Asamera Oil Corporation Ltd. v. Sea Oil & General Corporation et al.

Asamera Oil Corporation Ltd. v. Sea Oil & General Corporation et al.
Collection
Supreme Court Judgments
Date
1978-10-03
Report
[1979] 1 SCR 633
Case number
63472, 63482, 87405
Judges
Laskin, Bora; Martland, Ronald; Spence, Wishart Flett; Pigeon, Louis-Philippe; Dickson, Robert George Brian; Estey, Willard Zebedee; Pratte, Yves
On appeal from
Alberta
Subjects
Torts
Notes
SCC Case Information: 63472, 87405, 63482
Decision Content
Supreme Court of Canada
Asamera Oil Corporation Ltd. v. Sea Oil & General Corporation et al., [1979] 1 S.C.R. 633
Date: 1978-10-03
63482
Asamera Oil Corporation Ltd. (Plaintiff) Appellant;
and
Sea Oil & General Corporation and Baud Corporation, N.V. (Defendants) Respondents.
63472
Baud Corporation, N.V. (Plaintiff) Appellant;
and
Thomas L. Brook (Defendant) Respondent.
87405
Baud Corporation, N.V. (Plaintiff) Appellant;
and
Thomas L. Brook (Defendant) Respondent.
1977: November 23, 24; 1978: October 3.
Present: Laskin C.J. and Martland, Spence, Pigeon, Dickson, Estey and Pratte JJ.
ON APPEAL FROM THE SUPREME COURT OF ALBERTA, APPELLATE DIVISION
Damages—Agreements concerning shares and operations of oil exploration company—Breach of contract by company’s chief officer to return shares loaned to him by another company—Appraisal of damages—Applicable principles.
These appeals arose out of a long series of agreements concerning the shares and operations of the appellant, Asamera Oil Corporation Ltd., which company was in one way or another involved in exploration for oil in Indonesia. Three separate actions were commenced by the parties.
1. Baud Corporation, N.V. v. Thomas L. Brook, (commenced on July 26, 1960) wherein Baud, a wholly owned subsidiary of Sea Oil & General Corporation (SOG), sought the return of 125,000 Asamera shares from Brook, the president and chief officer of Asamera. Baud alleged that 125,000 Asamera shares were loaned by it in October and November of 1957 to Brook under an agreement dated November 10, 1958, requiring their return by the end of 1959. In addition, Baud claimed damages in the sum of $150,750 representing the difference in the market value of the 125,000 shares between the date upon which they were to have been returned and the date of the writ.
2. Asamera Oil Corporation Ltd. v. Sea Oil & General Corporation and Baud Corporation, N.V., (commenced July 27, 1960) wherein Asamera sought rescission of the basic agreement between the two groups of entrepreneurs represented by Baud on the one hand, and Brook on the other. Under the basic agreement, entered into on June 18, 1957, Baud was to receive 3,500,000 shares of Asamera, and SOG was to receive 500,000 shares in that company. In return Asamera was to receive $250,000 together with 196 shares in an Indonesian corporation known as Nusantara, which shares represented a 49 per cent interest therein.
3. Baud Corporation, N.V. v. Thomas L. Brook, (commenced December 6, 1966) wherein Baud repeated its allegations as asserted in Action No. 1, and claimed the return of 125,000 Asamera shares, which Brook was required to return under the agreements mentioned in Action No. 1. The third action arose out of the allegation by Brook that the first action was premature since the date for the return of the shares had been extended by the parties until December 31, 1960. In addition to its claim for the return of the shares, Baud claimed damages in the sum of $400,000. An amendment to the statement of claim whereby the damage claim was raised to $6,000,000 was allowed at trial. In this action, Brook counterclaimed for substantially the same relief sought by him in Action No. 2.
Held: 1. The appeal of Baud from the judgment of the Appellate Division of the Supreme Court of Alberta affirming the dismissal at trial, because premature, of its action of July 26, 1960, against Brook should be dismissed. 2. The appeal of Asamera from the judgment of the Appellate Division affirming dismissal of its action of July 27, 1960, against SOG and Baud should be dismissed. 3. The appeal of Baud from the judgment of the Appellate Division affirming the judgment of the trial judge awarding it damages of $250,000 against Brook should be allowed and there should be substituted an award of damages to the appellant of $812,500.
