Self Help Leads to Punitive Damages

A common situation arises where a party, feeling they are owed money, decides to use self help to get paid. Sometimes that self help involves threats to lay fraud charges, other times it involves seizing property without any legal right so to do.

Today's Nova Scotia decision in Total E-com Home Delivery Inc. v. Smith, 2008 NSSC 37 gives an illustration of such conduct and the dangers that can arise therefrom.

The facts are straightforward enough. The plaintiff contracted with Future Shop to arrange home delivery of retail product in the Halifax area. The plaintiff subcontracted with the defendant carrier. There were numerous complaints, and plaintiff terminated the subcontract. The defendant appropriated nearly $50,000 in Future Shop product and made threats to have fraud charges brought against the plaintiff. Plaintiff paid the retail value to Future Shop.

The Plaintiff sued for breach of contract, conversion, economic torts and won.

The Court also awarded punitive damages. The discussion by the Court of those damages is useful:

Punitive Damages
[52] This was not a merely negligent conversion. It was deliberate. Worse still, I
find it was malicious.
[53] The evidence of malice begins with the overcharging, and the threat: Mr.
Smith saying pay me what I do not deserve or else. Then, came the substance of
the threat: Mr. Smith’s slipping away with Future Shop’s property. Then, a
refusal to return what did not belong to him and a threat to accuse E-com of
defrauding Future Shop unless the excessive claim is paid:
Louise I think it is time you pay up so I can, at that time return the product to the
stores. If I do not receive my money I will not let this rest. You have much to
lose Louise, defrauding future shop of fuel surcharges and cross dock fees and
Lord knows what else. If I have any legal precedent concerning your
responsibility in this, future shop will as much if not more so, seeing I had no
formal contract with you. I will move on and forget this all took place only if I
receive my money.
And, finally there is the sale of property he did not own. All of this was done by a
man who knew full well the havoc he would cause when customers did not receive
Future Shop product they had paid for and, in turn, the damage that could do to Ecom’s
business relationship with Future Shop.
[54] Punitive damages are not recoverable in a case of breach of contract unless
the breach is also tortious: Vorvis v. Insurance Corporation of British Columbia,
[1989] S.C.J. 46, or it amounts to a breach of a duty of good faith and fair dealing:
Whiten v. Pilot Insurance Co., [2002] S.C.J. 19. Here the breach also amounts to
conversion and, probably, interference with economic relations.
[55] This breach of contract and commission of a tort is so outrageous as to
require retribution and deterrence. In addition to the malice, an award of punitive
damages is necessary because the misbehaviour promotes resolution of civil rights
by illegal means. Mr. Smith obtained $25,000, I will take his pleaded amount. He
obtained this money by taking someone else’s property first to extort payment of
an inflated claim and then to sell it to pay the claim. Mr. Smith, and others, need to
know that they cannot collect debts that way. In this case, that message is not
delivered through an award of compensatory damages.
[56] Counsel for Total E-com refer me to the following list of factors provided by
Justice Binnie on behalf of the majority, at para. 113 in Whiten, to be considered in
assessing an amount of punitive damages:
1. Whether the misconduct was planned and deliberate;
2. The intent and motive of the defendant;
3. Whether the defendant persisted in the outrageous conduct over a lengthy
period of time;
4. Whether the defendant concealed or attempted to cover up its misconduct;
5. The defendant’s awareness that what he or she was doing was wrong;
6. Whether the defendant profited from its misconduct;
7. Whether the interest violated by the misconduct was known to be deeply
personal to the plaintiff, or a thing was irreplaceable
The misconduct was planned and deliberate. As for intent and motive, the
misconduct was actuated by malice. It lasted long enough to make delivery to
customers pointless. The misconduct was not concealed or covered up, but it was
covert. Mr. Smith had to know the property was not his, that he was doing damage
to Future Shop customers, and that that damage could seriously harm Total Ecom’s
business. The defendant did not profit, but he sold property that did not
belong to him in order to realize on an unproved and unsecured claim. All but the
last of Justice Binnie’s factors weigh in favour of a substantial award in this case.
[57] Total E-com submitted for $10,000 in punitive damages, but they also
argued for $21,970 more in compensatory damages. As I said, that argument goes
to punitive rather than compensatory damages. I am satisfied that to require Mr.
Smith to pay the replacement cost of the property he took will not sufficiently
address the need for retribution and deterrence. Taking the factors in Whiten into
account, I am satisfied that an award of $20,000 in punitive damages responds
adequately to the need for retribution against, and deterrence of, the kind of
misconduct we see in this instance.