Judgments

[1994] 2 F.C. 279

A-916-92

The Ship Cisco and Kim-Crest, S.A. (Appellants)

v.

Redpath Industries Limited (Respondent)

Indexed as: Redpath Industries Ltd. v. Cisco (The) (C.A.)

Court of Appeal, Desjardins, Décary and Létourneau JJ.A.—Montréal, October 25; Ottawa, December 20, 1993.

Maritime law — Carriage of goods — Appeal from trial judgment as to quantum of damages awarded — Portion of cargo of raw sugar damaged by sea water — Animal feed processor only potential buyer at low price — Respondent, sugar refiner, refining damaged sugar by blending small amounts thereof with sound sugar — Arrived Sound Market Value less Arrived Damaged Market Value proper method of calculating damages in carriage of goods cases — As no sale ever contemplated, no market value — Value to respondent only possible value for damaged goods — Determined by actual extra costs incurred to use goods — Once owner deciding to use damaged goods, burden shifting to him to prove extra costs of production — As evidence of cost of refining damaged sugar unsatisfactory, estimating $50,000 reasonable amount for refining costs — Blending sugars reasonable given respondent’s expertise, machinery.

Damages — Limiting principles — Mitigation — Sugar shipment received in damaged condition by refiner — Refining by blending with good sugar — Quantum of damages — Whether refiner had duty to mitigate loss in way it did — Plaintiff not indemnified for more than loss — Insurance settlement not mitigating factor as insurance contract res inter alios acta — Trial Judge confusing contract with duty to mitigate — Onus on defendant to prove failure to mitigate not relieving plaintiff from proving obvious element in calculation of damages — Unreasonable risks need not be taken in mitigating damages — Must take steps prudent person ordinarily taking in course of business — Duty to mitigate not limited to seeking buyer for damaged sugar — Rule characteristics peculiar to plaintiff not taken into account applying to damages, not duty to mitigate — Risks here taken to mitigate minimal, manageable — Tortfeasor entitled to benefit of successful mitigation — Plaintiff entitled to recover expenses reasonably incurred in mitigating damages — Plaintiff must prove expenses where within exclusive knowledge — Need not establish sophisticated system for computing mitigation costs — Must describe additional operations, submit cost estimate.

This was an appeal and cross appeal from the trial judgment regarding the quantum of damages to be awarded. A portion of a cargo of raw sugar was damaged by seawater, resulting in a loss of polarity (the scale used to value sugar) from 97.5 to 92.5. The respondent was required to pay the seller on the basis of having received the sugar in sound condition pursuant to the sale agreement which provided that the purchaser assumed the risk of loss upon loading of the vessel. The respondent purported to abandon the goods, but the underwriters would not accept the abandonment and settled the insurance claim for 50% of the arrived sound market value less $17,000 for expenses already incurred in discharging the sugar. The respondent, a refiner of sugar, blended small amounts of wet sugar with large portions of sound sugar and thus was able to refine all of the wet sugar. It later sued the appellants for losses in the amount of $300,000. The respondent established that the raw sugar could not have been sold except to animal food processors who were prepared to pay $53,332.78. The Trial Judge held that the proper test to assess damages was the difference between the Arrived Sound Market Value (A.S.M.V.) of $279,660.62 and the Arrived Damaged Market Value (A.D.M.V.) of $53,332.78, or $226,327.40. He estimated that the respondent was not entitled to that amount since it had a duty to mitigate which equalled the settlement agreement. He found that the respondent had received 50% of the sound market value of the raw sugar at arrival. The appellants could not be called upon to pay for losses which had not been incurred. He awarded the respondent an amount representing the invoice value of the goods ($304,927.24), not the A.S.M.V. as used by the insurers ($279,660.18), from which he deducted what he said was the amount received by the respondent from its underwriters i.e. $304,927.24 x 50% = $152,463.62. to which he added the additional expenses incurred in discharging the wet sugar plus interest at 9% per annum. It was agreed that the respondent was entitled to reimbursement for the extra expense incurred in unloading the damaged cargo ($25,990.89). The issues were: (1) the method of calculating damages; (2) the scope of the respondent’s duty to mitigate; (3) the extent of the damages suffered by the respondent after the mitigation.

Held, the appeal should be allowed in part; the cross appeal dismissed.

Per Desjardins J.A.: The proper measure of damages in carriage of goods cases is the difference between the A.S.M.V. and the A.D.M.V. There might have been two values for the damaged goods at the time of arrival: the arrived market value (i.e. if sold to animal feed processors) and the value of the sugar if, instead of selling the goods, the respondent were to clean and refine the sugar and sell the resulting product. Since the respondent never contemplated selling the damaged cargo, there was really only one value for the goods at the time of arrival: the value to the respondent. It was immaterial that there was no market for the damaged raw sugar to refineries in Toronto and that a competitor would never have bought the product. Where the damaged goods have been repaired without any other option being considered, the A.D.M.V. does not exist since no market was ever looked for. The principle of restitutio in integrum should, however, be given its full effect. It was not necessary to decide whether the respondent had a duty to mitigate its loss the way it did. The respondent decided to use the damaged raw sugar in the ordinary course of its business and cannot be indemnified for more than its loss.

The evidence regarding the cost of refining the damaged sugar was unsatisfactory. It was therefore estimated that $50,000 was a reasonable amount for extra refining costs, to which was added $25,990.89 for the extra costs of discharging the vessel, for a total of $75,990.89.

Since there was no evidence with regard to the basis used by the Trial Judge to assess the rate of interest, it should remain at the rate of 9% per annum compounded semi-annually from the date of the loss to the date of payment of the judgment.

The Trial Judge erred in using as a mitigating factor the insurance settlement. The insurance contract was a res inter alios acta. He conceptually confused a contract signed by the respondent, as a prudent administrator, with its duty to mitigate. He then relieved the tortfeasor of part of its responsibilities on account of losses not incurred because of the settlement. This “error” by the Trial Judge may have been one of drafting. No abandonment occurred since that was rejected by the underwriters and a settlement arrived at.

Per Décary J.A.: A plaintiff can only recover loss which he could not have reasonably avoided. The fallacy in the respondent’s argument, that the only market for the damaged sugar was that of animal feed processors, was that there was another market: the respondent. The Court did not need to decide whether the respondent had the option not to do what it did. The respondent was entitled to be reimbursed for the additional costs that it had to incur as a result of choosing a course of action more favourable to the appellants.

Where the owner makes use of the damaged goods, the true value will be determined by the actual extra costs the owner will have eventually incurred in order to make use of the goods. The A.S.M.V. less A.D.M.V. formula should be therefore applied without reference to the time and place of delivery.

The fact that it was used by the respondent indicates that the wet sugar had value, albeit inferior to its sound value. To establish that value, the owner must assess the inconvenience or extra costs of production, to be able to use the damaged goods. Only those extra costs that have been reasonably incurred will qualify.

There are limits to what a wrongdoer can establish when it comes to assessing what the plaintiff did or could have done. The plaintiff must adduce some evidence to sustain his claim. The onus on the defendant to prove failure to mitigate does not relieve the plaintiff from proving an obvious element in the calculation of his damages. Once the owner decides to use the damaged goods and thereby avoid some of the loss, the burden shifts to him to prove the extra costs of production which are “an obvious element in the calculation of his damages”. That burden is not to establish in minute detail every additional cost that has been incurred. The owner is the victim and must not be put, as a result of the wrongdoer’s fault, in the position of not being able to claim his loss because of the difficulty he faces in proving it. Valuation of damages is a balancing process. The Court must ensure that the victim is compensated for his loss, but it must also ensure that the wrongdoer is not abused. The respondent deliberately abstained from keeping any record of what was done to integrate the damaged raw sugar into the refining process, thus depriving the appellants of the opportunity to challenge the extent of the alleged damages. It was therefore assumed that had some records been kept of the extra costs actually incurred, they would have been less than what was alleged.

