





CITATION:
Agribrands Purina
          Canada Inc. v. Kasamekas, 2011 ONCA 460





DATE:
          20110620



DOCKET:
          C51618 & C51637



COURT OF APPEAL FOR ONTARIO



Goudge, Gillese and Juriansz JJ.A.



BETWEEN



Agribrands Purina Canada Inc.



Plaintiff (Appellant)



and



Walter Kasamekas and Sherry Kasamekas, Raymond Joseph
          Jackson and Savitri Jackson



Defendants (Respondents)



AND BETWEEN



Walter Kasamekas and Sherry Kasamekas, Raymond Joseph
          Jackson and Raywalt Feed Sales



Plaintiffs by Counterclaim (Respondents)



and



Agribrands Purina Canada Inc.
, Rens 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)




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



W. Graydon Sheppard and Marc Munro, for the respondents



Heard: February 14, 2011



On appeal from the judgment of Justice Michael G. Quigley of
          the Superior Court of Justice dated January 6, 2010, with reasons reported at
          [2010] O.J. No. 84.



Goudge J.A.:



INTRODUCTION

[1]

After
    an eleven day trial, the respondents, Walter Kasamekas (Kasamekas), Raymond
    Jackson (Jackson), and Raywalt Feed Sales Ltd. (Raywalt), recovered
    judgment for general damages and prejudgment interest in the amount of
    $2,096,406 against the appellants Agribrands Purina Canada Inc. (Purina),
    Rens Feed and Supplies Ltd. (Rens), Walter Rendell Job (Job) and The
    Estate of Edwards James McGrath (McGrath). The respondents also recovered
    punitive damages of $30,000 against Purina. Finally, they were awarded costs of
    $175,000.

[2]

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.

[3]

The
    appellants appeal the finding of unlawful conduct conspiracy. They also say
    that the trial judge made errors in calculating damages for that tort and in
    the rate he applied for prejudgment interest. While Purina does not contest the
    breach of contract finding against it, it does contest the method the trial
    judge used to calculate the damages for that breach. Finally, Purina appeals
    the finding of punitive damages against it.

[4]

For
    the reasons that follow, I would allow the appeal on each of these issues
    except punitive damages and the alleged errors in calculating the tort damages.
    I would therefore amend the trial judgment to provide that Raywalt recover
    damages for breach of contract by Purina on the basis described below, with
    prejudgment interest calculated on the basis described below. The respondents
    claims for conspiracy must be dismissed.

THE TRIAL JUDGMENT

[5]

The
    basic facts are not in dispute. Rens was a well established dealer of Purina
    livestock feed and pet food. However, in 1990 Purina discovered that Rens was
    also purchasing feed from one of its competitors and selling it as feed for
    laboratory animals in breach of its dealership agreement with Purina. As a
    consequence, Purina terminated Rens dealership in July 1990.

[6]

Walter
    Kasamekas, who was a Purina employee, and his brother Raymond Jackson saw an
    opportunity to set up Raywalt as a Purina dealership to take over Rens
    territory. Raywalt and Purina concluded a dealership agreement in February 1991,
    pursuant to which Purina agreed not to appoint any other dealer in Raywalts
    territory, previously Rens territory.

[7]

Raywalt
    opened for business in mid-March 1991. However, despite giving Raywalt
    territorial exclusivity, Purina continued to supply feed to Rens until the end
    of April 1991. This enabled Rens to sell to its former customers in what was
    now Raywalts territory. When Purina finally ended this practice, Rens got
    McGrath, who was a friend and the Purina dealer in a neighbouring territory, to
    supply Rens with Purina feed at dealer prices. This allowed Rens to continue
    to sell Purina feed in Raywalts territory. Purina knew of, condoned and indeed
    approved of this arrangement. Purina provided McGrath with feed for resale to Rens.
    As a result, Raywalts business was not nearly as profitable as projected and its
    cash flow problems caused it to cease business at the end of January, 1992.

[8]

After
    setting this factual scene, the trial judge turned first to Purinas liability
    for breach of its contract with Raywalt. He concluded that, by supplying
    McGrath with feed knowing that McGrath would sell it to Rens at dealer prices
    for sale in Raywalts territory and by approving this arrangement, Purina
    breached its contract with Raywalt. Purina does not appeal this finding.

[9]

He
    then addressed the method of calculating damages for that breach, in particular
    whether the damages were time limited by the terms of the contract. Two of its
    provisions were relevant. The first provided that the dealership agreement was
    for two years but would automatically renew unless either party gave notice of
    cancelation. The second allowed either party to cancel the contract at any time
    by giving 60 days notice.

[10]

The
    trial judge concluded that there was an implied duty of good faith on Purina in
    its contract with Raywalt, that Purina had acted in bad faith and that it could
    therefore not rely on the provision allowing it to terminate the contract on 60
    days notice. On this basis, the trial judge distinguished
Hamilton v. Open Window Bakery Ltd.
, [2004] 1 S.C.R. 303. In
    considering
Hamilton
, he said at
    para. 100, [T]he trial judge specifically found that the defendant
had acted in good faith
at all material
    times (emphasis in original). At para. 108, he concluded, The case has no
    application here because the foundation of good faith that was present in that
    case is evidently absent in this case.

