Page: 1 PROVINCE OF PRINCE EDWARD ISLAND IN THE SUPREME COURT - APPEAL DIVISION

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1 Page: 1 PROVINCE OF PRINCE EDWARD ISLAND IN THE SUPREME COURT - APPEAL DIVISION Citation: UAP v. Oak Tree Auto Centre Inc PESCAD 6 Date: Docket: S1-AD-0919 Registry: Charlottetown BETWEEN: AND: UAP INC. OAK TREE AUTO CENTRE INC. BAGNALL S BUILDING SUPPLIES LTD. BAGNALL S MILLS LIMITED and CARL BAGNALL APPELLANT RESPONDENTS Before: The Honourable Chief Justice G. E. Mitchell The Honourable Mr. Justice J. A. McQuaid The Honourable Mr. Justice W. D. Cheverie Appearances: James C. Travers, Q.C. and Sean J. Casey Counsel for the Appellant T. Daniel Tweel Counsel for the Respondent Place and Date of Hearing Place and Date of Judgment Place and Date of Reconsideration Hearing Charlottetown, Prince Edward Island July 8 and 9, 2002 Charlottetown, Prince Edward Island December 12, 2002 Charlottetown, Prince Edward Island February 18, 2003 Place and Date of Reconsideration Hearing Judgment Charlottetown, Prince Edward Island March 12, 2003

2 Page: 2 PRACTICE - Appeals - Hearing of appeal - Rehearing or reconsideration, when available The Appeal Division found that special and exceptional circumstances existed to reconsider its award of prejudgment interest. Upon reconsideration, the award of prejudgment interest was varied, in part. INTEREST - PREJUDGMENT INTEREST - Breach of contract - Pecuniary loss The damages awarded for breach of contract were in the nature of both general damages and a pecuniary loss. Prejudgment interest should be awarded in accordance with both s-s. 50(1) and s-s. 50(3) of the Supreme Court Act R.S.P.E.I Cap. S-10. The Court exercised its discretion under s.52 of the Supreme Court Act and set the applicable interest rate. PRACTICE - Appeals - Costs of Appeal - Costs of trial on assessment of damages To allow counsel an opportunity to make submissions, the Appeal Division had reserved the issue of costs both on the appeal and for the trial on the assessment of damages. The trial judge s award of party and party costs to the respondent on the assessment was confirmed. On appeal, the appellant was partially successful in having the quantum of damages reduced and thus was awarded a portion of its party and party costs on the appeal. Authorities Cited: CASES CONSIDERED: Metz v. Marshall, [1923] 1 W.W.R. 201; Bailey v. Registered Nurses Association (Saskatchewan), [1976] 6 W.W.R. 407; Frehauf Trailer Co. v. McCrea, [1955] 3 D.L.R. 543(N.B.C.A.); Abraham v. Wingate Properties Limited, [1986] 2 W.W.R. 568 (Man. C.A.) CASES REFERENCED: UAP Inc. v. Oak Tree Auto Centre Inc PESCTD 65; (2002), 204 Nfld. & P.E.I.R. 189 (P.E.I.S.C.T.D.); UAP v. Oak Tree Auto Centre Inc PESCAD 25 (P.E.I.S.C.A.D.) STATUTES CONSIDERED: Supreme Court Act, R.S.P.E.I. 1988, Cap. S-10, s-s.56.(1), s- s.49(1)(d), s-s.49(2), s.50, s-s.50(1), s-s. 50(3), s.52 RULES CONSIDERED: Rules of Civil Procedure of Prince Edward Island, Rule 59 Reasons for judgment: BY THE COURT: [1] On December 12, 2002 this Court delivered a unanimous decision (See: UAP v. Oak Tree Auto Centre Inc PESCAD 25) allowing, in part, an appeal from the