There was some evidence that it would have been difficult to keep track of what was going on, and that the respondent was assuming a risk in processing the damaged sugar. There was also some evidence indicating that extra steps were taken and extra costs incurred in the process. $50,000, which corresponded more or less to one third of the amount claimed for extra production costs, and which was significantly higher than that estimated on the sole basis of polarity, was considered reasonable to allow the respondent to use the goods in the same way as it would have used them had they arrived in sound condition.

Per Létourneau J.A.: It is the loss of the intrinsic market value of the raw sugar, not the loss of profit or potential use or business by the respondent which is the basis for a proper assessment of the damages. That the respondent, the owner, used the wet sugar by blending it with sound raw sugar before successfully processing it, indicates that the wet sugar had an intrinsic value above the salvage value given by the underwriter. The wet sugar was neither a total loss nor damaged to the point that it could only be sold as animal feed. The A.D.M.V. should not necessarily be determined by the mere fact that there was an attempt to resell it and that there was no potential buyer. The decrease in polarity was a more appropriate and realistic measure of assessment of the true damages than an indiscriminate and precipitated resale on the salvage market. If the market value of sound sugar is fixed by reference to its polarity, the market value of the same sugar, although less sound upon delivery than upon loading should also be fixed by reference to its polarity. To the damages resulting from the loss of polarity should be added the damages, if any, resulting from contamination and the additional costs associated with the handling of the wet sugar and its refining. There was no evidence of any damage due to the increased invert sugar and ash content caused by the sea water. The extra unloading costs were fixed at $25,990.89. The respondent would be entitled to $61,886.04 representing the loss in value of the raw sugar and the additional expenses incurred as a result of the unloading of the wet sugar.

A party who suffers damages as a result of a breach of contract has a duty to mitigate those damages, i.e. a wrongdoer cannot be required to pay for avoidable losses which would result in an increase in the quantum of damages payable to the injured party. The injured party must take all reasonable steps to avoid losses flowing from the breach. It need not take unreasonable risks. It need only take the steps which a reasonable and prudent person would ordinarily take in the course of his business. Losses flowing from the breach include the original losses where it is reasonable to do so in the circumstances. The respondent’s duty to mitigate was not limited to trying to find a buyer for the damaged sugar. What is reasonable to do in the circumstances is a question of fact and borders on common sense. The blending of the damaged sugar with sound sugar and its subsequent refining were reasonable steps to take in the circumstances to mitigate the losses. These steps were even more reasonable for the respondent who had the necessary expertise and machinery to do so. The rule that characteristics peculiar to the plaintiff ought not to be taken into account applies to the determination of the damages, not to the scope of the duty to mitigate them. In view of the limited damage to the raw sugar and of the fact that the sugar was recoverable, it was reasonable for the respondent to blend it with sound sugar and refine it as originally planned. The risks were minimal and manageable.

Whether or not the respondent was under a duty to blend the damaged sugar with sound sugar and process it in the course of its business, it did so successfully and thereby avoided the losses that would have resulted from a breach of contract. The appellants are entitled to the benefit of that successful mitigation.

A plaintiff is entitled to recover expenses reasonably incurred in mitigating his damages. The plaintiff bears the burden of proving these expenses, especially when they relate to steps and measures taken by the plaintiff that are within its exclusive knowledge. The respondent was required neither to put in place a sophisticated system of computing the mitigation costs nor to track them down in minute detail, but did have to describe the additional operations required by the blending and the subsequent processing and at least submit a rough estimate of the costs for each operation. Bearing in mind that the respondent had the burden of proving these costs, not merely asserting them, they were fixed at $50,000, which appeared reasonable in the circumstances.

CASES JUDICIALLY CONSIDERED

APPLIED:

Wood v. Grand Valley Railway Co. et al. (1915), 51 S.C.R. 283; 22 D.L.R. 614; Penvidic Contracting Co. Ltd. v. International Nickel Co. of Canada Ltd., [1976] 1 S.C.R. 267; (1975), 53 D.L.R. (3d) 748; 4 N.R. 1; 100 Main Street Ltd. v. W. B. Sullivan Construction Ltd. (1978), 20 O.R. (2d) 401; 88 D.L.R. (3d) 1 (C.A.); Asamera Oil Corporation Ltd. v. Sea Oil & General Corporation et al., [1979] 1 S.C.R. 633; (1978), 12 A.R. 271; 89 D.L.R. (3d) 1; [1978] 6 W.W.R. 301; 5 B.L.R. 225; 23 N.R. 181; Keneric Tractor Sales Ltd. v. Langille, [1987] 2 S.C.R. 440; (1987), 82 N.S.R. (2d) 361; 43 D.L.R. (4th) 171; 207 A.P.R. 361; 79 N.R. 241; British Westinghouse Electric and Manufacturing Company v. Underground Electric Railways Company of London, [1912] A.C. 673 (H.L.); Cockburn v. Trusts and Guarantee Co. (1917), 55 S.C.R. 264; 37 D.L.R. 701.

CONSIDERED:

Amstar Corporation v. M/V Alexandros T, [1979] A.M.C. 1975 (U.S. Dist. Ct.); Hussey v Eels, [1990] 1 All E.R. 449 (C.A.).

REFERRED TO:

Redpath Industries Ltd. et al. v. Fednav Ltd. et al. (1993), 63 F.T.R. 131 (F.C.T.D.); Rodocanachi, Sons, and Co. v. Milburn Brothers (1886), 6 Asp. M.L.C. 100 (C.A.); The “Arpad” (1934), 49 Ll. L. Rep. 313 (C.A.); Obestain Inc. v. National Mineral Development Corporation Ltd. (The Sanix Ace), [1987] 1 Lloyd’s Rep. 465 (Q.B.); Trade Wind, The Ship v. David McNair & Co. Ltd., [1956] Ex. C.R. 228; affg McNair& Co. Ltd., David v. The Ship Trade Wind, [1954] Ex. C.R. 450; Goldco Imports Ltd. v. The Ship Meitoku Maru et al., [1966] Ex. C.R. 498; Amjay Cordage Limited v. The Ship “Margarita” (1979), 28 N.R. 265 (F.C.A.); McCain Produce Co. Ltd., Pirie Potato Company Limited and Toner Brothers Ltd. v. Canadian Pacific Limited (1980), 30 N.B.R. (2d) 476; 113 D.L.R. (3d) 584; 70 A.P.R. 476 (C.A.); affd Canadian Pacific Ltd. v. McCain Produce Co. Ltd. et al., [1981] 2 S.C.R. 219; (1981), 35 N.B.R. (2d) 511; 123 D.L.R. (3d) 764; 88 A.P.R. 511; 38 N.R. 534; Banner Homes Ltd. v. Mitchell (1979), 27 N.B.R. (2d) 486; 60 A.P.R. 486 (C.A.); Messer v. J. Clark & Son Ltd. (1961), 27 D.L.R. (2d) 766 (N.B.S.C.); Abraham v. Wingate Properties Ltd., [1986] 1 W.W.R. 568; (1985), 36 Man. R. (2d) 264 (C.A.); Antares Shipping Corporation v. The Ship “Capricorn” et al., [1980] 1 S.C.R. 553; (1979), 111 D.L.R. (3d) 289; 30 N.R. 104; Red Deer College v. Michaels, [1976] 2 S.C.R. 324; (1975), 57 D.L.R. (3d) 386; [1975] 5 W.W.R. 575; 75 CLLC 14,280; 5 N.R. 99; World Beauty, The, [1969] 3 All E.R. 158 (C.A.); Indiana Farm Bureau Cooperative Ass’n., Inc. v. S.S. Sovereign Faylenne, [1978] A.M.C. 1514; Erie County Natural Gas and Fuel Company v. Carroll, [1911] A.C. 105 (P.C.); Karas et al. v. Rowlett, [1944] S.C.R. 1; [1944] 1 D.L.R. 241; Algoma Central Railway v. Cielo Bianco (The), [1987] 2 F.C. 592; (1987), 73 N.R. 321 (C.A.).

