The question of whether contributory fault or negligence applies to contract law remains uncertain, as courts in Canada have used these terms interchangeably and inconsistently. The case of Arcamm Electrical Services Ltd. v. Avison Young Real Estate Management Services LP, 2024 ONCA 925 (“Arcamm”) adds to this complexity. While the Court of Appeal for Ontario explicitly recognized contributory fault as a valid defence to a breach of contract claim, the decision reflects ongoing ambiguities in the treatment of fault-based apportionment in contract law. Although the court did not determine whether the distinction between fault and negligence is substantive or merely semantic – thus leaving open questions about the proper legal framework for apportioning damages in contract cases – it confirmed that contributory fault or contributory negligence may be a valid defence to breach of contract claims.
Background
This case arose from a dispute over unpaid invoices for electrical services provided by Arcamm Electrical Services Ltd. (“Arcamm”) to a commercial property owned by 4342 Queen St. Niagara Holdings Inc. (“Queen”). The property experienced a power outage in 2021, and Arcamm was contracted to restore the power. Although Arcamm did so, Queen alleged that Arcamm also stored the original transformers improperly in the electrical room, exposing them to high humidity and dust. The transformers were rendered useless, and Arcamm had to install replacement transformers. Queen only paid for the initial services and refused to pay for the replacement transformers and installation, alleging that Arcamm’s negligent storage damaged the original transformers.
Summary Judgment Motion
In January 2022, Arcamm sued Queen and the property manager, Avison, for its unpaid invoices. Arcamm then brought a motion for summary judgment, seeking immediate payment of nearly $1 million. Queen opposed the motion on two grounds:
(1) Queen claimed that Arcamm caused or contributed to the damages through its negligence; and
(2) Queen argued that granting summary judgment would risk inconsistent findings with related litigation, including a $2.5 million subrogated claim filed by Aviva, Queen's insurer, alleging Arcamm's negligence in damaging the original transformers.
The motion judge rejected Queen's submissions, granted summary judgment in Arcamm's favour, and ordered Queen to pay nearly $1 million.
Appeal from the Motion Judge’s Decision
Justice Gillese, writing for a unanimous Court of Appeal, found that the motion judge erred in law by failing to consider the contributory fault defence and the associated evidence, which raised a genuine issue requiring a trial. In this case, inspection reports indicated that improper storage conditions, such as high humidity, may have caused damage to the original transformers, supporting Queen's contributory fault defence.
The Court also confirmed that contributory fault can be a valid defence in contract law, relying on Tompkins Hardware Ltd. v. North Western Flying Services Ltd., 1982 CanLII 3160 (ON SC) (“Tompkins”) and subsequent Ontario cases, such as Treaty Group Inc. v. Drake International Inc., 2005 CanLII 45406 (ON SC) (“Treaty Group”). These decisions establish that damages in breach of contract claims may be apportioned based on the parties’ relative fault. Justice Gillese agreed with Justice Ducharme’s statement in Treaty Group that, not only could the Court apportion damages in a contract action to recognize conduct by the plaintiff that had increased their damages, but in appropriate cases, apportionment was “required by fairness, equity and justice” (at para 70).
Ultimately, the Court of Appeal for Ontario allowed Queen's appeal, set aside the summary judgment, and ordered that Arcamm’s action proceed to trial.
Why is This Decision Significant?
A. Contributory Fault is a Valid Defence in Contract Disputes
The Court of Appeal has effectively confirmed that contributory fault, a concept analogous to contributory negligence in tort law, can be raised as a defence to breach of contract claims. The decision reinforces the idea that apportioning damages based on the degree to which each party's conduct contributed to the loss is not restricted to tort law and negligence cases, but is also applicable in breach of contract claims.
This decision may impact industries that rely on complex service agreements, such as construction, energy, and property management. It signals to contractors and service providers that their performance and any negligence may impact their ability to claim full payment under a contract.
