Agribrands Purina Can. v. Kasamekas,

• Jurisdiction: Ontario
• Judge: Goudge, Gillese and Juriansz, JJ.A.
• Neutral Citation: 2011 ONCA 460
• Citation: (2011), 278 O.A.C. 363 (CA),2011 ONCA 460,106 OR (3d) 427,334 DLR (4th) 714,87 BLR (4th) 1,86 CCLT (3d) 179,[2011] OJ No 2786 (QL),203 ACWS (3d) 753,278 OAC 363,278 O.A.C. 363,106 O.R. (3d) 427,(2011), 278 OAC 363 (CA),334 D.L.R. (4th) 714,[2011] O.J. No 2786 (QL)
• Date: 14 February 2011
• Court: Court of Appeal (Ontario)

Agribrands Purina Can. v. Kasamekas (2011), 278 O.A.C. 363 (CA)

MLB headnote and full text

Temp. Cite: [2011] O.A.C. TBEd. JN.030

Agribrands Purina Canada Inc. (plaintiff/appellant) v. Walter Kasamekas and Sherry Kasamekas, Raymond Joseph Jackson and Savitri Jackson (defendants/respondents)

Walter Kasamekas and Sherry Kasamekas, Raymond Joseph Jackson and Raywalt Feed Sales (plaintiffs by counterclaim/respondents) v. Agribrands Purina Canada Inc., Ren's Feed and Supplies Limited, Walter Rendell Job, McGrath Farms Inc., Edward James McGrath Farms Ltd., E.J.M. Farms Ltd. and The Estate of Edward James McGrath (defendants by counterclaim/appellants)

(C51618, C51637; 2011 ONCA 460)

Indexed As: Agribrands Purina Canada Inc. v. Kasamekas et al.

Ontario Court of Appeal

Goudge, Gillese and Juriansz, JJ.A.

June 20, 2011.

Summary:

At trial, the respondents, Raywalt Feed Sales Ltd. (Raywalt) et al., were awarded $2,096,406 general damages and prejudgment interest against the appellants, Agribrands Purina Canada Inc. (Purina) et al. The respondents also recovered $30,000 punitive damages against Purina. Finally, they were awarded $175,000 costs. The trial judge found the appellants liable to the respondents for the tort of unlawful conduct conspiracy. He also found Purina in breach of its contract with Raywalt. He assessed damages on the same basis for both causes of action. See [2010] O.T.C. Uned. 166. The appellants appealed the finding of unlawful conduct conspiracy. They submitted that the trial judge made errors in calculating damages for that tort and in the prejudgment interest rate he applied. While Purina did not contest the finding of breach of contract made against it, it did contest the method the trial judge used to calculate the damages for that breach. Finally, Purina appealed the finding of punitive damages made against it.

The Ontario Court of Appeal allowed the appeal, except for the award of punitive damages. The court dismissed the claim of unlawful conduct conspiracy and substituted an award of $198,665.83 damages for breach of contract, to which it applied a prejudgment interest rate of 5.1%. The court stated that this result might be relevant to the costs awarded at trial as well to the costs of the appeal. The parties could file written submissions on both questions within 30 days.

