Canada:

Disgorgement Of Profits Could Be A Potential Remedy In A Defamation Action


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Remedies are an important aspect of any case. In the law of
defamation, the usual remedy sought by most plaintiffs is general
damages for reputational harm. In a defamation case, general
damages are granted at-large and are not subject to a maximum
limit, unlike a general damages award in a personal injury action.
Plaintiffs in defamation actions also sometimes seek an injunction
to prevent a party from continuing to either physically distribute
material or post defamatory statements online, or special damages
which is the actual pecuniary loss suffered as a result of a
defamatory comment.

However, as demonstrated in the recent case of Malak v. Hanna, 2021 BCSC 115,
the remedy of disgorgement of profits may also be available to a
plaintiff in the proper case.

Here, the plaintiffs sued the defendants for defamatory
statements on internet sites and emails which allegedly caused the
plaintiffs to lose profitable traffic control services contracts.
Given that the plaintiffs and the defendants were competitors in
the traffic control services industry and that the defendants had
been awarded a certain BC Hydro contract which the plaintiffs
believed they would have received but for the defamation, the
plaintiffs sought special damages, “…or alternatively, an
Order that each defendant account for and disgorge the profits
resulting from the defamatory expression in respect of which each
defendant is found to be liable, relating to or arising from the BC
Hydro contract.”

The defendants objected to the pleading and sought summary
judgment under
r. 9-6(5)(c)
of British Columbia’s Supreme Court Civil Rules.
Relying on the Supreme Court of Canada decision in Atlantic Lottery Corp. v. Babstock, 2020
SCC 19
, the defendants contended that the remedy of
disgorgement of profits was unavailable in tort actions and thereby
unavailable in the plaintiffs’ defamation claim.

Babstock involved a class action
in which the plaintiffs sought, among other things, damages for
waiver of tort, breach of contract and unjust enrichment in
connection with the defendant’s operation of purportedly
dangerous and deceptive video lottery terminal games. One of the
issues that required determination by the Supreme Court of Canada
was whether disgorgement of profits was a novel cause of
action.

The majority of the court found at paragraph 27 that disgorgement was to be
viewed as an alternative remedy for certain forms of wrongful
conduct. It was not an independent cause of action.

With respect to breach of contract claims, the majority
determined that disgorgement of profits was an exceptional remedy
that was only available where, at a minimum, other remedies were
inadequate and where the circumstances warranted such an award. In
dissent, Justice Karakatsanis agreed that disgorgement was an
exceptional remedy that was available “where a plaintiff has
shown that the ordinary remedies of contract law are inadequate to
protect and vindicate” the plaintiff’s contractual rights.
Her Honour explained that disgorgement of profits might be
appropriate for the purposes of deterrence. Justice Karakatsanis
also noted that whether disgorgement of profits should be granted
was for the trial judge to decide.

With respect to negligence, the majority chose not to make a
definitive ruling on the availability of the remedy because the
plaintiffs’ negligence claim was inadequately pleaded.

The issue of whether disgorgement of profits was or was not
available in a defamation case was not considered by the Supreme
Court of Canada. Accordingly, Babstock was not authoritative on
this issue.

Justice Mayer found the dissenting reasons of Justice
Karakatsanis to be instructive and that there was no reason why in
the context of a defamation case disgorgement should not be
available where granting such relief might deter a wrongdoer from
doing so in the future. The remedy prevents a profit motive.

As well, Justice Mayer found that the issue could not be
resolved based on the pleadings alone and that it would be up to
the trial judge to decide whether the circumstances of the alleged
defamation by the defendants, including their motivation for their
alleged conduct, constituted exceptional circumstances justifying
the remedy of disgorgement of profits. It was not plain and obvious
to Justice Mayer that a claim for disgorgement of profits as an
alternative form of relief would not succeed.

This case suggests that plaintiffs in defamation actions should
carefully assess their potential remedies. In cases where the
defendant profits from making defamatory statements about a
plaintiff, a remedy like disgorgement of profits might be
available. This remedy could greatly exceed any potential at-large
damages award that might be available and would avoid the need for
a plaintiff to actually prove special damages. A PDF version is
available to download here.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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Please find below our summaries of the civil decisions of the
Court of Appeal for Ontario for the week of January 11. There were
only three substantive civil decisions released this past week



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