Hamilton v. Open Window Bakery Limited et al. [Indexed as: Hamilton v. Open Window Bakery Ltd.]

58 O.R. (3d) 767

[2002] O.J. No. 1228

Docket No. C35731

Court of Appeal for Ontario

Abella, Goudge and Simmons JJ.A.

March 27, 2002

* Application for leave to appeal to the Supreme Court of Canada was granted January 30, 2003 (Gonthier, Major and Arbour JJ.). S.C.C. File No. 29225. S.C.C. Bulletin, 2003, p. 139.

Contracts -- Damages -- Three-year agency contract provided that principal could terminate contract after commencement of 19th month on three months' notice to agent -- Principle terminated contract without cause after 15 months -- Early termination clause in contract defined upper limit of principal's liability for damages for breach of contract.

Employment -- Employment contracts -- Wrongful termination -- Damages -- Three-year agency contract provided that principal could terminate contract after commencement of 19th month on three months' notice to agent -- Principle terminated contract without cause after 15 months -- Early termination clause in contract defined upper limit of principal's liability for damages for breach of contract.

The defendant was interested in expanding its export business and contracted with the plaintiff to assist it in supplying and selling bagels in Japan. The contract, which was one of agency, not employment, was for a period of 36 months and provided that after the commencement of the 19th month, the defendant could terminate it on three months' notice. After 15 months, the defendant wrongfully terminated the contract on the basis that the plaintiff had acted dishonestly by falsifying ingredients lists on certain shipments of bagels to Japan. Subsequently, at the start of the 19th month, the defendant purported to terminate the contract by giving three months' notice, although it continued to maintain that the plaintiff had acted dishonestly. The plaintiff brought an action for damages for breach of contract. The trial judge determined that the defendant had failed to prove that the plaintiff's conduct amounted to fraud or dishonesty and that at most it was consistent with negligence. The defendant breached the contract in dismissing the plaintiff without cause. The trial judge further concluded that had the defendant properly understood the plaintiff's conduct as negligence or a mistake rather than dishonesty, the plaintiff would have been forgiven and the contract would have continued. He determined that he could not find that the defendant would have terminated the contract by giving notice at the commencement of the 19th month, as it was entitled to do. However, he found that, in the circumstances of this case, the plaintiff should not recover damages based on the contract running its full term of 36 months, since the evidence demonstrated that there was a reasonable possibility that the contract might terminate early. He concluded that there was probably a 25 per cent risk that the contract would not have gone on to completion because the defendant would have exercised its right to terminate at some point after it got the right to do so. He applied this discount factor to the amount agreed to by the parties that would have been paid to the plaintiff had the contract run its full course. The defendant appealed.

Held, the appeal should be allowed.

Per Simmons J.A. (Abella J.A. concurring): The early termination clause in the contract defined the upper limit of the defendant's exposure for damages for breach of contract. It reflected the parties' reasonable expectations concerning minimum guaranteed benefits under the contract in the event of termination, as well as maximum exposure for damages. The trial judge's determination of how the defendant would have proceeded if the breach had not occurred, though rooted in an assessment of the defendant's past behaviour and a "best guess" quantification of the likelihood of various contingencies, was no more than speculation concerning what might have happened if events had unfolded differently. Such an assessment is superfluous where the contract defines the reasonable expectations of the parties. The defendant had the option of retaining the plaintiff's services for a period ranging from 22 to 36 months. Its contractual obligations would be satisfied if it retained the plaintiff's services for 22 months, and damages should be assessed on that basis.

Per Goudge J.A. (dissenting): The contract provided that the defendant might have performed its obligation either by continuing the plaintiff's services for the full 36 months, or by electing to terminate those services on notice at some point in the final 18 months of the contract. The terms of the contract alone did not dictate precisely when the defendant would have given notice had it chosen the second way of performing its obligation. This required, beyond the contractual language, a factual determination of when in the final 18 months the defendant would have elected to give notice. This was precisely the inquiry undertaken by the trial judge. If the trial judge simply assumed that the defendant would have terminated the contract at the commencement of the nineteenth month, the resulting damage award would not have put the plaintiff in the position she would have been in had the contract been performed. Rather, in the circumstances of this case, she would have been under-compensated.