[11]

Instead
    of applying
Hamilton
, the trial judge
    engaged in an inquiry into what would have happened if Purina had not breached
    its contractual obligation. He found that the only reasonable conclusion
    available on the evidence was that the contract would have continued
    indefinitely. He found that Purina dealerships were typically of long duration.
    In this case, it would have been because no steps would have been taken to
    terminate it. By its terms, the dealership agreement would therefore have
    continued automatically.

[12]

In
    addition, he concluded that, because of Purinas conduct, the doctrine of
    unconscionability applied to prevent Purina from relying on the time limiting
    provisions in the dealership agreement.

[13]

For
    these reasons, the trial judge based his quantification of damages for breach
    of contract on the premise that Purinas contract with Raywalt would have
    continued indefinitely.

[14]

He
    then moved to the civil conspiracy issue. The respondents did not advance the branch
    of this tort that requires the plaintiff to demonstrate that the defendants
    primary purpose was to cause injury to the plaintiff, whether by lawful or
    unlawful means. Rather, the respondents argument was that the appellants
    engaged in the tort of unlawful conduct conspiracy, that is, their conduct,
    done in concert, was unlawful and they knew or should have known that injury to
    the respondents was likely to result.

[15]

The
    trial judge found that the appellants acted in concert, and while their
    predominant purpose was not to injure the respondents, their conduct was
    directed at the respondents, and it was reasonably foreseeable that serious
    economic injury to the respondents would and did result.

[16]

The
    central issue was whether their conduct was unlawful. The trial judge found
    that the appellants did not appear to have committed a crime, or any other tort
    than unlawful conduct conspiracy. Nor had they infringed a guaranteed
    constitutional right. Relying primarily on
Reach
    M.D. Inc. v. Pharmaceutical Manufacturers Association of Canada
(2003), 65
    O.R. (3d) 30 (C.A.), he found that the ambit of unlawful conduct required by
    this tort extends beyond strict illegality. He put it this way at para. 127:

The
    newer decisions confirm that the ambit of illegal conduct extends beyond
    strict illegality for the purposes of proving the existence of tortious
    conduct. It includes conduct that the defendant is not at liberty or not
    authorized to engage in, whether as a result of law, a contract, a convention
    or an understanding.

[17]

His
    assessment of the appellants conduct against this standard was as follows at
    paras. 132-134:

It
    was unlawful and unauthorized conduct from Purinas perspective because Purina
    had a commercial obligation of good faith and was contractually bound to
    support Raywalt as its dealer. More importantly, Purina had no authority or
    entitlement to permit Purina feed products to continue to be sold by Rens at
    dealer pricing just to ensure that its decision to terminate the Rens
    dealership would not result in a reduction of its market share. It effectively
    licensed Rens through McGrath to sell products in a geographic area that was
    reserved to another dealer, both as
de
    facto
dealers of Purina horse feeds.

It
    was unlawful and unauthorized conduct from McGraths perspective because he had
    no authority under his Dealership Agreement with Purina to establish a sub-dealership
    and to receive dealer rebates that reduced the product cost to dealer level
    white list pricing where his sub-dealer was selling Purina feed products in
    territory that had been assigned to another dealer.

It
    was unlawful and unauthorized conduct from Walter Rendell Jobs and Rens Feeds
    perspective because Rens was not entitled to be able to obtain Purina feed
    products for resale at the advantageous pricing available only to authorized
    Purina dealers. The illegality lies in Purina and McGrath effectively licensing
    Rens to deal in the Raywalt territory.

[18]

The next issue was the assessment of damages. The trial
    judge concluded that there was no material difference in the damages to which
    the respondents were entitled whether assessed for Purinas breach of contract
    or for the tort of unlawful conduct conspiracy. He said this at para. 158:

To my mind, as will be evident from the foregoing,
    in the absence of effective contractual language limiting liability, the
    assessment of damages in both tort and contract in this case should be and is
    essentially the same. Any loss suffered by the plaintiffs that was reasonably
    foreseeable at the time of the breach is properly compensable.

[19]

The trial judge found that the appellants actions
    caused the respondents to lose their business. He determined that damages
    should reflect the going concern value of Raywalt at the time, which he
    calculated by assessing what the net profit of the business would have been in
    its second year of operation had it continued beyond January 1992. He then
    applied a three times earnings multiple. The result was a damage award of
    $954,213 for Purinas breach of contract and the appellants conspiracy.

[20]

The trial judge applied a prejudgment interest rate of
    6.65% to this amount. Because eighteen years had passed since the cause of
    action arose in 1992, this added an additional $1,142,193. In supplementary
    reasons released on May 3, 2010, the trial judge noted that he selected that
    rate because it was the average rate applicable for the entire 1992 calendar
    year. He declined to use the rate of 5.1%, which was the bank rate at the
    start of the third quarter of 1992, the quarter in which the respondents filed
    their claim.

[21]

Finally, the trial judge dealt with punitive damages.
    He reiterated that Purinas breach of its exclusivity contract with Raywalt was
    also answerable in the tort of conspiracy. He found that, if Purinas participation
    in that tort was not enough to justify the imposition of punitive damages, the breach
    of its implied duty of good faith to Raywalt was the second respect in which
    its conduct constituted an actionable wrong. Having found this precondition to
    be met, the trial judge based his justification for punitive damages on
    Purinas conduct. He found it was the very antithesis of acting in good
    faith.

[22]

In the result, the trial judge ordered that the
    respondents recover $2,096,406 jointly and severally from the appellants, inclusive
    of prejudgment interest, that Purina pay punitive damages of $30,000 and that
    the respondents receive trial costs fixed at $175,000.