AUTHORS CITED

Braen, André. Le droit maritime au Québec. Montréal: Wilson & Lafleur, 1992.

Burrows, A. S. Remedies for Torts and Breach of Contract. London: Butterworths, 1987.

Fleming, John G. The Law of Torts, 7th ed. Sydney: Law Book Company, 1987.

McGregor, Harvey. McGregor on Damages, 15th ed. London: Sweet & Maxwell, 1988.

Tetley, William. Marine Cargo Claims, 3rd ed. Montréal: Yvon Blais, 1988.

Waddams, S. M. The Law of Contracts, 3rd ed. Toronto: Canada Law Book, 1993.

Waddams, S. M. The Law of Damages, 2nd ed. Aurora, Ont.: Canada Law Book, 1991.

APPEAL and CROSS APPEAL from the trial judgment (Redpath Industries Ltd. v. Cisco (The), [1992] 3 F.C. 428; (1992), 55 F.T.R. 278 (T.D.)) as to the quantum of damages. Appeal allowed in part; cross appeal dismissed.

COUNSEL:

V. De Marco and D. G. Colford for appellants.

V. M. Prager and M. A. Tabib for respondent.

SOLICITORS:

Brisset, Bishop, Montréal, for appellants.

Stikeman, Elliott, Montréal, for respondent.

The following are the reasons for judgment rendered in English by

Desjardins J.A.: We are seized of an appeal and a cross appeal from a decision of the Trial Division [[1992] 3 F.C. 428] where the only matter in dispute relates to the quantum of damages to be awarded to a portion of a cargo of raw sugar damaged by seawater and to the rule to be followed in determining the said amount.

On April 12, 1987, 5,444.56 metric tons of raw sugar were loaded into two bowls, in apparently good condition, on board the vessel Cisco at Georgetown, Guyana, en route to Toronto. The sale agreement between respondent and Guyana Sugar Corporation Ltd. provided, under the C.I.F. terms, that respondent assumed the risk of loss upon the loading of the vessel. The contract stipulated that the raw sugar would have a guaranteed minimum polarity of 97.5^o at the time of shipment.[1]

Floating ice was encountered during the voyage with the result that 1,241,656 metric tons of the raw sugar were wetted by seawater. The damaged sugar had a polarity of only 92.563^o. Notwithstanding this damage, the respondent was required to pay its seller on the basis of having received the sugar in sound condition.

The respondent purported to abandon the insured goods and gave notice to this effect to its underwriters who did not accept the abandonment but instead settled the insurance claim with the respondent for an amount which represented 50% of the sound market value of the sugar at arrival less an amount of approximately $17,000 for the expenses already incurred at that time in discharging the sugar.[2] The record does not show for what reason the extra discharging costs were deducted.

The respondent, a refiner of sugar, was able to blend small amounts of wet sugar with large portions of dry sugar so as to refine all the raw sugar that was discharged from the Cisco. It later sued the appellants for losses it sustained by virtue of the carrier’s fault for an amount of $300,000 together with interest.

The liability of Cisco is not in dispute nor is the fact that the respondent is entitled to be reimbursed for the extra expenses incurred in unloading the damaged cargo ($25,990.89).

What is in dispute, as stated earlier, is the measure of damages.

The respondent established that the damaged raw sugar could not have been sold to outsiders except to animal food processors who were prepared to pay 25% of its value for a price of $53,332.78.

The Trial Judge stated that the proper test to assess damages was to apply the difference between the Arrived Sound Market Value less the Arrived Damaged Market Value rule (A.S.M.V. less A.D.M.V.). The A.S.M.V. being an uncontested figure of $279,660.62, the result would have been for the respondent to receive an amount representing $226,327.40 ($279,660.18-$53,332.78). He estimated, however, that the respondent was not entitled to such an amount since there was, on the part of the respondent, a duty to mitigate which equalled the settlement agreement. He found that pursuant to what he perceived as the abandonment of the merchandise by the respondent to its underwriters, the respondent had received 50% of the sound value of the raw sugar at arrival. The appellants could not therefore be called upon to pay for losses which, in fact, had not been incurred. In calculating the quantum, he awarded the respondent the amount representing the cost or invoice value of the goods ($304,927.24) and not the sound value at arrival as used by the insurers ($279,660.18) from which he deducted what he said was the amount received by the respondent from its underwriters, i.e. $152,463.62 ($304,927.24 x 50% = $152,463.62), to which he added $25,990.89 for the additional expenses incurred in discharging the wet sugar plus interest at the rate of 9% per annum compounded from the date of the loss to the date of payment of the judgment. He rejected the respondent’s claim for extra expenses incurred in blending the damaged sugar into the refinery system on the ground that there was no specific evidence to that effect before him.

The appellants object to the assessment made by the Trial Judge.

The appellants claim the Trial Judge erred in law in using, as basis for his award, the settlement entered into between the respondent and its underwriters since it bore no relationship to the breach for which the appellants were responsible. The appellants contend the Trial Judge wrongly applied the concept of abandonment as there was no abandonment by respondent to its underwriters. But, more importantly, while the appellants accept the A.S.M.V. less A.D.M.V. rule, they claim that the Trial Judge should have evaluated the damages on the basis of the economic loss actually suffered by the respondent. It was incumbent therefore upon the respondent to prove the A.D.M.V. by reference to the loss of polarity of the sugar[3] together with the additional indoor handling costs (e.g., additional labour time for blending the sugar) and to show that these additional losses were a direct result of its mitigative action. Since respondent led no evidence on how these losses could be measured in financial terms and omitted to keep any documentation pertaining to them the appellants argue that Mr. Richard Calder’s evaluation of Redpath’s loss at $35,895.15 should be accepted as it is the only evidence on record referring to the evaluation of damages based on the polarity rule.

The respondent, in its cross appeal, objects also to the Trial Judge taking into consideration the settlement between the respondent and its underwriters. The respondent claims that according to the A.S.M.V. - A.D.M.V. rule, the correct amounts should be $279,660.18 for the sound market value of the goods less $53,332.78 for the damaged market value of the goods since use for animal feed was the only market available at the time the damage occurred. The award should, therefore, be for an amount of $226,327.40. No consideration should be given to the fact that the respondent, being in the refinery business, was able to refine the damaged product and sell it to its consumers.

The Trial Judge erred in using as a mitigating factor the insurance settlement between the respondent and its underwriters. The insurance contract was a res inter alios acta. He conceptually confused a contract signed by the respondent, as a prudent administrator, with its duty to mitigate. He then relieved the tortfeasor of a part of its responsibilities[4] on account of losses not incurred because of the settlement. I am inclined to think, however, that this “error” on the part of the Trial Judge is more a matter of drafting than anything else. Be that as it may, however, no abandonment occurred since it was rejected by the underwriters. A settlement was reached instead.

The parties do not dispute that the proper measure of damages in carriage of goods cases is the difference between the market value of the goods, had they arrived sound at the time and place of delivery, and the market value of these goods, as damaged, at the time and place where they were delivered (A.S.M.V. less A.D.M.V.).