3 Page: 3 trial judge s assessment of damages suffered by the respondents, Bagnall Building Supplies Ltd. and Bagnall s Mills Limited ( Bagnall ) resulting from the appellant s breach of contract. Total damages were assessed in the amount of $407,948.50, calculated in the following manner: One-half of the losses in the first year of operation of the joint venture - $ 95, Loss of profits from the 5 year joint venture agreement ( ) - 56, Loss of profits from the 10 year franchise agreement ( ) - 227, The balance of the appellant s capital contribution - 28, SUBTOTAL: $ 408, LESS: additional capital contribution to be made by Bagnall on acquiring franchise 150, PLUS: Bagnall s costs of mitigation for one year 149, TOTAL: $407, [2] Bagnall was also awarded prejudgment interest in accordance with the provisions of the Supreme Court Act R.S.P.E.I Cap. S-10 on the total assessment from March 1, 1989 to the date of payment. The Court directed the parties, in the absence of their agreement, to make submissions on the issue of costs. [3] After the release of the reasons for judgment and before a formal order was issued, the appellant made a motion asking the Court to reconsider the award of prejudgment interest. The grounds for the motion were as follows: (1) Civil Procedure Rule 59; (2) s-s. 50(3) of the Supreme Court Act; (3) the parties and the trial judge had agreed that there would be no prejudgment interest paid between March 13, 2000 and October 10, 2000; and (4) the prejudgment interest award in the decision of December 12, 2002 was effective from March 1, 1989 and it was to be calculated on damages which would have accrued due to Bagnall subsequent to that date. The motion was scheduled for hearing and the Court directed that, if necessary, the parties would be heard on the matter of costs at the same time. MOTION FOR RECONSIDERATION [4] The parties agree the Court has jurisdiction to reconsider or vary its decision at any time before a formal order has been issued. Nevertheless, to avoid undermining the principle of finality in litigation, a Court should reconsider or vary its judgment only in exceptional and special circumstances. See: Metz v. Marshall, [1923] 1 W.W.R. 201; Bailey v. Registered Nurses Association (Saskatchewan), [1976] 6 W.W.R. 407; and Frehauf Trailer Co. v. McCrea, [1955] 3 D.L.R. 543 (N.B.C.A.).

4 Page: 4 [5] Having found the trial judge erred in principle when assessing the quantum of damages, the Court had two choices: (i) order a new trial to have the damages reassessed, or (ii) adopt its own approach to the assessment on the basis of the evidence which was before the trial judge. The Court chose the latter course of action and in doing so made an award of prejudgment interest in the context of its own approach to the assessment, without the benefit of submissions from counsel for the parties. [6] The appellant s position is that special and exceptional circumstances exist which warrant the Court s reconsideration of the award of prejudgment interest. The appellant argues that, in the result, the Court s original decision overlooked the fact that had the contract continued according to its terms, some of the damages assessed as due and owing to Bagnall would have accrued due after March 1, 1989, the date set for the commencement of the payment of prejudgment interest. The appellant also argues that an award of prejudgment interest made in this manner does not comply with the provisions of s-s.50(3) of the Supreme Court Act. Finally, the appellant states there was an agreement between counsel and the trial judge that, because of the delay of Bagnall s counsel in submitting the post trial brief, Bagnall would not be entitled to prejudgment interest for the period from March 13, 2000 and October 10, Counsel for Bagnall acknowledges the existence of this agreement. [7] The Court has concluded these factors constitute special and exceptional circumstances which warrant the reconsideration of the award of prejudgment interest. We were unaware of the agreement to waive prejudgment interest for a period of time. Having adopted an approach to the assessment of damages put forward by Bagnall s expert witness at trial but not advocated by either party on the appeal, the Court made an award of prejudgment interest, without reasons and which allegedly failed to take into account all the factors, including the implications of s-s.50(3) of the Supreme Court Act, which should necessarily have been considered in the context of that approach. Upon reconsideration and for the following reasons, the Court would vary the award of prejudgment interest, in part. See: Abraham v. Wingate Properties Limited,[1986] 2 W.W.R. 568 (Man. C.A.) at p.570. [8] The purpose of an award of damages in a breach of contract case is to restore the innocent party to the position it would have been in had the contract been carried out according to its terms. Unless there are grounds which would constitute the basis for an award of punitive damages, the purpose of an award of damages in such a case is not to punish the party who breached the contract. The Court s role in assessing the quantum of damages is to protect the bargain made between the parties. [9] Similarly, prejudgment interest which is ordered to be paid on the quantum of damages assessed must achieve the above objective and be consistent with the underlying principle that the party suffering from the breach not be placed in a better