Contracts - Topic 3502

Performance or breach - Obligation to perform - Good faith - Exercise of - Ren's was a well established dealer of Purina livestock feed and pet food - In 1990 Purina discovered that Ren's was in breach of its dealership agreement with Purina - As a result, Purina terminated Ren's dealership in July 1990 - In February 1991, Raywalt Feed Sales Ltd. (Raywalt) and Purina concluded a dealership agreement under which Purina agreed not to appoint any other dealer in Raywalt's territory (previously Ren's territory) - Raywalt opened for business in mid-March 1991 - Despite giving Raywalt territorial exclusivity, Purina continued to supply feed to Ren's until April 1991 - When Purina finally ended this practice, Ren's got McGrath, who was a friend and the Purina dealer in a neighbouring territory, to supply Ren's with Purina feed at dealer prices - This allowed Ren's to continue to sell Purina feed in Raywalt's territory - Purina knew of, condoned and approved of the arrangement - Purina provided McGrath with feed for resale to Ren's - As a result, Raywalt's business was not nearly as profitable as projected and it had to cease business in January 1992 - The trial judge held that Purina breached its contract with Raywalt - One term of the contract provided that the dealership agreement was for two years but would automatically renew unless either party gave notice of cancellation - A second allowed either party to cancel the contract at any time by giving 60 days' notice (Article V(B)) - The trial judge concluded that there was an implied duty of good faith on Purina in its contract with Raywalt, Purina had acted in bad faith and therefore it could not rely on Article V(B) to permit it to terminate the contract on 60 days' notice - Further, because of Purina's conduct, the doctrine of unconscionability applied to prevent Purina from relying on the time limiting provisions in the agreement - For these reasons, the trial judge based his quantification of damages for breach of contract on the premise that Purina's contract with Raywalt would have continued indefinitely - He awarded $954,213 general damages - The Ontario Court of Appeal reduced the damage award to $198,665.83 - The trial judge should have calculated the damages needed to restore Raywalt to the position it would have been in had the contract been performed, adopting the mode of performance provided by the contract that was least burdensome to Purina (i.e., Article V(B)) - Moreover, by finding an implied duty of good faith on Purina not to act in a way that defeated the very purpose of the contract and then finding that Purina could not rely on Article V(B) because it had breached that implied duty, the trial judge erred by using the implied duty of good faith to alter the express terms of the contract, including the right to terminate on notice - Canadian courts had not accorded this power to an implied duty of good faith - The trial judge also suggested that it would be unconscionable to allow Purina to rely on a clause like Article V(B) in the calculation of breach of contract damages - The court did not agree that unconscionability could be used in this way - That doctrine was applicable to determine whether the contract itself was unconscionable, given, for example, the circumstances in which it was made - The doctrine was not applicable to determine how damages should be assessed in light of the circumstances of a particular breach - See paragraphs 9 to 13, 18, 19 and 44 to 62.

Contracts - Topic 7415.1

Interpretation - General principles - Good faith - [See Contracts - Topic 3502 ].

Damage Awards - Topic 2018.1

Exemplary or punitive damages - Breach of contract - Ren's was a well established dealer of Purina livestock feed and pet food - In 1990 Purina discovered that Ren's was in breach of its dealership agreement with Purina - As a result, Purina terminated Ren's dealership in July 1990 - In February 1991, Raywalt Feed Sales Ltd. (Raywalt) and Purina concluded a dealership agreement under which Purina agreed not to appoint any other dealer in Raywalt's territory (previously Ren's territory) - Raywalt opened for business in mid-March 1991 - Despite giving Raywalt territorial exclusivity, Purina continued to supply feed to Ren's until April 1991 - When Purina finally ended this practice, Ren's got McGrath, who was a friend and the Purina dealer in a neighbouring territory, to supply Ren's with Purina feed at dealer prices - This allowed Ren's to continue to sell Purina feed in Raywalt's territory - Purina knew of, condoned and approved of the arrangement - Purina provided McGrath with feed for resale to Ren's - As a result, Raywalt's business was not nearly as profitable as projected and it had to cease business in January 1992 - The trial judge held that Purina breached its contract with Raywalt - The Ontario Court of Appeal upheld an award of $30,000 punitive damages against Purina for breach of contract - Purina had breached its implied duty of good faith - Coupled with breach of the exclusivity contract, the requirement of an independently actionable wrong was met - Purina's conduct constituted a sufficiently marked departure from the ordinary standards of decency to warrant censure through the imposition of an award of punitive damages - It was reprehensible - See paragraphs 21 and 75 to 83.

Damage Awards - Topic 2030.6

Exemplary or punitive damages - Breach of duty of good faith - [See Damage Awards - Topic 2018.1 ].

Damages - Topic 1305

Exemplary or punitive damages - Breach of contract - [See Damage Awards - Topic 2018.1 ].

Damages - Topic 1305

Exemplary or punitive damages - Breach of contract - A trial judge stated that "Here, I find that an award of punitive damages ought to be made against [the defendant] to serve the rational purpose of delivering the simple message that good faith, promises of good faith, and an underlying foundation of business efficacy continue to be what our law relies upon as the cornerstone of upholding and enforcing contractual promises." - The Ontario Court of Appeal stated that "... this sets too low a bar. It would make every breach of contract that is also a breach of an implied duty of good faith a sufficient basis for the award of punitive damages. I think that would pay insufficient regard to the caution in Sun Life [2006 SCC] that punitive damages are confined to exceptional cases in which the misconduct is of a nature that takes it beyond the usual opprobrium surrounding breaking a contract. It seems to me that breaches of an implied duty of good faith can come in so many possible different shapes and sizes that it cannot be said that generically, the breach of such a duty is per se enough to justify punitive damages." - See paragraph 78.

