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Damages - Contrast Between Liquidated Damages and Penalty Clauses. St. Laurent Automotive Group Inc. v. Cheryl Britt
In St. Laurent Automotive Group Inc. v. Cheryl Britt (Ont Div Ct, 2026) the Ontario Divisional Court allowed a Small Claims Court appeal, this brought against an order for "damages in the amount of $15,000 to St. Laurent Automotive Groups Inc. (Respondent) for the Appellant’s breach of non-export clause".
Here the court contrasts liquidated damages with penalty clauses:[116] I find that the payment of $15,000 in the event that the vehicle was exported within one year of sale is a reasonable estimate of damages and it is not a penalty clause.
[117] The Respondent does not need to show that it suffered $15,000 in damages and the trial judge accepted that this amount represented a reasonable amount of anticipated loss.
[118] The Court of Appeal in Ottawa Community Housing Corporation v. Foustanellas (Argos Carpets), 2015 ONCA 276, 125 O.R. (3d) 539, and relying on the Supreme Court of Canada’s decision in Canadian General Electric Co. v. Canadian Rubber Co. (1915), 1915 CanLII 45 (SCC), 52 S.C.R. 349, at para. 33: “where liquidated damages are stipulated in a contract, the injured party may elect to take the sum stipulated without regard to his or her actual loss. Where, however, the stipulated sum is properly to be seen as a penalty, the injured party may only recover proven damages and the amount recoverable may not exceed the sum stipulated.
[119] The trial judge accepted that the $15,000 was a low amount compared to the real loss that the dealer would incur for the loss of two vehicles from the source (13% for two vehicles could lose up to $30,000 to $40,000).
[120] The trial judge did not make an explicit finding that the vehicle was resold for export out of Canada. However, he turned his mind to this issue as he summarized the position of the Respondent and their documents. He summarized the UCDA report that confirmed that the vehicle purchased by the Appellant was overseas. One could infer that the trial judge awarded damages because he accepted that the Land Rover had been resold for export.
[121] This ground of appeal fails. . Ottawa Community Housing Corporation v. Foustanellas (Argos Carpets)
In Ottawa Community Housing Corporation v. Foustanellas (Argos Carpets) (Ont CA, 2015) the Court of Appeal commented on the issue of whether some contractual clauses were both penalty clauses and reflected liquidated damages:[32] In my opinion, the trial judge correctly held that clause 1.6.3 is neither a penalty nor a liquidated damages clause as those clauses are recognized under the established case law.
[33] The authorities relied on by the appellants themselves compel this interpretive conclusion. For example, in Canadian General Electric Co. v. Canadian Rubber Co. (1915), 1915 CanLII 45 (SCC), 52 S.C.R. 349, cited by the appellants, Sir Charles Fitzpatrick C.J. noted, at p. 351: “A penalty is the payment of a stipulated sum on breach of the contract, irrespective of the damage sustained. The essence of liquidated damages is a genuine covenanted pre-estimate of damage.” In Elsley v. J.G. Collins Insurance Agencies Ltd., 1978 CanLII 7 (SCC), [1978] 2 S.C.R. 916, Dickson J. (as he then was), writing for a unanimous Supreme Court, explained that, where liquidated damages are stipulated in a contract, the injured party may elect to take the sum stipulated without regard to his or her actual loss. Where, however, the stipulated sum is properly to be seen as a penalty, the injured party may only recover proven damages and the amount recoverable may not exceed the sum stipulated: at p. 938.
[34] Under these authorities, the critical common element is that both penalty and liquidated damages clauses specify a stipulated sum agreed on by the parties at the time of contract formation.
[35] Clause 1.6.3 of the Carpet Contract makes no mention of a stipulated or agreed sum recoverable on breach, whether as a penalty or otherwise. In other words, it does not stipulate a sum, whether as the amount payable on breach or as the maximum amount recoverable upon proof of actual damage arising from a contractual breach. Instead, the clause contemplates that, on breach of the Carpet Contract by the contractor, the owner’s damages and losses require assessment and the owner may cease payments to the contractor pending quantification of those damages and losses. As the trial judge aptly observed, at para. 69 of his reasons, the amount of the owner’s losses and damages “on jobs completed under the contract at any given time could vary widely”. Further, the fact that the amount of outstanding invoices owed to the contractor may eventually be set off against the quantified amount of the owner’s losses and damages does not convert clause 1.6.3 into a penalty or liquidated damages provision.
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