Double Recovery Reconsidered:
BC Court of Appeal Clarifies Damages in Commercial Breach
In FPS Food Process Solutions Corporation v. XTL Inc. 2025 BCCA 305, the British Columbia Court of Appeal addressed several foundational principles in Canadian contract law, particularly around the types of damages available to a party when a contract is breached. The case arose from a commercial dispute between FPS, a manufacturer of industrial freezers, and XTL, a company that had contracted FPS to build and install a freezer system. After making a deposit and one progress payment, XTL terminated the contract prematurely. FPS sued for damages, seeking both reliance damages (expenses incurred in preparing to fulfill the contract) and expectation damages (anticipated profits from the deal).
The trial court awarded FPS damages, and XTL appealed. The Court of Appeal upheld the trial decision and used the opportunity to clarify several important legal principles.
Duty to Mitigate
One of the central issues was whether FPS had a duty to mitigate its losses following XTL’s repudiation of the contract. In contract law, the duty to mitigate requires the non-breaching party to take reasonable steps to reduce the impact of the breach. However, the Court emphasized that this duty only arises when the non-breaching party clearly accepts the repudiation. In this case, FPS’s email response to XTL’s termination was not a clear acceptance of the repudiation. Therefore, the duty to mitigate had not yet been triggered. This clarification reinforces that parties must be deliberate and explicit in their communications when responding to a repudiation, as ambiguity can affect their legal obligations.
Reliance and Expectation Damages
Traditionally, courts have required plaintiffs to choose between reliance and expectation damages to avoid the risk of double recovery. Reliance damages compensate for costs incurred in reliance on the contract, while expectation damages aim to put the plaintiff in the position they would have been in had the contract been fulfilled. The Court of Appeal departed from this rigid dichotomy and held that both types of damages can be claimed—provided they are calculated separately and do not overlap. This nuanced approach allows plaintiffs to recover a broader spectrum of losses, especially in complex commercial arrangements where both sunk costs and lost profits are significant.
The Court emphasized that the key concern is avoiding duplication. If a party can demonstrate that reliance damages cover costs not included in the expectation damages, then both may be awarded. This ruling provides greater flexibility and fairness in assessing damages, especially in cases where the breach has multifaceted financial consequences.
Standard of Proof for Damages
Another important clarification from the Court concerned the evidentiary standard required to prove damages. XTL argued that FPS had failed to prove its damages with sufficient certainty. The Court rejected this argument, reaffirming the principle that damages do not need to be proven with mathematical precision. If a party can show that some loss occurred, the court is permitted to estimate the amount—even if it involves a degree of informed guesswork. This principle is especially important in commercial litigation, where exact figures may be difficult to produce but the existence of harm is clear.
The Court cited established jurisprudence supporting the idea that courts should not deny recovery simply because the damages are difficult to quantify. Instead, they should do their best to arrive at a reasonable estimate based on the available evidence. This approach ensures that justice is not undermined by overly rigid evidentiary standards.
Key Takeaways
- Mitigation Duties Are Conditional: The duty to mitigate damages only arises when the non-breaching party clearly accepts the repudiation of the contract. Ambiguous responses may delay or negate this duty.
- Dual Recovery Is Possible: Plaintiffs may claim both reliance and expectation damages if they are calculated distinctly and do not overlap. This marks a shift toward a more flexible and equitable approach to damage assessment.
- Precision Is Not Required: Courts can estimate damages even when exact figures are unavailable, as long as the existence of loss is established. This reinforces a pragmatic approach to commercial litigation.
- Strategic Communication Matters: How parties respond to a breach—especially in writing—can significantly affect their legal rights and obligations. Clarity and intention are crucial.
This decision by the BC Court of Appeal is a meaningful development in Canadian contract law. It offers greater clarity and flexibility for parties seeking redress after a breach, and it underscores the importance of strategic legal positioning in commercial disputes. If you’re navigating a contract issue or considering litigation, understanding these principles could be pivotal.
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*The law may have changed since this article was first published. You should consult with your lawyer to confirm the current state of the law*