Bk. of Am. v. Mutual Trust (2002), 287 N.R. 171 (SCC)
MLB headnote and full text
[French language version follows English language version]
[La version française vient à la suite de la version anglaise]
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Temp. Cite: [2002] N.R. TBEd. AP.024
Bank of America Canada (appellant) v. Clarica Trust Company (respondent)
(27898; 2002 SCC 43; 2002 CSC 43)
Indexed As:
Bank of America Canada v. Mutual Trust Co. et al.
Supreme Court of Canada
McLachlin, C.J.C., L’Heureux-Dubé, Gonthier, Iacobucci, Major, Bastarache, Binnie, Arbour and LeBel, JJ.
April 26, 2002.
Summary:
Reemark planned to build a 300 unit condominium project (Project) which was syndicated out to investors in limited partnerships and otherwise. Reemark obtained a takeout mortgage commitment (TOC) for $36.5 million from Mutual Trust Co. (MT), to be drawn down upon completion. MT understood that Reemark would utilize the TOC to obtain construction loan financing. Reemark obtained a $33 million construction loan from the Bank of America Canada (BAC). Two weeks later, Reemark, MT and BAC entered into an assignment of the TOC under which MT agreed to direct the proceeds of the takeout financing under the TOC to BAC. The condominium was registered, but MT never advanced funds pursuant to the TOC or a subsequent amended TOC (ATOC). BAC appointed a receiver of the Project. The building was sold for $22.5 million, leaving a significant shortfall of principal and accrued compound interest. BAC sued MT et al. for damages. MT counterclaimed against BAC et al. At trial, BAC withdrew its claims against all the defendants except MT, and MT withdrew its counterclaim.
The Ontario Court (General Division), in a decision reported at 59 O.T.C. 325, held that MT breached the TOC, the TOC assignment and the ATOC. It awarded damages to BAC. The court held that only a minor adjustment to the damages should be made for BAC’s failure to mitigate (caused by permitting the vacancy rate to exceed 10% of the units). The court awarded compound interest both before and after judgment at the rate specified in the loan agreement referenced in the TOC assignment. MT appealed the finding of liability and the order for compound interest.
The Ontario Court of Appeal, in a decision reported at 130 O.A.C. 149, allowed the appeal only to the extent of substituting an order that interest be paid as provided in s. 128 of the Courts of Justice Act. BAC appealed.
The Supreme Court of Canada allowed the appeal, affirming the trial judge’s interest award.
Contracts – Topic 4023
Remedies for breach – Damages – Extent of liability – Losses attributable to breach -The Supreme Court of Canada stated that “In contract, restitution damages can be invoked when a defendant has, as a result of his or her own breach, profited in excess of his or her expected profit had the contract been performed but the plaintiff’s loss is less than the defendant’s gain. So the plaintiff can be fully paid his damages with a surplus left in the hands of the defendant. This occurs with what has been described as an efficient breach of contract. In some but not all cases, the defendant may be required to pay such profits to the plaintiff as restitution damages. … Courts generally avoid this measure of damages so as not to discourage efficient breach (i.e., where the plaintiff is fully compensated and the defendant is better off than if he or she had performed the contract). … Efficient breach is what economists describe as a Pareto optimal outcome where one party may be better off but no one is worse off, or expressed differently, nobody loses. Efficient breach should not be discouraged by the courts. This lack of disapproval emphasizes that a court will usually award money damages for breach of contract equal to the value of the bargain to the plaintiff.” – See paragraphs 30 to 31.
Interest – Topic 811
Equity – General – Calculation of interest (simple or compound) – The Supreme Court of Canada discussed a court’s power to award compound interest for breach of contract – See paragraphs 41 to 52 – The court stated that “The court’s common law power to award damages flows from the application of contract law. In addition, ss. 128(4)(g) and 129(5) CJA [Courts of Justice Act (Ont.)], provide statutory authority to award compound pre-judgment and post-judgment interest according to this common law power. The court also has an equitable power to award compound interest, as has traditionally been done in cases of, inter alia, wrongful retention of funds and s. 129(5) CJA provides statutory authority to award compound post-judgment interest according to this equitable power.” – See paragraph 52.
Interest – Topic 2010
Agreement to pay interest – General – Calculation of interest (simple or compound) – The Supreme Court of Canada stated that “An award of compound pre- and post-judgment interest will generally be limited to breach of contract cases where there is evidence that the parties agreed, knew, or should have known, that the money which is the subject of the dispute would bear compound interest as damages. It may be awarded as consequential damages in other cases but there would be the usual requirement of proving that damage component.” – See paragraph 55.