APPEAL from an award of damages for breach of contract.

Cockburn v. Alexander (1848), 6 C.B. 791, 8 L.J.C.P. 74, 12 L.T.O.S. 349, 3 Jur. 13, 136 E.R. 1459; Lavarack v. Woods of Colchester Ltd., [1966] 3 All E.R. 683, [1967] 1 Q.B. 278, [1966] 3 W.L.R. 706, 110 Sol. Jo. 770, 1 K.I.R. 312 (C.A.); Paula Lee Ltd. v. Robert Zehill & Co. Ltd., [1983] 2 All E.R. 390 (Q.B.), consd Other cases referred to Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423, 178 D.L.R. (4th) 1, 247 N.R. 97, 49 B.L.R. (2d) 68, [2000] I.L.R. 1-3741, 39 C.P.C. (4th) 100, revg (1998), 1998 3254 (ON CA), 38 O.R. (3d) 563, 157 D.L.R. (4th) 643, [1998] I.L.R. 1-3555 (C.A.); Murano v. Bank of Montreal (1998), 1998 5633 (ON CA), 41 O.R. (3d) 222, 163 D.L.R. (4th) 21, 41 B.L.R. (2d) 10, 22 C.P.C. (4th) 235, 5 C.B.R. (4th) 57 (C.A.), affg (1995), 1995 7410 (ON SC), 20 B.L.R. (2d) 61, 31 C.B.R. (3d) 1 (Gen. Div.), supp. reasons (1995), 41 C.P.C. (3d) 143 (Gen. Div.); Withers v. General Theatre Corpn. Ltd., [1933] 2 K.B. 536, [1933] All E.R. Rep. 385 (C.A.)

Counsel

Paul Gemmink, for appellant. Susan Heakes, for respondent.

Reasons for Decision

[1] GOUDGE J.A. (dissenting): -- The central issue in this appeal is the proper approach to the calculation of damages for breach of the contract in this case, given its particular terms.

[2] The respondent contracted to provide certain services to the appellant Open Window Bakery Limited for a period of 36 months. The contract provided that after the commencement of the 19th month, the appellant could terminate it on three months' notice. Several months before that point, the appellant wrongfully terminated the contract. In assessing the respondent's damages, the trial judge found that on the evidence he could not conclude that the appellant would have exercised its right to terminate on notice at the earliest possible moment (namely at the commencement of the 19th month) but likely would have done so before the contract had run its full term. He therefore discounted by 25 per cent the amount the respondent would have received for the full 36 months and awarded that discounted sum as damages.

[3] For the reasons that follow, I can find no basis to interfere with this award. I would therefore dismiss the appeal.

[4] The appellant is a high quality bakery carrying on business in Ontario. Ms. Agasi, the other defendant, who was let out of the action at the commencement of the trial, is its CEO.

[5] The appellant was interested in expanding its export business and contracted with the respondent to assist it in supplying and selling bagels in Japan. The trial judge determined that this was a contract of agency, not one of employment.

[6] The contract was executed on February 4, 1997. It had a 36-month term. It had a termination for cause provision which read as follows:

13.(2) The Principal may terminate this Agreement without notice or other act if, . . .

(f) the Agent acts in a manner which is detrimental to the reputation and well being of the Principal.

[7] It also had a provision for termination on notice:

13.(3) The Principal may terminate this Agreement with notice to the Agent effective after the commencement of the 19th month of the term herein, on three (3) months notice to the Agent.

