Damages in the vast majority of cases are the pecuniary compensation, obtainable by success in an action, for a wrong which is either a tort or a breach of contract, the compensation being in the form of a lump sum awarded at one time, unconditionally and in sterling.
McGregor on Damages, 18th ed. (2009), para. 1.
In order to be successful, a plaintiff must establish that the acts or omissions of a defendant caused or contributed to its loss. In establishing causation, the plaintiff must show the negligence of the defendant was both the ‘cause-in-fact’ and ‘cause-in-law’ or proximate cause.
Factual causation inquires into whether the wrongful conduct was part of a set of facts that could be a cause of the loss, and whether that wrongful conduct was part of a set of facts that did cause that loss.
Madam Justice Ryan discussed factual causation in B.S.A. Investors Ltd. & Gang Ranch Ltd., 2007 BCCA 94 at para. 29:
Causation is a broad field of inquiry and includes questions of remoteness and foreseeability, as well as questions of factual causation. It is the latter that is specifically at issue in this appeal: was the admitted breach of duty the factual cause of the plaintiffs’ loss? This question is traditionally expressed as a “but-for” test: if, but for the defendant’s negligence, the plaintiffs would not have suffered a loss, cause-in-fact is established. On the other hand, if the loss would have been suffered even if the defendant had fulfilled its duty of care to the plaintiffs, the negligence did not cause the loss. [Emphasis added]
This but-for test is well-established in Canadian jurisprudence: Athey v. Leonati,  3 SCR 458 at paras. 13-17; Resurfice Corp. v. Hanke, 2007 SCC 7. Although Athey and Resurfice involved a personal injury claim, principles expressed in these cases respecting causation are applicable to property damage matters.
The most recent restatement of the meaning and application of the but-for test is found in Clements v. Clements, 2012 SCC 32 at para. 8:
The test for showing causation is the “but for” test. The plaintiff must show on a balance of probabilities that “but for” the defendant’s negligent act, the injury would not have occurred. Inherent in the phrase “but for” is the requirement that the defendant’s negligence was necessary to bring about the injury—in other words that the injury would not have occurred without the defendant’s negligence. This is a factual inquiry. If the plaintiff does not establish this on a balance of probabilities, having regard to all the evidence, her action against the defendant fails. [Emphases added]
Clements provides the following rules:
§ The but-for test must be applied in a robust pragmatic way, without need for scientific evidence of the precise contribution a defendant’s wrong made to the plaintiff’s loss: at para. 9.
§ A common sense inference of but-for causation from proof of negligence usually flows without difficulty. Evidence connecting the breach of duty to the loss may permit the judge to infer that the defendant’s conduct probably caused the loss: at para. 10.
§ Where but-for causation is established by inference only, it is open to the defendant to call evidence that the accident would have happened without the breach / tort – that the negligence was not a necessary cause of the injury, which was, in any event, inevitable: at para. 11.
§ In some cases, the loss may flow from a number of different negligent acts committed by different actors, each of which is a necessary or but-for cause: at para. 12.
In order to establish ‘cause-in-law’, a plaintiff must demonstrate that a defendant’s actions were the proximate cause of the alleged damage. Framed another way, a plaintiff must show that the actions by a defendant were not too remote or unrelated to the wrong to hold the defendant liable. The concept deals with how far liability should extend in reference to losses caused to a plaintiff, once a duty and the wrongful conduct has been established.
For a risk to be foreseeable, it is not required that the risk be more likely than not to occur, or that the risk must have some specific degree of statistical probability. In Mustapha v. Culligan of Canada Ltd., 2008 SCC 27, Chief Justice McLachlan described the correct approach:
Much has been written on how probable or likely a harm needs to be in order to be considered reasonably foreseeable. The parties raise the question of whether a reasonably foreseeable harm is one whose occurrence is probable or merely possible. In my view, these terms are misleading. Any harm which has actually occurred is “possible”; it is therefore clear that possibility alone does not provide a meaningful standard for the application of reasonable foreseeability. The degree of probability that would satisfy the reasonable foreseeability requirement was described in The Wagon Mound (No. 2) as a “real risk”, i.e. “one which would occur to the mind of a reasonable man in the position of the defendan[t] … and which he would not brush aside as far-fetched” (Overseas Tankship (U.K.) Ltd. v. Miller Steamship Co. Pty.,  A.C. 617 (P.C.), at p. 643).
