Supreme Court of Canada
Sunshine Exploration Ltd. et al. v. Dolly Varden Mines Ltd. (N.P.L.), [1970] S.C.R. 2
Date: 1969-10-07
Sunshine Exploration Ltd. and Sunshine Mining Company (Defendants) Appellants;
and
Dolly Varden Mines Ltd. (N.P.L.) (Plaintiff) Respondent.
1969: February 17, 18, 19; 1969: October 7.
Present: Cartwright C.J. and Martland, Hall, Spence and Pigeon JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR BRITISH COLUMBIA
Damages—Breach of contract to carry out exploratory work on mining properties—Measure of damages—Award equivalent to cost of performance of work.
DV and S were parties to an agreement under which DV, the owner of certain mining properties, granted to S an exclusive right, at S’s expense, to explore and develop those properties. The agreement contemplated four stages of development, the first of which was exploratory. S was given the right to elect whether or not it would proceed from the first to the second stage, and, as matters turned out, it never did so proceed.
Under the provisions of an amending agreement: 1. S withdrew and cancelled a notice of intention to enter the second period of development. 2. DV withdrew a notice of default and excused S from any further work described in Schedule “F” to the principal agreement. 3. The first development period was extended. 4. S covenanted to perform the work outlined in Schedule “A” to the amending agreement. 5. The provisions of the principal agreement, subject to the amendments made by the amending agreement, were confirmed.
Although some preparatory organizational work was done to implement the amending agreement, nothing was done by S on the ground to carry out the work called for by Schedule “A”. S shut down the operation.
No notice of extension of the first development period was given by S, nor did S give notice of intention to undertake the second development period. It was admitted that the agreement came to an end, and that S was in breach of its contractual obligation to carry out the work prescribed in Schedule “A” which it had agreed to perform.
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In an action brought by DV against S for damages for breach of contract, the trial judge gave judgment for the plaintiff, the award for non-performance of the Schedule “A” work being $314,051 based on evidence as to the cost of performing such work. S’s appeal from this judgment was dismissed, unanimously, by the Court of Appeal, and a cross-appeal by DV seeking an increase in this award was allowed, the damages being increased by $64,976. An appeal to this Court was based solely on the measure of damages.
Held: The appeal should be dismissed.
The submissions made on behalf of S failed to persuade the Court that, in the circumstances of the case, the Courts below were in error in awarding to DV damages equivalent to the expense involved in performing the Schedule “A” work which S contracted to perform and deliberately failed to carry out. The contention that DV was only entitled to receive, by way of damages, the difference between the value of the premises if the work had been performed, and their value with the work unperformed, and that there was no evidence to establish any damage upon this basis, was not, in the circumstances of this case, a proper test for ascertaining damages.
It was pointless to suggest that a comparison be made between the value of the mining property with and without the work being done. The result of the Schedule “A” work was unknown, and it was unknown because S elected to breach the contract for its performance. But when S, by entering the agreement, acknowledged that, in the light of its future potential benefits under the agreement, its own suggested program of work was worth the cost of performing it, and when DV was prepared to give, and did give, valuable consideration for its performance, it was entirely proper for the trial judge to assess the damage resulting from the breach as being equivalent to the cost of doing the work.
The right to receive damages, determined in this manner, was not affected by DV having entered into an agreement with another company for the development of the mining property, which agreement did not become effective until after DV had asserted its right to damages against S, and after that action had been tried.
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Cunningham v. Insinger, [1924] S.C.R. 8, followed; Cotter v. General Petroleums Ltd. et al., [1951] S.C.R. 154; Wigsell v. School for Indigent Blind (1882), 8 Q.B.D. 357; James v. Hutton and J. Cook & Sons Ltd., [1950] 1 K.B. 9, distinguished.
APPEAL from a judgment of the Court of Appeal for British Columbia[1], dismissing an appeal and allowing a cross-appeal from a judgment of McIntyre J. Appeal dismissed.
W.J. Wallace, Q.C., and Jurgen Law, for the defendants, appellants.
John L. Farris, Q.C., and George S. Cumming, for the plaintiff, respondent.
The judgment of the Court was delivered by
MARTLAND J.—This appeal is in an action for damages for breach of contract brought by the respondent against the appellants. The breach is admitted and the sole issue before the Court is as to the measure of damages.
The respondent, hereinafter referred to as “Dolly Varden”, entered into an agreement made on March 4, 1964, and dated, for reference, February 1, 1964, with the appellant, Sunshine Exploration Ltd., an Alberta company, registered, in British Columbia. This company is a wholly owned subsidiary of Sunshine Mining Company, incorporated in the State of Idaho, which could not be registered in British Columbia as its name was similar to another company, already registered in that province. Because of this, the agreement was made by the subsidiary company, but the parent company agreed with Dolly Varden and with the subsidiary that the subsidiary was an agent of the parent to perform the mining operations required under the agreement and that the parent should be liable to Dolly Varden as though it had executed the agreement.