The first action was dismissed by the trial judge when he found that there was indeed an agreement extending the loan of the 125,000 Asamera shares beyond the original expiry date, December 31, 1959, until December 31, 1960. The record included considerable evidence in support of such a finding which was confirmed on appeal. There being no demonstration of any error in law in the Courts below in so disposing of Action No. 1, the appeal with reference to that action should be dismissed.
The trial judge dismissed the second action, finding that the parties had settled their differences in respect of this action by an agreement dated October 28, 1958. The evidence amply supported the finding of the trial judge relating to the scope and effect of the settlement agreement. This finding was confirmed on appeal. Accordingly, the appeal to this Court with respect to the second action and the counterclaim by the respondent in Action No. 3 should be dismissed.
As to Action No. 3, the trial judge dismissed Baud’s claims in detinue and conversion and assessed damages on the basis that Brook’s failure to deliver constituted a breach of contract. The action in substance was a simple case of breach of contract to return 125,000 Asamera shares and the claims made and the issues arising in this action should be disposed of on that basis. The circumstances were such that damages constituted an adequate remedy.
The Court approached the matter of the proper appraisal of the damages assessable in the peculiar circumstances of this case on the following basis: that the same principles of remoteness will apply to the claims made whether they sound in tort or contract subject only to special knowledge, understanding or relationship of the contracting parties or to any terms express or implied of the contractual arrangement relating to damages recoverable on breach; that Baud was under the general duty to mitigate its losses and may not escape this duty by relying interminably on an injunction obtained by it in 1960, restraining the sale of 125,000 Asamera shares held by Brook; that the specific duty to mitigate and to crystallize its claim for damages within a reasonable time of the breach of contract by bringing action seeking appropriate remedies and to prosecute such action with due diligence, was qualified or postponed by Brook’s request of Baud sometime prior to 1966 to refrain from enforcing its claims; that any postponement of such requirement to prosecute and to acquire replacement shares had come to an end at the latest on the awareness of Baud that the defaulting party was not only in breach of the duty to return the shares but had disposed of shares at least equal in number to those loaned by Baud; that any postponement of the duty to acquire replacement shares which may have been due to the sharp reduction in the value of the shares which occurred during the loan, was ended with the revival in values on the public market at least by the end of 1966; that a plaintiff in the position of Baud may not successfully assert throughout the years of litigation a right to specific performance of the contract to redeliver the subject-matter of the contract and at the same time seek to avoid or reduce his losses on the grounds that to do so by buying replacement shares would involve him in investing his funds in the shares of a company managed or dominated by his adversary, Brook; that having regard to the nature of a common share neither the terms of the injunction or the loan contract, nor the action by Brook in disposing of shares in number equal to those loaned, have any effect on the characterization of the rights of Baud or the obligation of Brook throughout this long and tortuous transaction; that damages are an adequate remedy and that a court in these complex and particular circumstances will not invoke the extraordinary remedies of equity.