According to Tetley:[5]

The parties to a contract of carriage know and are expected to know that, if the cargo is damaged or lost, the claimant should be recompensed for the value of the damaged or lost cargo at the time and place of the delivery or when it should have been delivered. The above rule is known as Arrived Sound Market Value (A.S.M.V.) less Arrived Damaged Market Value (A.D.M.V.) and such restitutio in integrum requires no “special circumstances” being obviously in the reasonable contemplation of the parties at the time of contracting.

A.S.M.V. less A.D.M.V. is only a rule of thumb and is subject to many exceptions in order to bring it within the basic principle of restitutio in integrum. Lord Wright, in The Liesbosch v. The Edison (a collision case) also cited in A/B Karlshamns v. Monarch S.S. Co. (a carriage of goods case) stated the principle clearly:

“… the dominant rule of law is the principle of restitutio in integrum, and subsidiary rules can only be justified if they give effect to that rule.”

And then, at pages 355-356, he adds:

The claimant must be in good faith and must arrive in court with clean hands. He must therefore have done everything reasonably possible to avoid or to lessen the loss, or in other words, to mitigate the damages.

Both the appellants and the respondent accept the duty to mitigate. Their opinion, however, diverge with regard to the scope of that duty.

The appellants’ position is that, as a ground rule, there was a duty on the part of the respondent to take all reasonable steps to mitigate the loss consequent upon the wrong and that it cannot recover damages for any such loss which it could have avoided but has failed to avoid through unreasonable action or inaction. In sum, the respondent cannot recover for avoidable loss. But where the respondent does take reasonable steps to mitigate the loss, and these steps are successful, the appellants are entitled to the benefit accruing from the respondent’s action and are liable only for the loss as lessened. The respondent cannot recover for avoided loss. As a basis for their submission, the appellants rely heavily on the case of British Westinghouse Electric and Manufacturing Company v. Underground Electric Railways Company of London[6] which they claim was cited with approval by the Supreme Court of Canada in Cockburn v. Trusts and Guarantee Co.,[7] Karas et al. v. Rowlett,[8] Red Deer College v. Michaels,[9] and Asamera Oil Corporation Ltd. v. Sea Oil & General Corporation et al.[10] In any case, the only mitigating action that the respondent could have taken with respect to its wet sugar, and which it did take, was to use it in its refinery. As established by a food specialist called by the appellants, the introduction of seawater into raw sugar would not, in any case, render the sugar unfit for processing into refined sugar intended for human consumption since one of the first stages of processing is a “washing” with hot water.

The respondent’s position is less generous. It claims the duty to mitigate obliges it to take such measures as are appropriate to maximize the market value of the damaged goods by finding the best market,[11] by reconditioning the goods as far as possible or, if repairable, by repairing the goods. But it does not go so far as to take into consideration the particular circumstances the respondent finds itself in. The A.D.M.V., it claims, is to be assessed with regard to the intrinsic loss of value of the damaged goods, which was 75%, and not with regard to what the respondent did. If not, the result would be different in cases where the buyer is a sugar trader or someone who would be technologically unable to refine wet sugar. Great risks were involved by Redpath when it took the course of refining the wet sugar.

The position adopted by the respondent is simply not tenable.

It was evident, at the outset, that the respondent had no intention of selling the damaged goods. It decided it would keep it and refine it.

Mr. Edward Makin, President of Redpath Sugar, a division of the respondent’s company, testified in the following matter during discovery:[12]

Q.  Who made the decision to process this cargo?

MR. PRAGER: The damaged part of the cargo or all of it?

BY MR. DEMARCO:

Q.  The damaged part?

A.   It would have been a joint decision, I suppose, from the process manager, myself, and others that, number one, it was refinable if it was treated correctly …

Q.  But it was a decision made by the people who operated the plant, not just an insurance department decision or claims department decision?

A.   No.

Q.  In other words, the people who were going to process the raw sugar were involved in that decision-making process?

A.   Yes.

Q.  When were your production refining people consulted about accepting or not accepting this cargo?

A.   It was on an on-going basis, I suppose, from the time it was discharged and we talked about it informally as to whether or not it could be used or not.

Q.  I take it from the fact that you did accept that they had not at the outset stated that the cargo could not be received for processing?

A.   That’s true.

There might perhaps have been two values for the damaged goods in question at the time of arrival. One which represented an arrived market value of the damaged goods, for an amount of $53,332.78, had the damaged sugar been sold in its raw condition to animal food processors. The other which represented the value of the raw sugar as is if, instead of selling the goods, the respondent would clean and refine it and sell the resulting product as part of its regular product. At no stage did the respondent ever contemplate a sale of the damaged cargo. There was therefore in reality only one value for the goods at the time of arrival. It was the value to the respondent in view of its course of action.

It is therefore immaterial that there was no market for the damaged raw sugar to refineries in Toronto and that a competitor, Lantic Sugar Limited, would never have bought the product neither for its refinery in Oshawa nor Montréal. Contrary to the testimony of Mr. James J. Hughes, Vice-President of Lantic Sugar Limited, who asserted that “this sugar had no value to Redpath at the time”,[13] the decision the respondent took indicates rather clearly that the damaged goods had some value to it.

What the formula A.S.M.V. less A.D.M.V. teaches us is a means of assessing the loss to the claimant at arrival. When the goods are lost at sea or arrive in a state beyond repair, the A.D.M.V. is nil. If third parties sales have occurred in the meantime, they are an irrelevant consideration to the loss.[14] When the goods arrive damaged but are still of some use, the A.D.M.V. represents the best market value which can be found. If the owner does not give himself the trouble of finding such best market, he is held accountable for the difference.[15] But where the damaged goods have been repaired without any other option being considered, the A.D.M.V. (which is a market value) does not exist since no market was looked for. To apply the formula in this case would be to give to it an air of unreality. The principle of restitutio in integrum should, however, be given its full effect.

I do not find it necessary to decide whether the respondent had “a duty”[16] to mitigate its loss the way it did or to discourse on the scope of this duty.[17] The respondent decided to use the damaged raw sugar in the ordinary course of its business. And after being processed, the sugar became part of its regular product. The respondent cannot therefore be indemnified for more than its loss.

What is its loss?

At trial, Mr. Edward Makin testified at length about the extra manoeuvre and time required to discharge the damaged raw sugar (“a very sloppy mess”)[18] from the ship, to store it and refine it. At one point, he said:[19]

Q.  What happened to the sugar after you decided to reject it?

A.   It was discharged, placed in our raw sugar shed, dyked accordingly and sat there until the underwriters and Redpath came to … first of all, until the underwriters determined whether or not it could be sold elsewhere and, secondly, a proposal was struck between the underwriters and Redpath.

Q.  And did that proposal involve a change in your rejection?

A.   Yes, it did. The proposal was put forward at 50 percent of value and the risks associated with that were viewed to be still substantial at that point in time. Having said that, there was a view that given the right set of circumstances, somehow this sugar could be trickled into the refinery and some salvage would be made of it. Certainly we knew full well that we would incur increased costs, although no costs were kept in terms of what it actually cost to produce this refined sugar from the damaged portion, again because it was trickled in over a long period of time.

…

A.   At the same time, we felt that, again, with the right set of circumstances and a little bit of care that we could process the sugar and not come up too badly in the final outcome.

Q.  Just looking back at it, taking you back to April 1987, what was your estimation of the 50 percent as to the cost implications from Redpath?

A.   Again, bear in mind we had not gone through the process at this time, so there was a lot of speculation on our part as to what sort of cost, we would incur. I think the view was that at worst we would probably lose a little bit of money, at best we would probably break even in the process.