For the purposes of this appeal, the legal situation of both appellants is the same and I will refer to them both, jointly, as “Sunshine” as
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though they constituted, together, one party to the agreement.
By the terms of the agreement, Dolly Varden, which is the owner of certain mining properties in British Columbia, described in the agreement, granted to Sunshine an exclusive right, at Sunshine’s expense, to explore and develop those properties. The agreement contemplated four stages of development. The first was exploratory, to enable Sunshine to determine what mining operations it was prepared to conduct during later stages. The second stage involved further exploration and was to continue until commercial production was obtained. The third stage was a period for the recovery, out of production, of the respective investments of the parties. The fourth stage was defined as “the remaining life of the agreement” (for a maximum of 50 years) during which the parties would share equally any profits realized from production.
Sunshine was given the right to elect whether or not it would proceed from the first to the second stage, and, as matters turned out, it never did so proceed.
Dolly Varden agreed, on the closing date, to assign and convey to Sunshine one half of its interest in the mining properties described in the agreement. Sunshine agreed to deposit with an escrow agent documents to evidence a complete reconveyance of the half interest to Dolly Varden, which were to be delivered to that company if Sunshine terminated the agreement or failed to give notice of its intention to proceed to the second development stage. In the event, these documents were so delivered.
The first development period was defined as follows:
The First Stage or the First Development Period shall mean the period commencing from the Closing Date and ending on December 31, 1964 unless extended by written notice given by the Operator (Sunshine) to the Company (Dolly Varden) before November 30, 1964 whereupon the First Development Period shall end on June 30, 1965.
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Regarding the first stage of development, Sunshine covenanted as follows:
6. The Operator covenants with the Company that:
6.01 Forthwith after the Closing Date it will enter upon the Mining Property and undertake the development program which is generally described in Schedule F hereto (herein referred to as “the development program”) provided that in any event the Operator shall be free during the First Development Period to accelerate, retard or vary such program as it progresses.
6.02 Notwithstanding any termination provision herein contained the Operator will expend in the development program as set out in Schedule F hereto during the period ending December 31, 1964 not less than $250,000 and will maintain the Mining Property during the First Development Period, reasonable wear and tear and loss by fire and the elements excepted.
6.03 If the Operator shall have notified the Company of its intention to extend the First Development Period to June 30, 1965 it shall thereupon be obligated to expend in development in each quarterly period or any part thereof between January 1, 1965 and June 30, 1965 not less than $60,000 which shall include the maintenance of the Mining Property during such extension period.
Sunshine also agreed to consult with an officer of Dolly Varden on all phases of the development program; to give him progress reports at least monthly; and to give him reports, on request, as to the results of drilling, sampling and other engineering data. Sunshine was required to maintain complete records and sufficient surveys, assays, maps and logs so that Dolly Varden would be fully informed as to the nature and character of the mine workings and the operations performed.
Between March and October, 1964, exploration work was done and Sunshine expended some $348,000. However, this work was not done to the satisfaction of Dolly Varden, which complained that it was not being provided with
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proper reports of expenditures and on work done, and that Sunshine had changed materially the emphasis of the drilling program.
On November 30, 1964, Dolly Varden received notice that Sunshine proposed to enter the second development period. On January 14, 1965, Dolly Varden gave notice of default to Sunshine, specifying a large number of points in respect of which defaults under the agreement were alleged.
Thereafter, there were various meetings between the directors of Dolly Varden and of Sunshine, as a result of which, finally, an amending agreement was executed, dated, formally, January 22, 1965. Under the provisions of this latter agreement:
1. Sunshine withdrew and cancelled its notice of intention to enter the second period of development.
2. Dolly Varden withdrew its notice of default and excused Sunshine from any further work on the program described in Schedule “F” to the principal agreement.
3. The first development period was extended to September 30, 1965, with Sunshine having the right, by giving notice before August 31, 1965, to extend it further to December 31, 1966.
4. Sunshine further covenanted as follows:
Notwithstanding any termination provision herein contained, the Operator, during the remainder of the First Development Period but prior to October 1, 1965, will perform the work outlined in Schedule “A” to this Agreement. Once the Operator commences the work outlined in Schedule “A” hereto, it will proced therewith continuously and at no time during the performance of the work outlined in Schedule “A” hereto will the properties be left with no exploration or development work in progress. In the event that the work outlined in Schedule “A” hereto shall not be completed prior to October 1, 1965, the Company shall have the right to terminate the Principal Agreement by giving notice in writing of such termination to the Operator and upon the Company giving such notice the Principal Agreement shall thereupon be at an end subject however to the Operator’s continuing obligations with respect to termination as provided in Clause 15 of the Principal Agreement. Provided however, that such termination
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shall not relieve the Operator from the obligations to complete the work outlined in Schedule “A”.
