Date: Sat, 8 Jul 2006 16:30:03 +0100

From: Adam Kramer

Subject: Intangible Injuries for Breach of Contract (Fidler v. Sun Life)

John,

I agree that the application by the SCC of their test suggests that they are not looking much beyond foreseeability, however what they said (albeit not entirely consistently or sufficiently fleshed out) can lead to a coherent principle. The Hadley v Baxendale test does unite damages under a single principle as the single and controlling test (paragraphs 54 to 55 of the judgment) if it is understood as incorporating not just foreseeability but also acceptance of risk, which, as you rightly intimate, must be the basis of the remoteness rule. The reference to restoring the parties "to the position they contracted for" (paragraph 44 of the judgment) and the reference to the Jarvis/Farley test of psychological benefit (an ugly term that) being "an object" of the contract (paragraphs 45 and 47 of the judgment) indicates that we’re not talking about mere sine qua non causation (what position would I have been in) or foreseeability, but must also be talking about acceptance of risk (which is what I’ve always understood the "object of the contract" test to be about): see paragraph 46 and the emphasis on "the risk for which the parties contracted". The continuation of the traditional focus on "contemplation" rather than foreseeability leaves room for such a test.

I would say that this decision, properly understood, allows the rehabilitation of Hadley v Baxendale, i.e. the remoteness test, as a test of assumption of risk. The foreseeability test is the best rule of thumb, along with others (such as presumptions that in commercial dealings the only "objects" of the contract, i.e. risks accepted, are commercial ones), and all together we have the acceptance test which nicely fits under the term "reasonable contemplation", properly understood. As you already know, I do my best to make this point in an article last year which I’ve already plugged in this mailing list, last time we talked about remoteness ("An Agreement-Centred Approach to Remoteness and Contract Damage" in N Cohen and E McKendrick (editors), Comparative Remedies for Breach of Contract (Oxford, Hart Publishing, 2005) 249-286 - if my computer skills are up to it then there should be a hyperlink to the article in this sentence), and I have a go at mental distress along the above lines in there.

As for the point about individualisation, I also try to address that in my article: the gist being that when you’re dealing with a standardized vendor you know his prices and insurance are already fixed so can’t expect him to accept individualised risks, and therefore can tell him about yourself until you’re blue in the face and still his risks will not be affected (because you could not reasonably understand him to have accepted any risks when you told him). However you can also understand the vendor to have taken and spread broad types of foreseeable risk within his generally fixed price and insurance, and so many risks will have been accepted.

So I think that my view is that the SCC is getting to the right test, although spoils it somewhat by, in paragraph 56, paying only lip-service to that test. As David observes, what is special about this insurance contract? Indeed, in what commercial contract in which the other side undertakes to make payments upon the occurrence of certain events or circumstances (i.e. just about every commercial contract) is one not contracting "for benefits that are both tangible, such as payments, and intangible, such as knowledge of income security" (paragraph 56 of the judgment). Contracts are all about income security. The point is that the intangible peace of mind that comes from income security is not one of the objects of most commercial contracts, i.e. one of the risks assumed by the promisor. I’m not saying that the decision is wrong, but I think the question needed investigating a little more to tease out the special features of disability insurance etc.

Best,

Adam Kramer

-----Original Message-----
From: John Swan
Sent: 07 July 2006 20:34
To: Andrew Tettenborn
Subject: RE: [Fwd: RE: ODG: Intangible Injuries for Breach of Contract (Fidler v. Sun Life)]

Andrew,

Leaving aside the question of where, i.e., in what kinds of contractual relations, damages for intangible injuries will be awarded under the Supreme Court of Canada’s new approach, I think that a plaintiff will still have to show that he or she suffered some kind of non-pecuniary loss. Lord Denning’s catalogue of the deprivations, not to mention the sore feet, which Mr. Jarvis suffered, provides a basis for saying that it was at least reasonable for Mr. Jarvis to have suffered lost enjoyment. The more interesting argument is that of Lord Mustill in Ruxley who says that ignoring the disappointment and annoyance that Mr. Forsyth suffered is simply not acceptable and the £2,500 awarded is just some balm for the wound. Presumably courts are well-equipped to judge whether the loss suffered is sufficiently serious to warrant compensation. (When a friend of mine asked what she could expect as damages for lost enjoyment arising from the fact that the DJ she had hired failed to show up for her wedding, I asked her, "How well can you weep in the witness box?". She said that she could do a most impressive job. I encouraged her to sue and she ended up with $1,500; about three times what she would have paid the DJ. (Would it have mattered if her husband had engaged the DJ.?)

Having thought about Fidler v. Sun Life a bit more, one of my concerns is that it individualizes or risks the individualization of too many contractual relations. If damages are indeed based on what the defendant can foresee, then sellers can’t treat their buyers as a group. Sellers who sell to a multitude of buyers cannot easily, if at all, be expected to have the terms of their contracts or the consequences of breach vary in accordance with the mental balance of their customers. It’s better to tell the psychologically fragile or choleric, unincorporated business person that his idiosyncratic feelings will not be recognized by the law than to face the costs — ultimately huge costs — of giving him balm for his wounded feelings. Of course, it’s a policy decision, just as it is a policy decision not to allow pre- or post-judgment interest rates to reach the rate that would actually compensate the plaintiff for being denied the money due to it: We do it because (i) uniformity saves costs and (ii) it all works out in the end—today’s disappointed plaintiff may be tomorrow’s defendant caught between a rock and hard place and forced to breach a contract. Throwing more money into the pool and having it sloshing around between people competing to demonstrate hurt feelings does not seem to be likely to improve anything.

The point that I made about the so-called second rule in Hadley v. Baxendale has to be seen in the context of the concern that contracts not be too individualized — I’m not liable for your loss, regardless of what you tell me (and what I may now foresee if I breach our deal), because I won’t accept that risk. This is why cases which allow the mere communication of the consequences of the loss to increase the defendant’s damages are so bad: they permit the almost complete individualization of the defendant’s contracts in circumstances over which the defendant has no control and moreover, individualization in circumstances in which, had the defendant had the chance to deal with the plaintiff’s particular circumstances, it would have asked for more money or told the plaintiff to deal with that problem itself. It’s not clear to me what the Supreme Court’s views on this issue are.

The beauty of the Jarvis v. Swan Tours, Ruxley and Farley v. Skinner approaches was that they had built-in limits on both the scope of aggravated damages and the amount. Tour operators now simply treat claims for lost enjoyment as a cost of doing business and they will only engage their insurers when the amount exceeds their self-insurance limit or the deductible. If those damages become potentially huge, the whole structure of the industry will have to change and it’s hard to see how giving huge damages to a small number of people will help in the long-run. It’s not good public policy to increase the incentives to sue.

The problem that those of us who have to think about damages for breach of contract now is "How do you integrate into a discussion of damages for breach of contract based on the compensation principle (and thousands of cases) the Supreme Court’s idea that Hadley v. Baxendale is the source of the defendant’s liability?" It’s an over-statement, but not by as much as it should be, to say that it’s a bit like working with two incompatible theories, never knowing which one will be applied in the particular case.

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