ANALYSIS

[23]

The
    appellants raise five issues. I will deal with each in turn.

First
    Issue  The Unlawful Conduct Conspiracy

[24]

The
    seminal case in Canada on the tort of civil conspiracy is
Canada Cement Lafarge v. B.C. Lightweight Aggregate
, [1983] 1
    S.C.R. 452. Speaking for the court, Estey J. described at p. 471 two categories
    of conspiracy recognized by Canadian law:

Although
    the law concerning the scope of the tort of conspiracy is far from clear, I am
    of the opinion that whereas the law of tort does not permit an action against
    an individual defendant who has caused injury to the plaintiff, the law of
    torts does recognize a claim against them in combination as the tort of conspiracy
    if:

(1) whether the means used by the
    defendants are         lawful or unlawful,
    the predominant purpose of the           defendants
    conduct is to cause injury to the plaintiff;           or,

(2) where the conduct of the
    defendants is unlawful,    the conduct is
    directed towards the plaintiff (alone or    together
    with others), and the defendants should know     in
    the circumstances that injury to the plaintiff is likely to and does result.

In
    situation (2) it is not necessary that the predominant purpose of the
    defendants conduct be to cause injury to the plaintiff but, in the prevailing
    circumstances, it must be a constructive intent derived from the fact that the
    defendants should have known that injury to the plaintiff would ensue. In both
    situations, however, there must be actual damage suffered by the plaintiff.


[25]

This
    case deals with the second category, namely unlawful conduct conspiracy. The
    first does not apply because there was no finding that the predominant purpose
    of the appellants conduct was to cause injury to the respondents. The
    respondents did not advance that proposition at trial.

[26]

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.

[27]

In
    this court, the appellants challenge only the finding that their conduct was
    unlawful. In particular, while they acknowledge that Purinas breach of its
    contract with Raywalt was unlawful, they say that the conduct of Rens and
    McGrath was in no sense unlawful, and that therefore this element of the tort
    was not made out. Civil conspiracy cannot be established if only one
    conspirator acts unlawfully.

[28]

What,
    then, are the requirements for unlawful conduct for the purposes of this tort?
    Most obviously, it must be unlawful conduct by each conspirator: see
Bank of Montreal v. Tortora
(2010), 3
    B.C.L.R. (5th) 39 (C.A.). There is no basis for finding an individual liable
    for unlawful conduct conspiracy if his or her conduct is lawful, or
    alternatively, if he or she is the only one of those acting in concert to act
    unlawfully. The tort is designed to catch unlawful conduct done in concert, not
    to turn lawful conduct into tortious conduct. The trial judge applied this
    requirement, and found that each of the appellants had committed an unlawful
    act.

[29]

To
    determine what sort of conduct qualifies as unlawful the trial judge looked
    to the jurisprudence dealing with the tort of intentional interference with
    economic relations.

[30]

The
    trial judge concluded from the intentional interference cases that unlawful
    conduct includes conduct that the defendant is not at liberty or not
    authorized to engage in, whether as a result of law, a contract, a convention
    or an understanding.

[31]

With
    respect, I do not think the jurisprudence goes that far. In
Reach
, this court found the tort of
    intentional interference with economic relations to be made out because actions
    by the defendant, a voluntary association, that caused its members to stop
    advertising with the plaintiff, constituted unlawful means directed at third
    parties, which then caused them to injure the plaintiff. The court was clear
    that these actions were beyond the lawful authority that the defendant had
    under its constitution, and were therefore actions beyond the defendants powers
    and done without jurisdiction. They could be set aside by the court at the
    behest of the third parties, its members. While the court made reference to the
    judgment of Lord Denning in
Torquay Hotel
    Co. Ltd. v. Cousins
, [1969] 2 Ch. 106 (Eng. C.A.), it explicitly declined
    to decide how far Lord Dennings concept of unlawful conduct as an act which
    [the defendant] is not at liberty to commit might extend.
Reach
was a case of conduct that was wrong in law. I do not think
    that it provides a basis for the expansive interpretation used by the trial
    judge as any conduct that the defendant is not at liberty or not authorized to
    engage in, whether as a result of law, a contract, a convention or an
    understanding.

[32]

Since
Reach
, this courts jurisprudence on
    the tort of intentional interference with economic relations has, if anything,
    tightened the scope of conduct considered unlawful. In
Drouillard v. Cogeco Cable Inc.
(2007), 86 O.R. (3d) 431 (C.A.), the
    defendants conduct in not following its internal corporate policy but instead acting
    in bad faith did not amount to unlawful means. In
Correia v. Canac Kitchens
(2008), 91 O.R. (3d) 353 (C.A.), this
    court approved of Lord Hoffmans majority reasons in
OBG Ltd. v. Allen;

Douglas v.
    Hello! Ltd.; Mainstream Properties Ltd. v. Young
(2008), 1 A.C. 1 (H.L.),
    in which he required unlawful conduct against a third party to be conduct that
    is actionable by the third party for the purposes of the tort of intentional
    interference with economic relations. This court reiterated this principle in
Alleslev-Krofchak v. Valcom Limited
,
    2010 ONCA 557, while recognizing that the delineation of actionability remained
    to be fully defined. It was unnecessary to do so in that case because the
    unlawful conduct relied on was clearly actionable as a matter of private law.

