A RIGHT TO CHOOSE: A CRITICAL REVIEW AND DEFENCE OF THE MINIMUM PERFORMANCE PRINCIPLE.

• Date: 22 March 2019
• Author: Howes, Ryan Nicholas

I THE ASSUMPTION OF MINIMUM PERFORMANCE: RECOGNIZING RIGHTS AND RISKS 165 A. Ability to perform as a condition for determining the least onerous option 169 B. The defendant's conduct but for breach: Would've, could've, should've 172 C. The correct doctrinal approach 179 II IS GOOD FAITH A CONDITION PRECEDENT TO APPLYING THE MINIMUM PERFORMANCE PRINCIPLE? 180 III IS THE MINIMUM PERFORMANCE PRINCIPLE INCONSISTENT WITH EXPECTATION DAMAGES? 183 A. Pearce's critique and reasonable expectation approach 184 B. Pratt's critique and counterfactual speculation approach 186 IV CONCLUSION 189 It is said that contracts create primary obligations which, if breached, give rise by implication of common law to a secondary obligation to pay damages in lieu of performance. (1) What secondary obligation arises upon breach of a primary obligation to choose one from multiple performance options? The minimum performance principle is the judicial answer to this question. (2) Considerable scholarly disagreement persists concerning this doctrine. In this paper, I advance and defend a particular doctrinal approach to the minimum performance principle. Damages are assessed by the least onerous alternative that the defendant was capable of performing. The relative onerousness of each alternative, and the defendant's respective ability to perform, must be determined in light of all the surrounding circumstances, including proximate consequences. This may require factual inquiry and counterfactual speculation, but these do not extend to the defendant's choice in respect of its contractual performance. The question is not what the defendant would have done but for the breach. Such an approach would be inconsistent with the terms of the contract, which vested discretion in the defendant. Rather, the question is, of the modes of performance that were in fact available to the defendant, which is the least onerous to the defendant? That is the measure of the defendant's liability to the plaintiff. On the basis of this doctrinal approach, this paper makes two further propositions. First, good faith is not a condition precedent to applying the minimum performance principle. Second, the minimum performance principle is consistent with the fundamental principle of damages for breach of contract, that of putting the innocent party in the position it would have been in but for the breach.

I THE ASSUMPTION OF MINIMUM PERFORMANCE: RECOGNIZING RIGHTS AND RISKS

The minimum performance principle is an assumption that, where the defendant repudiates a contract and the quantum of the plaintiff's damages depends on a discretionary choice that the contract vested in the defendant, the defendant's liability is measured by that mode of performance which is least onerous to the defendant, determined in light of all the surrounding circumstances. The classic formulation of this doctrine is Justice Maule's dictum in Cockburn v Alexander: "Generally speaking, where there are several ways in which the contract might be performed, that mode is adopted which is the least profitable to the plaintiff, and the least burthensome to the defendant." (3) In order for the minimum performance principle to apply, the contract must provide for "strictly alternative" modes of performance. (4) Case law reveals three situations that qualify as "strictly alternative" in this sense.

The first is where the defendant may choose between one mode of performance and another (X or Y). For example, where a contract for delivery of goods provides several acceptable destination ports, damages are assessed assuming delivery to the closest port. (5) The same applies in respect of discretionary benefits. In Lavarack v Woods of Colchester, the wrongfully terminated plaintiff employee was held not to be entitled to damages reflecting future bonuses, the bestowment of which was entirely at the discretion of the defendant employer. (6) The least burdensome mode of performing the contract for the defendant was not granting bonuses to the plaintiff. Another example is the right to terminate a contract. This was the case in Hamilton v Open Window Bakery Ltd, which will be discussed at length below. (7) Relatedly, the second applicable situation is where the defendant has contracted to do X but retains the choice to do Y instead. For example, in Withers v General Theatre Corp, the defendant theatre company engaged the plaintiff artist to perform at a prominent theatre, but the defendant retained the right to transfer the engagement to another, less prominent location. (8) The defendant did not permit the plaintiff to perform. The plaintiff claimed for the loss of publicity. Damages were assessed based on the least profitable location. Finally, the third applicable situation is where the contract provides for a range of acceptable performance (X +/- Y). For example, in In Re Thornett & Fehr and Yuills, Ltd, the defendant seller repudiated a contract to deliver "200 tons, 5 per cent. more or less." (9) The court fixed damages at 190 tons. This also applies where the defendant is the buyer. (10)

The same principle underlies these three situations: where the contract vests in the defendant discretion to choose between alternative ways of performing the contract and the defendant does none, damages are assessed by that mode of performance which is least burdensome to the defendant. The plaintiff is entitled to no more than the minimum that the defendant was obligated to do. Damages reflect the monetary value of this entitlement and no more.