[8] Fifteen months later, on May 19, 1998, the appellant terminated its contract with the respondent, taking the position that she had acted dishonestly and with an intent to deceive by falsifying ingredient lists on certain shipments of bagels to Japan.

[9] Then on August 5, 1998, at the start of the 19th month of the contract, the appellant purported to terminate it by giving three months' notice, although it continued to maintain that the respondent had acted dishonestly.

[10] In preparing the ingredient lists which led to the termination of the contract, the respondent had not included sugar as an ingredient because she had been advised by a consultant to the appellant that the sugar in the bagel would be used up in the fermentation process prior to baking. The lists were reviewed by two trusted employees of the appellant prior to shipment to Japan. Neither spotted this omission nor did the respondent draw it to their attention or to the attention of any other employee of the appellant.

[11] In fact, a limited amount of sugar remained in the dough at the time of baking and was a necessary ingredient. As such, it should have been declared. Fortunately, no negative consequences befell the appellant as a result of this error in the lists.

[12] The trial judge found that right from the time it first discovered the error, the appellant jumped to the conclusion that the respondent had acted dishonestly, a position it maintained through to trial. However, it was unsuccessful in establishing this. The trial judge determined that the appellant had failed to prove that the respondent's conduct amounted to fraud or dishonesty and that at most it was consistent with negligence. The respondent had simply made a mistake.

[13] The trial judge therefore determined that the appellant had failed to establish the basis upon which it purported to terminate the contract and was therefore liable for the breach thereof.

[14] The trial judge further concluded that had the appellant properly understood the respondent's conduct not as dishonesty but rather as negligence or a mistake, the respondent would have been forgiven and the contract would have been continued. This reflected Ms. Agasi's strong sense of compassion for mistakes which accompanied her strong moral condemnation of dishonesty. The trial judge put his conclusion in these terms [at para. 115]:

The evidence before me made it abundantly clear that trusted persons who had made mistakes while acting in the best interests of the company were generously treated by Agasi and that they could expect to be fully forgiven and continue performing services for the company. I can see no reason why this philosophical approach would not apply to the plaintiff in the absence of the belief on the part of Agasi that the plaintiff had conducted herself dishonestly.

[15] The trial judge then went on to deal with damages. He first determined that absent the breach he could not find that the appellant would have terminated the contract by giving notice at the commencement of the 19th month. In making this finding, he said this [at para. 139]:

On the facts of the case at bar, it is clear that the defendant would not have waited until the expiry of the 18th month to delivery [sic] notice if the conduct of the plaintiff had been fraudulent and dishonest. On the other hand, there is no decisive evidence to support a finding that the defendant would have waited until the expiry of the 18th month and then delivered a Notice of Termination for three months upon determining that the plaintiff's conduct was due to a mistake or negligence. The evidence before me suggests that Agasi was most forgiving when it came to mistakes, errors or negligence. It was only in respect of matters of integrity that she acted in an unforgiving fashion. Had the defendant conducted a hearing or a proper investigation and determined that the plaintiff had acted under a mistaken belief or in error, or out of negligence, there is every reason to believe that Agasi would have been lenient.

[16] He found that in all the circumstances of this case, the respondent should not recover damages based on the contract running its full term of 36 months. He put this conclusion this way:

Whether or not sales of bagels into Japan would have been of a volume sufficient to justify the continuation of the contractual arrangement between Hamilton and OWB after the expiry of the eighteenth month is unknown. Clearly, the presence of the three month termination clause was designed by the parties to create an exit door through which OWB could depart in the event this new and perhaps speculative venture was not proving successful. . . .

The evidence demonstrates that there was a reasonable possibility that the contract might terminate early. Having regard to the circumstances, to simply award damages based on the balance payable by way of draw under the contract might well be to over-compensate the plaintiff. This was not a contract for the delivery of bushels of wheat. This was an agreement in respect of services to be provided in the future containing a three months notice of termination clause.