5 Page: 5 position than it would have been had the contract continued according to its terms. Interest is not a reward or a penalty, it is intended to reflect the value of the money the party would have received had the bargain remained in tact. Prejudgment interest is to compensate the party for being kept out of his money. Therefore, in a breach of contract case prejudgment interest should not accrue until the damages assessed to compensate the innocent party were paid or become payable. [10] Subsection 49(1)(d) of the Supreme Court Act provides: 49.(1) (d) prejudgment interest rate means the bank rate at the end of the first day of the last month of the quarter preceding the quarter in which the proceeding was commenced, rounded to the nearest tenth of a percentage point;... [11] Subsection 49(2) of the Supreme Court Act provides: 49.(2) After the first day of the last month of each quarter, the Registrar of the court shall forthwith (a) (b) determine the prejudgment and post-judgment interest rate for the next quarter; and publish in the Gazette a table showing the rate determined under clause (a) for the next quarter and for all the previous quarters during the preceding ten years. [12] Section 50 of the Supreme Court Act provides: 50.(1) A person who is entitled to an order for the payment of money is entitled to claim and have included in the order an award of interest thereon at the pre-judgment interest rate, calculated from the date the cause of action arose to the date of the order. (2) Notwithstanding subsection (1), the rate of interest on damages for pecuniary loss on non-pecuniary loss in an action for personal injury shall be the discount rate determined by the Rules. (3) If the order includes an amount for past pecuniary loss, the interest calculated under subsection (1), shall be calculated on the total past pecuniary loss at the end of each six-month period and at the date of the order. (4) Interest shall not be awarded under subsection (1) (a) on exemplary or punitive damages;

6 Page: 6 (b) (c) (d) (e) (f) (g) on interest accruing under this section; on an award of costs in the proceeding; on that part of the order that represents pecuniary loss arising after the date of the order and that is identified by a finding of the court; with respect to the amount of any advance payment that has been made towards settlement of the claim, for the period after the advance payment has been made; where the order is made on consent, except by consent of the debtor; or where interest is payable by a right other than under this section. (5) Where a proceeding is commenced before this section comes into force, this section does not apply, and section 33 of the Judicature Act R.S.P.E.I.1974, Cap. J-3 continues to apply notwithstanding the repeal of that Act. (6) Where a judgment is obtained by default, the Prothonotary may exercise the functions of the court under this section. (7) For the purposes of enforcing a judgment, interest awarded under this section shall be deemed to be included in the judgment. [13] Section 52 of the Supreme Court Act provides: 52.(1) The court may, where it considers it just to do so, in respect of the whole or any part of the amount on which interest is payable under section 50 or 51, (a) disallow interest under either section; (b) (c) allow interest at a rate higher or lower than that provided in either section; allow interest for a period other than that provided in either section. (2) For the purpose of subsection (1), the court shall take into account

7 Page: 7 (a) (b) (c) (d) (e) (f) (g) changes in the market interest rate; the circumstances of the case; the fact that an advance payment was made; the circumstances of medical disclosure by the plaintiff; the amount claimed and the amount recovered in the proceeding; the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding; and any other relevant consideration. [14] Subsection 50(1) of the Supreme Court Act provides that a party who obtains an order for the payment of money is entitled to an award of interest on the amount of money at the prejudgment interest rate, to be calculated from the date the cause of action arose. This provision is qualified by s-s.50(3) which provides that if the money ordered to be paid is for a past pecuniary loss, the prejudgment interest to be awarded under s-s.50(1) shall be calculated on that total past pecuniary loss at the end of each six month period and at the date of the order. [15] The appellant argues that at least a portion of the damages assessed as being due to Bagnall represent past pecuniary loss and thus prejudgment interest should be calculated in accordance with s-s. 50(3) of the Supreme Court Act. It also argues the total loss suffered by Bagnall did not occur on the date of the breach. For example, it points out the loss of profits on the franchise agreement was estimated by Bagnall s expert witness to occur at the rate of $22, per year over a ten-year period commencing in Another example, it says, are damages incurred as the cost of mitigation. These were incurred within a one-year period following the date of the breach. [16] On the other hand, Bagnall argues the damages awarded represent general damages for loss of profits as claimed in the counterclaim. Any pecuniary loss i.e. for the balance of the appellant s capital contribution and recovery of Bagnall s share of the losses from the first year of operation, should bear interest from the date of the breach as they accrued due at that date. In summary, Bagnall argues the prejudgment interest award should be calculated from the date of the breach (i.e. the date the cause of action arose), pursuant to s-s.50(1) of the Supreme Court Act. [17] We accept, for the most part, the position put forward by Bagnall. The claim for

