Today, many service providers offer email accounts for free and monetize them through advertising. For example, every email sent to or from an account with “Gmail,” Google’s popular email service, is an advertising opportunity for Google. This is because Google, or, rather, its computer algorithms, “reads” each email as it arrives or departs, scanning for keywords that will trigger corresponding advertisements. As a result, an email that mentions photography may, when viewed by the recipient, display an advertisement for cameras.
In October 2012, Wayne Plimmer filed a class-action lawsuit against Google in British Columbia. Mr. Plimmer, a non-Gmail user, claims that Google has been “reading” emails that he has sent to Gmail users, that he has never consented to Google’s use of his private emails for advertising purposes, and that Google is liable for damages for invading his privacy. The claim alleges invasion of privacy under both the common law and the British Columbia Privacy Act. Gmail had more than 425 million active users in or around the time of the filing of the claim.
More than 120 years before, on a day in 1890, Samuel D. Warren, a Boston attorney, felt a similar frustration with his own privacy interests. He and his wife had hosted a series of elite social events, including a wedding for their daughter, which the Boston newspapers had covered in highly personal and embarrassing detail. Exasperated, Warren approached his former law partner, Louis D. Brandeis, with the desire of finding some legal remedy for this constant invasion of privacy, one that would protect his right to be “left alone.”
Later that year, Warren and Brandeis published “The Right to Privacy” in the Harvard Law Review. It called for common-law protection for, among other items falling within the penumbra of privacy, the use of private letters by an unintended third-party recipient.
In 1939, this proposed right to privacy was incorporated into the Restatement of Torts, and by 1960 it was adopted in 26 states and the District of Columbia. In 1977, the Restatement (Second) of Torts provided as an example of such a tort an “investigation or examination into [one’s] private concerns, as by opening his private and personal mail.” Throughout the 20th Century, it was taken as established that reading someone else’s mail would satisfy the elements of this tort.
By 2001, all but two US states had recognized some form of a right to privacy, and today the concept has begun to make its way into Canadian law. Yet, as the tort gains wider acceptance, its scope is called into question when considered in the new context of Internet communications. Although Warren and Brandeis bristled at the thought of third parties intercepting private mail, the facts of Plimmer v. Google have been described by one academic as an “are-you-kidding-me” lawsuit.
This article explores why the act of intercepting and reading another’s mail—an act that was initially viewed as an obvious example of an invasion of privacy—could today be viewed by some as an obvious non-starter. This article first compares the common-law invasion-of-privacy regime in Ontario with the statutory regime in British Columbia. The regimes in these provinces are among the most developed of the Canadian invasion-of-privacy regimes and generally are representative of the common law and statutory regimes in other Canadian jurisdictions. It is suggested that, in practice, the analysis applicable to the tort of intrusion upon seclusion, as a subset of invasion of privacy, is similar under both the common law and statutory regimes.
Next, the article surveys US jurisprudence, which has informed the development of Canadian law, and shows why voluntarily disclosure of information to a third party may have different implications under the Canadian common law regime than it does in the United States. Finally, the article explores the impact of consent under the common law and statutory regimes, and briefly considers the potential implications for a case such as Plimmer.
Read the full article here: Matthew Nied (co-author), “Clicking Away Privacy: Email and the Tort of Intrusion Upon Seclusion” (2014) 17:9 Journal of Internet Law 3.
Mainstream Canada v. Staniford: Defamation, the Defence of Fair Comment, and the “Factual Foundation” Requirement
July 29, 2013
In Mainstream Canada v. Staniford, 2013 BCCA 341, the British Columbia Court of Appeal considered whether the defence of fair comment applied to defamatory material published on the internet and in a press release. The key issue was whether the defamatory material sufficiently referenced the “factual foundation” required to establish the defence.
The Court held that the defamatory material did not sufficiently reference the factual foundation required to establish the defence. As a result, the Court overturned the trial judge’s dismissal of the claim, granted a permanent injunction, and awarded general damages of $25,000 and punitive damages of $50,000.