5. The provisions of the principal agreement, subject to the amendments made by the amending agreement, were confirmed.
Schedule “A” to the amending agreement called for the undertaking of an agreed program of diamond drilling and unwatering of the Torbrit mine (one of the mining properties described in the principal agreement); the testing of the downward plunge of the Torbrit ore body; testing by diamand drilling of the width of mineralization in the east end of the Torbrit mine; completion of approximately 5,000 feet of diamond drilling on the Wolf property (another of the mining properties covered by the principal agreement); and completion of approximately 500 feet of diamond drilling on the Sussex claims (another mining property covered by the principal agreement).
Although some preparatory organizational work was done to implement the amending agreement, nothing was done by Sunshine on the ground to carry out the work called for by Schedule “A”. Sunshine shut down the operation.
Under the provisions of the principal agreement, as amended, the first development period expired on September 30, 1965, unless extended by Sunshine by notice given prior to August 31, 1965, or unless, prior to that date, Sunshine gave notice of intention to enter upon the second development period. No notice of extension was given, nor did Sunshine give notice of intention to undertake the second development period.
It is admitted, in the argument in this Court, that the agreement came to an end, and that Sunshine was in breach of its contractual obligation to carry out the work prescribed in Schedule “A” which it had agreed to perform.
Dolly Varden commenced action against Sunshine for damages for breach of the agreement. The action was tried between January 30 and February 17, 1967, inclusive. Following the hearing, further documents were filed and argument submitted respecting the consequences of an agreement which took effect on March 9,
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1967, between Dolly Varden and Newmont Mining Corporation of Canada Limited (hereinafter referred to as “Newmont”).
Briefly, this agreement provided that Dolly Varden would give to Newmont exclusive possession, management and control of the mining properties of Dolly Varden, so as to conduct drilling, exploration and development work thereon. Newmont agreed to conduct a geological survey of the property, in such manner as it decided, and a geophysical survey of such portion of the property as it considered advisable. These surveys were to be completed by December 31, 1967. If this work were completed, as provided, Newmont had the right to terminate the agreement, or to extend its rights for a year, in which event it would be committed to expend not less than $200,000 on or for the benefit of the property. Two further periods of extension, for one year, were similarly provided for, at the option of Newmont, involving expenditure in each year of not less than $300,000. Thereafter Newmont had the right, either to terminate the agreement or to equip the property for mining, in which event it would acquire title to the property, for the joint venture. Profits of operation would be divided equally after reimbursement to the parties of their respective expenditures. There was no covenant by Newmont to do the work described in Schedule “A” to the amending agreement with Sunshine.
The learned trial judge gave judgment for damages for breach of contract, the award for non‑performance of the Schedule “A” work being $314,051 based on evidence as to the cost of performing such work.
Sunshine’s appeal from this judgment was dismissed, unanimously, by the Court of Appeal[2], and a cross-appeal by Dolly Varden seeking an increase in this award was allowed, the damages being increased by $64,976.
The appeal to this Court is based solely on the issue of the measure of damages, it being contended that Dolly Varden had neither proved nor suffered any damage by reason of the non-performance of the Schedule “A” work. It was submitted that it was an error in law to award an amount equivalent to the cost of performance of that work.
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The learned trial judge found, as a fact, that:
I am of the opinion that the completion of the Schedule “A” work was a necessary and economic step in the development of the Torbrit mine.
In the light of this finding and his finding that the officers of Dolly Varden intended the completion of the Schedule “A” work, the learned trial judge held that the damages should be assessed upon the same basis as was approved by this Court in the case of Cunningham v. Insinger[3]. In that case a mine owner gave to a mine operator an option to purchase a mine for a cash amount, payable in instalments. When the first instalment fell due, the operator negotiated for an extension of time. This extension was granted by the owner in consideration of the operator agreeing to do certain development work not mentioned in the option, consisting mainly of the driving of certain tunnels. The operator failed to pay, relinquished possession of the mine, and surrendered the option without having done the work. The owner sued for damages in the amount of the cost of this work. This Court decided that he was entitled to recover this amount. Idington J. dissented. Counsel for the operator, Mr. Lafleur, contended that the owner was only entitled to recover the pecuniary advantage he would have obtained by performance of the contract, which, in this case, would be the equivalent of any increase in the value of the mine arising therefrom.