8 Page: 8 contribution of the appellant s share of the operating losses while the joint venture agreement did continue, as well as the claim for the balance of the appellant s capital contribution to the joint venture, were clearly a pecuniary loss which accrued due on the date of the breach. Prejudgment interest will be payable on these amounts from March 1, 1989 to the date of this decision, excluding the period of time between March 13, 2000 and October 10, [18] The claim by Bagnall for loss of profits from the joint venture agreement and from the operation of the franchise was specifically pleaded in the counterclaim as a claim in the nature of general damages for loss of profits. The loss was quantified by the expert who gave evidence on Bagnall s behalf. The appellant had brought forth the opinion evidence of an expert who quantified Bagnall s loss by another method. [19] The Court accepted the opinion evidence of Bagnall s expert witness who quantified the damages on the basis of the loss profits over the term of the joint venture agreement and the ten-year franchise agreement. The fact the damages for loss of profits were assessed by the expert witness on an annual basis and accepted by the Court on that basis, does not change their nature from general damages to a specific pecuniary loss. Regardless of whose opinion the Court accepted, general damages accrued due to Bagnall on the date of the breach. They constituted a loss which flowed as a natural consequence of the appellant s breach of contract. The assessment of the quantum of the loss of profits was not a matter of precise arithmetical calculation nor was it an ascertainable pecuniary loss. It was a matter of an expert opinion accepted by the Court which took into consideration the various uncertainties associated with such an assessment. These damages do not represent a past pecuniary loss and thus they do not fit within the provisions of s-s. 50(3) of the Supreme Court Act. [20] Therefore, except for the period of time the parties agreed prejudgment interest would not accrue, the Court does not consider it necessary to vary the award of prejudgment interest payable on the quantum of damages assessed as lost profits. Interest shall be calculated on the loss of profits pursuant to s-s.50(1) of the Supreme Court Act from March 1, 1989, to the date of this decision (not to the date of payment as in the decision of December 12, 2002) save and except for that period between March 13, 2000 and October 10, 2000 when no prejudgment interest is to accrue. [21] On the other hand, the costs incurred by Bagnall in an attempt to mitigate the loss arising from the breach represent a specific out-of-pocket expense which was incurred over a one-year period subsequent to the breach. Therefore, on reconsideration, the award of prejudgment interest on this amount shall be varied. It shall now be calculated in accordance with s-s. 50(3) of the Supreme Court Act by calculating the costs of mitigation for each of the two six-month periods after March 1,

9 Page: and thereafter on the total costs of mitigation in the amount of $149, up to the date of this decision, also except for the above noted period of time during which the parties agreed no prejudgment interest would accrue. [22] The Court notes, that while the sum of $150,000.00, being the appellant s capital contribution to the joint venture which Bagnall was to repay on acquiring the franchise (see: paras. 42 to 45 of the decision of December 12, 2002), was not to be repaid until four years after the breach, the adjustment of this amount for purposes of assessing the damages was made as of the date of the breach. In summary, to compensate Bagnall in accord with the principles in paragraph 8 and 9 above, prejudgment interest should be calculated pursuant to s-s.50(1) of the Supreme Court Act from March 1, 1989 to the date of this decision, excluding the period from March 13, 2000 to October 10, 2000, on the net damages assessed in the amount of $258, ($408, $150,000.00, See: para 1). Prejudgment interest on Bagnall s costs of mitigation in the amount of $149, shall be calculated, as above noted, pursuant to s-s.50(3) of the Supreme Court Act also excluding the period from March 13, 2000 to October 10, THE RATE OF PREJUDGMENT INTEREST [23] On the hearing of the motion for reconsideration an issue arose as to the proper rate to be applied in calculating the amount of prejudgment interest. The parties requested the Court to resolve this issue. [24] Counsel for the appellant indicated the parties proceeded throughout the litigation on the basis that the rate of prejudgment interest would fluctuate at the rate applicable in each quarter and as published in accordance with s-s. 49(1)(d) of the Supreme Court Act. Counsel for Bagnall conceded this had been his understanding; however, he recently realized he may have been in error and he now argues Bagnall is entitled to prejudgment interest at the rate published or applicable at the end of the first day of the last month of the quarter preceding the quarter in which the proceeding was commenced. [25] The bank rate referred to in s-s.49(1)(d) is set and published in the Royal Gazette pursuant to s-s. 49(2) of the Supreme Court Act. We note from the material filed on this motion that, between January 1989 and March 2002, the rate fluctuated from a high of 15% to a low of 2.50%. Counsel advise that at the present time the rate is approximately 3.0%. The parties agree the applicable rate at the time Bagnall commenced the proceeding by way of counterclaim would have been 14%. [26] The rate of prejudgment interest set in accordance with s-s.49(1)(d), which in itself is an indicator of market interest rates, has fluctuated steadily downward since