B. Key Observations from Case Law:
1. Early Recognition of Contributory Fault in Contracts
In Dominion Chain Co. Ltd. v. Eastern Construction Co. Ltd., 1976 CanLII 698, the Court of Appeal for Ontario held that the Negligence Act, R.S.O. 1990, c. N.1 (“Negligence Act”) cannot be used to apportion liability in contract claims. Despite this, in Tompkins, only six years later, the Ontario Superior Court acknowledged the principle that contributory negligence – a traditionally tort-based concept – can influence damages in contract claims. The court stated that the effect of a plaintiff’s negligence should be the same, whether the action is framed in tort or contract. Although the Negligence Act does not apply to contract actions, the court invoked the principle of fairness to reduce damages proportionally based on the plaintiff’s conduct.
Subsequent decisions, including Parkhill Excavating Ltd. v. Robert E. Young Construction Ltd., 2017 ONSC 6903, have upheld fault-based apportionment in contracts based on fairness and causation, though not directly under the statute.
2. Interchangeability of Terms
The courts often use the terms “contributory fault” and “contributory negligence” interchangeably in the context of contract claims. For instance, in Cosyns v. Smith, 1983 CanLII 1750, a contract case, the Court of Appeal for Ontario used “contributory negligence” to describe a fault-based reduction in damages but clarified that the term referred to the plaintiff’s fault, not negligence in the traditional tort sense. The decision in Arcamm follows a similar approach, recognizing contributory fault as a mechanism for reducing damages, while avoiding reliance on statutory contributory negligence principles.
Meanwhile, in Atos v. Sapient, 2016 ONSC 6852, the court stated that, while contributory negligence does not apply to contract actions, the principle that a party responsible for their own loss should not receive full compensation remains applicable in both contract and tort cases. The court explicitly refers to this principle as the principle of “contributory fault” (at para 389).
3. Fairness and Justice as Guiding Principles
Recent decisions emphasize fairness as the basis for fault-based apportionment in contracts. In Treaty Group, the court explicitly stated that apportioning damages based on fault is often required to achieve justice. Similarly, in Arcamm, the Court of Appeal for Ontario emphasized that a party contributing to their own losses should bear proportional responsibility, regardless of whether the claim is based in contract or tort.
4. Causation as an Alternative Framework
In some cases, courts avoid labelling the reduction of damages as “contributory negligence” or “fault” and instead rely on causation to justify apportionment. For example, in Bensuro Holdings Inc. v. Avenor Inc., 2004 CanLII 44781 (“Bensuro”), the Court of Appeal for Ontario upheld a 30% reduction in damages, attributing it to causation rather than negligence or fault.
5. Implied Requirement for Causation
For contributory negligence or fault to serve as a defence, there must be a direct relationship between the negligent act and the harm claimed, since the principles of fairness and causation underpin the application of this defence. The cases cited by the Court of Appeal in Arcamm repeatedly emphasize causation as a critical element. In Tompkins, the plaintiff’s negligence directly caused or exacerbated the harm, justifying apportionment. In Bensuro, the plaintiff’s actions directly contributed to the loss, with the court framing the reduction as a causation issue rather than one of fault.
6. Diverging Standards Across Canada
Appellate courts in other provinces, such as New Brunswick in Doiron v. Caisse Populaire d'Inkerman Ltée, 1985 CanLII 95 (“Doiron”), have similarly recognized fault-based apportionment in contract cases. For example, the court in Doiron relied on the principle of foreseeability, stating that it was within the reasonable contemplation of the parties that they would be liable for damages in accordance with their respective degrees of fault. This highlights the varied approaches across jurisdictions and reinforces the broader uncertainty about whether negligence principles apply directly to contracts, or whether a distinct “contributory fault” standard is emerging.
Canadian courts remain divided on whether contributory negligence, contributory fault, or alternative mechanisms like causation should govern the apportionment of damages in contract law. The Arcamm decision underscores the need for clarity. While it affirms that fault-based reductions are permissible, it also highlights the unsettled nature of this area of law. As courts continue to grapple with these concepts, future decisions may further refine—or complicate—how damages are allocated in breach of contract cases. Until then, uncertainty persists, leaving room for advocacy and judicial discretion in navigating the fault-negligence divide.
About the Author
Sara Ray Ramesh is a litigation associate at Sotos LLP. She can be reached at srayramesh@sotos.ca.
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