The application of these principles and determinations to the particular circumstances in this case requires a determination of the damages payable by Brook on the assumption that Baud ought to have crystallized these damages by the acquisition of replacement shares so as to minimize the avoidable losses flowing from the deprivation by Brook of Baud’s opportunity to market the 125,000 shares. Such share purchases should have taken place within a reasonable time after the date of breach. Having regard to all the special circumstances, the time for purchase was the fall of 1966 when Baud was by its own admission free from any agreed restraint not to press its claims against Brook. It would be unreasonable to impose on Baud the burden of going into the market and acquiring replacement shares at a time when the litigation of its claims was in a dormant state at Brook’s request. Furthermore Baud acknowledged that by the fall of 1966 the fortunes of Asamera had improved and this had begun to be reflected in the market price of its shares. In short, the appellant is not entitled in law to any compensation for the loss of opportunity to sell its shares after that date. Thereafter its loss of this opportunity is of its own making. The theory of such a damage award is to provide the funds needed to replace the shares at the time the law required it to do so in order to avoid an accumulating claim. There should be an allowance of a reasonable time to permit the organization of the finances and the mechanics required for the careful acquisition of 125,000 shares either by a series of relatively small purchases or by negotiated block purchases. This would carry the matter into the fall of 1967. By this time the price had risen to a range of $5 to $6. Making allowance for the upward pressure on the market price which would be generated by the purchase of such a large number of shares on a relatively low volume stock, the purchase price would surely have exceeded the $6 price reached in mid-1967 without any market intervention by Baud. For this factor an allowance of $1 per share should be made. Taking into account the effect of market intervention by Baud, the median price during the period from late 1966 to mid-1967, adjusted accordingly, would be about $6.50, and the damages should be awarded to Baud on that basis; that is, the total damages for breach of agreement to return the Asamera shares should amount to $812,500. In weighing the magnitude of this award one should not lose sight of the essential fact that Brook at any time right down to trial could, if he had remained in compliance with the injunction of July 1960, have avoided this result or the risk of this award by delivering from any source 125,000 Asamera shares.
As held by the Courts below, Brook’s claim for damages in respect of the undertaking given by Baud upon the issuance of the interim injunction in July 1960 should be dismissed.
APPEALS from a judgment of the Supreme Court of Alberta, Appellate Division[1], dismissing appeals from a judgment of Kirby J. in three actions consolidated for trial. Appeals dismissed in two actions; appeal allowed in third action and cross-appeal dismissed.
P.B.C. Pepper, Q.C., and J.L. McDougall, for the plaintiffs, appellants.
R.A. MacKimmie, Q.C., for the defendants, respondents.
The judgment of the Court was delivered by
ESTEY J.—These appeals arise out of a long series of agreements concerning the shares and operations of the appellant, Asamera Oil Corporation Ltd. (hereinafter referred to as Asamera), which company was in one way or another involved in exploration for oil in Indonesia. Three separate actions were commenced by the parties. 1. Baud Corporation, N.V. (Plaintiff) v. Thomas L. Brook (Defendant), (commenced on July 26, 1960) wherein Baud, as it shall hereinafter be called, (which is a wholly owned subsidiary of the Sea Oil & General Corporation) sought the return of 125,000 Asamera shares from the respondent, Brook (who at all material times was the president and chief officer of Asamera). Baud alleged that 125,000 Asamera shares were loaned by it in October and November of 1957 to the respondent, Brook, under an agreement dated November 10, 1958, requiring their return by the end of 1959. In addition, Baud claimed damages in the sum of $150,750 representing the difference in the market value of the 125,000 shares between the date upon which they were to have been returned and the date of the writ.
2. Asamera Oil Corporation Ltd. (Plaintiff) v. Sea Oil & General Corporation and Baud Corporation, N.V. (Defendants), (commenced on July 27, 1960). This action was instituted the day after Action No. 1. In it Asamera sought rescission of the basic agreement between the two groups of entrepreneurs represented by Baud on the one hand, and Brook on the other. The effect of rescission, if granted, would be the cancellation of treasury shares issued by Asamera to Baud and Sea Oil & General Corporation Ltd. pursuant to this agreement.
3. Baud Corporation, N.V. (Plaintiff) v. Thomas L. Brook (Defendant), (commenced on December 6, 1966). In this action, Baud repeated its allegations as asserted in Action No. 1, and claimed the return of 125,000 Asamera shares, which the respondent, Brook, was required to return under the agreements mentioned in Action No. 1. The third action arose out of the allegation by the respondent in Action No. 1 that the first action was premature since the date for the return of the shares had been extended by the parties until December 31, 1960. In addition to its claim for the return of the shares, Baud claimed damages in the sum of $400,000. An amendment of the statement of claim whereby the damage claim was raised to $6,000,000 was allowed at trial. In this action, the respondent, Brook, counterclaimed for substantially the same relief sought by him in Action No. 2.