Equity - Topic 1121

Equitable relief - Contracts - Unconscionability - General - [See Contracts - Topic 3502 ].

Interest - Topic 5045

Interest as damages (prejudgment interest) - Statutes - Application of - The Ontario Court of Appeal stated that the pre-judgment rate specified in the Rules of Civil Procedure under the Courts of Justice Act (CJA) for proceedings commenced in the last quarter of 1992, when the respondents' claim was commenced, was 5.1% - That was the applicable rate unless the court found special circumstances to justify departing from it - The court held that the trial judge erred by taking as his starting point the average pre-judgment interest rate for 1992, the year in which the respondents' cause of action arose, being 6.65%, rather than the starting point as specified under the CJA - Moreover, he offered no special circumstances for exercising his discretion to deviate from the applicable rate specified by the CJA - See paragraphs 20 and 70 to 74.

Torts - Topic 5023

Interference with economic relations - Elements of liability - Use of unlawful means - The Ontario Court of Appeal reviewed case law dealing with the tort of intentional interference with economic relations and the tort of civil conspiracy - The court stated that "What is clear from this jurisprudence is that, to constitute unlawful conduct for the purposes of the tort of intentional interference, the conduct must be actionable. It must be wrong in law. Conduct that is merely not authorized by a convention or an understanding is not enough. ... Moreover, reliance on the tort of intentional interference to supply the definition of 'unlawful conduct' for the tort of civil conspiracy does not recognize that these two economic torts have evolved separately, and thus each have developed their own concept of unlawful conduct. The court should therefore be cautious of turning away from the history of this separate evolution simply to achieve a unified theory for the economic torts. ... [R]ather than automatically adopting the meaning of unlawful conduct given in the intentional interference tort cases, I think the better course is to use those cases as a guide, but also consider the kind of conduct that the jurisprudence has found to be unlawful conduct for the purposes of the conspiracy tort. It is clear from that jurisprudence that quasi-criminal conduct, when undertaken in concert, is sufficient to constitute unlawful conduct for the purposes of the conspiracy tort, even though that conduct is not actionable in a private law sense by a third party. ... So too is conduct that is in breach of the Criminal Code. These examples of 'unlawful conduct' are not actionable in themselves, but they have been held to constitute conduct that is wrongful in law and therefore sufficient to be considered 'unlawful conduct' within the meaning of civil conspiracy. There are also many examples of conduct found to be unlawful for the purposes of this tort simply because the conduct is actionable as a matter of private law. ... What is required, therefore, to meet the 'unlawful conduct' element of the conspiracy tort is that the defendants engage, in concert, in acts that are wrong in law, whether actionable at private law or not. In the commercial world, even highly competitive activity, provided it is otherwise lawful, does not qualify as 'unlawful conduct' for the purposes of this tort." - See paragraphs 24 to 38.

Torts - Topic 5024

Interference with economic relations - Elements of liability - Malice or intent to injure - [See Torts - Topic 5023 ].

Torts - Topic 5084

Interference with economic relations - Conspiracy - Unlawful conduct or unlawful means conspiracy - [See Torts - Topic 5023 ].

Torts - Topic 5084

Interference with economic relations - Conspiracy - Unlawful conduct or unlawful means conspiracy - The Ontario Court of Appeal stated that "For the appellants to be liable for the tort of unlawful conduct conspiracy, the following elements must therefore be present: a) they act in combination, that is, in concert, by agreement or with a common design; b) their conduct is unlawful; c) their conduct is directed towards the respondents; d) the appellants should know that, in the circumstances, injury to the respondents is likely to result; and e) their conduct causes injury to the respondents." - See paragraph 26.