[17] He then concluded that there was probably a 25 per cent risk that the contract would not have gone on to completion because the appellant would have exercised its right to terminate at some point after it got the right to do so on August 5, 1998. He applied this discount factor to the amount agreed to by the parties that would have been paid to the respondent had the contract run its full course. He therefore awarded damages in the amount of $38,812.50.

[18] Finally, he awarded costs to the respondent on a party- and-party basis to October 30, 2000 when production and discovery were complete and on a solicitor-and-client basis thereafter. He based this on the fact that the appellant relied only on the allegation that the respondent had acted dishonestly and that the facts necessary to demonstrate that the respondent had been at most negligent were available by that date.

[19] In this court, the appellant does not contest the finding of liability for breach of contract. Nor does it challenge any of the findings of fact made by the trial judge. We heard no argument on either point.

[20] In essence the appellant raises two arguments. First, it says that the trial judge erred in failing to find that as a matter of law damages must be limited to the period from May 19, 1998 to August 5, 1998, plus three months since the contract gave the appellant the right to terminate on three months' notice commencing on August 5, 1998, the beginning of the 19th month of the contract. Second, it says that the trial judge erred in his award of solicitor and client costs. I will deal with each of these issues in turn.

The Damages Issue

[21] Several basic propositions are beyond question. The finding that the appellant breached the contract by wrongfully terminating it on May 19, 1998 entitles the respondent to damages equivalent to what she would have received if the contract had been performed by the appellant. The respondent bears the onus of proving what that would have been. Since the appellant had breached the contract it cannot thereafter rely on para. 13(3) to give it the right to terminate the contract on notice. However, that paragraph, like other prospective obligations embodied in the contract, is relevant to the assessment of damages. See Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423 at p. 441, 178 D.L.R. (4th) 1.

[22] In this context, the appellant relies on the proposition that where the defendant has an option to choose between two different ways of performing the contract and renders neither, it will be assumed, in measuring the plaintiff's damages, that the defendant would have chosen the less onerous. Lord Justice Scrutton set this out in the well-known passage in Withers v. General Theatre Corpn. Ltd., [1933] 2 K.B. 536, [1933] All E.R. Rep. 385 (C.A.) at pp. 548-49:

Now where a defendant has alternative ways of performing a contract at his option, there is a well settled rule as to how the damages for breach of such a contract are to be assessed. One takes it as expressed in Chancery in Robinson v. Robinson, 1 D.M. & G. 247 at 257 as follows:

Where a man is bound by covenants to do one of two things, and does neither, there in an action by the covenantee, the measure of damage is in general the loss arising by reason of the covenantor having failed to do that which is least, not that which is most, beneficial to the covenantee.

At common law Maule J. expressed it in Cockburn v. Alexander, 6 C.B. 791 at 814 thus:

Generally speaking, where there are several ways in which the contract might be performed, that mode is adopted which is the least profitable to the plaintiff, and the least burthensome to the defendant.

A very common instance explaining how that works is this: A. undertakes to sell to B. 800 to 1200 tons of a certain commodity; he does not supply B. with any commodity. On what basis are the damages to be fixed? They are fixed in this way. A. would perform his contract if he supplied 800 tons, and the damages must therefore be assessed on the basis that he has not supplied 800 tons, and not on the basis that he has not supplied 1200 tons, not on the basis that he has not supplied the average, 1000 tons, and not on the basis that he might reasonably be expected, whatever the contract was, to supply more than 800 tons. The damages are assessed, as Maule J. says, on the basis that the defendant will perform the contract in the way most beneficial to himself and not in the way that is most beneficial to the plaintiff.

(Emphasis added)

[23] The appellant argues that under this contract, one way it could have performed its obligations, at least after the commencement of the 19th month, was to terminate the agreement on three months' notice. It argues that, therefore, damages must be assessed against it on the presumption that it would have given notice at the start of the 19th month, namely August 5, 1998.