It is convenient to deal first with the issues raised in Action No. 2. Under the formative agreement, of which rescission is sought by Asamera in the second action, entered into on June 18, 1957 (hereafter called the basic agreement), Baud was to receive 3,500,000 shares of Asamera, and Sea Oil & General Corporation (hereafter referred to as SOG) was to receive 500,000 shares in that company. In return, Asamera was to receive $250,000 together with 196 shares in an Indonesian corporation known as Nusantara, which shares represented a 49 per cent interest therein. The transaction was closed on September 9, 1957, when the 4,000,000 shares were issued from the treasury of Asamera and, thereafter, the sum of $250,000 was advanced to Asamera and action was taken to deposit the 196 shares in Nusantara in a repository subject to Asamera’s control. 500,-000 shares were issued to SOG. 2,000,000 of the 3,500,000 shares issued by Asamera to Baud were subject to an escrow agreement for a period of six months from September 9, 1957. On February 5, 1958, the time for holding these shares in escrow was extended to November 1958.
In Action No. 2, Asamera alleged a total failure of consideration under the basic agreement, and accordingly, claimed that the agreement was null and void ab initio. In the alternative Asamera claimed that the performance of the agreement had been frustrated, and thus that the contract was voidable at its option. The learned trial judge dismissed this action, finding that the parties had settled their differences in respect of Action No. 2 by an agreement dated October 28, 1958. The Court of Appeal of Alberta reached the same conclusion.
Counsel for Brook in this Court reasserted his submissions that there was an entire failure of consideration under the basic agreement and that Asamera “received nothing whatever of any value from Baud in exchange for…” the 1,500,000 shares which remained outstanding in Baud’s hands after the aforementioned settlement agreement of October 28, 1958. As explained earlier, the parties had agreed to escrow 2,000,000 of the 3,500,000 Asamera shares in order to ensure the performance by Baud of the transfer of the Nusantara shares which could not apparently be completed on September 9, 1957. Under the settlement agreement, the 2,000,000 escrowed shares were cancelled, leaving outstanding in the hands of SOG 500,000 Asamera shares, and in the hands of Baud, 1,500,000 shares.
Counsel for Brook bases his plea of total failure of consideration on two points:
(a) The Nusantara shares were never transferred to Asamera as required by the agreement of 1957; and,
(b) Baud did not deliver to Asamera, either through Nusantara or otherwise, any exploration permits for Indonesia.
The first item relating to the failure to deliver the 49 per cent interest in Nusantara is founded on what transpired after the closing under the 1957 agreement on September 9. At that time Baud delivered an irrevocable direction to the holder of the 196 shares of Nusantara to hold them thereafter for the exclusive account, and subject to the order of Asamera only. The trial judge found that the deposit of the Nusantara shares in the bank in Djakarta, which resulted in the acquisition by Asamera of an interest in four exploration licences held by Nusantara, was good consideration for Asamera’s promise to issue treasury shares to Baud and SOG. In any event it is unnecessary to determine this issue. The learned trial judge determined that any and all claims outstanding between these parties on October 28, 1958, including any claims with reference to the Nusantara shares and escrow arrangements, were mutually released pursuant to the aforementioned settlement agreement. The evidence in the record amply supports, in my respectful view, this finding of the learned trial judge relating to the scope and effect of the settlement agreement. This finding was confirmed on appeal. I would dismiss the appeal to this Court with respect to the second action and the counterclaim by the respondent in Action No. 3. The first action was dismissed by the learned trial judge when he found that there was indeed an agreement extending the loan of the 125,000 Asamera shares beyond the original expiry date, December 31, 1959, until December 31, 1960. The record includes considerable evidence in support of such a finding which was confirmed on appeal. There being no demonstration of any error in law in the Courts below in so disposing of Action No. 1, I would dismiss the appeal with reference to that action.
