand did not raise questions of the standard of work performed. Id. No expert testimony was offered to support the claim of loss due to the contract deviation. Id. at [paragraph] 45.
(30.) Diotte, 2014 CarswellNB, [paragraph][paragraph] 36-38 (discussing distinctions possibly impacting award of damages). The court stated, "the distinction between contract deviation and defective workmanship may be one without a difference." Id. at [paragraph] 36. The court also expressed concern that common law remedies formed in the commercial context may be ill-fitting for homeowners. Id. at [paragraph] 37. Cases in which the deviation from the contract results in a loss of amenity are particularly "troublesome." Id. at [paragraph] 38.
(31.) Id. [paragraph][paragraph] 36, 38 (asserting law must be careful not to promote contract deviation). The court was particularly concerned with this point, as it was specifically mentioned twice in the ruling. Diotte, 2014 CarswellNB at [paragraph][paragraph] 36, 38.
(32.) Diotte, 2014 CarswellNB, f 42 (stating reasonableness standard should be used). The court weighed two options for resolving the difficulty in assessing damages for the situation at hand. Id. First, the court considered the approach outlined by Justice Cardozo in Jacobs & Youngs, Inc. v. Kent stating that the owner is entitled to reinstatement costs as long as the costs aren't "grossly and unfairly out of proportion for the good to be attained." Id. Such an approach is based on the fact "that the breach of contract has not diminished the value of the property." Id. The court believed the more general standard of reasonableness was best in order for determining the amount to be awarded to the owner in the present case. Id. See also id. [paragraph] 22 (noting court's ability to rely on wide range of precedent). "As Canadian courts are no longer bound by English precedents, we remain free to fashion a legal framework that builds upon the insights provided by those courts who have addressed the issue at hand." Diotte, 2014 CarswellNB, [paragraph] 22.
(33.) Id. [paragraph] 45 (holding owner entitled to nominal damages). The court found it unnecessary to look into other factors often associated with the reasonableness standard such as the likelihood the award would actually be used to cure the breach and efforts by the breaching party to perform remedial work to cure the breach, even though "others may view these factors as relevant to the 'reasonableness' analysis." Id.
(34.) Id. (concluding lack of evidence presented reflecting loss suffered was reasonable basis to award nominal damages).
(35.) See Ruxley,  A.C. at 354 (discussing reasonableness standard). Reinstatement awards for breach of contract must be reasonable. Id. See Robinson, supra note 23, at 28 (describing consequences of unreasonable rewards). An unreasonable award creates economic waste and provides the injured party with a windfall. Id. See Roberts, supra note 23, at 21 (discussing reasonableness of damage amounts). Distinguishing damages that are reasonable versus damages that are appropriate is difficult. Id.
(36.) See supra note 29 and accompanying text (stating breach occurred but insufficient evidence of loss suffered was presented). Though the garage was built smaller than the contract called for, Diotte did not raise questions as to the standard of work performed. Diotte, 2014 CarswellNB, 1 40. The owner had not presented sufficient evidence of a loss suffered, but was entitled to some form of damages. Id. [paragraph] 43.
(37.) See id. [paragraph][paragraph] 36-38 (identifying factors considered in commercial cases); see also Linzer, supra note 19, at 115 (discussing contracts in commercial settings). Commercial parties can be fully compensated for breaches. Id. See supra note 18 (acknowledging damages can be awarded based on failure to meet owner's personal preference).
(38.) See Diotte, 2014 CarswellNB, [paragraph] 42 (identifying options weighed by court); supra note 18 (detailing circumstances for awarding reinstatement damages); see also cases cited supra note 24 (detailing circumstances for awarding reinstatement damages); supra notes 21-22 (determining when to award nominal damages).
(39.) Bayern & Eisenberg, supra note 17, at 18 (stating contract damages assessed on a case-by-case basis); see Eisenberg, supra note 17, at 369 (detailing difficulties assessing expectation damages); see also Roberts, supra note 23, at 21 (addressing difficulty assessing reasonable damages); Robinson, supra note 23, at 28 (discussing criticism of economic waste doctrine). Often the economic waste doctrine prevents the innocent party from receiving a just remedy. Id. See Leavitt & Rosenberg, supra note 24, at para. 41 (identifying six categories contract damages have fallen into). The first and second edition of the Restatement of Contracts even differ on how to appropriately measure damages. Id.
(40.) See Diotte, 2014 CarswellNB, 1 45 (stating expert testimony not offered as evidence of breach); Hunter, supra note 24, [section] 11:6 (asserting sufficient evidence must be presented to establish damages for breach of contract); Jacob & Youngs, 129 N.E. at 891 (awarding nominal damages for minor defects). Where there has been substantial performance of the contract and compensation for those services, any minor defects will be compensated with nominal damages. Jacob & Youngs, 129 N.E. at 891.