Interest – Topic 3519
Statutory interest – On judgments – Simple or compound interest – Reemark undertook to build a condominium project, obtained a $36.5 million takeout mortgage commitment (TOC) from Mutual Trust Co. (MT) to be drawn down upon completion, and obtained a $33 million construction loan from the Bank of America Canada (BAC) – Reemark, MT and BAC entered into an assignment of the TOC under which MT agreed to direct the proceeds of the takeout financing under the TOC to BAC – The condominium was registered, but MT never advanced funds under the TOC or a subsequent amended TOC (ATOC) – BAC sued MT for damages – The trial judge held that MT breached the TOC, the TOC assignment and the ATOC – The trial judge awarded compound interest both before and after judgment at the rate specified in the loan agreement referenced in the assignment – The Supreme Court of Canada affirmed the trial judge’s interest award – See paragraphs 53 to 61.
Interest – Topic 3519
Statutory interest – On judgments – Simple or compound interest – [See
Interest – Topic 811
and
Interest – Topic 2010
].
Interest – Topic 5010
Interest as damages (prejudgment interest) – General principles – Calculation of interest – Simple or compound – [See
Interest – Topic 811
,
Interest – Topic 2010
and first
Interest – Topic 3519
].
Interest – Topic 5303
Interest as damages (prejudgment interest) – Interest on payment of money or debt withheld – Amount due under a contract – [See
Interest – Topic 811
,
Interest – Topic 2010
and first
Interest – Topic 3519
].
Words and Phrases
Right other than under this section
– The Supreme Court of Canada discussed the meaning of this phrase as found in ss. 128(4)(g) and 129(5) of the Courts of Justice Act, R.S.O. 1990, c. C-43, respecting interest awards – See paragraphs 41 to 52.
Cases Noticed:
Hungerfords v. Walker (1989), 171 C.L.R. 125 (Aust. H.C.), refd to. [para. 15].
Haack v. Martin, [1927] S.C.R. 413, refd to. [para. 27].
Costello and Dickhoff v. Calgary (City) (1997), 209 A.R. 1; 160 W.A.C. 1; 152 D.L.R.(4th) 453 (C.A.), refd to. [para. 34].
Rowan v. Toronto R.W. Co. (1918), 43 O.L.R. 164 (C.A.), refd to. [para. 35].
Brock v. Cole (1983), 142 D.L.R.(3d) 461 (Ont. C.A.), refd to. [para. 41].
Claiborne Industries Ltd. v. National Bank of Canada (1989), 34 O.A.C. 241; 59 D.L.R.(4th) 533 (C.A.), refd to. [para. 41].
Confederation Life Insurance Co. v. Shepherd (1996), 88 O.A.C. 398 (C.A.), refd to. [para. 41].
Air Canada v. Liquor Control Board (Ont.) et al., [1997] 2 S.C.R. 581; 214 N.R. 1; 102 O.A.C. 1, refd to. [para. 41].
Westdeutsche Landesbank Girozentrale v. Islington London Borough Council, [1996] 2 All E.R. 961 (H.L.), refd to. [para. 43].
Friedmann Equity Developments Inc. v. Final Note Ltd. et al., [2000] 1 S.C.R. 842; 255 N.R. 80; 134 O.A.C. 280, refd to. [para. 43].
Hadley v. Baxendale (1854), 9 Ex. 341; 156 E.R. 145, refd to. [para. 47].
Statutes Noticed:
Courts of Justice Act, R.S.O. 1990, c. C-43, sect. 128(4)(g), sect. 129(5) [para. 9].
Authors and Works Noticed:
Sorter, George H., Ingberman, Monroe J., and Maximon, Hillel M., Financial Accounting: An Events and Cash Flow Approach (1990), p. 14 [para. 22].
Waddams, S.M., The Law of Damages (3rd ed. 1997), pp. 267 [para. 26]; 437 [para. 37]; 473 [para. 31]; 474 [para. 30].
Waldron, Mary Ann, The Law of Interest in Canada (1992), pp. 127, 128 [para. 36].
Counsel:
Frank J.C. Newbould, Q.C., Benjamin T. Glustein, and Aaron A. Blumenfeld, for the appellant.
Earl A. Cherniak, Q.C., and Kirk F. Stevens, for the respondent.
Solicitors of Record:
Borden Ladner Gervais LLP, Toronto, Ontario, for the appellant.
Lerner & Associates LLP, Toronto, Ontario, for the respondent.
This appeal was heard on December 11, 2001, by McLachlin C.J.C. and L’Heureux-Dubé, Gonthier, Iacobucci, Major, Bastarache, Binnie, Arbour and LeBel, JJ., of the Supreme Court of Canada. Major, J., delivered the following decision in both official languages for the court on April 26, 2002.