The decision clarifies the circumstances in which the “factual foundation” requirement of the defence of fair comment will be met. It also provides guidance with respect to the application of the defence of fair comment to internet publications involving hyperlinked documents.
The appellant, Mainstream Canada (“Mainstream”), was a producer of farmed salmon in British Columbia. The respondent, Don Staniford (“Mr. Staniford”), was an activist dedicated to the eradication of salmon farming. Mr. Staniford was also the author of a website under the name of The Global Alliance Against Industrial Aquaculture (“GAAIA”).
Starting in January 2011, Mr. Staniford posted various publications and images regarding salmon farming on the GAAIA website, and also sent a press release to the media containing similar content.
In general, the publications alleged that salmon farming was hazardous to human health and the environment. The publications also drew comparisons between salmon fish farmers and cigarette manufacturers.
Mainstream commenced an action seeking general and punitive damages on the basis that the publications were defamatory, as well as a permanent injunction restraining Mr. Staniford from publishing similar words and images in the future.
The trial judge dismissed the action. Although the trial judge held that the publications were defamatory, she held that the defence of fair comment applied.
Mainstream appealed the trial judge’s decision on the basis that the defence of fair comment did not apply.
In a defamation action, the plaintiff has the burden of proving that a publication is defamatory. If the plaintiff succeeds, the onus shifts to the defendant to advance a defence, including the defence of fair comment, in order to escape liability.
The defendant must prove five elements to establish the defence of fair comment:
- The comment must be on a matter of public interest;
- The comment must be based on fact;
- The comment, though it can include inferences of fact, must be recognisable as comment;
- The comment must satisfy the following objective test: could any person honestly express that opinion on the proved facts?; and
- Even though the comment satisfies the objective test the defence can be defeated if the plaintiff proves that the defendant was actuated by express malice.
The second element of the defence of fair comment requires that a comment have a sufficient factual foundation. In particular, the comment must be an expression of opinion on a known set of facts, and the audience must be in a position to assess or evaluate the comment.
On appeal, Mr. Justice Tysoe, writing for a unanimous three-member panel, held that the trial judge erred in finding that the defence of fair comment applied to the defamatory material. In particular, the Court concluded that the defence did not apply because the second element of the defence was not met.
The Court began by observing that the “factual foundation” requirement could be met in any of three ways:
- The factual material can be expressly stated in the same publication as that in which the comment appears (i.e. by “setting it out”);
- The factual material commented on, while not set out in the material, can be referred to (i.e. by being identified “by a clear reference”); or
- The factual material can be “notorious”, as to be already understood by the audience.
The Court concluded that the factual foundation for certain comments in the publications “were neither notorious nor contained in the defamatory publications”.
As for whether there was a “clear reference” to the factual foundation, the Court observed that although the publications made general reference to certain scientific evidence that might have provided a factual foundation for the comments, the publications neither provided details of the evidence nor contained hyperlinks to the scientific papers in which the evidence was contained. At best, the references were indirect: the publications hyperlinked to articles that contained references to the scientific papers that might have provided a factual foundation for the comments.
Accordingly, the Court held that there was no clear reference in the defamatory publications as to where the factual foundation might be found. In addition, the Court observed that the trial judge, by concluding that it would take a “determined reader” to locate the factual foundation upon which the comments were based, had “implicitly acknowledged that there was not a clear reference to the facts that were neither notorious nor contained in the defamatory publications.”
The Court also considered whether the factual foundation could be sufficiently stated if it were contained somewhere on the website, contained in scientific papers hyperlinked on the website, or if the website set out the website addresses for the scientific papers.
On that point, the Court held that “[i]t is not sufficient for the defence of fair comment for facts upon which the comments were made to be contained on website pages that were not alleged to contain defamatory comments or in hyperlinked documents unless those other pages or hyperlinked documents were identified by a clear reference to contain such facts.”
