Generally speaking, damages for a non-financial loss are not awarded for the breach of a business contract. That is because those sorts of damages are not foreseeable. The breach of a business contract may give rise to anxiety and distress, but that result is usually thought of as part of the vicissitudes and rough and tumble of commerce.

But, according to the Supreme Court of Canada’s decision in Fidler v. Sun Life Assurance Co. of Canada [2006] 2 S.C.R. 3, non-financial losses for mental distress can be awarded in certain circumstances. . The court acknowledged that “a breach of contract will leave the wronged party feeling frustrated or angry. The law does not award damages for such incidental frustration.” However, the court said that it “is otherwise….when the parties enter into a contract, an object of which is to secure a particular psychological benefit.” Accordingly, general damages for breach of contract may be awarded if that sort of damage was “in the reasonable contemplation of the parties at the time the contract was made,” and that will be the case if

(1) an object of the breached contract was to secure a psychological benefit that brings mental distress upon breach within the reasonable contemplation of the parties; and

(2) the resulting degree of mental suffering was of a degree sufficient to warrant compensation.

Can a building contract satisfy those conditions and give rise to damages for mental distress? According to the recent majority decision of the Newfoundland Court of Appeal in Hickey’s Building Supplies Ltd. v. Sheppard, the answer to that question is Yes.

Background

Mr. and Mrs. Sheppard lived in Labrador City. They hired Hickey’s to build them a retirement home. Mrs. Sheppard suffered from a type of sensory neuropathy that meant that she had no sensation from her elbows to her hands and below her knees, and both feet were amputated. She moves on two prosthetic feet and a wheelchair. Hickey’s understood that the home was being constructed to suit Mrs. Sheppard’s requirements.

The construction of the home was more than a year late. When constructed, the flooring was not level and did not adhere to the under padding. Most importantly, there was a quarter inch difference in height between the ceramic tile flooring in the kitchen and the hardwood flooring in adjacent rooms. Hickey’s installed transition strips at this juncture but those strips interfered with Mrs. Sheppard’s wheel chair being able to run from one room to the other, causing the wheel chair to “bring up solid” against the transition strips. In addition, the strips cracked and splintered and the floorboards popped up from the floor. The flooring deficiencies were aesthetically objectionable and presented tripping hazards to able-bodied people, but especially to Mrs. Sheppard. The Sheppards counterclaimed against Hickey’s for general damages for mental distress as a result of these deficiencies.

The Courts’ Decisions

The trial judge awarded the Sheppards $15,000 non-pecuniary damages for mental distress. The trial judge held that the Sheppards had met the test in Fidler. The Newfoundland and Labrador Court of Appeal was divided on the issue. The majority agreed with the trial judge and upheld the general damage award. The dissenting judge held that the Fidler test had not been met and would have dismissed the claim for general damages.

The central issue was whether the contract contained a “peace of mind” component. The dissenting judge said No:

“Regardless of the Sheppards’ special circumstances with respect to wheelchair accessibility, the contract to build their house did not engage the “peace of mind” component that would ground the necessary foreseeability criterion related to securing a psychological benefit as referenced in Fidler. It is true that the hardwood flooring was not properly installed and that the Contractor chose to comply with National Building Code standards in using transition strips. However, these deficiencies could be corrected and damages awarded to address the required remediation. This was not a situation in which the house was rendered uninhabitable.

The majority came to the opposite conclusion:

“…Hickey’s concedes in its factum that the contract can fairly be characterized as a “peace of mind” contract, and does not allege that the trial judge made any factual or legal errors relating to foreseeability. Hickey’s “had actual knowledge of the plaintiff’s particular sensibilities”…

It is inherent in a home construction contract that the finished flooring will be hazard-free. The flooring Hickey’s delivered was far from hazard-free. Foreseeable mental distress may ensue for any home purchaser who did not receive this basic contractual promise, but is particularly foreseeable that mental distress would ensue in this case.

Accordingly, it was within the contemplation of the parties that the purpose of the contract was to provide the Sheppards, in a timely fashion, with a safe retirement home accommodating Mrs. Sheppard’s needs. Hickey’s did not deliver what they promised with respect to the flooring and delay in completion. It was therefore foreseeable that these breaches of the contract between the Sheppards and Hickey’s would cause mental distress to the Sheppards. Given the foreseeability of their mental distress, damages for it are recoverable if they are sufficient to warrant compensation.”

The court also concluded that the Shepards’ mental distress was “more than the ordinary annoyance, anxiety and fear arising from a bad building contract. In sum, the mental distress suffered by both Mr. and Mrs. Sheppard is serious, prolonged and far from trifling. It is sufficient to warrant compensation.”

Accordingly, the award of general damages for mental distress was upheld.

Discussion

The upshot of these decisions appears to be that contracts cannot be put into water-tight compartments so far as damages for mental distress are concerned. In each case, the nature of the contract and the circumstances of the parties to it must be examined to determine if mental distress is reasonably foreseeable.

The notion of “peace of mind” may be more suited to some contracts and to the circumstances of some parties to contracts. In some cases, perhaps, the very nature of the contract will tend to make it a “peace of mind” contract; such as a vacation contract, or disability or pension contract. Whether this decision is saying that a building contract for a home is a “peace of mind” contract depends on the way one reads this decision. Some of the language in the majority decision suggests that virtually any home building contract is for the “peace of mind” of the homeowner. The underlined words above suggest that foreseeable mental distress can arise from any improper construction of a home. On the other hand, the dissenting judge was clearly not of this view, and other language in the majority judgement suggests that it was only the particular disabilities of Mrs. Sheppard that made this building contract a “peace of mind” contract. It will be interesting to see which approach other courts in Canada follow.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., section 6(m)(i)(B).

Hickey’s Building Supplies Ltd. v. Sheppard, (2014), 36 C.L.R. (4th) 15, 2014 CarswellNfld 353,

Building contracts – general damages – damages for mental distress

Thomas G. Heintzman O.C., Q.C., FCIArb                                                                                     June 7, 2015

www.heintzmanadr.com

www.constructionlawcanada.com