Alberta's Top Court Splits On Damages For Economic Loss

Last month, in 644036 Alberta Ltd. v. Kay McVey Smith & Carlstrom LLP, 2018 ABCA 236 ("C.A. reasons"), the Court of Appeal of Alberta seemed to offer conflicting guidance on the assessment of damages for economic loss where a plaintiff has advanced concurrent claims in contract and tort. Upon examination, however, the Court of Appeal's judgment speaks to the fundamental coherence of the two doctrinal frameworks; regardless of which is applied, the same result should follow — in principle, at least.

But that is not what happened here. Instead, in this case, the majority and dissent differed fundamentally in how they understood the nature of the plaintiff's claim, and of the economic loss for which it was seeking damages. The lesson, in our view, is that the outcome of an economic loss case featuring concurrent causes of action is as likely to depend on how the claim is framed as on how the applicable law is argued.

Overview

644036 Alberta Ltd. ("644") had a plan. In 2003, it agreed to buy two parcels of land in Grand Prairie from 625494 Alberta Ltd. ("625") for $1.5 million. 644 intended to subdivide one of the parcels — the "Morgan Meadow Lands" — into mixed residential lots. To that end, 644 ultimately borrowed nearly $5 million from Morbank Financial Inc. ("Morbank"). 625 also granted a vendor take-back mortgage for just under $500,000.

Unfortunately, and due to a negligent oversight on the part of 644's solicitor, one of the two titles that comprised the Morgan Meadow Lands was not conveyed from 625 to 644. When the error came to light, 644's solicitor sought to correct it. She was unsuccessful. 644's subdivision plan proceeded, but with a strip of land missing from two of the subdivided lots.

Things deteriorated from there. 644 sold 11 lots. Morbank took 80 percent of the proceeds and partially discharged its mortgage. 625 similarly provided partial discharges with each of the 11 lot sales. But, before development could begin, 644 ran out of money. Morbank began foreclosure proceedings. 644 tried to sell additional lots to keep afloat — including the two lots that did not actually exist, because title never transferred from 625 to 644 — but 644 could not close the deals after 625 refused to provide further partial discharges of its vendor take-back mortgage. Morbank completed its foreclosure, and the lands were judicially sold.

644 brought claims in tort and contract against its (now former) lawyer. It succeeded at trial: 644036 Alberta Ltd. v. 625494 Alberta Ltd., 2016 ABQB 597 ("trial reasons"). In assessing damages, the trial judge took the original purchase price of $1.5 million and calculated the proportion thereof that could be attributed to the two lots that, due to the solicitor's negligence, were never entirely conveyed from 625 to 644. This produced a damages quantum of $67,500: 2017 ABQB 303.

Disappointed with the amount, 644 appealed. A majority of the Court of Appeal of Alberta (per Macdonald and Veldhuis JJ.A.) allowed the appeal and increased the trial judge's damages award to $755,207: C.A. reasons, at para. 51. Watson J.A. dissented; he would have let the trial judge's assessment stand: C.A. reasons, at para. 79.

The Court of Appeal majority

For Macdonald and Veldhuis JJ.A., this case was about remoteness — the principle that damages will not be recoverable where "the harm [is] too unrelated to the wrongful conduct to hold the defendant fairly liable": Mustapha v. Culligan of Canada Ltd., 2008 SCC 27, at para. 12. The trial judge erred, according to the majority, in determining damages based on the value of the un-conveyed lots at the time 644 purchased them. Instead, the proper measure was the sum of the lots' subdivided values. The parties agreed that these were $666,270 for one and $190,931 for the other: C.A. reasons, at para. 46.

The trial judge had held that "the time for assessing the loss suffered by the Plaintiff is the time of the failure to properly transfer the land" (trial reasons, at para. 40), because "market conditions, including economic, social and political factors, change rapidly and, on occasion, without warning": trial reasons, at para. 39. To the trial judge — as the Court of Appeal majority read his reasons — these market forces meant that 644 was not entitled to recover an amount that reflected the appreciation in value that had resulted from events that post-dated the solicitor's failure to convey the second land title. The loss to 644 that corresponded to this appreciation in value was, on the trial judge's reasoning, too remote from the solicitor's breach to hold the solicitor fairly liable.

For the Court of Appeal majority, this was unsatisfactory: "[644's solicitor] ought to have known at the time that if she failed to ensure that all the titles were transferred to [644], then [644] would not receive the full value of the subdivision": C.A. reasons, at para. 43. Since it was reasonably foreseeable to 644's lawyer that a negligent failure to convey the second title would result in a loss to 644 once the lands had been subdivided, the majority held, it was fair to hold the lawyer liable for the lost value at the time of subdivision, rather than at the time of purchase.

Having concluded that the appeal should be allowed on this basis, the Court of Appeal majority offered obiter commentary on the doctrine governing recovery in contract for loss of opportunity. 644 had pursued this line of argument on appeal. Relying on the Court of Appeal of Alberta's judgment in Strategic Acquisition Corp. v. Starke Capital Corp., 2017 ABCA 250, 644 argued that, had its lawyer not breached her contract with 644, the company would have acquired the missing land title and therefore had the opportunity to include it in their subdivision. Strategic teaches that, where the plaintiff has lost the chance to pursue a course of...