In Canada, the leading case on the minimum performance principle is Open Window SCC. (11) In that case, the plaintiff was party to a 36-month contract which granted the defendant the right to terminate the contract without cause on three months' notice, effective after the 19th month of the contract's term. The plaintiff was an exclusive agent for the marketing and sale of the defendant's goods in Japan. The defendant first wrongfully terminated the contract for cause before later also issuing notice of termination for convenience once the parties had entered the 19th month of the contract. The plaintiff argued that damages should be assessed pursuant to "how the defendant would likely have performed his or her obligations under the contract, hypothetically, but for his or her repudiation." (12) This was the approach adopted by Wilkin J at first instance, who awarded damages reflecting payments that would have been made under the full 36-month term, with a 25% reduction to reflect the possibility that the defendant would have exercised its right to terminate. (13) This was reversed on appeal by a majority at the Court of Appeal for Ontario. (14) At the Supreme Court of Canada, Justice Arbour, writing for the court, dismissed the appeal, affirming the analytical approach adopted by Justice Simmons at the Court of Appeal for Ontario. Relying on Cockburn (15) and Withers (16) as principal authorities, Arbour J held:

[The plaintiff] has no compensable interest in the advantages she might have expected under any particular performance of the contract, since the contract itself provided for alternative methods of performance at the election of the defendant. If [the plaintiff] wanted to secure herself the benefits associated with a given particular method of performance, she should have contracted for only that method of performance.... The plaintiff agreed at the outset that she was entitled to no more [than minimum performance] by contracting for a contractual term that could be truncated with notice entirely at the discretion of the defendant. (17) The termination clause in effect defined the upper limit of the defendant's liability. The plaintiff was therefore unable to claim for damages beyond the three-month notice period, exercised at the earliest eligible time, the 19th month of the contract.

Swan, Adamski and Na have criticized the reasoning in Open Window SCC. (18) Implicit in Arbour J's approach is an assumption that unfettered discretion will be exercised in the most self-serving manner, which they argue is based on a particular interpretation of Lord Scrutton's well-known dictum in Withers: "where a defendant has alternative ways of performing a contract at his option... damages are assessed... on the basis that the defendant will perform the contract in the way most beneficial to himself and not in any way that is most beneficial to the plaintiff." (19) Swan, Adamski and Na are critical of Arbour J's approach:

The problem with Arbour J.'s analysis is that she did not consider the fact that Scrutton L.J.'s argument is, at best, a default assumption about how parties might have behaved, an assumption that should be subject to being set aside where appropriate evidence exists. The fact that the trial judge held that the plaintiff was entitled to damages greater than the minimum on the basis that the defendant would not have chosen to terminate the contract as early as it lawfully could would be precisely the kind of fact that would displace the assumption. (20) This critique raises two questions. Is minimum performance a default assumption displaceable by factual findings? And, if so, were Wilkin J's findings in Open Window ONSC the kind of facts that should displace this assumption? I will address these two questions by reviewing Cockburn (21) and Withers, (22) the two principal authorities relied on by Arbour J in Open Window SCC. (23)

I argue that the assumption of minimum performance is displaceable by a finding that the defendant was incapable of performing the least onerous mode available to it. (24) This is supported by Cockburn. However, Wilkin J's findings in Open Window ONSC are not of this kind. (25) Findings of what the defendant likely would have done cannot displace the assumption of minimum performance. This would be the wrong interpretation of Withers.

1. ABILITY TO PERFORM AS A CONDITION FOR DETERMINING THE LEAST ONEROUS OPTION

   In...