Breakfast With Appeal: Remington Development v. CPKC

When a longstanding property deal falls through, can a party claim damages for hypothetical, rather than market, value? In this episode of Breakfast With Appeal, the panelists discuss the Alberta Court of Appeal’s decision in Remington Development v. CPKC, offering new insight into the concept of indeterminate liability and limits to expectation damages.

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Yael Bienenstock (00:08:36)

Welcome to Breakfast With Appeal, Torys’ quarterly series on the cases you want to know about. We offer our thoughts on the appellate law that's shaping Canadian conversations. Let's dive in.

Andrew Bernstein (00:23:22)

And our next case is Remington Development and CP. And it is a good old-fashioned real estate case: a land law case. Yael, do you want to do the honours here? Set it up for us.

Yael Bienenstock (00:35:14)

Sure. So this is a story about real estate—a real estate dispute, as Andrew said—between Canadian Pacific Railway and Remington Development. And as far back as 1996—so we're talking like 30 years ago, I think?—CP began to explore the value of land that it owned in downtown Calgary along its main line. In doing that, it started to talk to Remington, who was a real estate development company, and those discussions started in 2000.

In 2002, the parties entered into agreements for Remington to buy three different parcels of land from CP. Now, at the time, Remington didn't have any specific development plan, but they did plan to create a comprehensive development, you know, on, on three parcels. So some big fancy—I don't know what, condos, shops. Not exactly clear. Now, two of these transactions proceeded without any problems. And that was not the case for the third, which is the subject of this case. 

So first of all, when the agreement was actually signed, the land still has tracks and storage facilities on it that CP was actually still using. And Remington was well aware of this. And so, the agreement had a way to deal with the fact that CP was still using the land. They said that the only parts that were going to be sold in that parcel were those that were surplus to CP's operational requirements. And under the agreement, CP had discretion to determine which parts of its land fell into that category. So, gives CP the ability to decide, really, what it’s selling to, to Remington. 

The agreement provided a certain—this had to happen by a certain timeline, it had to happen by March 31st, 2003, and by then CP had to, first of all, decide what was surplus, what it was going to sell, and it had to put in an application to subdivide the land so that it could sell the subdivided portion to Remington. And if CP didn't comply with that deadline, then the agreement was going to be null and void, and Remington was entitled to get its deposit back.

So, the parties sort of accounted for this, you know, “We don't know exactly what we're going to need in the land” through this mechanism. What ended up happening is from 2003 through 2006, CP kept on asking for extensions to the deadline. And Remington kept agreeing to those extensions. And the final extension was granted in 2006, which extended the deadline to 2007.

So we've gone quite, quite a number of years beyond the original 2003 deadline. Now, in the meantime, CP did make, well—kind of unclear whether they (this is one of the issues) whether they decided what land they were going to subdivide. But it is clear that they did put in a subdivision application to the city. They put in a couple: first in November 2004, and then amended applications in 2005.

But as it turns out, behind the scenes, in fall of 2006, the province of Alberta had approached CP about buying lands—buying these lands, and they were going to pay more money than Remington had paid. And by October 2006, CP and the province had actually agreed to the terms of a deal, which included the ability of CP to continue to use the land for a period of time.

Now in November—so all of this is happening at the same time, you have, CP is talking to Alberta, and then in November, the city approves the subdivision application, which should mean that at that point you're going to sell the land to Remington. But CP said to Remington, “Actually, we need to put this on hold because we need to deal with the city on some other stuff.”

And then in December 2006, CP held a meeting with Remington, and there was a representative from Alberta there and CP, I think, came clean and said, “You know, we've decided to sell these lands to the province of Alberta.” And Remington said, “We have a contract!” And CP's answer to that was that it had an out, and that was referencing its discretion to decide what to sell as surplus.

It says, “Well, actually, none of this land is surplus.” And apparently somebody from CP told someone from Remington to quote unquote, “Get over it.” Not the sort of statement you want to see in a court decision later on. So [laughter] in 2007, CP did, in fact—

Andrew Bernstein (04:53:17)

Yeah. Then you’re the lawyer telling your client to get over it.

Yael Bienenstock (04:55:19)

So in 2007, CP actually enters the agreement with Alberta. And completely unsurprisingly, Remington sues CP for breach of contract, and the trial judge held that, yes, CP had breached the agreement, that Alberta had induced the breach, and—perhaps that is not surprising, but she awarded Remington $165 million in damages and $45 million in prejudgment interest. So like, $200 million in damages in total, if my math is right.

Jeremy Opolsky (05:25:52)

210. 

Yael Bienenstock (05:26:00)

Sorry? 

Jeremy Opolsky (05:26:25)

210. 