[24] I cannot agree. In my view, that is not the effect of this legal principle in the circumstances of this case. The contract provides that the appellant might have performed its obligation either a) by continuing the respondent's services for the full 36 months or b) by electing to terminate those services on notice at some point in the final 18 months of the contract.

[25] The terms of the contract alone do not dictate precisely when the appellant would have given notice had it chosen the second way of performing its obligation. That requires, beyond the contractual language, a factual determination of when in the final 18 months the appellant would have elected to give notice.

[26] This is precisely the inquiry undertaken by the trial judge. He determined that had the appellant chosen to perform its obligation by terminating with notice, it would likely not have done so on August 5, 1998. Rather, it probably would have decided that its best interests were served by giving notice at some later point before the contract had run its full term. He quantified this likelihood by discounting the agreed full term loss by 25 per cent. Thus, in effect, the trial judge determined damages by presuming that the appellant would have performed its obligation in the way it found most beneficial to itself, and finding as a fact when that would be.

[27] The same point can be put another way. Once the contract entered its 19th month, the respondent had the legal right to continue to work for the appellant up until the appellant determined to terminate her services. The appellant had the corresponding legal obligation at a minimum. The trial judge was obliged to fix damages on the premise that the appellant had performed this obligation. He was thus required to determine, assuming reasonable performance by the appellant of this obligation, when the respondent's services would have been ended by the appellant. As I have said this is the very inquiry which the trial judge undertook.

[28] In my view, had the trial judge simply assumed that the appellant would have terminated the contract at the commencement of the 19th month, the resulting damage award would not have put the respondent in the position she would have been in had the contract been performed, contrary to the fundamental principle of the law of damages for breach of contract. Rather, in the circumstances of this case, she would have been under compensated.

[29] As I have indicated, the findings by the trial judge on which he based his determination were not challenged on appeal. Indeed, given the evidence, they could not be said to be unreasonable.

[30] The most important finding is that if the appellant had performed the contract it would not have elected to give notice on August 5, 1998, because of the respondent's error with the ingredients lists. This finding is reasonable because the assumption of performance by the appellant could only be based on the premise that the appellant understood that the respondent's action was at most negligent, not dishonest, and should therefore be forgiven. Put another way, unless the appellant understood that this was so, it would have wrongfully terminated the contract, not performed it. Hence, assuming performance as one must in calculating damages, the trial judge was reasonable in concluding that the appellant would have been most forgiving and would not have given notice on August 5, 1998, because of the respondent's error with the ingredients' lists, since this would have been forgiven.

[31] The trial judge then went on to conclude that in all the circumstances surrounding this contract there was probably a 25 per cent risk that the contract would have been terminated for some other reason by the appellant before it ran its full course. Given the removal of the possibility that the appellant would have immediately terminated the contract on August 5, 1998, because of the respondent's mistake, it was entirely reasonable for the trial judge to conclude that thereafter there was a 25 per cent risk that the appellant would have had some reason to elect to terminate the contract. There is no basis upon which we ought to attempt the recalibration of that percentage in this court.

[32] By proceeding in this way, the trial judge did not shift the onus of proving damages to the appellant. Rather, he simply determined how the appellant would probably have elected the performance of its obligation and calculated the damages accordingly. This reflects the presumption that the appellant would perform the contract in the way it found most beneficial to itself.

[33] In determining damages in this fashion, I cannot find that the trial judge erred. I would therefore dismiss this ground of appeal.

The Costs Issue

[34] The appellant argues that we should set aside the trial judge's award of solicitor and client costs.

[35] I do not agree. The appellant persisted through trial in its allegations of dishonesty against the respondent. Ultimately it did so unsuccessfully. In these circumstances, it was open to the trial judge in the exercise of his discretion to award costs against the appellant on a solicitor and client scale. See Murano v. Bank of Montreal (1995), 41 C.P.C. (3d) 143 at p. 145 (Gen. Div.) affirmed (1998) 1998 5633 (ON CA), 41 O.R. (3d) 222, 163 D.L.R. (4th) 21 (C.A.).