[Underlined emphases added]
… To put it another way, unusual or extreme reactions to events caused by negligence are imaginable but not reasonably foreseeable.
The general rule is that the aggrieved party must take all reasonable steps to mitigate loss and cannot claim for avoidable accumulation of that loss. Simply put, a plaintiff is entitled to recover from a defendant damages suffered, but not those that could have been avoided by the plaintiff acting reasonably.
It is in this sense that claimants are said to be under a duty to mitigate. This duty to mitigate applies to both breach of contract and tort.
Mitigation is sometimes discussed in terms similar to the concepts of foreseeability and remoteness: Janiak v. Ippolito,  SCJ No 5 (QL) at para. 37:
Mitigation has to do with post-accident events. In this respect it should perhaps be contrasted with contributory negligence and perceived as more closely aligned with novus actus interveniens. It differs from the latter, however, in that the novus actus may be the act of a third party whereas mitigation (or its failure) is exclusively the act of the claimant. Overhanging all three concepts, mitigation, contributory negligence and novus actus, are the general principles of foreseeability and remoteness as they apply to post-accident events. [Emphasis added]
What is reasonable is a question of fact and depends on circumstances of each case. As Stephen Waddams comments in The Law of Damages (Toronto: Canada Law Book, loose-leaf edition) at s. 15.140:
The plaintiff is barred from recovering in respect of loss that could have been avoided by acting reasonably. What is reasonable has been called a question of fact depending on the particular circumstances of the case. However, as with remoteness, a finding that the plaintiff ought to have mitigated is not a simple question of fact because it involves a legal conclusion. In case of doubt, the plaintiff will usually receive the benefit, because it does not lie in the mouth of the defendant to be over-critical of good faith attempts by the plaintiff to avoid difficulty caused by the defendant’s wrong…
It has been said that the measures which a plaintiff may be driven to adopt in order to extricate himself ought not to be weighed in nice scales at the instance of the party whose breach of contract has occasioned the difficulty. It is often easy after an emergency has passed to criticize the steps which have been taken to meet it, but such criticism does not come well from those who have themselves created the emergency. The law is satisfied if the party placed in a difficult situation by reason of the breach of a duty owed to him has acted reasonably in the adoption of remedial measures and he will not be held disentitled to recover the cost of such measures merely because the party in breach can suggest that other measures less burdensome to him might have been taken.
A plaintiff’s duty to mitigate his/her/its damages was further explained by Justice Laskin in Red Deer College v. Michaels,  SCJ No 81 (QL). Although Red Deer dealt with mitigation in the context of a contractual claim, the Supreme Court of Canada in Janiak v. Ippolito,  SCJ No 5 (QL), affirmed that the same principles applied to tort law.
Justice Wilson in Janiak at para. 33 cited an Australian case, Bucyznski v. McDonald (1971), 1 SASR 569 at p. 573, for guidance on this issue of reasonableness in the mitigation assessment:
I turn now to the question whether the plaintiff has done all that he could reasonably have done to alleviate his condition… The principle to be applied with respect to mitigation of damages in the cost of tort is clear. The plaintiff is “bound to act not only in his own interests, but in the interests of the party who would have to pay damages, and keep down the damages, so far as it is reasonable and proper, by acting reasonably in the matter.” …”If any part of his (the plaintiff’s) damage was sustained by reason of his own negligent or unreasonable behaviour, the plaintiff will not be recouped as to that part.” However, “the question what is reasonable for the plaintiff to do in mitigation of damages is not a question of law, but one of fact in the circumstances of each particular case, the burden of proof being upon the defendant” … once the plaintiff has “made out a prima facie case of damages, actual or prospective, to a given amount”, the burden lies upon the defendant to prove circumstances whereby the loss could have been diminished. Not only must the defendant discharge the onus of showing that the plaintiff could have mitigated his loss if he had reacted reasonably, but he must also show how and to what extent that loss could have been minimized… [Emphases added]
In short, the obligation of a plaintiff is to act with prudence. This involves determining (1) the standard required in measuring his/her/its conduct; and then (2) whether in light of that standard, a plaintiff’s conduct was in fact unreasonable. He/she/it is not expected to take extraordinary measures, or all possible steps to mitigate damages.
