Reliance damages in tort and contract

PreMD Inc. v. Ogilvy Renault LLP, 2013 ONCA 412 holds:

[65]       The ordinary measure of damages in tort is reliance damages.  The court tries to put the injured party in the position it would have been in had the tort not been committed.  The ordinary measure of damages for breach of contract is expectation damages.  The court tries to put the injured party in the position it would have been in had the contract been performed.

[66]       In some breach of contract cases, an injured person cannot prove expectation damages or loss of profits, or the contract has been unprofitable.  In those cases, an injured party may elect to claim reliance damages.  In awarding reliance damages, the court recognizes that the injured party has changed its position in reliance on the contract.  The court tries to put the injured party in the position it would have been in had it not entered into the contract at all.  Thus, reliance damages amount to wasted expenditures – expenses that the injured party incurred in reliance on the contract but would not have incurred had it known that the contract would be or had been breached:  see generally, John McCamus, The Law of Contracts (Toronto: Irwin Law, 2005), at pp. 832-37; Chitty on Contracts, Vol. 1 (United Kingdom: Thomson Reuters, 2012), at paras. 26-019 to 26-031. 

[67]       A plaintiff's claim for reliance damages is limited in two important ways.  First, it is entitled to recover only those expenses that were truly wasted – that would not have been incurred but for the contract.  This is the essence of reliance damages.  If PreMD would have incurred an expense even knowing it had only four and a half years of patent protection on patents 510 and 295 or knowing the patents had already lapsed, then that expense is not recoverable as reliance damages. 

[68]       Second, a plaintiff is not entitled to recover expenses that would have been wasted regardless of the breach.  If PreMD would not have recouped an expense even if Ogilvy Renault had performed the contract and maintained the patents for their full life, then the expense is not recoverable as reliance damages because it was not caused by the breach of contract:  see, e.g., Pacific Playground Holdings Ltd. v. Endeavour Developments Ltd., 2002 BCSC 126, 1 R.P.R. (4th) 280.