The Court added that “[w]hether hyperlinks in a defamatory publication on a website to other documents containing facts upon which the defamatory comment was made is sufficient will depend on the circumstances of each case. If the defamatory publication advises the reader that a hyperlinked document contains facts upon which the defamatory comment is based and sets out where in the document they are contained, then there may well be a sufficient reference to those facts.”
In the case at bar, “the readers of the defamatory publications were not advised which of the multitudinous hyperlinked documents in the publications or elsewhere on the GAAIA website contained facts upon which Mr. Staniford’s comments were based.”
As a result, the Court concluded that “the facts upon which Mr. Staniford’s defamatory comments were based were not all notorious, contained in the defamatory publications or sufficiently referenced to be contained in other specified documents.” Accordingly, the defence did not apply.
March 30, 2013
In Ross River Dena Council v. Government of Yukon, 2012 YKCA 14, the Yukon Court of Appeal unanimously held that the Government of Yukon has a duty to consult with First Nations before recording mineral claims staked in areas claimed by First Nations, and that merely providing notice of mining claims will not be sufficient to meet that duty.
The “duty to consult” is a duty on the part of Canada’s governments (the “Crown”) to engage in a process of consultation with First Nations where proposed Crown conduct may adversely affect Aboriginal claims or rights.
The decision may have implications for similar mining claim regimes in British Columbia and other Canadian jurisdictions.
On February 25, 2013, the Government of Yukon filed an application seeking leave to appeal the decision to the Supreme Court of Canada.
The plaintiff, the Ross River Dena Council (the “Council”), claimed Aboriginal title and rights to a portion of traditional territory known as the “Ross River Area”. The claim covered approximately 13% of the Yukon.
The dispute focused on the mining claim system established by the Quartz Mining Act, S.Y. 2003, c. 14 (the “Act”), which provides that an individual may acquire mineral rights simply by physically staking a claim and then recording it with a designated regulatory authority.
Once a mining claim is recorded, the Act provides that a claimant is entitled to the minerals within the claim and may conduct certain exploration activities on the land without further authorization and without notice to the Government of Yukon. Such a system is typically referred to as an “open entry” or “free entry” mineral claim system.
The regulatory authority’s role in registering a mineral claim is purely ministerial in nature. That is, the authority does not possess any discretion to refuse to record a claim that complies with the requirements of the Act.
The Council argued that this system permits exploration activities potentially adverse to its asserted Aboriginal title and rights, and that the Government has a duty to consult before recording mining claims within the claimed territory.
The chambers judge held that the Government’s practices in respect of new mineral claims under the Act did not measure up to the consultation requirements required by the law, but held that those requirements would be satisfied by a scheme under which the Government provided notice to the Council of newly-recorded quartz mining claims within its traditional territory.
The Council appealed, arguing that consultation must take place before the recording of mineral claims, and that consultation requires more than mere notice of new claims.
The law provides that the Crown has a duty to consult with First Nations with respect to contemplated Crown activities when:
- The Crown has knowledge, actual or constructive, of the potential existence of a First Nations claim or right;
- The Crown contemplates conduct or a decision; and
- The conduct or decision may adversely affect the First Nations claim or right.
The duty to consult is grounded in the honour of the Crown. While the treaty claims process is ongoing, there is an implied duty to consult with First Nations claimants on matters that may adversely affect their treaty and Aboriginal rights, and, where appropriate, to accommodate those interests in the spirit of reconciliation.
It is not necessary for a First Nation to definitely establish a claim or right for the duty to consult to arise. The depth of the required consultation in connection with an unproven claim increases with:
- The strength of the prima facie First Nations claim; and
- The seriousness of the impact on the underlying claim or treaty right.
As a result, a dubious or peripheral claim may attract a mere duty of notice, while a stronger claim may attract more stringent duties.
The remedy for a breach of the duty to consult varies with the situation. The Crown’s failure to consult can lead to a number of remedies ranging from injunctive relief against the conduct, to damages, to an order to carry out the consultation prior to proceeding further with the proposed Crown conduct.