Yael Bienenstock (05:26:51)

210. Or approximately, right? 

[Laughter]

Over, over $200 million. On breach, the trial judge held that CP put in a subdivision application and that that prima facie demonstrated that they had determined that the land was surplus and available for sale. CP argued that it hadn't, but at the end of the day, the trial judge said “Yes, there is a breach here.” 

And on damages, the trial judge said “Remington is, it should be put in the position that it would have enjoyed but for the breach of contract.” And the evidence, as I mentioned before, was that Remington didn't actually have any specific plan at the time for what it was going to do for the land. But they did put in expert evidence about a hypothetical development.

And so, what the trial judge held is that Remington would have developed the land in the most profitable way, based on market conditions at the time of the development, including planning opportunities and constraints. And so, it was reasonably foreseeable that the development will be part of some large multi-use development complex, including, you know, high rises and low rises and commercial office buildings.

But again, all of this is hypothetical. And she held that Remington was entitled to lost profits from the hypothetical development. She said that was reasonably foreseeable that that type of damage at the time would be understood to arise naturally from the contract breach. 

The appellants had said, actually, they should just have to pay the difference in price between what the land is worth now and what the land was worth at the time, but—and that would have come to, like, under $4 million, so there is a very big difference here in the, depending on how you approach damages. And so, by focusing on the lost profits and extensive evidence about this hypothetical development, she decided that they were liable—both Alberta and CP—for, as I said before, nearly $200 million, over $200 million in damages.

And she said that these damages were based on the peculiar and special value and plans drawn up in 2019 for something called Rail Town Urban Village. So, a lot of this was based on expert evidence.

Andrew Bernstein (00:07:31:11)

Okay. David, when a court of appeal says something like, “An innocent party is not entitled to unlimited compensation. Contract law has long been concerned with constraining the risk of indeterminate damages that unfairly burden the breaching party.” That doesn't bode particularly well for the plaintiff. Can you tell us what the Court of Appeal did there?

David Outerbridge (07:52:19)

Well, Andrew, they reversed, [laughter] but they didn't reverse and, and the plaintiff was out of luck, what they did was, the majority of the Court of Appeal of Alberta sent it back for a new trial. And so, there was, there was a division two-judge majority and a dissenter. The dissenter wrote 75 single-spaced pages explaining why he would have knocked the case out completely and not send it back for a new trial.

But the majority decided it merited going back for a new trial because it was not clear what the right answer would be, had the right contractual analysis methodology been used by the trial judge, and so the, the majority was quite critical of the way the trial judge approached the analysis. 

And what had happened in this case is that the trial judge had actually issued multiple sets of reasons.

And in her first set of reasons, she said the proper interpretation of this contract is that the, the moment at which CP is, you know, shown to have elected to treat the land as surplus is at the time that CP brings a subdivision application. 

And then it emerged that one piece of this overall parcel of property had already been subdivided, and so in her second decision, she had to deal with the fact that in her first decision, she had said the, the contract—you know, the right way to interpret this contract is that the trigger for, for CP surrendering is when they bring a subdivision application. But that can't be the right interpretation, because some of the land had already been subdivided.

So she said for that parcel, or that piece, that lot—Lot Four—because it had already been subdivided, it was essentially an implied term of the contract that, that that wouldn't be the trigger for that lot, etc. But the Court of Appeal said “You can't come up with a contractual analysis on one basis and then once you realize there's a problem with it, come back and try and backfill with implied terms.” That—the implied term test was not met here under Canadian law in any event, and their conclusion was because the analysis was not done properly, the analysis needed to be done again, that we, you know, the plaintiff would get the benefit of another kick at the can, but, but you couldn't uphold it based on the existing analysis. 

Then on damages, they began by saying, “Because we were sending it back for a new trial, we don't need to deal with this.” And then they dealt with it extensively. And, you know, in their, in their defense, the reason they dealt with it extensively is, they said, “The new trial judge is going to have to analyze damages, we have serious concerns about the way the first trial judge analyzed damages. So we want a new trial judge to have the benefit of that when they, when they do the analysis again.” And boiled down to its essence, what the Court of Appeal concluded on damages is that there is a “normal,” quote unquote, “normal measure” of damages for a failed real estate transaction. That normal measure of damages is the difference between the purchase price in the contract and the value of the land at the time of breach of contract or some other assessment date. But usually, it's the time of the breach of contract. 

