Naylor Group Inc. v. Ellis-Don Construction Ltd., [2001] 2 S.C.R. 943, 2001 SCC 58
Ellis-Don Construction Ltd. Appellant/Respondent on cross-appeal
v.
Naylor Group Inc. Respondent/Appellant on cross-appeal
Indexed as: Naylor Group Inc. v. Ellis-Don Construction Ltd.
Neutral citation: 2001 SCC 58.
File No.: 27321.
2001: January 22; 2001: September 27.
Present: McLachlin C.J. and Iacobucci, Major, Bastarache, Binnie, Arbour and LeBel JJ.
on appeal from the court of appeal for ontario
Contracts – Bid depository system – Prime contractor awarded large construction contract as lowest bidder – Prime contractor’s bid incorporating subcontractor’s bid – Subcontractor’s workers not members of International Brotherhood of Electrical Workers (IBEW) – Prime contractor later refusing to enter into subcontract – Prime contractor subsequently contracting with IBEW subcontractor at same bid price – Legal obligations of prime contractors to prospective subcontractors under rules of structured bid depository – Whether contract terms breached.
Contracts – Doctrine of frustration – Bid depository system – Prime contractor awarded large construction contract as lowest bidder – Prime contractor’s bid incorporating subcontractor’s bid – Subcontractor’s workers not members of International Brotherhood of Electrical Workers (IBEW) – Ontario Labour Relations Board (OLRB) deciding prime contractor must use only IBEW-affiliated subcontractors – Whether contract frustrated by OLRB decision.
Contracts – Remedies – Prime contractor awarded large construction contract as lowest bidder – Prime contractor’s bid incorporating subcontractor’s bid – Prime contractor later refusing to enter into subcontract – Manner of assessing damages for wrongful refusal to contract.
The Oakville-Trafalgar Memorial Hospital (“OTMH”) called for tenders for the construction of an addition and renovation of its hospital through the Toronto Bid Depository. Ellis-Don Construction Ltd., one of the largest construction firms in Ontario, approached Naylor Group Inc. in November 1991 to bid for the electrical work on the project. Naylor volunteered the important information that its workers were not affiliated with the International Brotherhood of Electrical Workers (“IBEW”). It was told there would be no objection on that account. Ellis-Don had been in a continuing if sporadic argument over bargaining rights with the IBEW for the previous 30 years. The dispute, in which the IBEW claimed to have been the exclusive bargaining agent for Ellis-Don electrical workers since 1962, came before the Ontario Labour Relations Board (“OLRB”) in 1990. The OLRB ruling was still under reserve in January 1991. Ellis-Don was aware, as Naylor was not, of the details of the IBEW grievance and whether an adverse ruling would cause it serious difficulty on the OTMH job. Nevertheless, Ellis-Don “carried” Naylor’s low bid for the electrical work in its own tender for the prime contract and as a result was low bidder for the OTMH project. The OLRB decision was released in February 1992, confirming Ellis-Don’s collective bargaining commitment to use only electrical subcontractors whose employees were affiliated with the IBEW.
On May 6, 1992, OTMH awarded the prime contract to Ellis-Don. The prime contract contained an article under which Ellis-Don undertook to hire Naylor. Ellis-Don offered to subcontract the electrical work to Naylor at the bid price if Naylor would align itself with the IBEW. Naylor, which already had a union, declined. A week later Ellis-Don wrote to Naylor to say that, because of the OLRB decision, it was unable to enter into a subcontract agreement with the firm. It subsequently awarded the electrical subcontract to an IBEW subcontractor. Naylor sued for breach of contract and unjust enrichment. Its contractual claim was dismissed but the trial judge, out of an abundance of caution, assessed the damages that would have been awarded in contract, if the claim had succeeded, at $730,286. He did allow a claim for unjust enrichment in the amount of $14,560, which corresponded to the costs of preparing the bid. Naylor appealed and was awarded damages for breach of contract in the amount of $182,500. Ellis-Don appeals from that decision on the issue of liability alone. Naylor cross-appeals on the issue of quantum of damages.
Held: The appeal should be dismissed and the cross-appeal allowed.
The various terms and conditions governing the Toronto Bid Depository, when read together, compel the conclusion that, when Ellis-Don chose to carry Naylor’s bid in its tender to OTMH, it committed itself to subcontract the electrical work to Naylor in the absence of a reasonable objection. The prime contractor’s protection lies in the contractual right to object. The subcontractor’s protection lies in the concept of “reasonableness”. What is “reasonable” depends on the facts of the case. Ellis-Don’s only objection to Naylor was the fact it was not an IBEW subcontractor. In light of Ellis-Don’s conduct, however, it was not “reasonable” of Ellis-Don to object to Naylor’s union affiliation. Ellis-Don with full knowledge of that fact chose to carry Naylor instead of an IBEW affiliated subcontractor. It thereby won the prime contract. It was held by the OLRB to have previously promised the work to IBEW electricians. Ellis-Don could not simultaneously fulfill its obligation to Naylor and to the IBEW, but it had knowingly placed itself in a position of conflict. In the circumstances there was no unfairness in requiring Ellis-Don to compensate Naylor for its non-performance. It had gone out of its way to assure Naylor that its in-house union affiliation was no cause for concern and would be no basis for objection. It carried Naylor’s bid in its tender for the prime contract, with full knowledge of both the IBEW proceedings before the OLRB and Naylor’s non-IBEW union affiliation. It affirmed its agreement to use Naylor when it put forward Naylor’s addendum price in its submission to OTMH, more than two weeks after it had received full notice of the OLRB ruling. It formally affirmed Naylor’s expected role in the actual contract between OTMH and Ellis-Don, dated May 6, 1992. Its belated objection to Naylor, in light of this history, was unreasonable.