[33]

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. On this standard, the approach
    used by the trial judge was simply too broad.

[34]

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.

[35]

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.
    Indeed, in
Revenue and Customs
    Commissioners v. Total Network S.L
., [2008] 2 W.L.R. 711 (H.L.), the House
    of Lords went further, and said explicitly that, as the torts of intentional
    interference with economic relations and unlawful conduct conspiracy have
    developed over time, the concept of unlawful conduct has a different meaning in
    one tort than in the other: see, for example, the speech of Lord Walker of
    Gestingthorpe at para. 100.

[36]

It
    is not necessary that we go that far in this case. However, rather 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.

[37]

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. The seminal case of
Canada Cement LaFarge
is an example. 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. In Peter T. Burns & Joost Blom,
Economic Interests in Canadian Tort Law
(Markham: LexisNexis, 2009),
    the authors say this at p. 167-168:

There
    are two distinct categories of conduct that can be described as comprising
    unlawful means: conduct amounting to an independent tort or other actionable
    wrong, and conduct not actionable in itself.



Examples
    of conspiracies involving tortious conduct include inducing breach of contract,
    wrongful interference with contractual rights, nuisance, intimidation, and
    defamation. Of course, a breach of contract itself will support an action in
    civil conspiracy and, as one Australian court has held, the categories of
    unlawful means are not closed.

The
    second category of unlawful means is conduct comprising unlawful means not
    actionable in itself.



The
    first class of unlawful means not actionable in themselves, but which
    nevertheless supports a conspiracy action, is breach of a statute which does
    not grant a private right of action, the very instance rejected in
Lonrho
(1981) by the House of Lords. A
    common case is a breach of labour relations legislation, and another is the
    breach of a criminal statute such as the Canadian
Criminal Code
.

[38]

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.

[39]

The
    appellants submit that while Purinas breach of its contract with Raywalt was
    sufficient to qualify as unlawful conduct, neither Rens nor McGrath did
    anything that would do so. I agree. In my view, the trial judge used an
    approach that is too broad. Assessed against the correct test, their conduct
    was not unlawful.

[40]

Dealing
    with Rens conduct, at the time it purchased feed from McGrath, it had no
    contract with either Purina or Raywalt. Rens was free to purchase Purina feed
    from McGrath at the best price it could obtain and sell it wherever it could. I
    disagree with the trial judges conclusion that Rens was not entitled to be
    able to obtain Purina feed for resale at advantageous pricing available only to
    Purina dealers. Rens conduct in doing so breached no contract. Nor was this conduct
    tortious or in breach of any statute. Indeed, the trial judge explicitly found
    that Rens committed no crime or tort apart from the conspiracy. Rens required
    no authorization from Purina to act as it did.

[41]

On
    appeal the respondent advanced for the first time the proposition that Rens
    induced Purina to breach its contract with Raywalt and induced McGrath to
    breach its contract with Purina. Neither of these allegations was advanced at
    trial. They are belied by the trial judges finding that, other than
    conspiracy, Rens committed no tort. Moreover, the trial judges finding that
    Purina knew of, and approved of the arrangement between Rens and McGrath,
    leaves little room for the conclusion required by the inducing breach of
    contract tort, namely that Rens caused Purina to breach its contract with
    Raywalt or induced McGrath to breach its contract with Purina, assuming such a
    breach could be found. There was nothing in Rens conduct that was wrong in
    law. It was not unlawful conduct for the purposes of the tort of conspiracy.

[42]

Turning
    to McGraths conduct, the trial judge found it to be unlawful because McGrath
    had no authority to effectively establish a sub-dealership for Rens to obtain
    Purina feed at advantageous prices and then sell it into Raywalts territory.
    The trial judge characterized McGraths conduct as a violation of Purinas
    standard operating procedures. He therefore did not find McGraths conduct to constitute
    a breach of his contract with Purina. Indeed, the standard dealership agreement
    that Raywalt and Rens had with Purina did not prohibit such an arrangement. Moreover,
    the trial judge could not have found McGrath to be in breach of his dealership
    contract with Purina. His finding that Purina knew and approved of what McGrath
    was doing precluded that possibility, even if such a prohibition had been a
    term of McGraths contract. There is no suggestion that McGraths actions were
    tortious or in violation of any statute or in other way wrong in law. In my
    opinion, McGraths actions cannot be said to be unlawful conduct for the
    purposes of the tort of conspiracy.

[43]

In
    summary, I conclude that only Purina engaged in any unlawful conduct. The other
    two appellants did not. As a consequence, the finding of unlawful conduct
    conspiracy and the damages flowing from it must be set aside. The respondents
    claim based on civil conspiracy must be dismissed.

Second
    Issue  The Method of Calculating Breach of Contract Damages

[44]

In
Hamilton
, Ms. Hamilton entered into a
    contract with Open Window Bakery Ltd. (Open Window) for a term of 36 months
    to serve as its exclusive agent in Japan. The contract gave Open Window the
    unconditional right to terminate the contract on three months notice,
    effective after the commencement of the nineteenth month of the contract. In
    the sixteenth month, Open Window wrongfully terminated the contract. The trial
    judge determined Ms. Hamiltons damages by inquiring into how Open Window would
    likely have performed its obligations under the contract hypothetically, but
    for its repudiation. This resulted in an award reflecting the payments that
    would have been made over the full 36 month term less a 25 per cent reduction
    for contingencies.