The burden of proving a failure to mitigate lies with the defendant. To discharge this onus, the defendant must establish – on a balance of probabilities – the following: (1) steps a plaintiff could have taken in mitigation; (2) reasonableness of pursuing those steps; and (3) extent, that is, in actual percentage terms, to which the loss would have thereby have been avoided.
A question that may arise is whether a defendant should be liable for losses suffered by a financially strapped plaintiff, whereas a plaintiff with sufficient funds under similar circumstances would have been able to mitigate. This issue of whether a court will take into account a plaintiff’s lack of resources in assessing reasonableness under the mitigation assessment remains murky.
On the one hand, defendants argue that damages flowing from an impecunious plaintiff, where the breach or tort does not cause that impecuniosity are too remote, unforeseeable, thus, unrecoverable: Owners of Dredger Liesbosch v. Owners of Steamship Edison,  AC 449 (UK). Impecuniosity is an independent cause of loss; financial circumstances do not excuse a claimant from the duty to mitigate. In other words, the plaintiff must somehow mitigate damages even if he/she/it cannot afford to do so.
For example, in Dawson v. Helicopter Exploration Co.,  SCJ No 80 (QL), the defendants hired the plaintiff to stake mineral claims. In return, the plaintiff was to receive 10% interest in a new mining company formed by the defendants. The defendants later breached the contract by hiring another person to provide the service the plaintiff had contracted to perform. In assessing damages, Justice Rand noted the plaintiff could have purchased shares so as to mitigate the loss. The Court ruled it would be no answer that the plaintiff was not, at the time, financially able to buy them.
By contrast, plaintiffs, in turn, argue the wrongdoer must take the victim ‘as is’, pursuant to the thin-skull rule; therefore, if their position is worsened due to lack of means to mitigate, so much the worse for the wrongdoer, who must be held to account for all consequences flowing from the breach or tort: Clippens Oil Co. v. Edinburgh & District Water Trustees,  AC 291 (UK) at p. 303.
For instance, in Stewart v. Industrial Acceptance Corp.,  BCJ No 83 (QL) (SC), the defendant wrongfully seized and sold the plaintiff’s equipment. At time of seizure, the plaintiff was under contract to perform logging operations, but this contract terminated, as the plaintiff was financially unable to purchase replacement equipment.
Justice Whittaker held that the plaintiff was not entitled to recover loss of profits resulting from “complete cessation of work due to his impecuniosity”, but he could recover costs that would have been incurred in transporting and setting up other equipment if he had been financially able to purchase it, as well as profits that would have been lost due to delay in obtaining replacement equipment. He ruled that the plaintiff was “entitled to restitutio in integrum subject to the rules of law as to remoteness of damage and disregarding any special loss due to his financial position”.
In Cash v. Georgia Pacific Securities Corp.,  BCJ No 1315 (QL) (SC), the defendant stockbroker removed shares from the plaintiff’s account without authorization converting them to cash to pay for drugs. The defendant argued the plaintiff should not be awarded the full amount of his losses because he should have mitigated by purchasing replacement shares. The plaintiff argued he could not afford to do so.
The trial judge in Cash concluded that (1) “the cause of the plaintiff’s impecuniosity was the very act of [the defendant] in stealing his shares”; (2) the loss was not too remote, as it was within the defendant’s knowledge that a substantial portion of the plaintiff’s assets were tied up in the shares; and (3) his ability to earn income was directly related to his ability to trade in the market.
It seems the deciding factor on the issue of impecuniosity is whether the defendant caused all the losses claimed and could reasonably have known of them arising from the plaintiff’s financial inability to mitigate. In other words, the correct approach in dealing with how a plaintiff’s impecuniosity impacts the overall damages assessment is to subsume that question into one of causation and reasonable foreseeability or remoteness.
(d) Wasted Costs
Any additional costs incurred in having to mitigate may be recoverable against the defendant, even if the claimant’s attempts to fulfill that duty had been unsuccessful; again, to better secure recoverability, a plaintiff needs to take the steps that are reasonable: Nova Scotia v. Johnson, 2005 NSCA 99 at para. 27; Belarus Equipment of Canada Ltd. v. Winkler,  SJ No 211 (QL) (CA) at para. 37.
