 This is Waylon Chao. Welcome to Discharge and Remedies for Breach of Contract, Module 3C Part D. Let's now look at nominal, liquidated, and punitive damages. You can technically sue for breach of contract, even if you have not suffered, you know, any loss because of that breach. And you can win a lawsuit like that, and the court would order what's called nominal damages. So you would get symbolic recognition that there was a breach of contract. There was some kind of wrongdoing that was committed by the other party. Now, the thing to keep in mind is, if you want your day in court just for that symbolic victory, that may aggravate a judge. Judges do not like to waste time on trivial matters, and the judge may say that you won the lawsuit, but they may also order you to pay some of the legal costs of the defendant, of the other party. Liquidated damages is where there is a specific clause in a contract, which we call a liquidated damages clause, which provides a specific amount of damages that an innocent party from a breach of contract is entitled to. So to be a proper liquidated damages clause, that amount has to be a genuine pre-estimate of the possible losses that may arise on a breach of contract. Now, the purpose that we put a liquidated damages clause into a contract is to avoid litigation, is to avoid a dispute as to the amount of damages, and also to provide a clear incentive for the parties to perform, because they know exactly what the financial penalty would be if they didn't. Now, the actual size of what the actual loss would be compared to the liquidated amount is not really relevant, but a liquidated damages clause sometimes may be viewed as a penalty clause where a court feels that the amount of the damages that's set by the contract is not a genuine attempt to estimate the possible actual losses that may arise from a breach of the contract. If it is viewed as a penalty clause by a court, the court would say that the clause, the liquidated damages clause is unenforceable, or in other words is not valid. So let's say this is the contract between Drew and Justin, and this is a very simplified version of a liquidated damages clause. So it just simply says that if there is a breach of contract, then the actual damages or the damages are deemed to be the lesser of what the actual damages are and $10,000. So the effect of that is to cap the maximum amount of damages for a breach of contract to $10,000. Damages such as expectation damages are usually meant to compensate the innocent party for their losses, and exceptions to that rule is punitive damages. Punitive damages are intended to punish and discourage outrageous conduct. An award of punitive damages is in addition to compensatory damages such as expectation damages. The award of punitive damages by a court is not that common in Canada as it is in the US, and also if a Canadian court does award punitive damages, it's nowhere near as large in terms of the dollar value as what often occurs in a US court. The general requirements that a court looks at to determine the availability of awarding punitive damages is that the breaching party, the one that breached the contract, had to have acted in a harsh, vindictive, reprehensible, or malicious manner. So just breaching a contract straight away is not enough to warrant punitive damages. It has the behavior has to be much worse than that. The leading case in Canada on punitive damages is the Supreme Court of Canada decision in Witten and Pilot Insurance. Let's have a look at that case by looking at actual excerpts from that case. The first couple of excerpts set out the facts, which are summarized in something called a head note. A head note is a summary of the case that is found at the beginning. So in these facts, we have Mrs. Witten and her husband discovered a fire in their house late at night. So they and their daughter ran from the house wearing only their night clothes. It was in the middle of winter. It was minus 18 degrees Celsius. The Mr. Witten, the husband gave his slippers to his daughter to go for help. And in the process he suffered serious frostbite to his feet. The fire totally destroyed everything, their home and everything they owned in there, including their three cats. They had to move into a cottage that they rented for $650 a month. The insurance company, the company that provided the house insurance, which was pilot insurance, made a single payment of $5,000 for their living expenses and covered the rent for a couple of months. And then they all of a sudden stopped paying that rent without even telling the family. And then they pursued what was described as a confrontational policy with respect to this insurance claim. They knew that the family here was in very poor financial shape. So they decided to take advantage of the poor financial situation of this family. They essentially asserted that this family had committed arson and had started this fire. So they made this assertion even though there was absolutely no proof that the fire had been started by arson. So the local fire chief had said that it wasn't arson. The insurance company's own expert said there was no evidence of arson. And the case says that the insurance company's position of arson was wholly discredited at trial. And its own lawyer conceded that there was no error of reality to the allegation of arson. So at the trial of this case, the jury awarded compensatory damages, which would have been covered the cost or the value of the house. And they also awarded $1 million of punitive damages. And that decision at trial was appealed to the next level of court above it, which would have been the Ontario Court of Appeal. There the court allowed the punitive damages but reduced them all the way down to $100,000. So then the case was appealed to the Supreme Court of Canada. So the legal issue that the Supreme Court of Canada dealt with was whether the jury's award of the $1 million in punitive damages should be restored. The legal principles that come out of this case that are applied in this case are that punitive damages are awarded against the defendant in exceptional cases for malicious, oppressive, and high-handed misconduct that offends the court's sense of decency. Now let's look at how the court, the Supreme Court of Canada applied the law to the facts. So they said that the more reprehensible conduct, the higher the rational limit for the potential award of punitive damages. And they noted that the need for denunciation is aggravated in this case, where the conduct persisted over a lengthy period of time. In this case, it was two years up to the date of the trial. And they also said that despite the defendant's awareness, despite the pilot insurance's awareness of the hardship it knew it was inflicting, indeed the insurance company anticipated that the greater the hardship to the family here, the appellant, the lower the settlement she would ultimately be forced to accept. So the court was saying that pilot insurance as a matter of conscious strategy was taking advantage of the financial hardship of this family to force them to settle for a lower amount than what the insurance company was legally obligated to pay under the insurance policy. The court here also noted that insurance contracts, such as the one involved here, are purchased by the public to get peace of mind. And it said that the more devastating the loss, the more the insured may be at the financial mercy of the insurer. And the more difficult it may be to challenge a wrongful refusal to pay the claim deterrence is required in this case, the court says. And the court also talks about talks about good faith. So good faith in terms of insurance contract is an obligation of insurance company to honestly abide by the terms of insurance policy in determining whether or not to pay out on a claim on that insurance policy. So if it if it's required under the terms of the contract under under the duty of good faith, they should pay what they're what they're obligated to pay under under the contract. The court here noted that this relationship of reliance and vulnerability that was outrageously exported by was outrageously exported by pilot in this case. And they said that the jury in this case appeared to decide a powerful message of retribution deterrence and denunciation had to be sent to the insurance company.