[45]

The
    Supreme Court held that this was the wrong approach and substituted a damage
    award based on early termination at the nineteen month mark together with three
    months notice, reflecting Open Windows maximum exposure to damages. The court
    based this on the principle articulated in
Cockburn
    v. Alexander
(1848), 6 C.B. 791 that, generally speaking, where there are
    several ways in which the contract might be performed, the mode that is adopted
    is the least profitable to the plaintiff and the least burdensome to the
    defendant, for the purposes of assessing damages. The court described the
    rationale for this principle and the error in the approach used by the trial
    judge in the following language:

This
    tort
-
like analysis proposed by Hamilton is not an established part of
    Canadian law.  There are compelling
    reasons for this.  Contractual
    obligations are voluntarily assumed by parties and given effect to by the
    courts.  The failure to perform certain
    promised positive contractual obligations in contract law is conceptually
    distinct from the breach of unpromised negative obligations to not harm
    anothers interests in tort law:  see G.
    H. L. Fridman,
The Law of Torts in Canada
(2nd ed. 2002), at p. 11.

In
    a successful tort claim for damages, unliquidated damages are awarded to a
    plaintiff on the basis that the plaintiff has suffered a loss through some
    wrongful interference by the defendant.  The plaintiff in such cases has legally protected interests that have
    been found by a court to be unduly compromised.  In tort cases, it is widely recognized that the inquiry into what would
    have been but for the tort is appropriate, since the plaintiffs interest is in
    being restored to (or at least awarded compensation in respect of) the position
    the plaintiff would otherwise be in.  See
    Fridman,
supra
, at p. 2; A. M.
    Linden,
Canadian Tort Law
(7th ed.
    2001), at p. 4, ([f]irst and foremost, tort law is a compensator); J. G.
    Fleming,
The Law of Torts
(9th
    ed.  1998), at p. 5; and R. F. V. Heuston
    and R. A. Buckley,
Salmond and Heuston on
    the Law of Torts
(21st ed. 1996), at pp. 8-9.

However,
    under the general principle applicable in breach of contracts with alternative
    performances enunciated above, it is not necessary that the non
-
breaching party be restored to the
    position they would likely, as a matter of fact, have been in but for the
    repudiation.  Rather, the non
-
breaching party is entitled to be
    restored to the position they would have been in had the contract been performed.

In
    this case, the relevant contractual duties have been expressly set out by the
    parties in the agreement.  Hamilton is
    entitled to OWBs performance of these voluntarily assumed duties. Hamilton 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 Hamilton wanted to secure herself the
    benefits associated with a given particular method of performance, she should
    have contracted for
only that
method of performance. [Emphasis in
    original.]

[46]

The trial judge distinguished
Hamilton
, finding that it applied only where the parties acted
    honestly and in good faith, and that Purina had not done so, having conducted
    itself in a manner that defeated or eviscerated the very purpose and objective
    of its agreement with Raywalt.

[47]

With respect, I do not agree. The trial judge erred in
    finding
Hamilton
to be premised on
    good faith conduct by the breaching party. Contrary to his view, there was no
    finding by the trial judge in
Hamilton
that Open Window had acted in good faith at all material times. Nor is there
    any suggestion in the Supreme Courts decision that good faith conduct is a
    pre-requisite for the least burdensome principle to apply. Indeed, Open Window had
    wrongfully terminated Ms. Hamilton by repudiating the entire contract, thereby
    defeating its very purpose, yet the least burdensome principle of calculating
    damages was applicable.

[48]

In my view,
Hamilton
cannot be distinguished as the trial judge did, and should have been followed
    in assessing the breach of contract damages in this case, even if Purina did
    not act in good faith in breaching the contract.

[49]

Had that been done, the trial judge would not have
    embarked on a hypothetical inquiry into how Purina would likely have performed
    its obligations under the contract if it had not breached the contract. That is
    the very sort of inquiry that
Hamilton
says should not be done in approaching breach of contract damages where there
    are alternate modes of performing the contract.

[50]

The contract provided that Purina had the unconditional
    right to cancel the contract at any time on sixty days notice. Article V(B) of
    the contract reads, Notwithstanding anything to the contrary in this article,
    either of the parties may cancel this Agreement at any time by giving sixty
    (60) days advance notice to the other party. There is no doubt that this is
    the least burdensome mode of performance for Purina. It should have been used
    as the basis for calculating the damages for breach of contract.

[51]

Moreover, by finding an implied duty of good faith on
    Purina not to act in a way that defeats the very purpose of the contract and
    then finding that Purina could not rely on Article V(B) because it 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.
    In
Transamerica Life Canada Inc. v. ING
    Canada Inc.
(2003), 68 O.R. (3d) 457 (C.A.), at para. 53 this court made
    clear that Canadian courts have not accorded this power to an implied duty of
    good faith.

[52]

The trial judge also suggested that it would be unconscionable
    in these circumstances to allow Purina to rely on a clause like V(B) in the
    calculation of breach of contract damages. I do not agree that
    unconscionability can be used in this way. In my view, that doctrine is
    applicable to determine whether the contract itself is unconscionable, given,
    for example, the circumstances in which it was made. The doctrine is not
    applicable to determine how damages should be assessed in light of the
    circumstances of a particular breach.

[53]

In summary, I conclude that the trial judge erred in
    failing to apply the approach in
Hamilton
to calculate the damages owed by Purina for its breach of contract. His task should
    have been to calculate the breach of contract 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 is least burdensome to
    Purina.