This leaves outstanding before this Court only the appeal from the disposition of Action No. 3. The issue in this action, despite the elaborate record, is very narrow. Brook raised several defences to the claim by Baud for the return of 125,000 Asamera shares. Brook took the position at trial that Baud had waived the return of the shares. The learned trial judge rejected this defence and I have discovered no error in principle which would justify appellate interference in what is a clear finding of fact on the evidence. Brook alleged also that the shares were not loaned to him by Baud but by its chief executive officer, Diamantidi, and therefore no action for recovery can be brought by Baud. The simple and short answer is that if the loan was mechanically made by Diamantidi, he did so as the agent of Baud. The option agreement itself and a prior letter agreement states that upon the expiry of the term of the option on December 31, 1959, the shares will be returned to Baud. The option agreement is signed on behalf of Baud by Diamantidi. In any event there was evidence, oral and written, of the fact that the loan of the shares had first been made by Baud to Diamantidi and then by Diamantidi to Brook. Such an arrangement (expressed to be for tax considerations) affords no defence to Brook to a demand by Baud for their return and, consequently, this defence must fail. The learned trial judge appears to have found that Brook was in breach of his agreement when he failed to return the shares to Diamantidi; the Court of Appeal on the other hand found the breach to be the failure by Brook to return the shares to Baud. There is ample evidence to support the conclusion reached by the Court of Appeal. Indeed all the written evidence accords with this result and I respectfully agree with that Court on this point.
This leaves outstanding only the question of the remedy or remedies open to Baud. The action apparently proceeded on the basis that Brook, by his wrongful retention of the shares, was open to an action by Baud in detinue, or alternatively, in conversion because Brook had wrongfully disposed of the shares loaned to him. Brook admitted in his statement of defence, filed on July 6, 1967, that these shares had been sold, and further admitted on examination for discovery in May of 1968 that the sale had occurred in 1958. The trial judge found that the brokers, in an effort to protect their position, had sold shares of Asamera from the Brook account in December of 1957 and in January and February of 1958.
This phase of the matter is somewhat complicated by the fact that an injunction was issued by McLaurin C.J.T.D. in the Supreme Court of Alberta on July 27, 1960, which might be construed as restraining Brook from selling the 125,-000 shares loaned to him by Baud. Brook’s interpretation of his position under the injunction order was that he remained in compliance therewith so long as he held not less than 125,000 shares. There is nothing to indicate that on this interpretation he was in breach of the injunction. Baud, on the other hand, took the position that, as regards the action of detinue or conversion, it had the right to insist that Brook make whatever arrangements may have been necessary with the broker to retain the actual certificates forwarded to him by Baud. The order itself is ambiguous as to whether some retention in specie or a mere credit balance is required for compliance by Brook. The injunction issued by Chief Justice McLaurin in 1960 enjoins Brook from voting, or disposing of or dealing with “the 125,000 shares… referred to in paragraphs 2 and 3 of the Statement of Claim…”. Baud’s reference in its statement of claim is directed to the 125,000 shares loaned to Brook in 1957. The injunction therefore may be construed as restraining dealing by Brook with those specific 125,000 shares. But this relation of the history of the transaction does not dispose of the matter. In the course of the trial the appellant moved for an order that the shares be deposited in court by Brook. This application was dismissed by the trial judge apparently on the basis that the retention of 125,000 shares by Brook would be sufficient compliance with the order. Since all the shares of Asamera are identical in class and conditions attaching thereto, no practical consideration arises which requires retention in specie, if that be technically possible, of the actual 125,000 shares loaned to Brook. The background against which the loan of the shares was made and the subsequent option granted for their purchase lead one to the view that should a determination of this issue become necessary, Baud is protected by the order and Brook from its contravention by the retention by Brook of a like number of shares of Asamera. To other aspects of this issue I will return later.
It is trite law that under the applicable statutes and common law a certificate is not in itself a share or shares of the corporation but only evidence thereof. (Vide Solloway v. Blumberger[2], per Rinfret J. at p. 167.) These shares are intangible, incorporeal property rights represented or evidenced by share certificates. They are not in themselves capable of individual identification and isolation from all other shares of the corporation of the same class. Therefore, once these shares were pledged by Brook in fully negotiable form and placed in the name of the broker, as was the evidence here, it was not possible to determine whether some or all of these 125,000 shares had been sold even presuming that at any time a specific share of a corporation as distinct from the certificate representing the share can be isolated and given an existence separate and apart from all other shares of the same class. In any case, it seems almost academic to argue that Baud could assert such a position in this regard when the shares were delivered through Diamantidi in fully negotiable form to Brook after Brook had announced that the purpose of the loan was to pledge the shares with his broker as security for his marginal transactions in other Asamera shares, and this apart altogether from the fact that redelivery of 125,000 Asamera shares free of encumbrance by Brook from any source would meet his obligation of redelivery.
