THE PROFIT PARADOX: PROTECTING LEGITIMATE EXPECTATIONS IN TORT

Authors

  • LAURA CH HOYANO

Keywords:

Tort Law

Abstract

In the new era of concurrent liability, Commonwealth appellate courts have called for the rationalisation of the law of remedies across causes of action. Yet the formalistic logic of the current remedial rules applicable to misrepresentations actionable in tort and contract can yield widely discrepant results on the same matrix of fats. Anomalies are exposed where the contract was induced by a fraudulent or negligent misrepresentation, but the victim discovered the truth only after fully performing the contract. The plaintiff's lost profit margin on the performed work will usually but not invariably be fully protected in contract. The tort damages will usually equal the contract award where the misrepresentation was relatively minor, such that the court concludes that had the plaintiff known the truth, it would have renegotiated the contract price to reflect the actual circumstances, increasing the profit margin. However, where the misrepresentation was so serious that the fully informed victim would have refused to contract with the defendant under any terms, the award is calculated on the basis of the plaintiff's costs of performance, without any compensation for loss of profit. To circumvent this paradox, the courts have devised several stratagems to award the plaintiff damages for lost profit. This article shows these devices to be flawed, and that under the current orthodoxy, the law still leaves the defendant to enjoy the fruits of its tort. The author proposes an alternate rule which redefines lost profits in this context as reliance loss, submitting that this measure better achieves tort's remedial objectives of full compensation and deterrence.

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Published

1999-09-01

Issue

Section

Legal Commentary