Duff J. (as he then was) said, at p. 14:
It would be inadvisable, I think, to attempt to lay down any general rule for ascertaining the damages to which a mine-owner is entitled for breach of a covenant to perform development work or exploratory work by a person holding an option of purchase. Cases may no doubt arise in which the test suggested by Mr. Lafleur’s argument would be the only proper test, and difficult and intricate as the inquiry might be, it would be the duty of the court to enter upon an examination of the effect of doing the work upon the value of the property.
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On the other hand, cases must arise in which the plaintiff’s right is plainly to recover at least the cost of doing the work. If it were conclusively made out, for example, that the work to be done formed part and a necessary part of some plan of exploration or development requisite, from the miner’s point of view, for developing the property as a working mine, and necessary, from the point of view of businesslike management, so that it might fairly be presumed that in the event of the option lapsing the owner would in the ordinary course have the work completed, then the damages arising in the ordinary course would include the cost of doing the work and would accordingly be recoverable under the rule.
Anglin J. (as he then was) said, at p. 16:
Acting on the advice of Mr. M.S. Davys, a mining engineer, the plaintiff insisted on the promise by Cunningham to undertake and prosecute this work immediately and continuously as the basis of any extension to be given him. Davys deposes that he and Mr. Moore had agreed that the work in question should be done. The plaintiff relied upon Davys, and it is a fair inference not only that he regards the work as essential but that it is work which he will have done. It is probably necessary to reach that conclusion in order to justify the departure made by the trial judge from the ordinary rule that the measure of damages for breach by a defendant of a contract to perform work on the plaintiff’s land is the actual pecuniary loss sustained by the plaintiff as a result of such breach, i.e., the difference between what would have been the value of the premises had the work contracted for been done and their value with it unperformed. The question is by no means free from difficulty and, as presently advised, it is only because I think the learned trial judge must have dealt with it on the footing indicated and because his having done so was warranted by the evidence that I accept the measure of damages as determined.
Reference may be had to Pell v. Shearman, (1855) 10 Ex. 766; Mayne on Damages (9 ed.), pp. 237-8; Sedgwick on Damages (9 ed.), s. 619; Wigsell v. School for Indigent Blind, (1882) 8 Q.B.D. 357; Joyner v. Weeks, [1891] 2 Q.B. 31, 37-8. In the last cited case the Court of Appeal treated the breach of a tenant’s covenant to yield up premises in good repair as subject to a convenient rule of inveterate practice ordinarily applicable specially to such cases
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and tantamount to a rule of law that the measure of the lessor’s damages should be the cost of making the omitted repairs. A recent decision of an Appellate Divisional Court in Ontario may also be adverted to, M.J. O’Brien Ltd. v. Freedman, (1923) 25 O.W.N. 240.
Mignault J. said, at p. 17:
In my opinion, on the construction of the agreement entered into by the parties, by their letters of October 19, October 26, and November 2, 1918, the carrying on of the development work mentioned in paragraph three of the appellant’s letter of October 19, was the consideration of the extension of time granted by the respondent for the payment of the balance of the first instalment under the option contract between the parties. It was in no wise a condition of the original option to be unenforceable in case the option to purchase was not exercised by the appellant. On the contrary, the only possible interest the respondent could have in view when he stipulated for this development work, was in case the appellant relinquished his option. If he purchased the property, and paid for it, it would be a matter of indifference to the respondent what development work had been done. Moreover, the letter stated that the work should begin immediately.
Counsel for Sunshine contends that the learned trial juge should have applied the decision of this Court in Cotter v. General Petroleums Limited et al.[4], and should have awarded only nominal damages.
In that case, Cotter bad granted to General Petroleums Limited and Superior Oils, Limited an option on petroleum and natural gas in certain lands held under lease by Cotter. Clause 2 of the agreement provided for the exercise of the option within a stipulated period by commencing the drilling of a well upon the lands described and by notifying Cotter of the exercise of the option. Under clause 3 of the agreement, the companies covenanted to exercise the option within the period prescribed in clause 2. It was provided that on their failure to do so, Cotter, notwithstanding the lapse of the option, could be entitled to exercise any legal remedies available for breach of the covenant, which, the parties agreed, was given as the substantial consideration for the granting of the option.
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The companies did not fulfil their covenant, and Cotter sued them for damages. At trial he was awarded an amount equivalent to the cost of drilling a well. On appeal, the Appellate Division of the Supreme Court of Alberta found that clause 3 of the agreement was void for repugnancy and must be rejected as destructive of the object of the instrument, a view which was shared by Locke J. in this Court.