The guiding principle in any tort case is restitution in integrum – to place the injured party in the same position that it would have been in if the damage had not occurred. Thus, the appropriate measure of compensation for negligent damage is the difference in value immediately before and immediately after the damaging act.
However, in practicality, this principle is oversimplified, as it is often nearly impossible to place a party in the exact same position for a variety of reasons and a court’s task becomes to attempt to do so as closely as possible through damages. To prevent overcompensation or a windfall to the plaintiff, the concept of betterment has developed in the jurisprudence, which essentially limits a plaintiff’s award on account of being placed in a better position than prior to the loss.
There can be difficulties in deciding between awarding damages for either how much a property has diminished in value or how much it would cost to replace the property in order to put the injured party back in their original position. For example, the injured party may want his property in the same state before the tort occurred, but the amount necessary for this to occur is substantially greater than the amount that the property has depreciated in value.
Following the decision of Lord Denning in Harbutt’s “Plasticine” Ltd. v. Wayne Tank & Pump Co. Ltd.,  1 Q.B. 447, the notion of “new for old” without deduction, at least in the context of a building, seemingly found its way into the jurisprudence. At page 468, Lord Denning explained:
The destruction of a building is different from a chattel. If a second-hand care is destroyed, the owner only gets its value; because he can go into the market and get another second-hand car to replace it. He cannot charge the other party with the cost of replacing it with a new car. But when this mill was destroyed, the plasticine company had no choice. They were bound to replace it as soon as they could, not only to keep their business going, but also to mitigate the loss of profit (for which they would be able to charge the defendants). They replaced it in the only possible way, without adding any extras. I think they should be allowed the cost of replacement. True it is that they got new for old; but I do not think the wrongdoer can diminish the claim on that account. If they had added extra accommodation or made extra improvements, they would have to give credit. But that is not the case.
In James Street Hardware and Furniture Co. Ltd. v. Spizziri et al.,  O.J. No. 1022, a commercial building suffered fire damage caused, in part, by the negligence of the welding company hired to form an archway for a door. As the Building Code Act prohibited the restoration of the building to its pre-fire condition, the plaintiff repaired and significantly improved the entire building. The plaintiff appealed an order wherein the trial judge reduced its damages on account of betterment. In support of its position, the plaintiff argued that the trial judge ought to have followed the approached applied by Lord Denning.
After reviewing Harbutt’s “Plasticine”, the Court further acknowledged that a plaintiff’s loss may, at times, be measured in a number of ways. At para. 61, the Court referred to Waddams, The Law of Damages (1983):
It commonly occurs that a plaintiff, in making good damage to property, will not be able to restore himself to his pre-loss position without improving it. If the plaintiff’s ten-year-old roof is damaged, he will not be able to purchase a replacement 10-year-old roof. The only reasonable course will be to replace with a new roof. If roofs have a life of twenty years, and the defendant is compelled to pay the full cost of the replacement, the plaintiff will be in a better position after satisfaction of the judgment than if the damage had not occurred in the first place. It would seem, therefore, that the damages should be reduced by the value of the improvement of the plaintiff’s position. The contrary argument is that it is the defendant’s wrong that has caused the need for replacement, and that the plaintiff should not be compelled against his will to invest his money in a replacement he might not have chosen to make. These arguments, however, do not appear to be conclusive. The fact that the defendant is a wrong doer is not sufficient reason for over-compensation. The argument that the plaintiff is forced to make an unwanted investment can be met by conceding the point and increasing the damages by any loss suffered by the plaintiff’s making such an investment. The plaintiff’s interest can be met by putting the onus of proof on the defendant to show that the plaintiff does not suffer any loss by this reason.
These cases [cases concerned with the principle of mitigation of the plaintiff’s loss] seem inconsistent with a rule that improvements to the plaintiff’s position by effecting repairs are to be ignored. The increase in the plaintiff’s wealth is one that could not have occurred in the absence of the wrong. It is suggested, therefore, that an anticipated benefit accruing to the plaintiff on repairing damaged property ought to be taken into account to reduce damages, with compensation, however, for the cost to the plaintiff of the unexpected expenditure required of him, and with the onus of proof upon the defendant in case of doubt on this question, or on the value of the benefit.