[54]

The trial judge found that had Purina performed the
    contract, there is no doubt that Raywalt would still have been in business at
    the end of January 1992, when it in fact closed its doors. At that point, the
    contract gave Purina the unconditional right of cancelling the agreement on
    sixty days notice. This was the mode of performance least burdensome to Purina
    and therefore constituted its maximum exposure for damages for breach of the contract
    with Raywalt.

[55]

Using this approach, the quantification of the damages
    owed by Purina for breach of contract requires the determination of the amount
    Raywalt lost because of Purinas breach from the time Raywalt opened for
    business in March 1991 until the end of March 1992, two months after it
    actually closed its doors.

[56]

In my view, the trial judge made findings of fact
    sufficient for this court to do that calculation, recognizing that this
    exercise is more of an art than a science. He calculated that, had Purina
    performed its contractual obligations, Raywalt would have had a profit of
    $145,654 at the end of January 1992, instead of being insolvent.

[57]

He arrived at this amount after considering the expert
    evidence, together with evidence of additional pet food sales that Raywalt
    would have been able to make in the last two months of that first year of
    operation. The appellants attack this figure on two bases.

[58]

First, they say that the expert opinion relied on
    already included the additional pet food sales and that it was an error to
    count them a second time. I do not agree. The experts evidence makes only
    cryptic reference to the pet food sales and it was entirely open to the trial
    judge to find that they were not included in the experts opinion of Raywalts
    first year profits and could therefore properly be added to the experts
    calculation of loss in the first year.

[59]

Second, they say that the trial judge did not add to
    Raywalts costs the additional costs that would have been required in achieving
    these additional sales. Again, I disagree. There was an ample evidentiary basis
    for the trial judge to reach the conclusion he did for both Raywalts gross
    sales and its expenses had Purina honoured its contract.

[60]

I see no basis for interfering with the trial judges
    valuation of first year profits lost to Raywalt.

[61]

The trial judge also calculated the net profits that
    Raywalt would have achieved in its second year of operation had the appellants
    acted lawfully, as part of his calculation of tort damages. He quantified that
    loss at $318,071. The appellants raise a number of challenges to this
    calculation, all of which I reject, as explained in the next section of these
    reasons. I am therefore prepared to accept that figure as the profits Raywalt
    would have made in its second year of operation had Purina not breached its
    contract. This provides a good basis for determining the profits lost to
    Raywalt through February and March 1992, representing the 60 days notice
    Purina was required to give, which I would assess at one-sixth of this number,
    namely $53,011.83.

[62]

Thus calculated, I would fix the damages to which
    Raywalt is entitled for Purinas breach of contract at $145,654 plus $53,011.83
    for a total of $198,665.83.

Third
    Issue  The Calculation of Damages

[63]

As
    I have indicated, the trial judge concluded that damages for the unlawful
    conduct conspiracy should reflect the ongoing concern value of Raywalt at the
    time it was harmed. He calculated this by assessing what the net profit of the
    business would have been in its second year of operation and then applying a
    three times earnings multiple to that figure.

[64]

The
    appellants raise a number of challenges to his assessment of Raywalts net
    profit for that second year. Although I have found that the finding of unlawful
    conduct conspiracy cannot stand, it is necessary to address these challenges since
    I have used the calculation of Raywalts net profits for the second year to
    calculate Raywalts contract damages for February and March 1992.

[65]

First,
    the appellants say that the trial judge made several errors, resulting in an overvaluation
    of the contribution that additional pet food sales would have made. They say
    that the trial judge double counted that contribution by adding it to the
    expert evidence he relied on. I disagree with this, as I have explained above.
    They also say that the trial judge impermissibly relied on hearsay evidence in
    making his finding. I disagree. In my view, it was open to him to rely on the
    evidence he did hear, which was completely unobjected to at trial by the
    appellants. Lastly, they say that the trial judge insufficiently discounted for
    the possibility that these additional sales might not take place. However, the
    discount to be applied was an assessment that the trial judge was entitled to
    make on the evidence before him. That is what he did. There is no basis for
    this court to interfere with it.

[66]

Second,
    the appellants argue that the trial judge erred in the discount he applied in
    using Rens earnings for the same period as input to calculate what Raywalt
    would have earned but for the harm inflicted on it. However, the trial judge
    was fully aware that some discount was appropriate because Rens sold some
    products that Raywalt did not. He based the discount he selected on evidence of
    the percentage of Rens business that these additional products represented,
    measured by tonnage. That was a conclusion he was entitled to draw. There is no
    basis for this court to second guess it and apply a higher discount rate.

[67]

Third,
    the appellants quarrel with the trial judges calculation of the value of Rens
    feed sales that Raywalt would have taken over but for the conspiracy. They say
    that there was evidence of this value that the trial judge should have
    preferred to the evidence he accepted. In my opinion, that too was up to him.
    His calculation was based on evidence that he was entitled to act upon. There
    is no basis for this court to interfere.

[68]

Fourth,
    the appellants say that the trial judge committed a palpable and overriding
    error in assessing the administrative expenses that Raywalt would have incurred
    in its second year of operation. Again, I disagree. His assessment was well
    founded on evidence of what those expenses would have been. The trial judge
    accepted this evidence and made no reversible error in doing so.

