Remoteness of damages in contract

1298417Ontario Ltd. v. Lakeshore (Town), 2014 ONCA 802:

[138]    In RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc., 2008 SCC 54, [2008] 3 S.C.R. 79, at paras. 63-64, Abella J. (dissenting in part) summarized the test for remoteness of damages following a breach of contract:

The defining explanation of the contractual breach principles of reasonable foreseeability and remoteness is found in Hadley v. Baxendale... A court must therefore ask itself "what was in the reasonable contemplation of the parties at the time of contract formation" (Fidler v. Sun Life Assurance Co. of Canada, [2006] 2 S.C.R. 3, 2006 SCC 30, at para. 54).

The principle of remoteness "imposes on damage awards reasonable limits which are required by fairness" (Matheson (D.W.) & Sons Contracting Ltd. v. Canada (Attorney General) (2000), 187 N.S.R. (2d) 62, 2000 NSCA 44, at para. 69, per Cromwell J.A.). It aims "to prevent unfair surprise to the defendant, to ensure a fair allocation of the risks of the transaction, and to avoid any overly chilling effects on useful activities by the threat of unlimited liability" (Jamie Cassels and Elizabeth Adjin-Tettey, Remedies: The Law of Damages (2nd ed. 2008), at p. 352). This principle will be informed by the nature and culture of the business in question, and the particular contractual relationship between the parties... [Emphasis added.]

[139]    In Angela Swan and Jakub Adamski, Canadian Contract Law, 3d ed. (Markham, Ontario: LexisNexis Canada, 2012), at p. 480, the authors' helpfully frame the issue as "the determination of the extent of the risk that a promisor assumes when he makes a promise."

[140]    In my view, the nature of the damages 129 claimed and the trial judge awarded was not in the reasonable contemplation of the parties when the contract was executed.