[36] This is particularly true given that the trial judge limited this scale of costs to the time frame after the point when the appellant was in possession of facts from which it could have concluded that its allegation of dishonesty would fail.

[37] Therefore, I cannot find that the trial judge erred in the exercise of his discretion to award costs and I would dismiss this ground of appeal.

[38] In summary, for these reasons I would dismiss the appeal with costs.

[39] SIMMONS J.A. (ABELLA J.A. concurring): -- I have had the benefit of reading the reasons of my colleague, Goudge J.A. I respectfully disagree with his conclusion concerning the application of the legal principles governing damages to the facts of this case. In particular, I conclude that the early termination clause contained in the contract defines the upper limit of the appellant's exposure for damages for wrongful termination.

[40] I would accordingly allow the appeal and vary the judgment by reducing the quantum of damages awarded. This conclusion requires that I also revisit the trial judge's award of costs.

The Damages Issue

[41] As noted by my colleague, the trial judge found that the appellant wrongfully terminated the contract after 15 months. The trial judge also found that if the contract had been performed, the appellant would not likely have exercised its right of termination at the earliest possible moment but would have done so before the contract had run its full term. The trial judge accordingly discounted the respondent's claim for damages by 25 per cent.

[42] I respectfully disagree with the trial judge's determination of damages for the following four reasons.

[43] First, the contract in issue gives the appellant a right of termination after 18 months on three months' notice. In addition to providing a prospective right of termination, this provision effectively stipulates how the appellant could fulfill its contractual obligations in the event of wrongful termination. As such, it reflects the parties' reasonable expectations concerning minimum guaranteed benefits under the contract in the event of termination, as well as maximum exposure for damages. Viewed in this light, this provision effectively defines the upper limit of the appellant's liability for damages.

[44] Second, the trial judge's determination of how the appellant would have proceeded if the breach had not occurred, though rooted in an assessment of the appellant's past behaviour and a best guess quantification of the likelihood of various contingencies, is actually no more than speculation concerning what might have happened had events unfolded differently. Although necessary in certain circumstances, such an assessment is superfluous where the contract defines the reasonable expectations of the parties.

[45] Third, I see no material difference between the circumstances of this case and the example posed by Maule J. in Cockburn v. Alexander (1848), 6 C.B. 791, 136 E.R. 1459,[^1] which limited the promisor's exposure to damages to his minimum obligation under the contract. The significant feature of both contracts is that their terms give the promisor the ability to choose the extent of his or her performance.

[46] In the Cockburn example, the promisor had the option of supplying a quantity of goods ranging from 800 to 1,200 tons. The court posited that since the promisor's contractual obligations would be satisfied if he supplied 800 tons, damages must be assessed on that basis in the event he failed to perform. Significantly, the court did not require a speculative determination of the level of performance that would have been most beneficial to the promisor had the contract been performed.

[47] In this case, the appellant had the option of retaining the respondent's services for a period ranging from 22 to 36 months. I see no basis for departing from the conclusion that the appellant's contractual obligations would be satisfied if it retained the respondent's services for a period of 22 months and that damages must be assessed on that basis. The extra requirement of delivering a notice of election has no bearing on the significant feature of the contract, namely that it gives the appellant the ability to make a choice concerning the extent of its performance.

[48] Fourth, although there is some divergence in the authorities concerning how damages should be assessed in cases involving alternative options for performance, I am not persuaded that they support the conclusion that determining what the appellant would have done is either necessary or appropriate in this case.