Torts - Topic 5084

Interference with economic relations - Conspiracy - Unlawful conduct or unlawful means conspiracy - Ren's was a well established dealer of Purina livestock feed and pet food - In 1990 Purina discovered that Ren's was in breach of its dealership agreement with Purina - As a result, Purina terminated Ren's dealership in July 1990 - In February 1991, Raywalt Feed Sales Ltd. (Raywalt) and Purina concluded a dealership agreement under which Purina agreed not to appoint any other dealer in Raywalt's territory (previously Ren's territory) - Raywalt opened for business in mid-March 1991 - Despite giving Raywalt territorial exclusivity, Purina continued to supply feed to Ren's until April 1991 - When Purina finally ended this practice, Ren's got McGrath, who was a friend and the Purina dealer in a neighbouring territory, to supply Ren's with Purina feed at dealer prices - This allowed Ren's to continue to sell Purina feed in Raywalt's territory - Purina knew of, condoned and approved of the arrangement - Purina provided McGrath with feed for resale to Ren's - As a result, Raywalt's business was not nearly as profitable as projected and it had to cease business in January 1992 - The Ontario Court of Appeal held that while Purina's breach of its contract with Raywalt was sufficient to qualify as "unlawful conduct", neither Ren's nor McGrath did anything that would do so - As a consequence, the trial judge's finding of unlawful conduct conspiracy and the damages flowing from it had to be set aside - See paragraphs 14 to 17 and 39 to 43.

Cases Noticed:

Hamilton v. Open Window Bakery Ltd. et al., [2004] 1 S.C.R. 303; 316 N.R. 265; 184 O.A.C. 209; 2004 SCC 9, folld. [para. 10].

Reach M.D. Inc. v. Pharmaceutical Manufacturers Association of Canada et al. (2003), 172 O.A.C. 202; 65 O.R.(3d) 30 (C.A.), refd to. [para. 16].

Canada Cement LaFarge Ltd. et al. v. British Columbia Lightweight Aggregate Ltd. et al., [1983] 1 S.C.R. 452; 47 N.R. 191, refd to. [para. 24].

Bank of Montreal v. Tortora et al. (2010), 287 B.C.A.C. 14; 485 W.A.C. 14; 3 B.C.L.R.(5th) 39; 2010 BCCA 139, refd to. [para. 28].

Torquay Hotel Co. v. Cousins, [1969] 2 Ch. 106 (C.A.), refd to. [para. 31].

Drouillard v. Cogeco Cable Inc. et al. (2007), 223 O.A.C. 350; 86 O.R.(3d) 431 (C.A.), refd to. [para. 32].

Correia v. Canac Kitchens et al. (2008), 240 O.A.C. 153; 91 O.R.(3d) 353; 2008 ONCA 506, refd to. [para. 32].

OBG Ltd. et al. v. Allan et al., [2008] A.C. 1; 369 N.R. 66; [2007] UKHL 21, refd to. [para. 32].

OBG Ltd. v. Allan; Douglas v. Hello! Ltd.; Mainstream Properties Ltd. v. Young - see OBG Ltd. et al. v. Allan et al.

Alleslev-Krofchak et al. v. Valcom Ltd. et al. (2010), 266 O.A.C. 356; 2010 ONCA 557, refd to. [para. 32].

Total Network SL v. United Kingdom (Her Majesty's Revenue and Customs), [2008] 2 W.L.R. 711; 385 N.R. 310; [2008] UKHL 19, refd to. [para. 35].

Cockburn v. Alexander (1848), 6 C.B. 791, refd to. [para. 45].

Transamerica Life Canada Inc. et al. v. ING Canada Inc., [2003] O.A.C. Uned. 565; 68 O.R.(3d) 457 (C.A.), folld. [para. 51].

Fidler v. Sun Life Assurance Co. of Canada, [2006] 2 S.C.R. 3; 350 N.R. 40; 227 B.C.A.C. 39; 374 W.A.C. 39; 2006 SCC 30, folld. [para. 76].

Whiten v. Pilot Insurance Co. et al., [2002] 1 S.C.R. 595; 283 N.R. 1; 156 O.A.C. 201; 2002 SCC 18, appld. [para. 79].

Authors and Works Noticed:

Burns, Peter T., and Blom, Joost, Economic Interests in Canadian Tort Law (2009), pp. 167, 168 [para. 37].

Counsel:

Kirk F. Stevens and Gerard V. Thompson, for the appellants;

W. Graydon Sheppard and Marc Munro, for the respondents.

This appeal was heard on February 14, 2011, by Goudge, Gillese and Juriansz, JJ.A., of the Ontario Court of Appeal. Goudge, J.A., delivered the following decision for the court on June 20, 2011.