Q.  It’s now January the 21st, 1992. What is your assessment, having gone through the process?

A.   I think it’s fair to say that because we did not keep solid data on this particular instance and the fact that was one of the criteria for acceptance of the 50 percent, that we would not be obliged and it would have been very difficult to almost impossible to determine the extra cost. But having said that, I think we probably feel all said and done it was a wash. We certainly didn’t put any money in our pockets and as I have said before, we probably didn’t lose anything in the process either.

My colleague Létourneau J.A. has expressed some reservation concerning the reliability of Mr. Makin’s testimony. I share his concern. The respondent has sustained damages due to a loss of polarity of the sugar, extra costs in refining the damaged sugar and extra handling of the sugar. It was, however, able to treat the raw sugar so as to bring it to a condition where it could be sold. The evidence brought forward at trial regarding the cost of refining the damaged sugar is, to say the least, unsatisfactory. The respondent having established on the balance of probabilities that it has suffered damages, it becomes necessary for the Court to estimate, as best it can, such costs to the respondent. It is a generally accepted principle that the difficulty in ascertaining damages must not deter the courts from doing justice. The Supreme Court of Canada in Wood v. Grand Valley Railway Co. et al.[20] has stated that when damages are difficult to estimate in money a “judge must under such circumstances do the best it can … even if the amount … is a matter of guess work.” There, however, the quantum related to a matter difficult to quantify, namely damages caused by the failure to complete the construction of a railway line. The same applies with regard to the case of Penvidic Contracting Co. Ltd. v. International Nickel Co. of Canada Ltd.[21] which concerns a delay, in breach of a contract, to complete the construction of a railroad. I note, however, that recent cases by other courts have extended the guess work to claims likely to be quantifiable, but where the proof was faulty.[22]

Considering that the respondent had the responsibility of making its case, which it failed to do adequately, I would conclude, like my colleague Létourneau J.A., that an amount of $50,000 is a reasonable figure for extra refining costs. I would add the agreed amount of $25,990.89 for the extra costs of discharging the vessel, for a total of $75,990.89.

The appellants requested, under the authority of Algoma Central Railway v. Cielo Bianco (The),[23] that the judgment of the Trial Judge be modified so as to declare as interest the rate of interest earned on monies in Court from June 12, 1992, the date of judgment in the Trial Division, to the date of payment. The appellants believe that the Trial Judge assessed interest at the rate of 9% compounded semi-annually based on the average rate of interest that the Federal Court of Canada pays on funds on deposit in Court from the date the loss occurred, April 27, 1987, to the date of judgment June 12, 1992, and that the same reasoning should continue for post-payment interest. Since there is no evidence with regard to the basis used by the Trial Judge to assess the rate of interest, it should remain, in my view, at the rate of 9% per annum compounded semi-annually from the date of the loss to the date of payment of the judgment.

I would allow the appeal in part with costs, I would condemn the appellants to pay to the respondent an amount of $75,990.89 with interest at the rate of 9% per annum compounded semi-annually from the date of the loss to the date of payment of this present judgment with costs in the Trial Division.

I would dismiss the cross appeal with costs.

* * *

The following are the reasons for judgment rendered in English by

Décary J.A.: I have had the benefit of reading the reasons for judgment of my two colleagues. After much struggling, I have reached the same result, albeit through a somewhat different route.

The proper measure of damages in carriage of goods by sea cases is well established in Canadian and British law.[24] It is the difference between the market value of the goods, if they had arrived sound, at the time and place of delivery (the Arrived Sound Market Value, A.S.M.V.) and the market value of these goods, as damaged, at the time and place of delivery (the Arrived Damaged Market Value, A.D.M.V.).

That measure of damage is no more absolute than in other areas of the law; a plaintiff can only recover loss which he could not have reasonably avoided. To use the words of Waddams:[25]

By a convenient, but inaccurate, compression of thought, this principle is often referred to as the plaintiff’s duty to mitigate loss.

In the case at bar, the Arrived Sound Market Value has been set at $279,660.18. With respect to the Arrived Damaged Market Value, there is a finding of fact by the Trial Judge “that there was no market for the damaged sugar except to animal feed processors”,[26] in which case the market value would be $53,332.78 (the amount they were willing to pay), and the loss $226,327.40 (i.e. $279,660.18 A.S.M.V. less $53,332.78 A.D.M.V.). There is also some expert evidence, not retained by the Trial Judge, to the effect that on the polarity scale the value of the damaged sugar upon delivery was $243,765.03, i.e. $35,895.15 less than its sound value.

There is an undisputed award of $25,990.89 for extra costs in unloading the damaged cargo. I shall only come back to this award at the end of my reasons for judgment.

The appellants would be satisfied with an award of $35,895.15 (the loss as per the polarity scale).

The respondent would be satisfied with an award of $226,327.40 (the loss if sold to animal feed processors) or, subsidiarily, should the Court deem that the processing of the raw sugar needs to be taken into consideration as mitigation of the damages or that the damages should be assessed on the basis of extra costs of production, with an award of $152,463.

There is a fallacy in the respondent’s argument that the only market for the damaged sugar was that of animal feed processors. There was, on the evidence, another market for the damaged sugar, that of the respondent, the very owner, using it in its refining process. Whether one speaks in terms of another market or in terms of mitigation of the loss, the reality is, in this case, that the respondent chose a course of action which, as it turned out, was beneficial to both itself and the carrier. In these circumstances, the Court need not decide here whether or not the respondent had the option, if there is a market, not to do what it did, or the duty, if it goes to mitigation, to do what it did. There is no doubt that the respondent is entitled to be reimbursed for the additional costs that it had to incur as a result of choosing a course of action more favourable to the appellants.

The traditional A.S.M.V. less A.D.M.V. formula has been developed and applied in cases where the owner of the goods did not end up making use of the goods himself and where it was therefore somewhat easier to determine the A.D.M.V. The application of the formula to a case where the owner ends up making use of the goods is more complicated because of the difficulty in ascertaining what is the true value to the owner of the damaged goods at the time and place of delivery. In practical terms, because the true value to the owner will be in most cases determined by the actual extra costs the owner will have eventually incurred in order to be able to make use of the goods, the formula should simply be applied without reference to the time and place of delivery. A further difficulty will arise where, in addition to the value of the damaged goods to the owner, there is evidence of a market value of these goods to a third party.

This much is clear. The goods were delivered in a damaged condition. Notwithstanding their damaged condition, the respondent was able to use them in its refinery. The fact that they were used by the respondent indicates that they had, at least to it, a value in the refining process, inferior of course to their sound value. To establish that value the owner is expected to assess the inconvenience he will have gone through at the end of the day, cost wise, trouble wise and risk wise, in order to be in a position to use the damaged goods as if they had been delivered in a sound condition. This inconvenience will be referred to as extra costs of production. Needless to say, only those extra costs that have been reasonably incurred will qualify.

It all boils down to a question of evidence.

A word, first, on the burden of proof.

It is not disputed, in breach of contract cases, that the difficulty in ascertaining the amount of the loss cannot relieve the wrongdoer of the necessity of paying damages and is no reason for not giving substantial damages. Courts must under such circumstances do the best they can even if that best is a matter of guess work.[27] One must be careful, however, not to apply that principle where the difficulty arises not from the nature of the loss or the circumstances of the case, but from a plaintiff’s own failure to adduce available evidence.