Rinfret C.J. and Kerwin J. (as he then was), while disagreeing with this conclusion, held that there was no covenant by the companies to drill a well. Kerwin J., who wrote the reasons, said at p. 159:
The allowance by the trial judge was made on the basis of reading together the head lease, the agreement in question, and the form of lease attached thereto and construing the covenant sued upon as one to dig a well. I am unable to agree that this is the proper way of approaching the matter. Clause 4 of the agreement provides that the optionor shall grant to the optionees the sublease “in the event of the exercise of the said option” and I cannot read the document as equivalent to a simple agreement for a lease. Such a result could follow only if the option had in fact been exercised. It appears to me that clause 3 was drawn having in mind that the option might not be exercised and provided that, if the optionees neglected or failed to exercise it, certain results should follow. It was only if the option was exercised that the lease was to be entered into.
Notwithstanding that the appellant’s case was put as if the respondents’ covenant was to dig a well, which as I have indicated is not in my view its proper construction, the appellant is entitled to more than nominal damages.
In the present case there was a specific agreement to perform the Schedule “A” work and a clear breach of that undertaking.
Cartwright J. (as he then was), with whose reasons Fauteux J. concurred, held that clauses 2 and 3 were not repugnant to each other, and further held that the companies had covenanted to drill a well. He said, at p. 172:
I think that, read as a whole, the agreement of April 21, 1948 with its schedules discloses the inten-
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tion of the parties to agree that on or before August 1, 1948 the respondents would commence to drill a well in the manner set out in paragraph 2 of the agreement, that forthwith on such commencement the parties would execute the sub-lease and that the respondents would carry on the drilling of the well to completion in the manner set out in the sub-lease. I think that the respondents were bound in contract not only to commence but to complete the drilling of the well within the time and in the manner prescribed, and that such obligations bound them from the moment that the agreement of April 21, 1948 was executed.
He then went on to hold that Cotter was not entitled, in the circumstances of the case, for breach of the covenant to drill a well, to recover the expense of such drilling. His reasoning is as follows (at p. 174):
It remains to be considered on what principle and at what amount the damages should be assessed.
The underlying principle is expressed by Lord Atkinson in Wertheim v. Chicoutimi Pulp Co., [1911] A.C. 301 at 307: “And it is the general intention of the law that, in giving damages for breach of contract, the party complaining should, so far as it can be done by money, be placed in the same position as he would have been in if the contract had been performed… That is a ruling principle. It is a just principle.” In the case at bar if the respondents had carried out the contract the appellant would not have had to pay the $1,000 for a six months’ extension which he did in fact pay to the head-lessor. The circumstances as to the necessity of making such payment were known to the parties and I agree with the learned trial judge that that sum is recoverable. What further benefits would have resulted to the appellant from the performance of the contract? If the respondents had drilled the well to the prescribed depth and it had proved a producer, the appellant would have received, (a) his share of the proceeds and, (b) the benefit of having the head lease validated, by the performance of the lessee’s covenant to drill, not only as to the 80 acres described in the sublease but as to the whole 160 acres described in the head lease. If on the other hand, as, from the evidence of the geologists, would seem much more probable, the well had proved a failure the appellant would not have received benefit (a) but would have received benefit (b). It must be remembered however that as a result of the respondents’ breach the appellant holds the whole 160 acres free from any
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claim of the respondents. No part of the consideration which under the contract would have passed to the respondents has passed, except that from April 21, 1948 until some time in June 1948, when they repudiated the agreement, the respondents had rights in the 80 acres and the appellant was not free to deal therewith. Under these circumstances, I do not think that the cost of drilling is the proper measure of damages. Suppose that instead of the consideration set out in the contract the appellant had agreed to pay the respondents $53,500 to drill the well and the respondents had repudiated the contract before the date set for the commencement of the work and before any moneys had been paid to them. In such a case by analogy to the rule in the case of building contracts the measure of damages would seem to be the difference (if any) between the price of the work agreed upon and the cost to which the appellant was actually put in its completion. I think it will be found that those cases in which it has been held that the cost of drilling is the proper measure of damages, are cases where the consideration to be given for the drilling had actually passed to the defendant. Examples of such cases are Cunningham v. Insinger, [1924] S.C.R. 8, and Pell v. Shearman, (1855) 10 Ex. 766 (a contract to sink a shaft).
It will be noted, from the passages above cited, that the obligation of the companies to drill a well (as distinct from commencing to drill a well) would arise only if the option had been exercised and they had been granted a sublease. The consideration for the drilling was to be the granting of the sublease and that consideration had not passed to them. In the present case, the consideration for the undertaking of the Schedule “A” work had been received by Sunshine in full. Sunshine had received, under the principal agreement, the transfer to it of a one-half interest in the mining properties. Under the amending agreement, it had received from Dolly Varden the consideration stipulated in that agreement, namely, withdrawal of the notice of default, waiver of the performance of further work under Schedule “F” of the principal agreement, waiver of any prior defaults, and an extension of the term of the first development period. For that consideration Sunshine had given a firm commitment to perform the Schedule “A” work, which it failed and refused to perform.
