The core principle at play here is that, if a contract never had legal validity due to some fundamental flaw (like illegality, mistake, or lack of capacity), a claim for breach of contract damages is typically not available. Instead, the focus shifts to restoring the parties to their pre-contractual positions through the concept of restitution. Essentially, the law seeks to prevent unjust enrichment, not to compensate for breach of an invalid agreement.

The detailed breakdown of the relevant principles and case laws in Canada, including examples from the British Columbia Court of Appeal (BCCA), the Ontario Court of Appeal (ONCA), and the Supreme Court of Canada (SCC), are as follows:

1. The Foundation: Restitution and Unjust Enrichment:
   • When a contract is void ab initio (from the beginning), it's treated as though it never legally existed. Therefore, it cannot serve as a basis for a claim of contractual damages.
   • The law prevents one party from unfairly benefiting at the expense of the other. This principle is called unjust enrichment, and the remedy is typically restitution.
      
2. Unjust Enrichment Defined:
   • Unjust enrichment occurs when one party receives a benefit (e.g., money, services) from another party under circumstances that make it unfair to retain that benefit.
   • The three key elements to establish unjust enrichment are:
     • An enrichment of one party.
     • A corresponding deprivation of the other party.
     • The absence of a juristic reason for the enrichment.
        
3. Restitutionary Remedy:
   • Restitution aims to reverse the effects of the unjust enrichment by putting the parties back in the positions they had before the purported contract was entered.
   • This often means returning any payments, property, or benefits that changed hands.
      
4. Why Damages are Unavailable?
   • Damages for breach of contract are designed to compensate a party for the loss they incurred due to the other party's failure to fulfill valid contractual obligations.
   • However, if a contract is void, there's no valid contract to breach. Therefore, damages are an inappropriate remedy.
   • The focus shifts to undoing any unfair advantage gained through the void agreement rather than compensation for loss based on a valid, but breached contract.
      
5. Key Case Law:
   • Supreme Court of Canada (SCC):
     • Sattva Capital Corp v. Creston Moly Corp, 2014 SCC 53: This case primarily deals with contract interpretation but reinforces that fundamental flaws (like mistake or illegality) can render a contract void.
     • Morguard Investments Ltd v. De Savoye, [1990] 3 S.C.R. 1077: This case addresses unjust enrichment and establishes that a benefit received without a valid contract basis must be returned.
     • Royal Bank of Canada v. S & M Catering Ltd, [1994] 3 S.C.R. 728: This case confirms that a party who received a benefit through a void contract must return it to prevent unjust enrichment.
   • British Columbia Court of Appeal (BCCA):
     • Pro-Fit Distributors Ltd v. McCallum, 2010 BCCA 166: The BCCA held that restitution, not damages, was the appropriate remedy for a void contract.
   • Ontario Court of Appeal (ONCA):
     • Schroeder v. Canadian Imperial Bank of Commerce, 2013 ONCA 215: The ONCA affirmed that when a contract is void, restitutionary remedies take precedence over damages.
        
6. Focus on Pre-Contractual Position:
   • The guiding principle is to restore the parties to their positions before the purported agreement was made.
   • Key restitutionary measures include:
     • Return of Payments: Any payments made under the void contract must be refunded.
     • Return of Property: Any property exchanged under the void contract must be returned.
     • Return of Services: If returning services is impossible, the service-recipient may be ordered to pay for their value.
        
7. No Damages for a Void Contract:
   • Since a void contract was never legally valid, there is no basis for awarding damages for breach.
   • The law focuses solely on removing unjust enrichment and restoring the parties to their pre-contractual state.

Summary:
In short, if a court determines that a contract is unenforceable or void from the outset (ab initio), a claim for damages for breach of contract will fail. Instead, the primary legal remedy is restitution, which requires the parties to return any payments, property, or benefits that changed hands under the void agreement. The courts aim to prevent unjust enrichment - to ensure that no party gains an unfair advantage through a purported contractual arrangement that was never legally valid.

(The law in this area has some complexity. Each case turns on its specific facts. You should always review the full text of court judgments to ensure you fully understand any legal principle being relied upon.)

Written By: Md.Imran Wahab, IPS, IGP, Provisioning, West Bengal
Email: imranwahab216@gmail.com, Ph no: 9836576565