To Recover Damages, a Finding of Liability Is Not Enough

Published on: March 2020 | What's Trending

Male in a business suit ripping up a contract

A recent decision from the Ontario Court of Appeal demonstrates that, when a party claims damages, just proving liability is only half the battle.  It is just as important to prove the damages claimed.

In Fermar Paving Limited v. 567723 Ontario Limited, 2018 ONSC 5485 the court was tasked with dealing with the fallout from a large-scale construction agreement that went sideways. The plaintiff, Fermar Paving Limited (“Fermar”) entered into an agreement with the Ontario Ministry of Transportation for the construction of a large highway.  As part of the project, Fermar entered into a contract with the defendant company, 567723 Ontario Limited o/a Winter’s Pit (“Winter’s”) for extraction and supply of granular aggregate material.

Shortly after the contract was executed, Winter’s advised Fermar that it could not provide the amount of aggregate required by the contract. The parties entered into further discussions but did not enter into a new signed contract and the agreement was terminated. Fermar sued Winter’s, alleging that it breached the contract by repudiation and sought to recover its costs of having to source the aggregate from elsewhere.

At trial, Winter’s argued that the agreement between the parties was an agreement in principle and not a binding contract. It was also alleged that the agreement was ambiguous and therefore void. The trial judge rejected both of those arguments and held that Winter’s repudiated the agreement and was liable to pay Fermar $816,436.37 in damages.

The Ontario Court of Appeal upheld the trial judge’s findings on liability against Winter’s, but took issue with her determination of damages. It was ruled that the trial judge correctly held that, as a result of the repudiation of the agreement, Fermar was entitled to be restored to the position that it would have been in had Winter’s met its obligation to supply the aggregate. However, the court did not agree that Fermar’s damages were correctly determined.

In proving its damages at trial, Fermar adduced two documents which were prepared by its project manager. The first document summarized invoices incurred by Fermar. The second was a document entitled, “Production Cost Analysis”, which compared the costs that would have been paid to Winter’s and the costs which were instead paid to third parties for the aggregate.

The project manager was not an accountant and he did not do an independent analysis. Rather, he prepared the cost summary based on a report from Fermar’s accounting department, but the source documents were not produced at trial.  At trial, Winter’s argued this evidence was not verifiable because it was not professionally rendered and damages of this nature could not be determined without an independent expert report. These arguments were rejected by the trial judge and Fermar was awarded all of its alleged damages.

On appeal, the court agreed with Winter’s arguments in this regard. It was held that the project manager’s evidence was not sufficient to prove Fermar’s damages due to the absence of the source documents, which made it impossible to verify the accuracy of the damage analysis. As such, although the trial judge correctly ruled that Fermar was entitled to damages, she was held to have erred in concluding the quantum of damages based on the evidence before her. The case was therefore returned to the Superior Court for a new and proper damages assessment.

This case serves as a very important reminder about the essential elements of a lawsuit. If an aggrieved party suffers damages and seeks recovery, just proving liability is not nearly enough. In order for damages to be awarded, the damages need to be proven and the numbers need to be substantiated with underlying source documents.

It is important to keep in mind that the opposing party will be given an opportunity to not only challenge liability, but also the quantum of damages claimed against it. Damages must be proven with objective evidence and preferably with the assistance of an expert. If these elements are missing, recovery will not be possible even when liability is established.

Author: Daniel Waldman, Lawyer

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