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For these reasons, I do not consider that the reasoning in the Cotter case is of assistance to Sunshine in the present appeal.
Davey C.J.B.C., in the Court of Appeal, agreed with the judgment at trial that Dolly Varden was entitled to receive the expense involved in performing the Schedule “A” work. He reached this conclusion for reasons somewhat different from those of the learned trial judge. He points out that the view of Duff J., in the Cunningham case, as to the inadvisability of attempting to lay down a general rule of law for ascertaining the damages sustained by a mine owner for breach of a covenant to perform exploratory or development work is supported by high authority, and he cites the following statements of the law:
In Wertheim v. Chicoutimi Pulp Company, [1911] A.C. 301, which was cited in Cunningham v. Insinger, and Cotter v. General Petroleums Ltd. et al., Lord Atkinson stated at p. 307:
And it is the general intention of the law that, in giving damages for breach of contract, the party complaining should, so far as it can be done by money, be placed in the same position as he would have been in if the contract had been performed: Irvine v. Midland Ry. Co. (Ireland), (1880) 6 L.R.Ir. at p. 63, approved of by Palles C.B. in Hamilton v. Magill, (1883) 12 L.R.Ir. at p. 202. That is a ruling principle. It is a just principle. The rule which prescribes as a measure of damages the difference in market prices at the respective times above mentioned is merely designed to apply this principle and, as stated in one of the American cases cited, it generally secures a complete indemnity to the purchaser. But it is intended to secure only an indemnity. The market value is taken because it is presumed to be the true value of the goods to the purchaser. In the case of non-delivery, where the purchaser does not get the goods he purchased, it is assumed that these would be worth to him, if he had them, what they would fetch in the open market; and that, if he wanted to get others in their stead, he could obtain them in that market at that price.
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In British Westinghouse Electric and Manufacturing Company Limited v. Underground Electric Railways Company of London, Limited, [1912] A.C. 673, Lord Haldane at pp. 688-9 stated:
In order to come to a conclusion on the question as to damages thus raised, it is essential to bear in mind certain propositions which I think are well established. In some of the cases there are expressions as to the principles governing the measure of general damages which at first sight seem difficult to harmonize. The apparent discrepancies are, however, mainly due to the varying nature of the particular questions submitted for decision. The quantum of damage is a question of fact, and the only guidance the law can give is to lay down general principles which afford at times but scanty assistance in dealing with particular cases. The judges who give guidance to juries in these cases have necessarily to look at their special character, and to mould, for the purposes of different kinds of claim, the expression of the general principles which apply to them, and this is apt to give rise to an appearance of ambiguity.
Subject to these observations I think that there are certain broad principles which are quite well settled. The first is that, as far as possible, he who has proved a breach of a bargain to supply what he contracted to get is to be placed, as far as money can do it, in as good a situation as if the contract had been performed.
The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach;…
In Monarch Steamship Co., Limited v. Karlshamns Oljefabriker A/B, [1949] A.C. 196, the House of Lords followed the principle applied in Wertheim v. Chicoutimi Pulp Company, and by Duff J., in Cunningham v. Insinger, which is founded upon Hadley v. Baxendale, (1854), 9 Ex. 341. At pp. 222-3 Lord Wright repeated the passage from Lord Haldane’s speech which I have quoted above.
The following passage from the speech of Lord Du Parcq at p. 232 puts the particular rules for measuring damages in their proper light, as simply methods of solving what is after all essentially a
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question of fact, and that this application must vary according to the circumstances of each case:
I do not doubt the wisdom of the judges who, in Hadley v. Baxendale and the many later cases which interpreted or explained that classic decision, have laid down rules or principles for the guidance of those whose duty it is, as judges or jurymen, to assess damages. When those rules or principles are applied, however, it is essential to remember what my noble and learned friend Lord Wright, and Lord Haldane in the passage cited by him, have emphasized, that in the end what has to be decided is a question of fact, and therefore a question proper for a jury. Circumstances are so infinitely various that, however carefully general rules are framed, they must be construed with some liberality, and not too rigidly applied. It was necessary to lay down principles lest juries should be persuaded to do injustice by imposing an undue, or perhaps an inadequate, liability on a defendant. The court must be careful, however, to see that the principles laid down are never so narrowly interpreted as to prevent a jury, or judge of fact, from doing justice between the parties. So to use them would be to misuse them.
Applying these principles, Davey C.J.B.C. reaches the following conclusions:
So in the result the appellants have received from the respondent everything they bargained for under the principal and amending agreement as the consideration for their contract to do the work specified in Schedule “F” as modified by Schedule “A”, but have done nothing they agreed to do under Schedule “A”. The respondent has been denied the information it would have got if the work had been done under Schedule “A”, for which it had paid by fulfilling all its obligations under the principal and amending agreements.