The learned trial judge dismissed Baud’s claims in detinue and conversion and assessed damages on the basis that Brook’s failure to deliver constituted a breach of contract. The action in substance is a simple case of breach of contract to return 125,000 Asamera shares and in my view the claims made and the issues arising in this action should be disposed of on that basis. That being so, we come to the only real issue in this appeal, namely, to what recovery is the appellant, Baud, in these circumstances entitled and, if the appropriate relief be a monetary award, the quantum of damages.
Baud has asked this Court to award specific performance of the agreement to return 125,000 Asamera shares, and in particular, in its statement of claim has requested an order directing the return or replacement of the shares. The jurisdiction to award specific performance of contractual obligations is ordinarily exercised only where damages would be inadequate to compensate a plaintiff for his losses. As the original 125,000 shares are indistinguishable from all other Asamera shares, and since there has been no suggestion that corporate control is at issue in this case, or that shares were not readily available in the stock market, an order for delivery of shares would merely be another method or form for the payment of any judgment awarded. Asamera shares are listed on the public stock exchanges and consequently some estimate of their market value can be readily ascertained from day to day. The parties themselves therefore throughout the 21 years since these transactions began have had the benefit of the daily assessment by the stock market of the value of these shares. It is obvious that damages are an adequate remedy and that the courts in such circumstances do not resort to the equitable remedy of specific performance.
The assessment of the quantum of damages for this breach of contract is somewhat complex. The calculation of damages relating to a breach of contract is, of course, governed by well‑established principles of common law. Losses recoverable in an action arising out of the non-performance of a contractual obligation are limited to those which will put the injured party in the same position as he would have been in had the wrongdoer performed what he promised.
Not all kinds of losses are recoverable in actions for breach of contract. The limitations on damages recoverable in contract were discussed in Victoria Laundry (Windsor) LD. v. Newman Industries LD.[3], wherein Asquith L.J. at p. 539 went to great lengths to explain such limits:
(1) It is well settled that the governing purpose of damages is to put the party whose rights have been violated in the same position, so far as money can do so, as if his rights had been observed: (Sally Wertheim v. Chicoutimi Pulp Company). This purpose, if relentlessly pursued, would provide him with a complete indemnity for all loss de facto resulting from a particular breach, however improbable, however unpredictable. This, in contract at least, is recognized as too harsh a rule. Hence,
(2) In cases of breach of contract the aggrieved party is only entitled to recover such part of the loss actually resulting as was at the time of the contract reasonably forseeable as liable to result from the breach.
(3) What was at that time reasonably so foreseeable depends on the knowledge then possessed by the parties or, at all events, by the party who later commits the breach. Three additional rules or refinements of the above rules are thereupon enumerated by Asquith L.J. but these are not here relevant. The principle set out in paragraph 2 above was thereafter modified somewhat by the House of Lords in Koufos v. C. Czarnikow (The Heron II)[4], where it was determined that the proper test for remoteness was not the ‘reasonable foreseeability’ of the head of damages claimed as in an action in tort, but whether the probability of the occurrence of the damage in the event of breach should have been within the reasonable contemplation of the contracting parties at the time of the entry into the contract. (Vide Brown & Root Ltd. v. Chimo Shipping Ltd.[5], per Ritchie J., at p. 648.)
