The ‘wrong’ is indeed breach
of contract (or misrepresentation). The difficulty in claiming contract (or tort)
damages from a remedial point of view there is no loss suffered which needs to
be compensated. The lack of security didn’t in fact cause any loss to the
lender. Restitutionary damages (or even disgorgement) may be useful here
because they can look to the gain to the wrongdoer, in this case not having to
pay a higher interest rate.
From: Gregory C.
Keating [mailto:gkeating@law.usc.edu]
Sent: Tuesday, 8 March 2011 11:51
AM
To: 'Chaim Saiman'; Jeannie Marie
Paterson
Cc: 'Nick Ferrett'; 'Russell
Brown'; 'Stephen Pitel'; 'obligations@uwo.ca'
Subject: RE: ODG: Measure of
Damages - Tort and Contract
Hi Chaim,
Now that you’ve given cover to
a non-Commonwealth lawyer to venture into this debate, your comment prompts me
to ask about something fundamental that puzzles me: is the criterion of
“injustice” supposed to be independent of tort or contract? Your
account of the complaint the lender has seems spot on to me, though I suppose
you might also say that the lender could complain it would not have lent the
money at all but for the promise of a security interest. Even so, I
don’t think that claim would alter the way in which the lender was
wronged. It was wronged in being led to believe (deliberately or
negligently) that it had a protection against non-performance that, in fact, it
did not have.
This brings me to my question:
isn’t the criterion of wrongfulness either tort (misrepresentation
inducing loan) or contract (failure to comply with a contractual condition)?
I prefer the tort account because it seems to me that the
misrepresentation induced the formation of the contract in the first instance,
but in either case the criterion of “injustice” in enrichment is
not freestanding. Why, therefore, doesn’t “restitution”
collapse into a remedy for a wrong which is determined by another body of law
(here, tort or contract) instead of being the remedy that corresponds to the
freestanding wrong of unjust enrichment?
My impression is that
Restitution’s marginal standing in contemporary American law has a lot to
do with the fact that it isn’t clear that there is a theory of unjust
enrichment which isn’t parasitic on criteria of wrongfulness drawn from
other legal subjects.
-Greg
From: Chaim Saiman
[mailto:chaim.saiman@gmail.com]
Sent: Monday, March 07, 2011 3:22
PM
To: Jeannie Marie Paterson
Cc: Nick Ferrett; Russell Brown;
Stephen Pitel; obligations@uwo.ca
Subject: Re: ODG: Measure of
Damages - Tort and Contract
After a quick read, it seems to me that what the court is getting at is an
unjust enrichment claim which it designates as a "damages claim for breach
of contract." (perhaps following plaintiff's briefing)
Under an unjust enrichment theory, I would think restitution (using
that work in Birksean terms where "damages" are to
"contract" as "restitution" is to "unjust
enrichment" ) should be in the amount of the interest rate differential--
as the court finds.
This is similar to the where A contracted with B to provide 20 security
guards for an event. B only provided 10, but there was no trouble at the event
so A could show no damages. As I recall, in that case (City of New Orleans) the court found no
damages under contract or tort theories, but i think that today most
restitution scholars would argue that A should have an unjust enrichment claim
against B in the amount it saved by not providing the additional 10 security
guards.
I guess the important point is that "security" (whether in
the form of armed guards or assets backing up a loan) is something you
want to have but not use. It is valuable even when not
needed.
Chaim Saiman
Associate Professor
610.519.3296
On Mon, Mar 7, 2011 at 4:51 PM, Jeannie Marie Paterson <jeanniep@unimelb.edu.au> wrote:
I agree that the case sits uneasily in tort. However, I am not sure it
is quite like Baltic Shipping. In Baltic, the plaintiff suffered a
non-pecuniary loss - the ship sank to the considerable distress of the
passenger. In Smith v Lanstar what the plaintiff lost was the
opportunity to bargain for a higher interest rate for an unsecured loan
ie as the price of higher risk. It is perhaps here that the analogy
with restitutionary damages, as in Hendrix, arises.