If appellant had performed its obligations respondent would have received valuable information about the Torbrit property. True the information might have shown the property to be of great value, or valueless, but even in the latter case the information would have been valuable to the respondent to enable it to adopt a realistic policy, and save expense of carrying worthless claims.
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It seems quite clear that the direct and natural consequences of the appellant’s default was to deprive the respondent of essential information about the value of its properties for which it had paid. The measure of that loss is the value of the information that respondent would have obtained from the performance by appellant of its contract to do the drilling. The value of that information cannot be determined by what it would have disclosed, for that is not known, but by what it would cost the respondent to obtain it, following the analogy of determining the value to the purchaser of goods bought but not delivered by the cost of replacing them: Wertheim v. Chicoutimi Pulp Company quoted supra.
The reasons of Branca J.A. for supporting the judgment at trial are substantially similar to those of the Chief Justice. Nemetz J.A. agreed with the learned trial judge that, on its facts, this case was similar to the Cunningham case and that the same measure of damages ought to be applied.
The submissions made on behalf of Sunshine in this Court have failed to persuade me that, in the circumstances of the case, the Courts below were in error in awarding to Dolly Varden damages equivalent to the expense involved in performing the Schedule “A” work which Sunshine contracted to perform and deliberately failed to carry out. As stated by Lord Du Parcq in the passage cited earlier, what has to be decided, in determining damages, is a question of fact, and the Cunningham case certainly establishes that there is no rule of law which precludes the application of the method of assessing damages which was adopted by the learned trial judge in this case, when the Court considers it to be appropriate. For the reason already stated, I do not think that the Cotter case is of any assistance to Sunshine in this appeal.
It was contended, for Sunshine, that Dolly Varden was only entitled to receive, by way of damages, the difference between the value of the premises if the work had been performed, and their value with the work unperformed, and that there was no evidence to establish any damage upon this basis. In the circumstances of this case
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I do not think that this was a proper test for ascertaining damages.
Counsel for Sunshine, in this connection, relied upon two cases, Wigsell v. School for Indigent Blind[5], and James v. Hutton and J. Cook & Sons Ltd[6].
In the former case, a grantee of land had covenanted to construct around the land conveyed, on all sides where it abutted on the grantor’s land, a seven-foot brick wall. The wall was not erected and an action was brought for damages. It appeared that the value of the adjoining land was not decreased by the non-erection of the wall to anything like the amount required to construct it.
The Court refused to award damages equivalent to the cost of constructing the wall.
This was a case of a purchaser’s covenant, similar to a restrictive covenant, taken by the seller for the protection of his adjoining land, and the measure of damages in such cases is usually the diminution in value of the adjoining land resulting from non-performance. In cases of this kind, the grantor has available the remedy of specific performance, where damages would not adequately protect his rights.
The latter case involved a covenant by a lessee, who, under licence, made an alteration to the front of the store he had leased. The lessee undertook, on request, to restore the building to its original condition on the expiration of the lease. The lessee failed to comply with such a request by the lessor. There was no evidence that the restoration would make the premises suitable for any particular purpose or business or that the premises were adversely affected or made less valuable by reason of the new store front which replaced the old.
The Court held that the lessor was only entitled to recover the damage he had actually suffered, which, in this case, was merely nominal. The Court, however, expressly disclaimed that it was suggested that the plaintiff could not give evidence that he desired to use the premises for a purpose for which the new front was unsuitable.
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I do not regard these cases as being analogous to the circumstances of the present case. The covenant of the grantee in the Wigsell case was given for the benefit of the adjacent lands retained by the grantor. The extent to which the value of those lands was affected by breach of the covenant was not, in the circumstances of that case, determinable by reference to the cost of construction of the wall. Similarly, in the James case, the covenant given by the lessee under the licence granted to him by the lessor, was for the benefit of the reversionary interest of the lessor. In the absence of evidence that breach of the covenant affected the use to which the lands were to be put, or their value, after the expiration of the lease, the lessor was held not entitled to recover the cost of restoration of the store front to its previous condition.
The agreements in the present case related to a joint venture for exploration, development and production of minerals underlying the mining properties. These properties were known to have good prospects. Stage one of the principal agreement provided Sunshine with an opportunity to ascertain whether these properties offered a potential return to it sufficient to warrant a decision to proceed further into stage two. Dolly Varden’s interest was in having Sunshine proceed with the various stages into commercial production, but, failing such further progress, it would obtain, pursuant to the provisions of the agreement, full information as to the work done, the results thereof and the cost involved. In a sense, although the agreement provided that it should not be construed as creating a partnership, the parties were partners in a joint venture.
