The aim of this article is to explain the development and expansion of mental distress as a head of damage under a breach of a contract action.
The mental distress head of damage has come a long way in the last 150 years. In 1856, it was said in Mayne’s Treatise on the Law of Damages, relative to claims brought in contract for non-payment of a debt, that the plaintiff must put out of question every element of mental suffering caused by the delay in having the debt satisfied. This position, bolstered by important cases such as Addis v. Gramophone Co. later in the 19th century, remained intact at least until the mid-20th century.
A philosophical shift in the common law with respect to mental distress in contractual breaches arose in 1952 with the English decision of Trans Trust S.P.R.L v. Danubian Trading Co. This decision suggested that damages aside from the simple collection of non-payment of a debt may be available in some instances. This case was relied on and piggybacked by two British Columbia decisions, Jarvis v. Swans Tours Ltd. and Jackson v. Horizon Holidays Ltd in the mid-70s. These British Columbia decisions rejected previous rulings, such as Addis, as being “out of date” and found that damages are available for the “disappointment, the distress, the upset and frustration caused by the breach” of contract.
In 1987, the English court, in Bliss v. South East Thames Regional Health Authority, further instructed that mental distress should be an available head of damage, but, as a matter of policy, it should be limited to certain classes of cases where the contract which has been breached was a contract to provide peace of mind or freedom from distress. This concept became known as the “peace of mind exemption”.
The basic principle in these new lines of cases was, because disability insurance contracts are designed to provide peace of mind, if they are breached by the insurer, the mind of the insured is no longer at peace. Therefore, compensation needs to be made to bring the insured back to the position they were in at the time of contract. This concept is further rationalized by considering that, at the time of the breach of contract, the insured is typically suffering through physical or emotional illness. As such, once the insured has lost the financial stability inherent in the disability contract, their mental distress is exponentially greater than that of a physically or emotionally well person.
However, despite the rationality for the expansion of damages into the mental distress realm, these avant gard English and British Columbia decisions were not immediately embraced throughout Canada. In fact, many recent Canadian decisions and texts from the 1990’s, and even 2000’s, continued to rely on the Addis decision that shut the door on these claims unless the plaintiff could bring forward an independent actionable wrong not directly related to the formation nor breach of the contract. The Courts were reluctant to change their view primarily because they found, from a policy perspective, that parties to a contract were typically commercial and, as such, had developed a stiff upper lip impervious to the contemplation of mental distress in the event of a future breach.
In 1989, our Supreme Court, in Vorvis v. Insurance Corporation of British Columbia, took the opportunity to clear up some of the confusion on this issue. The Court came down with a ruling that concretely defined “distress and humiliation” under the heading of the compensable, aggravated damages. Very importantly, the Court in Vorvis also stated that mental distress claims in peace of mind, long-term disability insurance contracts are simply an expression of the general principle of compensatory damages that had been laid out in the seminal Hadley v. Baxendale decision of 1854.
Baxendale has instructed us that compensatory damages must be “such as may fairly and reasonably be considered either arising naturally … from such breach of contract itself, or such as may reasonably be supposed to have been in contemplation of both parties”. The Vorvis decision equating mental distress in long-term peace of mind disability contracts with run of the mill claims for aggravated damages was crucial for the expansion of mental distress in disability law cases. Vorvis warns us not to treat mental distress as a unique or exceptional remedy. One need only show that the potential for mental distress arose naturally from the breach of the disability contract or reasonably was contemplated at the time of contract.
The recent 2006 Supreme Court decision, Fidler v. Sun Life Assurance Co. of Canada, took these notions and set them in stone. The Court in Fidler found “that the “peace of mind” class of cases should not be viewed as an exception to the general rule of the non-availability of damages for mental distress in contract law, but rather as an application of the reasonable contemplation or foreseeability principle that applies generally to determine the availability of damages for breach of contract.”
The Court in Fidler further noted “that damages for mental distress for breach of contract may, in appropriate cases, be awarded as an application of the principle in Hadley v. Baxendale: see Vorvis”, regardless of whether that contract was necessarily “peace of mind” or not. This direction of the Court would appear to allow for further expansion of the tort if the circumstances require it.
Lastly, Fidler outlines that these mental distress damages, because they arise out of the contract or could reasonably have been foreseen at the time of contract, are not true aggravated damages. They are unified, under the Baxendale language, with all forms of contractual damages. To move into what we now define as aggravated damages, there would have to be an independent actionable wrong that extends beyond what the parties would have contemplated when they concluded the contract.
The Saskatchewan Queen’s Bench decision of Branco v. American Home Assurance Company finds such an independent actionable wrong, by way of a breach of the duty of good faith following a breach of contract. The Saskatchewan Court awarded a total of $450,000.00 in aggravated damages against the two defendants, basing this figure primarily on the mental distress suffered by the plaintiff.
Considering the above history, it is clear that we have moved from a position where no damage awards could flow from a breach of contract with respect to mental distress to a position where substantial awards can be found. This suggests a growing and evolving recognition of the various objectives behind contractual relationships, the nature of the parties entering into a contract and a more thoughtful understanding of the parties’ intentions when considering contractual relations.