Jeannie
-----Original Message-----
From: Nick Ferrett [mailto:nick.ferrett@chambers33.com.au]
Sent: Tuesday, 8 March 2011 12:20 AM
To: Russell Brown; Stephen Pitel
Cc: obligations@uwo.ca
Subject: Re: ODG: Measure of Damages - Tort and Contract
As I understand the case, it says identifies as the breach of contract,
the failure to fulfil the promise to grant security. The purpose of
such
a promise is to improve the position of the lender in circumstances of
insolvency. If the security was not provided and the circumstance
against
which such a promise protected - insolvency - arose, the plaintiff would
not have been able to recover the damages which a traditional analysis
would grant (that being the amount of the money lent). There is no
doubt
that the contemplated security was commercially valuable. One
consideration in valuing a loan book would be the kinds of security the
lender had obtained for its various loans.
On this basis, I can see an argument for saying that the failure to
grant
security is a breach which should be compensable as opposed merely to
entitling the plaintiff to nominal damages. The question then becomes
how
to value the loss arising from the breach. My instinct is that the
quantification would have to be based on the increase in risk. I would
guess accountants have ways of quantifying this.
In a way, the situation is comparable to the case where a lady sued for
loss of the amenity of her holiday on a cruise ship. The ship got her
from A to B, but the object of the contract was to provide her with
enjoyment along the way. The amenity of her holiday was something
valuable which, when lost, was compensable in damages: Baltic Shipping v
Dillon (1993) 176 CLR 344. In the instant case, the object of the
contract was to provide protection against insolvency and that
protection
was valuable and it was not provided.
I don't think I like the idea of a similar award on the tort basis.
Moreover, its unnecessary. The contractual relationship supercedes any
tortious relationship and provides more effective protection.
-----Original Message-----
From: Russell Brown <rsbrown@ualberta.ca>
Date: Mon, 7 Mar 2011 22:08:56 +1000
To: Stephen Pitel <spitel@uwo.ca>
Cc: "obligations@uwo.ca" <obligations@uwo.ca>
Subject: Re: ODG: Measure of Damages - Tort and Contract
>Stephen,
>
>The reasoning (such as it is) on the negligence claim doesn't support
>this award. Finch CJBC correctly states that damages for a negligent
>misrepresentation are "reliance damages, that is putting the plaintiff
>in their original position". Absent evidence that the
plaintiff's
>"original position" in this case would have included the option -
>that, but for the defendant's inducement, she would have exercised -
>of making an unsecured loan for the higher interest rate, there seems
>to be no basis for this award on the negligence side of the claim.
>The only rationale (in his analysis of the negligent misrepresentation
>claim) given for awarding more than is his passing reference to La
>
>circumstances or policy", but (again, in the context of the negligence
>claim) Finch CJBC does not identify any "circumstances" as
significant
>or any "policy" as being implicated.
>
>If, as it appears in his analysis of the breach of contract claim, his
>decision is motivated by what he sees as an unjust enrichment of the
>defendant, he should probably have just said so and disposed of the
>claim on that basis without the additional strain on the negligent
>misrepresentation side.
>
>That's my two-bits at 5 am.
>
>Cheers,
>
>Russ
>
>
>Quoting "Stephen Pitel" <spitel@uwo.ca>:
>
> In /Smith v. Landstar Properties Inc./, 2011 BCCA 44
the
>plaintiff loaned the defendant $100K. She was promised a return of 8%
>and that her investment would be secured against certain properties.
>The defendant did not, in fact, secure the loan, so it was unsecured.
>The defendant paid the money back and paid the interest. The
>plaintiff sued the defendant in contract and tort (misrepresentation)
>for additional interest, arguing that the interest rate on an
>unsecured loan would have been significantly higher (over 24%). The
>defendant argued that the plaintiff had not suffered any loss: from a
>financial perspective she got what she was promised.
>
>The trial court awarded the plaintiff additional interest, based on
>the spread between the unsecured interest rate and the 8% actually
>paid. The British Columbia Court of Appeal affirmed, but on somewhat
>different reasoning.
>
>My sense, on only a preliminary assessment, is that the case provides
>some interesting damage calculation issues. Is the answer right?
Is
>the reasoning right, in contract or tort? The main case relied on is
>/Experience Hendrix LLC v. PPX Enterprises Inc./, [2003] EWCA Civ 323.
>
>The case is at
>http://www.canlii.org/en/bc/bcca/doc/2011/2011bcca44/2011bcca44.html
>
>Stephen
>
>--Dr. Stephen G.A. Pitel Associate Professor Goodmans LLP Faculty
>Fellow in Legal Ethics 2010-11 Faculty of Law, The University of
>Western