The work described in Schedule “A” to the amending agreement was work which Sunshine had decided would be of advantage, after conducting a study of the Torbrit mine and on the recommendation of its chief geologist. It committed itself to do that work for the consideration given by Dolly Varden, which Sunshine received in full. Sunshine committed itself to perform that work, obviously because it considered the results of it would be of value. Dolly Varden gave the stipulated consideration be-
[Page 22]
cause, if the results were favourable, it would obtain the further development of its property, and, if Sunshine was not satisfied with the results, it would be the recipient of useful information about its property. Clearly, in this case, both parties considered that the work, contracted to be performed, would be worth the expense of doing it. This is an entirely different situation from the covenants given in the two cases mentioned, which would be of advantage only, if at all, to the grantor and the lessor respectively.
When Sunshine, later, deliberately breached its contract to perform the work, what was the measure of Dolly Varden’s damage? If it had paid cash for the work, it would clearly be entitled to a repayment of it, and would also have a claim in damages. The consideration was not in cash, but Sunshine, when it executed the amending agreement, considered it to be of sufficient value to warrant the expenditure necessary to perform the work.
It is pointless, in these circumstances, to suggest that a comparison be made between the value of the mining property with and without the work being done. The result of the Schedule “A” work is unknown, and it is unknown because Sunshine elected to break the contract for its performance. But when Sunshine, by entering the agreement, acknowledged that, in the light of its future potential benefits under the agreement, its own suggested program of work was worth the cost of performing it, and when Dolly Varden was prepared to give, and did give, valuable consideration for its performance, I consider that it was entirely proper for the learned trial judge to assess the damage resulting from the breach as being equivalent to the cost of doing the work. In so doing he was seeking to fulfil the underlying principle stated by Lord Atkinson in Wertheim v. Chicoutimi Pulp Co.[7], and cited by Cartwright J. in the Cotter case in the passage already quoted:
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And it is the general intention of the law that, in giving damages for breach of contract, the party complaining should, so far as it can be done by money, be placed in the same position as he would have been if the contract had been performed.
Having reached this conclusion, I must go on to consider whether the right to receive damages, determined in this manner, is affected by Dolly Varden having entered into the agreement with Newmont, which did not become effective until after Dolly Varden had asserted its right to damages against Sunshine, and after that action had been tried.
In this Court, counsel for Sunshine did not contend that the benefits accruing to Dolly Varden under that contract should be considered by way of mitigation of damages. His position was that no question of mitigation arises because, he said, Dolly Varden had not established any damages. I have already indicated my reasons for disagreeing with this latter assertion. His submission was that the Newmont agreement was relevant as showing that, from its effective date, Dolly Varden had abandoned any power or intention of doing the Schedule “A” work itself, and, on this basis, this case was not analogous to the Cunningham case.
The same submission was made at trial and, in respect of it, the learned trial judge made the following finding:
However I have found that the work was economic and necessary as a part of the overall scheme of development of Torbrit. I also accept the evidence of the officers of the plaintiff company to the effect that they intend the completion of the Schedule “A” work.
The fact that the new agreement with Newmont does not make specific reference to the work and does not provide for its completion at once does not mean that the plaintiff does not intend to do the work or have it done or exclude the possibility that it will be done, and the work being a necessary step in the development of the mining properties the introduction of a new principal cannot justify a finding, by itself, that the work would not be done.
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I am not prepared to disturb this finding. Furthermore, I do not regard the Newmont agreement as having any bearing in this case. The agreement with Sunshine terminated at the end of the first development stage. Sunshine had not given notice of intent to extend that period or to enter the next development stage. It abandoned the agreement. Immediately upon the termination of the agreement, in my opinion, for the reasons already given, Dolly Varden had a valid claim in damages equivalent to the expense of doing the Schedule “A” work, which it asserted by action against Sunshine. On such termination Dolly Varden had the mining property on its hands, and, later, it was able to obtain the agreement with Newmont for its development. Under that contract, the work to be done by Newmont was in its discretion, subject to its commitment, if it entered the second and later stages, to expend stipulated amounts of money “for the benefit of the property.” It was not obligated to perform the Schedule “A” work. In view of these circumstances, I do not see how this contract can affect the cause of action of Dolly Varden to recover damages equivalent to the cost of the Schedule “A” work, arising out of Sunshine’s failure to do that work, which cause of action arose on the termination of the Sunshine agreement.
I would dismiss this appeal, with costs.
Appeal dismissed with costs.
Solicitors for the defendants, appellants: Bull, Housser & Tupper, Vancouver.
Solicitors for the plaintiff, respondent: Cumming, Bird, Richard & Co., Vancouver.