The question on appeal was whether the three elements of the duty to consult were present where the Government sought to record a mineral claim within territory subject to Aboriginal rights and title claims.
There was no dispute that the first element of the duty to consult was satisfied, since the Government had knowledge of the Council’s asserted Aboriginal rights.
There was also no doubt that the third element of the duty to consult was met. The regulatory regime could allow mineral claims to be granted without regard to asserted Aboriginal title, and could also allow exploratory work that might adversely affect claimed Aboriginal rights to be carried out without consultation.
Accordingly, the key issue in dispute was whether the second element of the duty to consult was met. That is, the question was whether the recording of a mineral claim under the Act qualified as “contemplated Crown conduct” despite the fact that the regulatory authority had no discretion in respect of the granting of the mineral claim provided that the requirements of the Act were met.
Mr. Justice Groberman, writing for the Yukon Court of Appeal, rejected the notion that “the absence of statutory discretion in relation to the recording of claims under the … Act absolve[d] the Crown of its duty to consult.” In the Court’s view, the duty to consult “exists to ensure that the Crown does not manage its resources in a manner that ignores Aboriginal claims”, and that “[s]tatutory regimes that do not allow for consultation and fail to provide any other equally effective means to acknowledge and accommodate Aboriginal claims are defective and cannot be allowed to subsist.”
The Court also held that the duty to consult required more than the mere provision of notice of mining claims. Although the Court acknowledged that “the open entry system … under the … Act has considerable value in maintaining a viable mining industry and encouraging prospecting” and “that the system is important both historically and economically”, the Court held that the system had to be modified “in order for the Crown to act in accordance with its constitutional duties.”
However, the Court did not specify precisely how the regime could be brought into conformity with the requirements of the duty to consult. In the Court’s view, “[w]hat is required is that consultations be meaningful, and that the system allow for accommodation to take place, where required, before claimed Aboriginal title or rights are adversely affected.”
In particular, where “exploration activities are expected to have serious or long-lasting adverse effects on claimed Aboriginal rights, … [t]he affected First Nation must be provided with notice of the proposed activities and, where appropriate, an opportunity to consult prior to the activity taking place.” In doing so, “the Crown must ensure that it maintains the ability to prevent or regulate activities where it is appropriate to do so.”
In the result, the Court declared that the Government had a duty to consult “in determining whether mineral rights … within [the claimed lands] are to be made available to third parties under the provisions of the … Act.” The Court also declared that the Government “has a duty to notify and, where appropriate, consult with and accommodate the plaintiff before allowing any mining exploration activities to take place within the [claimed territory], to the extent that those activities may prejudicially affect Aboriginal rights claimed”.
The Court suspended these declarations for one year in order to permit the Government time, if it wished, to make statutory and regulatory changes in order to provide for appropriate consultation.
The decision may have implications for similar “open entry” mining claim regimes in British Columbia and other Canadian jurisdictions. Although the decision is binding precedent only in the Yukon, the judges of the Yukon Court of Appeal are comprised of the judges of the British Columbia Court of Appeal. Accordingly, the decision is likely to be highly influential in British Columbia.
On February 25, 2013, the Government of Yukon filed an application seeking leave to appeal the decision to the Supreme Court of Canada.
In Antrium Truck Centre Ltd. v. Ontario (Minister of Transportation), 2013 SCC 13, the Supreme Court of Canada reviewed the law of injurious affection, which occurs when a defendant’s activities interfere with the claimant’s use or enjoyment of land. The decision provides important guidance with respect to the circumstances in which a landowner will be entitled to compensation when their business or property is negatively affected by the construction of public works but no expropriation has occurred.
The key issue on appeal was how to determine whether an interference with the private use and enjoyment of land is unreasonable when it results from construction which serves an important public purpose.
