H.F. Clarke Limited v. Thermidaire Corp. Ltd.

H.F. Clarke Limited v. Thermidaire Corp. Ltd.

Majority held the contractual damages formula (recovery of gross trading profit for the three-year post-termination period) was grossly excessive relative to provable loss and therefore constituted a penalty rather than liquidated damages; covenants were to be limited to the distributorship territory and were otherwise enforceable; respondent entitled to recover provable damages for breach and the matter was remitted to a Master to quantify damages.

Citation
[1976] 1 SCR 319
Parties
Appellant / Plaintiff: H.F. Clarke Limited; Respondent / Defendant: Thermidaire Corporation Limited
Court
Supreme Court of Canada
Jurisdiction
Canada
Judgment Date
1 October 1974
Procedural Posture
Contract / Appeal to the Supreme Court of Canada From the Court of Appeal for Ontario
Outcome
Appeal allowed (majority); judgments below set aside; reference ordered to quantify provable damages; two judges dissenting
Legal Topics
Restrictive Covenant, Liquidated Damages, Penalty, Restraint of Trade, Rectification, Injunction, Damages Assessment
Source Language
English
Contract Equity Restrictive Covenant Liquidated Damages Penalty Restraint of Trade Rectification Injunction +1 more

Case Brief

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Parties

H.F. Clarke Limited

Appellant / Plaintiff

Thermidaire Corporation Limited

Respondent / Defendant

Procedural Posture

Contract / Appeal to the Supreme Court of Canada From the Court of Appeal for Ontario

Legal Issues

  1. 1 Whether covenants not to compete were unreasonably broad in territorial scope
  2. 2 Whether the contractual formula (gross trading profit) constituted a genuine pre-estimate of damages or an unenforceable penalty
  3. 3 Whether certain products sold by appellant fell outside the covenant and should be excluded from damages assessment

Ratio Decidendi

Majority held the contractual damages formula (recovery of gross trading profit for the three-year post-termination period) was grossly excessive relative to provable loss and therefore constituted a penalty rather than liquidated damages; covenants were to be limited to the distributorship territory and were otherwise enforceable; respondent entitled to recover provable damages for breach and the matter was remitted to a Master to quantify damages.

Court Disposition

Appeal allowed (majority); judgments below set aside; reference ordered to quantify provable damages; two judges dissenting

Orders

  • Judgments of trial court and Court of Appeal set aside
  • Judgment for respondent for damages for breach of the covenants not to compete, with reference to the Master at Toronto to ascertain provable damages