The Latest Word From The SCC On Assessment Of Contractual Damages

The recent Supreme Court decision in IBM Canada Limited v Waterman, 2013 SCC 70, has gotten much attention for its ruling and comments about the "collateral benefits" principle and how it applies to pension benefits paid to wrongfully dismissed employees during the notice period. The issue was whether the exception should apply to preclude a reduction, in the amount of the pension benefits, to the compensatory damages payable to the employee for the wrongfull dismissal. The application of the "collateral benefits" principle was the central point of disagreement between the majority judgment of Cromwell J. and the dissenting judgment of Rothstein J. and McLachlin C.J. The former found it applied in this case while the latter found it did not, mostly due to the specific nature of the pension plan at issue.

However, there are many interesting comments made in this case about contractual damages principles more generally, including the general approach, availability of restitution damages, the role of reasonable expectations and ensuring a good "remedial fit" between breach and remedy. These general principles were largely agreed on by both the majority and dissent, making this case relevant and quite informative to contract law more generally.

Brief Background

Mr. Waterman was a long-term employee who was dismissed without cause on only 2 months' notice. He began drawing pension benefits immediately upon dismissal. After he sued for wrongful dismissal, the trial judge established that the appropriate notice period was 20 months and that no deduction should be made for the pension benefits paid during the notice period. The sole issue on appeal was whether the pension benefits should be deducted from the damages award for wrongful dismissal. The Court of Appeal of British Columbia dismissed the appeal, finding the pension benefits should not be deducted. A majority of the Supreme Court followed suit.

Assessment of Contractual Damages

Both the majority and dissent of the Supreme Court in this case highlighted the governing general principle of damages for breach of contract - that the non-breaching party be placed in the position he would have been in had the contract been performed or that he be compensated for actual loss. This is also referred to as expectation damages. (In regards to wrongful dismissal, it was said that damages should generally equal the salary the employee would have earned during the notice period.) It was also agreed that...