(41.) See Ruxley,  A.C. at 359 (opinion of Lord Jauncey) (discussing intent to cure breach with award). Courts should not be concerned with the owner's intent to use the award to perform remedial work according to the specifications of the contract. Id. See supra note 33 and accompanying text (explaining court's reasoning for declining to consider attempt to perform remedial work). Reinstatement costs were not awarded; therefore, these factors did not require analysis. Diotte, 2014 CarswellNB, [paragraph] 45.
(42.) See id. [paragraph] 22 (highlighting court's ability to use wide range of sources for analysis purposes). The Canadian courts are no longer bound by English precedent. Id. Therefore, the court was able to look to decisions of various courts that had issued rulings following the common law framework for breach of contract damages. Id.
(43.) Id. [paragraph] 3 (identifying influential cases used for analysis). See supra note 16 and accompanying text (deciding to uphold decision of trial judge).
(44.) See Diotte, 2014 CarswellNB, [paragraph] 45 (explaining court's reasoning for awarding nominal damages); Linzer, supra note 19, at 115-16 (expressing concern over parties not keeping their word).
(45.) See supra note 27 and accompanying text (identifying difficulties assessing various breach of contract damages).
(46.) See Ruxley,  A.C. at 374 (opinion of Lord Lloyd) (declaring need for flexibility in determining contract damages for minor defects). It is difficult to assign an appropriate economic value to damages. Id. There should be a middle ground. Id.
(47.) See Availability of Punitive Damages for Breach of Contract, supra note 27 (explaining punitive damages). In addition to serving as a form of punishment, punitive damages are meant to deter the behavior in question. Id. at para. 4. Punitive damages, however, are usually only awarded for breach of contract if the breach was accompanied by tortious conduct. Id. at para. 4-5. Also, punitive damages can be troublesome because the jury is given discretion over the amount. Id. at para. 24. See Cunnington, supra note 27, at 130 (outlining problems with nominal damages). Nominal damages are most often found to be inadequate. Id. Damages that do not promote deterrence are inadequate. Id. at 132. Courts should be advocating for deterring breach of contract. Id. See Dodge, supra note 27, at 687-88 (acknowledging punitive damages for involuntary breaches of contract could promote deterrence). Punitive damages could prevent breach of contract by causing parties to be more cautious so as to avoid a breach. Id. at 688. See also Isham, supra note 27, [section]2[a] (identifying exceptions to barring punitive damages for breach of contract). Punitive damages have been awarded where the breach of contract is "accompanied by a willful or intentional tort." Id.
(48.) See Diotte, 2014 CarswellNB, [paragraph] 33 (detailing court's unanimous decision on matter of first impression). Matters of first impression set precedent for future cases. Id. Appellate courts must take this into consideration when rendering a decision. Id. Subsequent decisions will likely alter the findings of the court. Id.
(49.) See id. 36, 38 (pointing out concern of court not to promote contract deviation); see also supra note 27 (listing cases concerned with promotion of contract deviation).
(50.) See Cunnington, supra note 27, at 130 (discussing inadequacy of nominal damages). Nominal damages are an insufficient deterrent to contract deviation, often leaving innocent parties unsatisfied. See id. See Linzer, supra note 19, at 115 (addressing problems arising from lack of deterrent damages). Failure to hold parties to terms of their contracts constitutes permitting breach of contract. See id.
(51.) See Cunnington, supra note 27, at 132 (stating role courts should be playing in breach of contract cases). When courts award nominal damages, they are often inadequate, and therefore do not serve as a deterrent. Id. Courts should be promoting deterrence, not acquiescing to breaches of contract. See id.
(52.) Diotte, 2013 CarswellNB, [paragraph] 81 (noting DFO accepted premises as built). See Diotte, 2014 CarswellNB, [paragraph] 45 (asserting no sufficient evidence was presented showing loss due to breach).
(53.) See Diotte, 2014 CarswellNB, [paragraph] 3 (noting need for changes to remedies for breach of contract). Justice Robertson acknowledged that while established legal principles are a starting point for analysis, there is still much to be done to achieve the goal of measuring damages appropriately. Id.
(54.) See id. (discussing issue of case).
(55.) See supra note 16 and accompanying text (recognizing matter as one of first impression); supra note 42 and accompanying text (identifying use of established common law of contracts framework).
(56.) See supra note 33 and accompanying text (holding owner entitled to award of nominal damages).
(57.) See Diotte, 2014 CarswellNB, [paragraph] 45 (declaring reinstatement costs unreasonable under present circumstances).
(58.) See Cunnington, supra note 27, at 132 (contending courts should promote deterrence from breach of contract); supra note 47 and accompanying text (suggesting need for modified form of punitive damages to promote deterrence from breach of contract); see also Diotte, 2014 CarswellNB, [paragraph] 3 (stressing there is still work to be done in terms of assessing contract damages).
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|Author:||Hassell, Alexandra R.|
|Publication:||Suffolk Transnational Law Review|
|Date:||Jan 1, 2015|
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