In matters more directly related to the issue of mitigation, when some of the damages to be estimated are expenses reasonably incurred by a plaintiff in order to minimize a loss and thereby reduce the amount of damages he may claim from the wrongdoer, courts should keep in mind that the burden rests in the first place on the wrongdoer to establish that the claim was avoidable loss,[28] but that there are limits to what a wrongdoer can establish when it comes to assessing what the plaintiff did or could have done. Courts will be expecting the plaintiff at some point in time to adduce some evidence of its own in order to sustain his claim. As was put by Morden J.A. in 100 Main Street Ltd. v. W. B. Sullivan Construction Ltd.:[29]

… with respect to the issue of mitigation, the onus is on the defendant. However, the onus on the defendant to prove failure to mitigate does not relieve the plaintiff from proving an obvious element in the calculation of his damages.

I shall now turn to the determination of the market value of the damaged raw sugar at the time and place of delivery. In my view, three possible sets of figures have been disclosed by the evidence.

The first one is that of $53,332.78 to animal feed processors. As noted earlier, the Trial Judge made a finding of fact that this was the only market value apart from that to the owner. The respondent chose not to pursue that avenue. It chose, instead, to pursue an avenue which was less costly to the appellants. That figure is out.

The second one is that of $243,765.03, advanced by the appellants’ expert, Mr. Calder. That figure is based on a polarity scale. While it may be, as suggested by the appellants, that the Trial Judge discarded that evidence for a wrong reason, it remains that whatever the value the damaged goods might have had on the polarity scale, there is an unassailable finding of fact by the Trial Judge that no one, including the respondent, was interested in paying such a price for the damaged goods. No market, no market value. That figure is out.

The third one is the elusive one of the value to the owner.

As noted earlier, once the owner decides to use the damaged goods and thereby avoid some of the loss, the burden shifts to him to prove the extra costs of production which are, to use the words of Morden J.A., “an obvious element in the calculation of his damages.” The burden cast upon him is not to establish in minute detail every additional cost that has been incurred. One must always keep in mind that the owner is the victim and must not be put, as a result of the wrongdoer’s fault, in the position of not being able to claim his loss because of the difficulty he faces in proving it. As stated by Létourneau J.A. [at page 315], the respondent is not “required to put in place a sophisticated system of computing the mitigation costs nor to track them down in minute detail”, but he is expected “to describe the additional operations required by the blending and the subsequent processing and at least submit a rough estimate of the costs for each of these operations”. Valuation of damages is a balancing process. The Court must make sure that the victim is compensated for his loss; but it must at the same time make sure that the wrongdoer is not abused.

In the case at bar, the evidence was to the effect that the respondent, at the request of its underwriter, deliberately abstained from keeping any record of what was done to integrate the damaged raw sugar into the refining process.[30] It is therefore not surprising that the Trial Judge found that there was “no specific evidence to indicate that there were any extra expenses involved”.[31] I simply cannot condone in the circumstances the deliberate approach taken by the respondent, the effect of which was to deprive the appellants of the opportunity to challenge the extent of the alleged damages. In fairness to the appellants, I am afraid I have no other choice but to assume that had some records been kept of the extra costs actually incurred, these costs would have been less than what was alleged.

That being said, and in fairness this time to the respondent, there is some evidence to the effect that it would have been difficult in any event to keep track of what was going on[32] and that the respondent was taking a risk in processing the damaged sugar.[33]

There is also some general evidence to indicate that extra steps were taken and extra costs incurred in the process:

Mr. Tsang, transcript, vol. 1, at page 80:

A.   They had to put some … improvise some drying material just to stop the water from coming up from the heap.

Mr. Hugues, transcript, vol. 2, at page 94:

A.   You would automatically assume that you are going to get less output from 92 pole than from 97 pole.

Mr. Makin, transcript, vol. 2, at page 107:

A.   … whereas if lower the polarity of sugar, typically speaking it would cost more to produce refined sugar by using that lower polarity.

at pages 110-111:

Q.  Do you know if any special steps were taken in this case?

A.   I believe there were. I believe this sugar had to be dyked. In other words, a wall of other sugars was built around it to prevent it from spilling on to the floor.

at page 124:

A.   … once it was into the raw sugar shed itself, the physical characteristics of the sugar would entail some sort of special handling procedures and that, obviously, would have caused some grief in the process.

at page 129:

A.   Certainly we knew full well that we would incur increased costs, although no costs were kept in terms of what it actually cost to produce this refined sugar from the damaged portion, again because it was trickled in over a long period of time.

Mr. Makin, Appeak Book, at pages 112-113:

Q.  The respondent, in its cross appeal bled it in slowly over a period of time to minimize the effects.

at page 114:

Q.   Would keeping it separate from the other sugar involve any special work or any special … was this something that was difficult or required any expense or …

A.   Oh, yes, sure. It didn’t go through, as I recall, it didn’t go through the usual process. You did have to keep it separate from it. So you were handling 1,200 tonnes separately from 300-odd thousand tonnes that go through the refinery anyway.

In these circumstances I am prepared to recognize that the respondent has met part of its burden and to award some damages. I have just enough evidence to guide me in the guessing game I would rather not have been forced to play. The figure of $50,000 adopted by my colleague Létourneau J.A., which corresponds more or less to one third of the amount the respondent has claimed for extra production costs and which is significantly higher than that estimated by Mr. Calder on the sole basis of the loss of polarity, seems to me most reasonable.

It may therefore be said, still leaving aside the extra costs for unloading, that it cost the respondent $50,000 to be in a position to use the goods in the same way as it would have used them had they arrived in sound condition. The value to the respondent of the damaged goods (A.D.M.V.) was therefore $279,660.18 (A.S.M.V.) less $50,000, i.e. $229,660.18.

Adding now to that sum of $50,000 the agreed amount of $25,990.89 for the extra costs incurred in the unloading of the damaged cargo, I would make an award of $75,990.89 in favour of the respondent.

I would dispose of the appeal and of the cross-appeal in the manner suggested by my colleagues.

* * *

The following are the reasons for judgment rendered in English by

Létourneau J.A.: The facts of this case are fairly simple and need not be repeated as my colleague has already dealt with them. As will become apparent from these reasons, things have, from a legal point of view, become somewhat complicated. However, when the issues are stripped down of the legalese with which they have been dressed up, they boil down to these simple questions:

a) How does one calculate the damages suffered by the respondent?

b) What is the scope of the respondent’s duty to mitigate the said damages? and,

c) What is the extent of the damages suffered by the respondent after the mitigation?

To those issues, the parties have added the question relating to the rate of interest payable on the sums due as damages. I shall address them in that order.

The Method of Calculating the Damages Suffered by the Respondent

Counsel for the respondent claims that the damages in carriage of goods are calculated by the mathematical application of the formula:

Arrived Sound Market Value.	—	Arrived Damaged Market Value.
(A.S.M.V.)	(minus)	(A.D.M.V.)

According to it, the extent of the damages would be calculated by subtracting from the Arrived Sound Market Value of the goods their Arrived Damaged Market Value. The Arrived Damaged Market Value would be calculated at the time and place of delivery and counsel for the respondent contended that, in the present case, the market value of the damaged raw sugar which the respondent owned had been assessed at $53,332.78 by his cargo underwriter. That sum represented the salvage value of the wet sugar if it had been sold to animal feed processors. There is no dispute as to the Arrived Sound Market Value which had been established at $279,660.18.

Counsel for the appellants challenges the assessment and actual extent of the damages as made by the respondent and its underwriter. He submits that the use of the formula must not and cannot yield an amount which exceeds the damages in fact suffered by the respondent. He submitted, as the proper measure for the assessment of the damages, the loss of polarity namely, the diminution of the percentage of sucrose in the damaged sugar. It is appropriate at this point to mention that in purchasing sugar, the value of raw sugar is determined between the seller and the buyer by the polarity of the sugar by reference to accepted scales. Generally speaking, for each degree above 96 degrees of polarity, a premium is added. For each degree below 96 degrees a penalty is deducted. There are two such scales known as the British and the U.S. scales.