These principles were most recently discussed in Parsons (Livestock) Ltd. v. Uttley Ingham & Co. Ltd.[6], where subject to qualifications raised in the judgment, it was concluded by all members of the Court of Appeal that the appropriate legal rules relating to remoteness will not depend upon the classification of the action as being one of contract or tort. The case has already been the subject of comment, vide Note, (1978) 94 L.Q.R. 171. Scarman L.J. at p. 529 stated:
As to the first problem, I agree with Lord Denning M.R., in thinking that the law must be such that, in a factual situation where all have the same actual or imputed knowledge and the contract contains no term limiting the damages recoverable for breach, the amount of damages recoverable does not depend upon whether, as a matter of legal classification, the plaintiffs’ cause of. action is breach of contract or tort. It may be that the necessary reconciliation is to be found, notwithstanding the strictures of Lord Reid at pp. 446 and 389-390, in holding that the difference between “reasonably foreseeable” (the test in tort) and “reasonably contemplated”, (the test in contract) is semantic, not substantial. Certainly Lord Justice Asquith in Victoria Laundry v. Newman [1949] 2 K.B. 528 at p. 535 and Lord Pearce in Czarnikow v. Koufos thought so: and I confess I think so too. or more succinctly at p. 528:
…the law is not so absurd as to differentiate between contract and tort save in situations where the agreement, or the factual relationship, of the parties with each other requires it in the interests of justice.
(Leave to appeal to the House of Lords was granted by the Court of Appeal.)
In any event the damage flowing from the wrongful act of the respondent in this case, that is the loss of the opportunity to resell the shares at a profit, is recoverable under any of the tests set out above.
In cases dealing with the measure of damages for non-delivery of goods under contracts for sale, the application over the years of the above-mentioned principles has given the law some certainty, and it is now accepted that damages will be recoverable in an amount representing what the purchaser would have had to pay for the goods in the market, less the contract price, at the time of the breach. This rule which was authoritatively stated in Barrow v. Arnaud[7] may be seen as a combination of two principles. The first, as stated earlier, is the right of the plaintiff to recover all of his losses which are reasonably contemplated by the parties as liable to result from the breach. The second is the responsibility imposed on a party who has suffered from a breach of contract to take all reasonable steps to avoid losses flowing from the breach. This responsibility to mitigate was explained by Laskin C.J.C. in Red Deer College v. Michaels and Finn[8], at pp. 330-1:
It is, of course, for a wronged plaintiff to prove his damages, and there is therefore a burden upon him to establish on a balance of probabilities what his loss is. The parameters of loss are governed by legal principle. The primary rule in breach of contract cases, that a wronged plaintiff is entitled to be put in as good a position as he would have been in if there had been proper performance by the defendant, is subject to the qualification that the defendant cannot be called upon to pay for avoidable losses which would result in an increase in the quantum of damages payable to the plaintiff. The reference in the case law to a “duty” to mitigate should be understood in this sense.
In short, a wronged plaintiff is entitled to recover damages for the losses he has suffered but the extent of those losses may depend on whether he has taken reasonable steps to avoid their unreasonable accumulation.
and later in the judgment at p. 331:
If it is the defendant’s position that the plaintiff could reasonably have avoided some part of the loss claimed, it is for the defendant to carry the burden of that issue, subject to the defendant being content to allow the matter to be disposed of on the trial judge’s assessment of the plaintiff’s evidence on avoidable consequences.
Thus, if one were to adopt, without reservation, in the settlement of Baud’s damage claims, the rules governing recovery for non-delivery of goods in sales contracts, the prima facie measure of damages in the case at bar would be the value of the shares on the date of breach, that is, December 31, 1960. The learned trial judge found the market price on December 31, 1960, to be 29 cents per share. The value of the 125,000 shares wrongfully retained by Brook, and thus the loss to Baud by reason of its not being in possession of those shares, on that date therefore was $36,250 assuming, for the purposes of discussion only, the market price to be constant throughout the purchase or sale of such a number of shares. To this must be added other expenses which could reasonably be said to be incidental to steps taken to mitigate the damages flowing from the breach. The most obvious of these are brokerage and commission fees which would have been incurred by Baud in purchasing replacement shares. Of greater importance is the inevitable upward pressure the purchase on the open market of such a large number of Asam-era shares would exert on the market price. The impact of forced sales or purchases of shares on market prices has been the subject of judicial comment in the past (vide Crown Reserve Consolidated Mines Ltd. v. Mackay[9]) and must be taken into account in determining the weight to be accorded to mitigation factors in an assessment of damages in circumstances such as exist here. Unhappily, Baud has led no evidence on this prob- lem and one is left to take note of the presence of this factor without being able precisely to quantify it. This point requires more detailed discussion at a later stage.