Secondly, they said that a court should grant the normal measure of damages unless there are exceptional circumstances to justify deviating from that normal measure, and they set a claim for lost profits from the lost opportunity to develop the land is typically going to be too “remote,” quote unquote, under the doctrine of remoteness and therefore unrecoverable as damages in your breach of contract claim unless—and this is an important unless—the parties at the time they did the deals, at the time they signed the purchase agreement, both understood, reasonably understood, that there was a real probable likelihood that the land, once purchased, would be developed in a particular way, with particular results. And there is Supreme Court of Canada authority for that proposition with—you know there’s a case where that was found to exist, where both sides knew when the land is being purchased, what it was going to be developed into and in that case, the Supreme Court allowed lost profits. But in this case, the Court of Appeal majority concluded there was no reasonable contemplation by both parties when the deal was done about how the land was to be developed and that this, you know, you can't just hypothetically assume the best possible development. You have to go with what the parties understood at the time they entered into the deal.

They noted that the trial did—in this case, didn't, didn't analyze what the normal measure of damages would be. It didn't focus on whether the, the, the law justifying exceptions from the normal measure of damages applied here. So again, they said these were issues that would have to be decided by the new trial judge in the second trial.

Andrew Bernstein (12:13:30)

Okay, Jeremy, one of the things about this case that got my attention was a lengthy discussion of Hadley and Baxendale and Victoria Laundry. So take us back to law school here. What exactly is the Gordian knot that the court is trying to unravel? And why do these things matter? 

Jeremy Opolsky (12:30:18)

So I love it when Andrew says, “Let's go back to law school.”

It's like catnip. He knows it's like catnip to me. It's like, “Let's go back to our happy place.” 

[Laughter] 

Andrew Bernstein (12:36:58)

Wait a sec, law school? High school wasn't your happy place?

[Laughter]

Oh, wait. Me neither. 

[Laughter]

Jeremy Opolsky (12:41:12)

So let's, let's talk contract law. So, Damages 101 is that parties are entitled to be put back in the place they would have if the contract had been performed.

This is what we call expectation damages. And there are reliance and there's disgorgement and there's, [laughter] you know, another—there is, there's a topic of damages that could be an entire webinar session. But—

Andrew Bernstein (13:03:41)

I've given that webinar.

Jeremy Opolsky (13:04:43)

And you should all watch it online, but not now. So—but at the core of contracts is this idea of expectation damages. But that expectation damages is not unlimited. David's talked about indeterminate liability now twice today—which is, I think, a record for Breakfast with Appeal—and in contract—

Andrew Bernstein (13:24:49)

You’re going to love my next question to you. 

[Laughter] 

Jeremy Opolsky (13:26:39)

The restrictions—

Andrew Bernstein (13:27:45)

Oh wait, you've seen it!

[Laughter]

Jeremy Opolsky (13:28:34)

—are [laughter] are in place through remoteness unforeseeability analysis. Not that distinct from tort, but nonetheless distinct in origin. And it comes from the 1854 case of Hadley and Baxendale, and a case about, really, millers and a laundry and a, I think, a gear shaft, if that's what I call it. What, what Hadley did, which is been taken out by cases since—including the Supreme Court of Canada in multiple cases—is it, is it set out what has been described as a single test with two branches of recovery for losses.

The first branch is recovery that arise naturally from the breach, i.e., losses in the usual course arising from the breach, and the second is special circumstances known to both parties to the damages of the damages that would result for the contract. I thought this case is, does a pretty good job about taking the esoteric and making it a little more comprehensible, and what they do is they unpack the law, and they really talk about the level of knowledge that falls into these different branches.

So the first branch comes from objectively imputed knowledge. Anyone, any reasonable person would understand that this, that this follows. In our previous seminar, Andrew gave a, a long, complicated analogy about apples and making apples into pies. And if you're selling pies to a baker and—

Andrew Bernstein (14:51:30)

A lot of people liked that seminar, how do you like those apples?

Jeremy Opolsky (14:54:36)

Less now with that pun.

[Laughter]

So, so if you bake apples into pie and you can’t sell the pies that's, that's, that's reasonably foreseeable, to anyone. But the second branch is knowledge that—that's objective knowledge. The second branch is subjective knowledge: knowledge that's actually known to the parties because of communications between them. And what this case talks about is how that knowledge—it’s not just enough for that knowledge to be known in the ether, but it has to be a risk that's communicated and accepted by both of those parties in advance.

What this case does is it cites Dow and Nova a lot, which is the case that Andrew argued, and— 

Andrew Bernstein (15:28:08)

Successfully!

Jeremy Opolsky (15:29:14)

Successfully argued, which deals with many of these concepts distinguishing between these different types of damages. So the Gordian knot is, how do you know what the dividing line is when damages are too remote? When do you know when a party has special plans—like development plans for a property—and when can it claim above market value, which is the objective measure of damages for a real estate transaction, right, that difference between the contract price and the value of the property on the proper date. Proper date, of course, is the date of breach or the date of closing or another date. If the, if you defeat the, the presumption. 