Applying in the present case the U.S. scale which was more favourable to the respondent than the British scale, the appellants estimated the loss value of the wet sugar at $35,895.15 representing the value of the decrease in the polarization factor from 97.980 to 92.563 degrees.[34] They relied upon the authority of the decision of the U.S. District Court in Amstar Corporation v. M/V Alexandros T[35] where, in a case similar to ours, this approach was applied to the measurement of the damages caused to raw sugar during its transportation at sea.

I am satisfied that the formula A.S.M.V. - A.D.M.V. is applicable to the determination of the quantum of damages and constitutes a useful device to that end. Having said that, there remains the difficulty of determining the basis on which to assess the damage, to wit the Arrived Damaged Market Value.

Counsel for the respondent submitted that it is the loss of intrinsic market value of the raw sugar, not the loss of profit or potential use or business by the respondent which is the basis for a proper assessment of the damages. I agree with that. This in my view, however, only begs the question: How does one determine the intrinsic value of the wet sugar? Like Rothstein J. in Redpath Industries Ltd. et al. v. Fednav Ltd. et al.,[36] I find it difficult to accept that the damaged sugar was worthless and could not or would not have been sold or used, except as a type of animal feed. Indeed, the respondent who owned the raw sugar, since its loading in the ship, used the wet sugar and simply blended it with sound raw sugar before successfully processing it. This in itself indicates that the wet sugar had an intrinsic value above and beyond the salvage value given by the respondent’s underwriter. It shows that the wet sugar was neither a total loss nor damaged to the point that it could only be sold as animal feed.

Counsel for the respondent directed this Court to the evidence of Mr. James H. Hugues from Lantic Sugar Ltd., a competitor, who testified that his company would not have bought the wet sugar as it did not have the remelt facility used to decolorize sugar and as the company was already operating at 100% of its capacity at that time.[37] The respondent, therefore, concluded that there was no market in Toronto for the damaged raw sugar.

Be that as it may, the A.D.M.V. of the damaged sugar or, to use the very terms employed by counsel for the respondent, the intrinsic value of the wet sugar, is not necessarily determined by the mere fact that there was an attempt to resell it and that there was no potential buyer, especially in a somewhat monopolistic situation.[38] In my view, the decrease in polarity is a more appropriate and realistic measure of assessment of the true damages than an indiscriminate and precipitated resale on the salvage market.

Counsel for the respondent contended that the British and U.S. scales for determining the value of raw sugar between a buyer and a seller have no application between a buyer and a carrier. I agree that they have no mandatory application. However, if it is an accepted and valid instrument for measuring the value of raw sugar at the port of loading, I fail to see how it cannot and should not be used for measuring the value of the same sugar at the port of delivery and therefore the loss of value during transportation. Surely, the loss of polarity of the damaged sugar is important in establishing the resale price between a seller and a new buyer, it being understood that the wet sugar may have lost so much of its polarity or be so contaminated that it has no value at all except on the salvage market. In other words, if the market value of sound sugar is fixed by reference to its polarity, the market value of the same sugar, although less sound upon delivery than upon loading, should also be fixed by reference to its polarity.

To the damages resulting from the loss of polarity should be added the damages, if any, resulting from contamination and the additional costs associated with the handling of the wet sugar and, subsequently, its refining. In this case, there was no evidence of any damage due to the increased invert sugar and ash content that could have been caused by the sea water. On the other hand, there is an agreement on the amount of the extra unloading expenses which are fixed at $25,990.89. As for the additional costs incurred in the refining process, I shall deal with the issue later on.

At best, under this heading and subject to the duty to mitigate and the additional expenses incurred in fulfilling it, the respondent would, in my view, be entitled to $61,886.04 representing the loss in value of the raw sugar and the additional expenses incurred as a result of the unloading of the wet sugar.

The Scope of the Duty to Mitigate

It is well established that a party who suffers damages as a result of a breach of contract has a duty to mitigate those damages, that is to say that the wrongdoer cannot be called upon to pay for avoidable losses which would result in an increase in the quantum of damages payable to the injured party.[39] The injured party must take all reasonable steps to avoid losses flowing from the breach.[40] It need not take unreasonable risks: it need only take the steps which a reasonable and prudent person would ordinarily take in the course of his business.[41]

a)      Whether the duty to mitigate applies only to continuing loss

Counsel for the respondent made a number of contentions which must be addressed at this stage. She first submitted that the duty to mitigate is relevant only in cases of a continuing loss, not in a case as the present one where the loss has crystallized at the time the shipment arrived at its destination. Like Mustill L. J. in Hussey v Eels,[42] I have some reservations about this proposition. In dealing with this matter, he wrote:

I feel some reservations about this proposition. It is true that the question of a duty to mitigate tends most often to arise in the context of a continuing loss. Thus, for example, where a plaintiff is suffering a loss of business profits which will go on until he does something to stop it, then if there is something which he could reasonably do, and yet he fails to do it, the damages are computed as if the loss had come to an end; conversely, if he does take action to prevent further loss, all the consequences of his act are brought into account. It is also true that superficially the proposition of counsel for the plaintiffs does appear at first sight to gain support from the cases on failure to perform contracts for the supply of goods or services for which there is an available market, where the courts have tended to proceed directly to a conventional measure of damage without investigating what the injured party has actually done after the breach. (I say at first sight because these conventional measures of damages depend on the fiction that the innocent party has gone into the market to sell against the defaulting buyer, or to buy in against the defaulting seller. The loss is therefore crystalised, not in terms of the immediate consequences of the breach, but of a deemed mitigation.) Nevertheless, I would not be prepared without a very full review of the authorities to underwrite a generalisation such as counsel for the plaintiffs proposes, especially in the field of damages, where broad statements of principle tend to be unreliable. (Indeed I believe that R Pagnan & Flli v Corbisa Industrial Agropacuaria Ltda [1971] 1 All ER 165, [1970] 1 WLR 1306 shows the generalisation to be unsound.)

This broad proposition made by counsel for the respondent suggests that the duty to mitigate exists only in respect of future or additional damages. In other words, there is no duty to mitigate those damages that already exist even though the injured party is reasonably capable of doing so. According to the respondent, the scope of the duty to mitigate is merely to prevent an aggravation of the damages and not to avoid them notwithstanding that a reasonable and prudent person could do so. This proposition, in my view, runs counter to the principles formulated by the Supreme Court of Canada in Asamera Oil Corporation Ltd. v. Sea Oil & General Corporation et al. where Estey J., writing for the Court, stated:

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 [(1846), 8 Q.B. 595], 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.[43] [My underlining.]

The Supreme Court did not formulate the duty to mitigate in terms of taking all reasonable steps to avoid “further” losses, but in terms of taking all reasonable steps to avoid losses flowing from the breach. This includes the original losses where it is reasonable to do so in the circumstances.

The following statement from the text Remedies for Torts and Breach of Contract, in my view, adequately describes what is referred to as the duty to mitigate:

The duty to mitigate is a further restriction on compensatory damages. On the one hand a plaintiff should not sit back and do nothing to minimise loss flowing from a wrong but should rather use his resources to do what is reasonable to put himself into as good a position as if the contract had been performed or the tort not committed. On the other hand, he should not unreasonably incur expense subsequent to the wrong. The policy is one of encouraging the plaintiff, once a wrong has occurred, to be to a reasonable extent, self-reliant or, in economists’ terminology, to be efficient, rather than pinning all loss on the defendant.[44]

b)      Whether the duty to mitigate was limited to finding a buyer for the damaged sugar

Counsel for the respondent submitted that the only duty the respondent had in this case was to try to find a buyer for the damaged sugar. There was no duty to blend the wet sugar with sound sugar even if it was reasonable in the circumstances to do so and even if this could have mitigated the damages.