The Court then explained, at para, 62:
Quite simply, if a plaintiff, who is entitled to be compensated on the basis of the cost of replacement, is obligated to submit to a deduction from that compensation for incidental and unavoidable enhancement, he or she will not be fully compensated for the loss suffered. The plaintiff will be obliged, if the difference is paid out of his or her own pocket, whether borrowed or already possessed, to submit to “some loss or burden” to quote from Dr. Lushington. Widgery L.J. in Harbutt’s “Plasticine” called it “forcing the plaintiffs to invest their money in the modernising of their plant which might be highly inconvenient for them.”
These considerations, however, do not necessarily mean that in cases of this kind the plaintiff is entitled to damages which include the element of betterment. As Waddams suggests, the answer lies in compensating the plaintiff for the loss imposed upon him or her in being forced to spend money he or she would not otherwise have spent — at least as early as was required by the damages occasioned to him by the tort. In general terms, this loss would be the cost (if he has to borrow) or value (if he already has the money) of the money equivalent of the betterment over a particular period of time.
The approach advocated by the Court in Saint James, was subsequently followed by the Court of Appeal in Upper Lakes Shipping Ltd. v. St. Lawrence Cement Inc.,  O.J. No. 446.
In respect of damage to residential property, the British Columbia Court of Appeal in Nan v. Black Pine Manufacturing Ltd. (1991), 55 B.C.L.R. (2d) 241 (C.A.) examined betterment after a residential home was destroyed by fire as a result of the defendant’s negligent installation of a hearth heater. The house was completely rebuilt and the plaintiff was awarded the full replacement cost of the house. The Court explained that the cost of replacement is the starting point in assessing damages, particularly where a residential home is concerned. The Court held that the principles in Harbutt’s “Plasticine” applied when “assessing damages for the negligent loss of or damages to a private dwelling house which is occupied by the owners as their permanent home.” Consequently, the Court held that the cost of replacement was appropriate when considering that a deduction for betterment would result in a family financing the construction of a new home that it otherwise would not have.
However, the Court explained that while replacement cost is a starting point, an assessment of betterment will depend on the peculiar facts of each case. On this point, the Court explained:
Whether or not the damages based on such costs should then be adjusted, either for pre-loss depreciation or post-reinstatement betterment, will depend on what is reasonable in the circumstances. No rules can be fashioned by which it can invariably be determined when such allowances should be made. It must, in all cases, turn on the facts peculiar to the case being considered.
Moreover, the Court suggested that commercial nature of a property may be a factor in considering whether a deduction for betterment should apply.
The commercial versus residential distinction was affirmed by the British Colubmia Court of Appeal in Prince George (City) v. Rahn Bros. Logging Ltd., 2003 BCCA 31. There, the Court of Appeal clarified that Nan should be construed narrowly and only to residential buildings and therefore distinguished Nan from the case before it as the property in question was purely commercial in nature.
Full replacement costs have typically been awarded when the property has been unusual or unique. For example, in Forsyth v. Sikorsky Aircraft Corp., 2002 BCCA 231, a helicopter owned by the plaintiff crashed after a failure of the spindle in the tail-rotor assembly produced by the manufacturer. The plaintiff sought to recover the replacement cost of the helicopter and the defendant argued that the market value of the helicopter on the date of the loss should determine the extent of damages. However, the plaintiffs had modified the damaged helicopter to enable it to perform heli-logging operation, which increased the cost. Subsequently, replacement costs were awarded for the helicopter.
An award of replacement costs can also be justified in circumstances where there is no market value for the property destroyed. In Goodyear Canada Inc. v. Wall Beresford Holdings Ltd. (c.o.b. Industrial Machinery Movers)  O.J. No. 2130, the court considered whether the plaintiff should receive full replacement costs for the loss of their tire-making machine. The plaintiffs converted a machine from one already in their warehouse, although the added costs to make the enhanced machine were relatively minimal. The tire-making machine was unique and there was no available market into which the plaintiffs could have gone to replace the lost tire-making machine. They had no alternative but to either build one from scratch or, as they did in this case, convert one from a machine already in their warehouse. The court awarded full replacement costs but deducted the unreasonable enhancements of the machine.