Assuming for the moment that the breach of contract occurred on December 31, 1960, and that the appellant’s right to damages came into being at that time; and assuming that it should then have acted to forestall the accumulation of avoidable losses, what action did the law then require of the appellant by way of mitigation of damages? A plaintiff need not take all possible steps to reduce his loss, and accordingly, it is necessary to examine some of the special circumstances here present. The appellant argues that there exist in this case clear circumstances which render the duty to purchase 125,000 Asamera shares an unreasonable one. The first of these has its foundations in the established principle that a plaintiff need not put his money to an unreasonable risk including a risk not present in the initial transaction in endeavouring to mitigate his losses. This principle was demonstrated in Lesters Leather and Skin Co. v. Home and Overseas Brokers[10] and in Jewelowski v. Propp[11], as well as in Pilkington v. Wood[12]. The appellant here was placed in the unusual position where mitigative action would require that it purchase as replacement property, shares of a company engaged in a speculative undertaking under the effective control and under the promotional management of a person in breach of contract, the respondent, Brook, who thereafter was in an adversarial position in relation to the appellant.
On the evidence adduced at trial, the market value of shares in Asamera had fallen from $3 shortly before the dates on which Baud first loaned the two blocs of shares to Brook, to between $1.62 and $1.87 in November 1958, and to 29 cents per share on December 31, 1960. Evidence of share values after that date indicates only that there was a relatively small recovery in value to about $1.21 a share by March 1965, when the fortunes of the company improved. The appellant argues that it could not have been expected in December of 1960 to purchase shares in mitigation of its losses where the value of these shares had fallen as rapidly as is indicated in the evidence.
A more important circumstance which might render unreasonable any requirement that Baud purchase shares in the market was the existence of the aforementioned injunction issued on July 27, 1960, restraining the respondent from selling 125,-000 Asamera shares. The appellant contends that it is inconceivable that the law should require a party, who has suffered a misappropriation of his property and who has requested and been afforded the considerable protection of an injunction granted by a Court of Equity, to ignore the force and effect of that injunction and to go out and acquire the same number of shares as Brook was required to retain, however the terms of the injunction be construed.
Even if one accepts that submission, it must be acknowledged that the right of Baud to rely on the injunction as a shield against an obligation to minimize its losses is not absolute. In the first place, Baud was informed by Brook in his pleadings of July 6, 1967, that shares which were subject to the injunction had been sold. As of that date the shares were selling at $4.30 to $4.35 and had been rising in value since April of 1965 and at a median price of $4.33 would have cost Baud $541,250. Accordingly, at least by July of 1967 it could not be said that Baud would reasonably be discouraged from replacing the 125,000 shares in the open market because of the low price of an inactive company, nor could it be said that thereafter it could reasonably refrain from prosecuting its claim for damages because of the order enjoining the disposition of the shares by Brook. It remains the case, however, that the market price for such speculative shares as those of an oil-exploration company was subject to wide price fluctuations sometimes inspired by management which itself held, as did Brook, a considerable number of shares.
The learned trial judge referred to a number of English authorities in support of the proposition that in the case of a loan of shares a plaintiff need not mitigate his losses either by purchasing shares on the market, or even by bringing a suit for recovery of damages within a reasonable time. The result under these authorities where the market value of the shares has risen or fallen between breach and trial, has been an award of damages representing the value of the shares at the time of the breach or of the trial at the election of the plaintiff. (Vide Harrison v. Harrison[13]; Shepherd v. Johnson[14]; McArthur v. Seaforth[15]; Sanders v. Kentish[16].) These cases were adopted in Canada and other jurisdictions (vide Vicary v. Foley[17]; Galigher v. Jones[18] and cases cited therein). These authorities raise no responsibility in the plaintiff to mitigate his losses. Shepherd v. Johnson, supra, per Grose J. at p. 211. The application of the principle developed in these early cases would produce damages calculated at the end of the trial or perhaps at the highest point prior to that date. The trial proc