Lost Opportunity Cost: The Context of Capital Unavailable for Other Investment Pursuits

Question: Can a creditor claim damages for lost investment opportunities due to delayed or unpaid debts in Canada?

Answer: Yes, a creditor can claim damages for lost investment opportunities, but the burden of proof is high. To succeed, the creditor must demonstrate that the lost opportunity was foreseeable, identifiable, and quantifiable. Courts require credible, concrete evidence. In most cases, seeking pre-judgment interest is a more reliable approach. Ensure your cases are robustly supported by evidence and consider professional guidance from Caruso Legal Services to navigate these complex claims effectively.

Understanding Lost Opportunity

In the world of commercial and consumer debt, time is capital.  When a debtor fails to pay, the creditor loses more than just the principal and interest—there may also be a lost opportunity to reinvest those funds into other profitable ventures.  This often raises an important question: Can a creditor claim damages for the loss of investment opportunities caused by delayed or unpaid debts?.  Courts have addressed this issue through various decisions.  While such claims can succeed, the threshold for success is high, and most claims of this nature fail due to lack of evidence or foreseeability.

Lost opportunity damages, which are also known as consequential or expectation damages, refer to compensation for a secondary loss that results from an initial breach of contract.  In the debt context, this often involves situations where a creditor was unable to pursue an investment, business expansion, or acquisition due to the non-receipt of funds owed by a debtor.

Challenges

In keeping with the common law tradition, courts generally limit claims for lost opportunity to scenarios where:

1. The loss was foreseeable at the time of contract formation or breach, and
2. The lost opportunity can be quantified with reasonable certainty.

In the case of De Rita v. 1266078 Ontario Inc., 2024 ONCA 460, the Plaintiff planned to use funds from the sale of one property to purchase another investment property.  The Defendant failed to discharge a mortgage resulting in disruption to the intended plan and resulted in a lost opportunity to the Plaintiff.  On an appeal, the lower court award of damages was upheld based on findings that:

• The opportunity was concrete and identifiable;
• The loss was foreseeable, given that the Defendant knew the sale proceeds were earmarked for reinvestment; and,
• The Plaintiff provided detailed evidence of the expected financial benefit from the planned reinvestment opportunity.

This case illustrates how specific, documented, and foreseeable plans for use of funds can support a claim for lost opportunity damages.

In the case of Akelius Canada Inc. v. 2436196 Ontario Inc., 2020 ONSC 6182, the Plaintiff sought damages for a lost profit opportunity due to a failed real estate transaction.  The court rejected the claim, noting that:

• The damages were too speculative;
• The court assesses damages at the time of breach, rather than based on hypothetical future gains; and
• The evidence was insufficient to show that the opportunity held a likelihood of profitability.

This case demonstrates the reluctance of the court to accept speculative or poorly substantiated losses, even where the breach of contract was clear.

Implications

Pre-Judgment Interest: A More Reliable Avenue

In most cases, courts prefer to award pre-judgment interest as compensation for the time value of unpaid money.  This is a predictable and accepted remedy in debt actions, offering some monetary relief without the burden of proving a missed investment including the necessity of proving the profitability of the missed investment.

Lost Opportunity Damages: An Uphill Battle

To succeed in claiming lost opportunity damages, a creditor must meet a very high evidentiary standard. This includes:

• The proving that the debtor knew or ought to know that the funds were designated for a particular investment;
• The demonstrating that the particular investment was real, time-sensitive, and likely to succeed; and
• The quantifying the exact amount of lost profit with a reasonable degree of certainty.

In the absence of proof of these facts, courts will likely treat claims for lost opportunity as too speculative.

Conclusion

While the law does permit claims for lost investment opportunities due to unpaid debts, such claims are rarely awarded.  Creditors, for a chance of success, should document the intended use of funds, communicate such plans clearly with Debtors - at the time when the initial loan or credit is being extended, and collect concrete evidence of any lost opportunities.

For most Creditors, the prudent strategy is to pursue judgment promptly, seek pre-judgment and post-judgment interest, and consider security or guarantees where future investments hinge on timely payment.