The Court held that the reasonableness of an interference must be determined by balancing the competing interests, as in all other cases of private nuisance. That balance will be appropriately struck by answering the question of whether, in all of the circumstances, the individual claimant has shouldered a greater share of the burden of construction than it would be reasonable to expect individuals to bear without compensation.
Antrim Truck Centre Ltd. (“Antrim”) owned and operated a truck stop on Highway 17 near Ottawa. For more than 25 years, the business benefited from the patronage of motorists travelling along the highway.
In 2004, the Province of Ontario constructed a new highway that significantly and permanently altered Highway 17 in a manner that restricted motorists’ access to the truck stop, decreasing the market value of the land and effectively putting the truck stop out of business.
Antrim sought compensation for injurious affection before the Ontario Municipal Board, which awarded damages of approximately $400,000 for business loss and for loss in the market value of the property.
The award was upheld by the Divisional Court of the Ontario Superior Court of Justice, but set aside by the Ontario Court of Appeal on the basis that the interference was not unreasonable given the important public purposes served by the highway’s construction.
The key issue on appeal was how to determine whether an interference with the private use and enjoyment of land is unreasonable when it results from construction which serves an important public purpose.
In order to establish a claim for injurious affection, Antrim had to establish three elements under the Ontario Expropriations Act:
- The damage must result from action taken under statutory authority;
- The action would give rise to liability but for that statutory authority; and
- The damages must result from the construction and not the use of the works.
If Antrim could establish those three elements, it would be compensated for the amount by which the affected land’s market value was reduced because of the interference, and for personal and business damages.
On appeal, there was no dispute that the first and third requirements of injurious affection were met. The unresolved question was whether the second requirement was met. That is, if the highway construction had not been done under statutory authority, could Antrim have successfully sued for damages caused by the construction under the law of private nuisance?
Mr. Justice Cromwell, writing for the Court, began by observing that in order to establish a claim in private nuisance a claimant must establish that the interference with their use or enjoyment of land is both substantial and unreasonable.
To conclude that an interference is substantial, it must be shown to be “non-trivial” and “amount[ing] to more than a slight annoyance or trifling interference.” This requirement “underlines the important point that not every interference, no matter how minor or transitory, is an actionable nuisance; some interferences must be accepted as part of the normal give and take of life.”
Once the substantial interference threshold is met, the inquiry proceeds to the unreasonable interference analysis, which is concerned with whether the substantial interference was also unreasonable in all of the circumstances.
The question of whether an interference is unreasonable where that interference arises from an activity that furthers the public good “must be determined by balancing the competing interests”. In the Court’s view, that balance is “appropriately struck by answering the question whether, in all of the circumstances, the individual claimant has shouldered a greater share of the burden of construction than it would be reasonable to expect individuals to bear without compensation.”
In the traditional law of private nuisance, courts assess whether an interference is unreasonable by balancing the gravity of the harm against the utility of the defendant’s conduct. However, because the acts of a public authority will generally be of significant utility, public interests will generally outweigh the private interests affected by even very significant interferences. Accordingly, a simple balancing of private interests against public utility may well undermine the purpose of legislation that provides compensation for injurious affection.
In order to avoid that result, the Court held that “the question is not simply whether the broader public good outweighs the individual interference when the two are assigned equal weight”. Rather, “the question is whether the interference is greater than the individual should be expected to bear in the public interest without compensation”. The rationale is that “everyone must put up with a certain amount of temporary disruption caused by essential construction.”
The Court thus drew a distinction between interferences that constitute the “give and take” expected of all members of the public and “interferences that impose a disproportionate burden on individuals.” The Court observed that “the reasonableness analysis should favour the public authority where the harm to property interests, considered in light of its severity, the nature of the neighbourhood, its duration, the sensitivity of the plaintiff and other relevant factors, is such that the harm cannot reasonably be viewed as more than the claimant’s fair share of the costs associated with providing a public benefit.” Another relevant factor is whether the public authority “has made all reasonable efforts to reduce the impact of its works on neighbouring properties.”