[69]

In
    summary, I conclude that all of the appellants challenges to the trial judges
    calculation of the profit that Raywalt would have made in its second year of
    operation must fail.

Fourth
    Issue  Pre-Judgment Interest

[70]

In
    his original reasons for judgment, the trial judge applied a pre-judgment
    interest rate of 6.65% to his assessment of damages for breach of contract and
    unlawful conduct conspiracy. He did so without the parties having an
    opportunity to make submissions on the issue. He set out his basis for
    selecting this rate at para. 219 of his original reasons:

The
    average rate of interest established for pre-judgment interest by section 128
    of the
Courts of Justice Act
, R.S.O.
    1990, c. C.43, for 1992, the year in which I find that the cause of action of
    the plaintiffs arose, is 6.65%.

[71]

Following
    the release of these reasons, the trial judge agreed to receive written
    submissions on the issue. In subsequent reasons, he declined to change the rate
    he had selected. He gave this explanation at para. 8 of his supplementary
    reasons:

More
    importantly, section 128(1) of the
Courts
    of Justice Act
shows that the appropriate starting point for the
    calculation is not the date on which the claim was actually filed, but rather
    the date on which the cause of action arose: see also
Sedigh v. Lange
, [2000] O.J. No. 3606 (S.C.J.) at para. 11. I
    focused on when the cause of action arose as the relevant time and found as a
    fact that the plaintiffs cause of action arose at some point in 1992 at or
    about the time that the business failed owing to the actions of the defendants,
    rather than focusing on the date upon which the plaintiffs filed their
    claim.  As such, I continue to regard it
    as appropriate to average the quarterly rates for 1992 in the manner that I did
    at paragraph 219 of my Reasons for Judgment.

[72]

The
    appellants also argued at trial that the trial judge ought to have adjusted the
    rate down to reflect the factors listed on s. 130(2) of the
Courts of Justice Act
. The trial judge
    concluded his supplementary reasons by rejecting that submission at para. 11:

Here,
    the defendants have advanced a range of reasons for their claim that a lower
    rate should be applicable, but I find that they have done nothing to discharge
    the onus that rests upon them of persuading me that it is appropriate that I
    should exercise discretion in this case to deviate from what would otherwise be
    the applicable interest rate specified by the
Courts of Justice Act
.

[73]

In
    this court, the appellants argue that the trial judge erred in this approach.

[74]

I
    agree. The pre-judgment rate specified in the
Rules of Civil Procedure
pursuant to the
Courts of Justice Act
for proceedings commenced in the last quarter
    of 1992, that is, when the respondents claim was commenced, was 5.1%. That is
    the applicable rate unless the court finds special circumstances to justify
    departing from it. In my view, 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, rather than the starting point as specified
    under the
Courts of Justice Act
.
    Moreover, he offered no special circumstances for exercising his discretion to
    deviate from the applicable rate specified by the
Courts of Justice Act
. His error was in using 6.65% as the
    applicable rate. The proper applicable rate to be used is 5.1%.

Fifth
    Issue  Punitive Damages

[75]

Finally,
    the appellant Purina attacks the award of punitive damages made against it. It
    argues that the trial judges basis for doing so did not reach the threshold
    required by the jurisprudence.

[76]

In
Fiddler v. Sun Life Assurance Co. of
    Canada
, [2006] 2 S.C.R. 3 (Sun Life), the Supreme Court of Canada made
    clear that, in breach of contract cases, conduct warranting punitive damages must
    be an independently actionable wrong in addition to a breach of contract. As
    well, it must also reach the threshold warranting punitive damages. The court
    described that threshold at para. 62:

By their nature, contract breaches will sometimes
    give rise to censure.  But to attract punitive damages, the impugned
    conduct must depart markedly from ordinary standards of decency  the
    exceptional case that can be described as malicious, oppressive or high-handed
    and that offends the courts sense of decency:
Hill v. Church of Scientology
    of Toronto
, [1995] 2 S.C.R. 1130, at para. 196;
Whiten
, at para.
    36.  The misconduct must be of a nature as to take it beyond the usual
    opprobrium that surrounds breaking a contract.  As stated in
Whiten
,
    at para. 36, punitive damages straddle the frontier between civil law
    (compensation) and criminal law (punishment).  Criminal law and
    quasi-criminal regulatory schemes are recognized as the primary vehicles for
    punishment.  It is important that punitive damages be resorted to only in
    exceptional cases, and with restraint.

[77]

In coming to his conclusion, the trial judge was
    clearly influenced by his finding that Purinas conduct was both a breach of
    contract and part of the unlawful conduct conspiracy. Alternatively, he found
    that Purinas conduct constituted a second actionable wrong in that it was also
    a breach of its implied duty of good faith towards Raywalt. Beyond that, he
    justified the punitive damages award this way at para. 238:

Here, I find that an award of punitive damages
    ought to be made against Purina 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.

[78]

In my view, 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
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. It falls, therefore, to
    this court to determine whether, on the facts as found below, such an award is
    warranted.

[79]

In
Sun Life
,
    the Supreme Court of Canada affirmed that the principles set out in
Whiten v. Pilot Insurance
, [2002 1
    S.C.R. 595, at para. 63, continue to govern the award of punitive damages.  It reiterated that in breach of contract
    cases, in addition to the requirement that the conduct constitute a marked
    departure from ordinary standards of decency, there is the requirement that the
    acts be independently actionable.  Breach of an implied duty of good faith can satisfy the requirement of
    an independent actionable wrong: see
Whiten
    ,
at para. 79.  The trial judge found
    that Purina had breached its implied duty of good faith. That was not contested
    before us and since we received no argument on it we must proceed on that
    basis. Coupled with breach of the exclusivity contract, the requirement of an
    independently actionable wrong is therefore met in this case.

