Primer on Damages

This post was written prior to our January 2017 merger, under our previous firm name, Aikins, MacAulay & Thorvaldson LLP.

Author: Betty A. Johnstone

In the legal world of ‘wrongs’ and ‘redress’, available remedies depend upon the nature of the wrong committed. Injunctions prevent the wrong-doer from continuing the negative behavior. An accounting requires financial books and records to be opened. Restitution requires money to be restored to a former owner. Replevin requires return of goods to an original owner.

There is a long list of such special legal remedies but in the construction industry the most common ‘wrongs’ requiring redress involve:

  • Breach of contract, or the
  • Tort of negligence.

Where liability is found in contract or in negligence, courts are generally limited to the monetary award of ‘damages’ as the sole mechanism for remedying the situation. The measure of damages courts will award has been described as follows:

That sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which his is now getting his compensation or reparation.

Legal concepts like ‘causation’ and ‘remoteness’ guide the courts to ensure that compensation is fairly given only in respect of loss, costs and damage which result from the wrongful conduct and are of a type that the parties could have reasonably foreseen when entering into the contract or when the defendant embarked upon acting in a negligent manner.

Insurers and parties seeking to ‘manage risks’ associated with construction projects frequently require that contractual limitation of liability clauses be included in design or construction agreements. It is in such a context that it is useful to know the meaning of the following terms:

General Damages – damages the law presumes follow the type of wrong complained of; also termed direct damages or necessary damages which are always included in compensatory damage awards.

Special Damages – In Canada, this term means damages which permit of exact computation of a definite sum of money. Special damages are identified separately from general damages in pleadings; [i.e.: restocking charges, medical expenses, interest lost, etc.] In other common law jurisdictions, this term is considered to be synonymous with consequential or indirect damages that are alleged to have been sustained in the circumstances of a particular wrong which must be alleged and proved since they are not a normal consequence of the wrong.

Expectation Damages – compensation awarded for the loss of what the victim reasonably anticipated to gain upon a transaction being properly completed or from proceeding without the tortuous interference of the defendant. [i.e. loss of income, profits, enhanced future opportunities or reputation, etc.]

Nonpecuniary Damages – Damages that cannot be measured in money for which the judge must nevertheless determine an appropriate amount of compensation. Such exercises of judicial discretion are guided by precedent, being the determinations of other judges faced with similar losses or injuries. [i.e. for pain and suffering, repetition of a public nuisance, etc.]

Consequential Damages – Losses that do not flow directly and immediately from an injurious act but that result indirectly from the act; may involve a ‘ripple effect’ whereby the wrong causes losses to third parties giving rise to obligations on the claimant to indemnify others. [i.e. bridge repairs are delayed adversely affecting merchant businesses in the area, etc.]

Liquidated Damages – An amount contractually stipulated as a reasonable pre-estimate of actual damages expected to be suffered which shall be recoverable by one party if the other party breaches specific terms of the contract; where effective, neither lesser nor more extensive damages actually incurred will alter the recoverable amount.

Nominal Damages – A trifling [i.e. one dollar] sum awarded to acknowledge that liability has been found but that no substantial loss or injury has been proven which entitles the claimant to more compensation.

Punitive or Exemplary Damages – Damages awarded not for the purpose of compensating the plaintiff, but for the purpose of punishing the defendant; requires extreme, reprehensible conduct such as recklessness, malice, deceit, etc. Rarely awarded.

Damage principles can be complicated. Terms overlap, and can be confusing. Before signing an agreement which purports to limit the liability of the other party by excluding one or more types of damages or compensation, it may be prudent to consult a local lawyer to ensure that implications in the circumstances are fully understood.

This article was originally published in Upword, Q1, 2011 issue.

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.

Betty A. Johnstone is a partner at Aikins and head of the Construction Law department.