The Court ultimately allowed the appeal on the basis that it was reasonable for the Board to conclude that, in all of the circumstances, Antrim should not be expected to endure “permanent interference with the use of its land that caused a significant diminution of its market value in order to serve the greater public good.”
It is important to recognize that Antrim was decided on the basis of Ontario’s statutory regime. Although s. 41 of the British Columbia Expropriation Act also permits claims for compensation on the basis of injurious affection, it remains unclear how Antrim will impact compensation claims in British Columbia.
February 18, 2013
In Tang v. Zhang, 2013 BCCA 52, the British Columbia Court of Appeal considered the interpretation of “deposit” clauses in standard form contracts for the purchase and sale of real estate. The key issue was this: where a buyer fails to complete a real estate purchase, and has paid a deposit that the contract states is to be forfeited to the seller “on account of damages”, must damages be proven in order for the seller to retain the deposit?
The Court held that a deposit will generally be forfeited without proof of damages, subject to a clear expression of contrary intention in the contract. This decision clarifies the law in British Columbia and resolves a conflict between prior inconsistent decisions.
The sellers entered into a standard form contract to sell a residential property for approximately $2,000,000. The buyer paid a deposit of $100,000. The contract provided that if the buyer did not complete the sale, “the Seller [could], at the Seller’s option, terminate [the] Contract, and, in such event, the amount paid by the Buyer [would] be absolutely forfeited to the Seller … on account of damages, without prejudice to the Seller’s other remedies.”
The buyer paid the deposit, but failed to complete the transaction. The sellers subsequently went to court seeking a declaration that the deposit was absolutely forfeited to them. In the meantime, the sellers managed to sell the property to another buyer at a higher price. As a result, the seller did not suffer any damages as a result of the buyer’s failure to complete the sale.
The trial judge observed that the contract provided that the sellers “were only entitled to the deposit ‘on account of damages’” in the event that the buyer did not complete the sale. The trial judge interpreted this to mean that the sellers did not have an unconditional right to the full deposit; instead, they only had a right to claim proven damages out of the deposit funds. Because the sellers had suffered no damages, the buyer was entitled to the return of the deposit.
The sole issue on appeal was whether the deposit was absolutely forfeited without proof of damages.
The Court began by reviewing the legal principles that govern deposits. The Court observed that the common law supports the notion that, in general, a deposit is lost by the party who fails to perform a contract, even in the absence of damages, on the basis that a deposit is “not merely a part payment”, but also a practical mechanism to “creat[e] by the fear of its forfeiture a motive in the payer to perform the rest of the contract.”
The Court held that although the question of whether a deposit is forfeited is a matter of contractual interpretation, a deposit is generally forfeited without proof of damages. This is consistent with the purpose of deposits, which is to motivate contracting parties to carry through with their bargains.
However, the Court noted that the mere act of labeling a payment as a “deposit” in a contract will not permit the parties to “immunize [the payment] from judicial scrutiny.” A court is not precluded from considering whether a “deposit” is in fact a penalty (in which case relief from forfeiture is available at common law), or unconscionable (in which case relief is available in equity). The Court observed that a deposit of up to 10% of the purchase price has generally been regarded as reasonable, and noted that there was an instance in which a deposit of 20% was regarded as reasonable.
The Court expressly rejected the argument that the phrase “on account of damages” should be interpreted to limit the forfeiture of a deposit to proven damages. In the Court’s view, the phrase was intended to mean that “in any action by a vendor to recover damages against a defaulting purchaser for breach of contract, the amount of the deposit would be counted toward (or “on account of”) such damages.” Seen in this manner, “[t]he phrase forecloses double recovery if damages are proven”, which is “not inconsistent with the nature of the deposit as a ‘guarantee’ of performance which encourages contracting parties to complete their contracts in accordance with their terms.”
Tang does not preclude parties to a contract from providing that a deposit will not be forfeited unless damages are proven. However, in light of the Court’s reasoning, doing so would appear to require the use of language that clearly and unambiguously expresses the parties’ intentions to negate the general rule and the policy rationale underlying it.