[80]

Thus, the question becomes:  did Purinas conduct constitute such a marked
    departure from the ordinary standards of decency that it warrants censure
    through the imposition of an award of punitive damages?  In answering this question, a careful
    analysis of Purinas conduct is warranted. In doing so, it is useful to call to
    mind the factors for consideration set out by the Supreme Court in
Whiten
at para. 94:

(1) Punitive damages are very much the exception
    rather than the rule, (2) imposed only if there has been high-handed,
    malicious, arbitrary or highly reprehensible misconduct that departs to a
    marked degree from ordinary standards of decent behaviour. (3) Where they are
    awarded, punitive damages should be assessed in an amount reasonably
    proportionate to such factors as the harm caused, the degree of the misconduct,
    the relative vulnerability of the plaintiff and any advantage or profit gained
    by the defendant, (4) having regard to any other fines or penalties suffered by
    the defendant for the misconduct in question. (5) Punitive damages are
    generally given only where the misconduct would otherwise be unpunished or
    where other penalties are or are likely to be inadequate to achieve the
    objectives of retribution, deterrence and denunciation. (6) Their purpose is
    not to compensate the plaintiff, but (7) to give a defendant his or her just
    desert (retribution), to deter the defendant and others from similar misconduct
    in the future (deterrence), and to mark the communitys collective condemnation
    (denunciation) of what has happened. (8) Punitive damages are awarded only
    where compensatory damages, which to some extent are punitive, are insufficient
    to accomplish these objectives, and (9) they are given in an amount that is no
    greater than necessary to rationally accomplish their purpose. (10) While
    normally the state would be the recipient of any fine or penalty for
    misconduct, the plaintiff will keep punitive damages as a windfall in
    addition to compensatory damages. (11) Judges and juries in our system have
    usually found that moderate awards of punitive damages, which inevitably carry
    a stigma in the broader community, are generally sufficient.

[81]

From the outset, Purina knew that in order for Raywalt
    to succeed, it had to take over Rens sales of Purina products.  As the trial judge found, the volume of
    Purina sales to Raywalt taken from the Rens dealership was critically
    important to the success of the new dealership.  While the exclusive right to market and sell
    Purina feed products within defined geographical territories is an important
    feature of all distributorships, to Purinas knowledge, it was crucial to
    Raywalt.  Further, Purina was aware of
    the financial risks and vulnerability of Kasemekas and Jackson.  As part of the start up financing, Kasemekas
    gave Purina a mortgage against his home and the companys credit line was
    secured by personal guarantees by Kasemekas, Jackson and their spouses.  The personal guarantees were secured against
    their homes.

[82]

It is within this context that Purinas actions must be
    considered.  Within weeks of Raywalt
    starting up, it learned that Purina was permitting Rens to continue to supply
    Ren with feed.  When challenged, Purina
    assured Raywalt that it would stop supplying Ren with feed.  While Purina did in fact stop supplying Ren
    directly, it then embarked on the arrangements with McGrath to ensure that Ren
    continued to receive feed and sell within the Raywalt territory.  That is, in essence, Purina did precisely
    what it told Raywalt it would not do.  It
    did so repeatedly, over a lengthy period of time and with a complete disregard
    for the consequences to Raywalt.  At
    para. 49 of the reasons for decision, the trial judge quotes from
    correspondence authored by Tom Robinson, a manager at Purina, which shows that
    he had a clear financial and business interest in McGrath succeeding over
    Raywalt and at the relevant times, took an aggressive stance against
    Raywalt.  Because of the surreptitious
    way in which Purina supplied Ren, Raywalk had no knowledge of what was going on
    and therefore had no ability to take steps to address the problem or mitigate
    the financial harm that ensued.

[83]

Purinas actions in supplying McGrath so that he, in
    turn, could supply Ren are deceitful.  As
    such, they are reprehensible and deserving of sanction.

[84]

As the preceding reasons explain, the damages award
    does not otherwise punish this behaviour.  There is no double recovery aspect to making an award of punitive
    damages in this case.  Moreover, the
    damages award is insufficient to accomplish the objectives of denunciation and
    deterrence of others from acting similarly.  The amount of $30,000, set by the trial judge is sufficient to do so.
    Accordingly, I would affirm the punitive damages award, albeit for different
    reasons than those of the trial judge.

CONCLUSION

[85]

In summary, except for punitive damages, I would allow
    the appeal. I would dismiss the claim of unlawful conduct conspiracy. I would
    substitute for the damage award for breach of contract an award of $198,665.83,
    to which I would apply a pre-judgment interest rate of 5.1%. The trial judgment
    must be amended accordingly, in light of these reasons.

[86]

This result may be of relevance to the costs awarded at
    trial and is as well the context for an award of costs of the appeal. The
    parties may file written submissions of no more than 10 pages on both of these
    questions within 30 days of the release of these reasons.

RELEASED:  JUN 20 2011
    (S.T.G.)

S.T. Goudge J.A.

I agree. E.E Gillese J.A.

I agree. R.G. Juriansz J.A.