The BC Court of Appeal discussed the betterment in the context of a maritime claim in Laichwiltach Enterprises Ltd. v. F/V Pacific Faith (Ship), 2009 BCCA 157. There, the Court refused to award “new for old” repair costs to a vessel damaged by a collision and applied a rate of depreciation against the repair costs to account for betterment.
At the time of the collision, the plaintiff’s vessel was approximately 30 years old. At trial, the Judge, after finding the defendant liable, held that the ramp had substantial wear and tear prior to the collision and that the repair efforts “greatly enhanced its overall condition and substantially lengthened its years of usefulness.” As a result, the trial Judge applied a discount of 67% to account for the betterment received by the plaintiff. The plaintiff appealed this decision.
The Court of Appeal substantially agreed with the basis for the deduction by the trial Judge; however, it ultimately differed on the percentage applied reducing the deduction to 33% on the basis that there was a lack of precision as to the evidence before the court.
In arriving at its decision, the Court of Appeal canvassed the jurisprudence on betterment. With respect to the “new for old” principle from Harbutt’s “Plasticine”, the Court explained, “In modern law, this “new for old” principle, if it ever was a principle of general application, has been modified by the commercial more realistic betterment concept.
At paragraph 35, Mr. Justice Low, writing for the Court, adopted the words of the Ontario Court of Appeal in Upper Lakes Shipping Ltd. v. St. Lawrence Cement Inc. (1992), 89 D.L.R. (4th) 722 (Ont. C.A.), at pages 723-724, in explaining the proper approach to betterment:
As part of its damages the trial judge allowed the plaintiff interest on the money which it was required to spend prematurely for betterment. The judgment of this court in James Street Hardware & Furniture Co. v. Spizziri (1988), 43 C.C.L.T. 9, 62 O.R. (2d) 385 authorized the making of such an award. The general principle is that the plaintiff should have deducted from his award the amount by which his property improved (betterment) but is compensated to the extent he has had to put out money prematurely to obtain that betterment. [emphasis added by Mr. Justice Low]
Mr. Justice Low continued at para. 36:
Betterment is question of fact to be determined on the evidence and with regard to what is reasonable in the particular case. The starting point is the cost of repair. In some cases, that cost will also be the end point. In other cases, betterment will be proven and it will fall to the trier of fact to assess the extent of the betterment.
Mr. Jutice Low noted that this approach is consistent with the prior jurisprudence of the B.C. Court of Appeal in Nan v. Black Pine Manufacturing Ltd. (1991), 55 B.C.L.R. (2d) 241 and Prince George (City) v. Rahn Bros. Logging Ltd., 2003 BCCA 31.
From the analysis of the case law, courts will first require the plaintiff to prove the damage flowed from the defendant’s tortuous act. The onus then shifts to the defendant to prove betterment. Finally, the onus shifts back to the plaintiff to prove their loss by unexpected expenditure.
(b) Calculating Betterment
The courts have calculated betterment in many ways:
The deferred benefit value of betterment
The Ontario case of North York v. Kert Chemical Industries Inc. (1985) 33 CCLT 184 (Ont. H.C.) where Krever J. delivered his judgement ten days before his subsequent trial judgment of a 10% betterment reduction in James Street, involved damage to the plaintiff’s sewer lines fourteen years in advance of their anticipated replacement. Krever J. quantified this as a betterment of fourteen years and utilized the deferred replacement benefit approach to assess the use value of money which had been expended prematurely.
Discount based on the percentage of serviceable life remaining
This approach was utilized in British Columbia in Vancouver (City) v. British Columbia Telephone Co.  B.C.J. No. 278 in which Maczko J. quantified percentage betterment as the already utilized pre-accident life span of the damaged property, awarding a discount of 55% and 75% respectively on the damaged street blocks.
Discount based on the percentage of serviceable life remaining + damages for lost interest amortized over the premature expenditure period
Finally, in Upper Lakes Shipping Ltd v St Lawrence Cement Inc.  O.J. No. 446, the Ontario Court of Appeal reduced the plaintiff’s damages award for betterment: a 20% reduction to reflect the utilized lifespan of the damaged property plus an 11.5% rate of interest per annum on the betterment amount to reflect forced expenditure in advance of the anticipated life span replacement.
Prepared by Sanja Kralvevic and former WT associate Lori Leung.