October 24, 2012
In TELUS Corporation v. Mason Capital Management LLC, 2012 BCCA 403, the British Columbia Court of Appeal considered the validity of a shareholder’s requisition for a general meeting of shareholders. The Court clarified that a requisition made under s. 167 of the British Columbia Business Corporations Act need not identify the beneficial owner of the shares used to call the meeting in order to be valid. In addition, the Court held that it had no authority under the Act to restrain a shareholder from requisitioning a meeting on the basis of its “net investment” or that its interests are not aligned with the economic well-being of the company.
Read the full article here: Matthew Nied and Taylor Little, “Mason Capital Succeeds: Appeal Court Confirms CDS’s Ability to Requisition Meeting By ‘Empty Voter’” (2012) 7:4 Corporate Governance Report 41.
Also published on the Canadian Securities Law Blog (Stikeman Elliott)
October 21, 2012
In Southcott Estates Inc. v. Toronto Catholic District School Board, 2012 SCC 51, the Supreme Court of Canada considered whether a plaintiff in a case involving a failed real estate transaction was excused from mitigating its losses on the basis that it had made a claim for specific performance.
Although the Court recognized that a plaintiff’s refusal to mitigate may be reasonable if the plaintiff had a “substantial justification” or a “substantial and legitimate interest” in specific performance, the Court held that the plaintiff had no such interest because the property was intended as an investment and had no peculiar or special value to the plaintiff.
The plaintiff, Southcott Estates Inc. (“Southcott”) was a single-purpose company incorporated solely for the purpose of a specific land purchase. It had no assets other than money advanced to it by its parent company for the deposit relating to the land purchase.
Southcott entered into an agreement of purchase and sale for a specific property with the defendant, the Toronto Catholic District School Board (the “Board”). When the Board failed to satisfy a condition and refused to extend the closing date, Southcott brought a claim for specific performance of the contract, and argued that it was not required to mitigate its losses by purchasing a different property.
The trial judge refused to award Southcott specific performance and, instead, awarded damages to Southcott. On appeal, the Court of Appeal concluded that the Board had breached its contractual obligations, but that Southcott had failed to take available steps to mitigate its losses. As a result, the Court of Appeal reduced Southcott’s damage award to a nominal sum.
The key issue on appeal was whether a plaintiff must mitigate its losses where the plaintiff has made a claim for specific performance.
The majority reasons, penned by Madam Justice Karakatsanis, recognized that “there may be situations in which a plaintiff’s inaction is justifiable notwithstanding its failure to obtain an order for specific performance.” In particular, “[i]f the plaintiff has a ‘substantial justification’ or a ‘substantial and legitimate interest’ in specific performance, its refusal to purchase other property may be reasonable, depending upon the circumstances of the case”.
In the Court’s view, this was not a case where the plaintiff could reasonably refuse to mitigate. The Court began by observing that “[a] plaintiff deprived of an investment property does not have a “fair, real, and substantial justification” or a “substantial and legitimate” interest in specific performance unless he can show that money is not a complete remedy because the land has “a peculiar and special value” to him. In this case, Southcott had no “substantial and legitimate” interest in specific performance because the land had no peculiar or special value to it. Rather, Southcott had simply “engaged in a commercial transaction for the purpose of making a profit”, such that “[t]he property’s particular qualities were only of value due to their ability to further profitability.”
As a result, the Court held that Southcott owed a duty to mitigate its damages by purchasing an alternative property, notwithstanding its specific performance claim.
In light of the decision, a plaintiff with a claim of specific performance must carefully evaluate the strengths and weakness of its claim. If a plaintiff chooses to pursue its claim of specific performance and declines to mitigate its losses in the interim by buying an alternative property, the plaintiff must be prepared to suffer a reduction in its damage award in the event that a court rejects its claim of specific performance and finds that the plaintiff unreasonably failed to mitigate its losses.