[49] In Paula Lee Ltd. v. Robert Zehill & Co. Ltd., [1983] 2 All E.R. 390 (Q.B.), Mustill J. noted at p. 393 All E.R. that there have been differing statements of the governing principle for assessing damages in cases involving alternative obligations, and that the differing expressions have created uncertainty concerning how the principle should be applied. The governing principle has been variously described as a presumed mode of performance that is either least profitable to the plaintiff, least burdensome to the defendant, or most beneficial to the defendant. The description of the underlying basis of the principle also provides another alternative statement, namely that "a defendant is not liable in damages for not doing that which he is not obliged to do."

[50] As noted by Mustill J., application of the principle can yield different results depending on which formulation is adopted. He also noted that "the principle is expressed solely in terms of the defendant's obligations considered in the abstract . . . [y]et there are circumstances where the court has paid regard to evidence of what the defendant would actually have done if the contract had gone ahead."

[51] Mustill J. provided the following guidance concerning the proper application of the principle [at p. 393 All E.R.]:

I believe that some . . . of the difficulties . . . in this branch of the law can be minimised if it is kept in mind that inquiry always involves a comparison between the plaintiff's actual position in face of the breach, and the position which he would have occupied if the contract had been performed. This must involve an identification of the promise, followed by a valuation of its promised worth to the promisee. Each part of the inquiry may involve considering a choice which would have been open to the promisor.

(Emphasis added)

[52] Although he identified circumstances in which consideration of what the defendant would have done is appropriate,[^2] ultimately, he concluded that where, as here, the choice to be made relates to fixing the content of the defendant's obligations, the inquiry as to damages should be limited to what the defendant could have done as opposed to what he would have done.

[53] In Lavarack v. Woods of Colchester Ltd., [1966] 3 All E.R. 683, [1967] 1 Q.B. 278 (C.A.) Diplock L.J. held that where the content of legal obligations and their value to the plaintiff are dependent on factors external to the contract, the court can assess the probability of their occurrence in determining damages. As to external events exclusively within the control of the defendant he said [at p. 691 All E.R.]:

Where this is so, one must not assume that [the defendant] will cut off his nose to spite his face and so control these events as to reduce his legal obligations to the plaintiff by incurring greater loss in other respects. That would not be the mode of performing the contract which is "the least burthensome to the defendant".

[54] As already noted, I do not interpret this contract as providing the appellant with a choice that is external to the contract. Further, I do not read Lavarack as requiring that the choice available to the appellant be interpreted in that way. Diplock L.J. referred to the possibility of the defendant ceasing to carry on business where it had not assumed a contractual obligation to do so as an example of an external event exclusively within the control of the defendant.

[55] However, even if the extent of the appellant's obligations are dependant on events external to the contract within the meaning of Lavarack, I do not read the above-noted passage as precluding the appellant from relying on an alternate mode of performance stipulated in the contract.

[56] As already noted, in my view, the early termination provision contained in this contract reflects the reasonable expectations of the parties concerning minimum guaranteed benefits under the contract in the event of termination as well as maximum exposure for damages. As such, it does not result in under-compensation of the respondent. I would accordingly reduce the damages awarded by the trial judge from $38,812.50 to $14,250.

The Costs Issue

[57] The trial judge found that the appellant had not met the high standard of proof required to sustain allegations of fraud or dishonesty. He did not find the pleading to be without foundation. In these circumstances and in light of my disposition of the main ground of appeal, I would set aside the order for solicitor and client costs and substitute an award on the partial indemnity scale.

Disposition

[58] For the reasons set out above I would vary the Judgment dated December 28, 2000 by reducing the damages awarded from $38,812.50 to $14,250 and by setting aside the award of costs on a solicitor and client scale and substituting an award of costs on a partial indemnity scale. I would award the appellant its costs of the appeal on a partial indemnity scale.

Appeal allowed.

[^1]: Goudge J.A. referred to this example in para. 22 of his reasons. [^2]: For example, where the extent of the defendant's obligation has been fixed in advance or determined by election but the amount of plaintiff's loss is dependant on contingencies within the plaintiff's control.