But that ordinary objective measure of damages can be displaced on the principle in Hadley and Baxendale. The question though is when: how much of the knowledge do you need to have? How much of the plans do you, do you need to be developed? And the dissent—maybe my peers will disagree with me—gives a very convoluted example of an Uber driver driving someone to the airport to then fly to New York to then bid at an auction for a Wayne Gretzky card [laughter] that they will then sell at a profit.

And I applaud the dissent for not only spending three pages on a single example, but also the level of specifics involved in the example. The Gretzky thing, given the, the Alberta Court of Appeal, perhaps not unforeseeable in in its resolve. But they talk about, and I think the best example—

Andrew Bernstein (16:52:55)

Really? I thought he played for LA. Just kidding. Sorry. Sorry to my friends from Edmonton.

Jeremy Opolsky (16:56:34)

Address your, address your hate mail to, to Mr. Bernstein.

They talked about a case called Performance Industries which is a good example. Performance Industries was a Supreme Court of Canada case in the real estate area. And in that case, the parties had shared, discussed and were aware of the development plans post-purchase. Right? That was, that was the reason for the purchase. That was a discussion the parties had, and the seller knew and accepted the risk that if they didn't go through with it, they would be destroying these development plans and the profit that would go with them.

Remington, on the other hand—I'm sorry, not—yeah, Remington, the purchaser here, didn't have a planning department, didn't share any plans, as Yael talked about, didn't have anything that was firm. And that's kind of on the opposite side of the spectrum. So really, that level of knowledge and the level of subjective knowledge of where you draw that line is the difficult question here.

And as, as—hearkening back to Yael’s opening—$200 million is riding on, on that difference. 

Andrew Bernstein (17:57:09)

Yeah. It's, it's, it's a, it's a really interesting case. I mean, it was really well timed for the people who asked for more private law cases from us.

Dave, last word to you on this one. You know, there is a discussion about pure economic loss and contract law and the risk of indeterminate damages and the principles of remoteness. Do you have any sense that some of the concepts we were talking about before in tort law had influenced the Court of Appeal or contractual analysis in this case? 

David Outerbridge (18:27:53)

Possibly. I think they, to be honest, mixed up two different concepts: the law of remoteness, which is the law that governs the result in this case on damages, is a contract doctrine; the law of indeterminate dealing with indeterminate liability and pure economic loss is primarily a tort doctrine that isn't connected to that law of remoteness. But let me unpack that a little bit.

So, there is a common theme across both contract law and negligence law cases that courts want to put the brakes on awarding too, too much in the way of damages to a plaintiff that is—or unduly penalizes the defendant beyond what would be reasonable. 

In the negligence context, courts talk about indeterminate liability, and I did a quick search before coming in here today to see if indeterminate liability comes up in contract law cases and from what I can see, no. And the court specifically say it’s, it's a doctrine of negligence law. But leaving that aside, you know, in the negligence concept, context, as those who went to law school will remember, you know, indeterminate liability is a concern for what—and it leads courts to not be keen on awarding pure economic loss. And the example that's often given is a boat that collides with a bridge, the bridge had a railway line across it, so goods couldn't be transported across the bridge, which results in goods not being delivered to factories. Factories can't make their products, they can't deliver products to the stores, and, you know, there's a whole series of foreseeable defendants down that chain that could go on forever. You know, the person doesn't get their product, so they can't do such and such, they can't go on their vacation or whatever. You know, there's—you can foresee lots of defendants. And the idea of not allowing recovery in pure economic loss is because you don't want indeterminate liability to an indeterminate class of people in an indeterminate amount, etc. 

In this case, the Court of Appeal talks about needing to control indeterminate liability. But that's, that's not what we're dealing with here. Indeterminate liability means there's an unspecified and infinite class of people who could be affected here. There is one—one plaintiff, it's a known plaintiff, and the maximum amount of liability that plaintiff could have suffered is also known. So, it's not indeterminate. It's, it's determinate. But what they really are focused on is the idea that defendants should not be over—should not be penalized, plaintiffs should not be overcompensated.

And, you know, they make a number of comments about the fairness or unfairness of treating defendants, forcing defendants to pay more than they should have to pay. And, you know, in this case, as we talked about, Remington was saying they should get lost profits that weren't something that they had discussed with, with, with CP at the time of the purchase agreement they’re—the development that they're saying they should get lost profits for is hypothetical. And the Court of Appeal made quite clear that you shouldn't be saddling CP with all of that burden, which they never bargained for in the first place.

[Music]

Andrew Bernstein (21:18:57)

That about wraps up our conversation. Before we go, I want to remind our listeners that they can find the webinar version of this edition of Breakfast With Appeal, along with previous episodes on torys.com, and that our BWA program is eligible for one substantive hour of continuing professional development. 

Thanks again for joining us and take care.