10 Page: The Court has, therefore, taken into consideration the downward trend in the market interest rates between the date Bagnall s cause of action arose and the present date. We would exercise the discretion vested in the Court by s. 52 of the Supreme Court Act and order that the rate of interest applicable to the calculation of prejudgment interest as ordered above shall be the variable rate of interest as set and published by the Registrar of the Court on the last month of each quarter pursuant to s- s. 49(2) of the Supreme Court Act. This rate shall be determined in each quarter from March 1, 1989 to the date of this decision, excluding the period from March 13, 2000 to October 10, COSTS [27] The matter of costs both at trial and the appeal was left for the parties to agree upon and failing agreement, to be decided by the Court. The parties were unable to reach an agreement. [28] The trial judge s decision which was the subject of this appeal arose only from the assessment of the quantum of damages. The trial judge had assessed Bagnall s damages in the amount of $588, plus prejudgment interest. The trial judge also ordered that Bagnall was to have its party and party costs on the assessment of damages hearing. See: UAP v. Oak Tree et al PESCTD 65; (2002), 204 Nfld. & P.E.I.R. 189 (P.E.I.S.C.T.D.). The liability of the appellant for breach of contract had been determined in previous proceedings and Bagnall had been awarded its costs in these proceedings. [29] Bagnall now submits that the award of party and party costs made by the trial judge should not be disturbed by this Court. The appellant, on the other hand, argues that a reasonable disposition of costs on the assessment would be to award it party and party costs and allow Bagnall reasonable costs submitted by its expert witness. [30] We accept the position of Bagnall. We would not vary the award of costs made by the trial judge. While Bagnall did not receive the amount it was seeking from the assessment, the appellant s position as to what it was obligated to pay in damages was also unacceptable to the trial judge. The award of costs to Bagnall on a party and party basis for the trial on the assessment of damages is confirmed. [31] With respect to the costs of the appeal, Bagnall s position is that because the appellant was primarily unsuccessful on all the grounds of appeal, Bagnall should have its party and party costs. In the alternative, Bagnall states that the Court could recognize the appellant s partial success on the appeal and award the appellant a portion of its party and party costs.

11 Page: 11 [32] The appellant s position with respect to the costs on appeal is that it was successful on the majority of its appeal grounds and thus should receive its complete party and party costs on the appeal. The appellant made a motion to stay proceedings after the decision of the trial judge. In doing so it agreed to post security for the award made by the trial judge plus interest. A stay was granted on conditions and the appellant now seeks its costs of this motion. [33] It is our view the alternative position put forward by Bagnall should be accepted. In recognition of the appellant having the quantum of damages reduced by approximately 30%, it should be awarded a portion of its party and party costs on the appeal and on the motion for the stay of proceedings. Therefore, we would allow the appellant 30% of its party and party costs on both the appeal and the motion for a stay of proceedings. [34] Bagnall shall have its party and party costs on the motion for reconsideration. We set the amount of these costs at $ and they are payable forthwith. There will be no order for costs on the submissions as to the applicable interest rate or the matter of costs at trial and the appeal. The Honourable Chief Justice G.E. Mitchell The Honourable Mr. Justice J.A. McQuaid The Honourable Mr. Justice W.D. Cheverie