I do not and cannot believe that the respondent’s duty to mitigate was so limited. Indeed, in the case of Keneric Tractor Sales Ltd. v. Langille,[45] where leased farm equipment was sold after the appellants Langille defaulted under the lease, the appellants contended that Keneric did not take reasonable steps to mitigate its damages. They submitted that Keneric should have relet the equipment rather than reselling it.

The Supreme Court did not dismiss that contention as unsound, but dismissed it because there was no evidence to support it. Speaking for the Court, Wilson J. wrote:

The difficulty I have with this argument is that no evidence was led at trial concerning the economics of reletting. In the absence of such evidence it is impossible to say whether reletting would have been preferable to resale or not. Obviously the burden of proof here is of critical importance.

It seems quite clear that the burden of proof falls on the defendant. As Laskin J., speaking for the Court in Red Deer College v. Michaels, [1976] 2 S.C.R. 324, noted 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.[46]

What is reasonable to do in the circumstances is a question of fact and borders on common sense. For example, let us assume that the respondent has stored in its warehouse some raw sugar that it owns and that is not insured. An unexpected flooding damages the sugar and reduces its polarity and therefore its intrinsic value. What would be reasonable for the respondent to do in these circumstances to minimize its losses: blend the damaged sugar with sound raw sugar before processing it or sell the damaged raw sugar at greater loss on the salvage market? To put the question is to answer it. Why should it now be different if the sugar is insured and the damages are paid by a third party? Why should it be different if the sugar that the respondent owns is damaged not in its warehouse, but in the ship that transports it. There is indeed no difference as far as minimizing the losses is concerned.

The blending of the damaged sugar with sound sugar and its subsequent refining were reasonable steps to take in the circumstances to mitigate the losses. These steps were even more reasonable for the respondent who, as a refiner, had the necessary expertise and machinery to do so.

Counsel for the respondent submitted that, in fixing the damages, characteristics that are peculiar to the plaintiff ought not to be taken into account. I agree. For example, it is irrelevant in determining the extent of the damages that a plaintiff had a resale contract with a third party and made a profit in reselling the damaged goods.[47] The damages and their quantum exist irrespective of the special or peculiar characteristics of a plaintiff. However, this rule applies to the determination of the damages, not to the scope of the duty to mitigate them. When it comes to the duty to mitigate, it is worth remembering that the duty is on the plaintiff, not on some fanciful and abstract personage. The question then becomes: what is reasonable for the plaintiff to do in the circumstances? In the present case, what was reasonable for the respondent to do or, to put it another way, what were the reasonable steps that the respondent ought to have taken in the circumstances? In view of the limited damage to the raw sugar and of the fact that the sugar was recoverable, only one answer could be given: blend it with sound sugar and refine it as originally planned. That was the duty of the respondent in the circumstances of this case as the risks were minimal and manageable.[48]

c)         Rule applicable when mitigation goes beyond what is imposed by the duty to mitigate

In any event, I am satisfied that the principle enunciated in the British Westinghouse case[49] and followed by the Supreme Court of Canada in the Cockburn case[50] applies. After having stated as a first principle that, in case of a breach of contract, an injured party is entitled to receive such a sum by way of damages as will put him in the same position as if the contract had been performed, Duff J. of the Supreme Court wrote, quoting the House of Lords:

But this first principle is qualified by a second, which imposes on the plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps. In the words of James L.J. in Dunkirk Colliery Co. v. Lever (2), at p. 25: “The person who has broken the contract is not to be exposed to additional cost by reason of the plaintiffs not doing what they ought to have done as reasonable men, and the plaintiffs not being under any obligation to do anything otherwise than in the ordinary course of business.”

As James L.J. indicates, this second principle does not impose on the plaintiff an obligation to take any step which a reasonable and prudent man would not ordinarily take in the course of his business. But when in the course of his business he has taken action arising out of the transaction which action has diminished his loss, the effect in actual diminution of the loss he has suffered may be taken into account even though there was no duty on him to act.”[51] [Emphasis added.]

Whether or not the respondent was under a duty to blend the damaged sugar with sound sugar and process it in the course of its business, it did so successfully and thereby avoided the losses that would have resulted from a breach of contract. The appellants are entitled to the benefit of that successful mitigation.

The Extent of the Damages Suffered by the Respondent

It is settled law that a plaintiff is entitled to recover expenses reasonably incurred in mitigating his damages.[52] In my view, the plaintiff bears the burden of proving those expenses, especially when they relate to steps and measures taken by the plaintiff that are within its exclusive knowledge. As my colleague Décary J.A. puts it, “there are limits to what a wrongdoer can establish when it comes to assessing what the plaintiff did or could have done”.

In the case at bar, the only evidence tendered by the respondent of its mitigating costs is the excerpt quoted by my colleague Madam Justice Desjardins. The witness for the respondent, Mr. Makin, testified that the respondent kept no data on the costs generated by the mitigation. He went on to merely assert that he “probably felt all said and done that it was a wash” by which he meant to say that the mitigating costs amounted to the $139,830.09 received from the cargo underwriter for the loss of value of the damaged sugar.

The least one can say with this self-serving evidence is that it is scant if not flimsy evidence. Need it be restated that damages cannot be recovered on “guesswork or surmise”.[53]

Counsel for the respondent argued almost in despair that the respondent ought not to be penalized for having successfully avoided the losses and therefore should not be subjected to the extra expense or cost of monitoring the mitigation costs. I do not think that the respondent was required to put in place a sophisticated system of computing the mitigation costs nor to track them down in minute detail. However, one would have expected the respondent to describe the additional operations required by the blending and the subsequent processing and at least submit a rough estimate of the costs for each of these operations.

Having said that, there is evidence that the damaged sugar generated extra costs in the amount of $25,990.89 at the time of its unloading and transportation to the respondent’s warehouse. These costs are detailed as follows:

Labour and clean up of scales and conveyors: $6,162.72

Additional costs for Seaway Terminals-Discharging: $2,237.64

Additional costs from Empire Stevedoring Co. for labour: $16,437.87

Additional costs from Camerson and Sons for labour: $693.16

Additional costs from Burns Security for labour: $459

It is only fair and reasonable to infer that the handling of the damaged sugar, at the time of the blending, also generated some extra costs. It is also reasonable to expect some additional costs of processing and refining.

I do not think, however, that those costs were in the amount guessed or surmised by the witness for the respondent. Nor do I think that they were similar to those incurred for the unloading. Bearing in mind that they had the burden of proving those costs, not merely asserting them, I would fix them at $50,000, which appears reasonable in the circumstances.

The Rate of Interest

The parties had agreed that the commercial rate of interest at the time of the trial before the Trial Judge was 11.78%. The learned Judge fixed it at 9% compounded semi-annually, and made the interests payable from the date of the loss to the date of payment of his judgment. The appellants would like the rate of post-judgment interest to be based on the average rate of interest that the Federal Court of Canada pays on funds on deposit in Court. I see no reason to intervene.

Conclusion

In my view, the learned Trial Judge erred in law in his appreciation of the damages suffered by the respondent. I would allow the appeal in part with costs and condemn the appellants to pay to the respondent the sum of $75,990.89 representing the additional expenses for unloading the cargo and the additional expenses incurred in the mitigation of damages. The interest rate should be 9% per annum compounded semi-annually from the date of the loss to the date of payment of this present judgment. I would dismiss the respondent’s cross appeal with costs.

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