The doctrine of frustration is inapplicable. There has been no “supervening event” in the required sense. The OLRB decision recognized and affirmed Ellis-Don’s pre-existing obligation to the IBEW. It created no new obligation. Accordingly, when Ellis-Don approached Naylor to do the OTMH work with non-IBEW workers, and subsequently carried the bid to OTMH, it was promising work that, so far as the OLRB and the IBEW were concerned, Ellis-Don had already bargained away. The OLRB decision simply precipitated the claim in damages. Moreover, the parties specifically provided their own test to deal with supervening circumstances, i.e., if Ellis-Don had had good reason it could have “reasonably” objected to the awarding of the subcontract to Naylor. Where parties have made specific provision for supervening circumstances, the doctrine of frustration is inapplicable.
The normal measure of damages in the case of a wrongful refusal to contract in the building context is the contract price less the cost of executing or completing the work, i.e., the loss of profit. The Court of Appeal was entitled to substitute its own view of a proper award since the trial judge failed to consider relevant factors such as the unexpectedly severe site problems and made “a palpably incorrect” assessment of the damages. There was no reason to interfere with the assessment of the Court of Appeal in this respect. However, the evidence did not justify the Court of Appeal’s further reduction of Naylor’s loss of profit for unduly speculative contingencies related to possible action or inaction by the OLRB, and potential work-sharing arrangements between Naylor and IBEW subcontractors, and the cross-appeal, to that extent, was allowed. There was no need to examine the alternative ground of unjust enrichment relied upon by the trial judge.
Cases Cited
Applied: The Queen in Right of Ontario v. Ron Engineering & Construction (Eastern) Ltd., 1981 CanLII 17 (SCC), [1981] 1 S.C.R. 111; M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., 1999 CanLII 677 (SCC), [1999] 1 S.C.R. 619; referred to: Ellis-Don Ltd. v. Ontario (Labour Relations Board), [2001] 1 S.C.R. 221, 2001 SCC 4; Northern Construction Co. v. Gloge Heating & Plumbing Ltd. (1986), 1986 ABCA 3, 19 C.L.R. 281; Aluma Systems Canada Inc., [1994] O.L.R.D. No. 4398 (QL); Martel Building Ltd. v. Canada, [2000] 2 S.C.R. 860, 2000 SCC 60; M.J. Peddlesden Ltd. v. Liddell Construction Ltd. (1981), 1981 CanLII 620 (BC SC), 128 D.L.R. (3d) 360; Canadian Pacific Hotels Ltd. v. Bank of Montreal, 1987 CanLII 55 (SCC), [1987] 1 S.C.R. 711; Peter Kiewit Sons’ Co. v. Eakins Construction Ltd., 1960 CanLII 37 (SCC), [1960] S.C.R. 361; Davis Contractors Ltd. v. Fareham Urban District Council, [1956] A.C. 696; Hydro-Québec v. Churchill Falls (Labrador) Corp., 1988 CanLII 37 (SCC), [1988] 1 S.C.R. 1087; McDermid v. Food-Vale Stores (1972) Ltd. (1980), 1980 CanLII 1076 (AB QB), 14 Alta. L.R. (2d) 300; O’Connell v. Harkema Express Lines Ltd. (1982), 1982 CanLII 3198 (ON SC), 141 D.L.R. (3d) 291; Petrogas Processing Ltd. v. Westcoast Transmission Co. (1988), 1988 CanLII 3462 (AB QB), 59 Alta. L.R. (2d) 118; Victoria Wood Development Corp. v. Ondrey (1978), 1978 CanLII 1447 (ON CA), 92 D.L.R. (3d) 229; Marathon-Delco Inc., [2000] O.L.R.D. No. 542 (QL); Twin City Mechanical v. Bradsil (1967) Ltd. (1996), 31 C.L.R. (2d) 210; Lang v. Pollard, 1957 CanLII 79 (SCC), [1957] S.C.R. 858; Woelk v. Halvorson, 1980 CanLII 17 (SCC), [1980] 2 S.C.R. 430; Andrews v. Grand & Toy Alberta Ltd., 1978 CanLII 1 (SCC), [1978] 2 S.C.R. 229; Laurentide Motels Ltd. v. Beauport (City), 1989 CanLII 81 (SCC), [1989] 1 S.C.R. 705; Widrig v. Strazer, 1964 CanLII 76 (SCC), [1964] S.C.R. 376.
Statutes and Regulations Cited
Labour Relations Act, 1995, S.O. 1995, c. 1, Sched. A, ss. 48(18), (19), 104(1)(b),(2),161(4) [formerly R.S.O. 1990, c. L.2, s. 147(4)].
Authors Cited
Fridman, Gerald Henry Louis. The Law of Contract in Canada, 4th ed. Scarborough, Ont.: Carswell, 1999.
Halsbury’s Laws of England, vol. 12, 4th ed., London: Butterworths, 1975.
McGregor, Harvey. McGregor on Damages, 16th ed. London: Sweet & Maxwell, 1997.
Pitch, Harvin D., and Ronald M. Snyder. Damages for Breach of Contract, 2nd ed. Toronto: Carswell, 1989.
Waddams, S.M. The Law of Damages, 3rd ed. Aurora, Ont.: Canada Law Book, 1997.
APPEAL and CROSS-APPEAL from a judgment of the Ontario Court of Appeal (1999), 1999 CanLII 3705 (ON CA), 43 O.R. (3d) 325, 171 D.L.R. (4th) 243, 119 O.A.C. 182, 49 B.L.R. (2d) 45, 45 C.L.R. (2d) 42, [1999] O.J. No. 913 (QL), allowing the respondent’s appeal from a judgment of the Ontario Court (General Division) (1996), 30 C.L.R. (2d) 195, [1996] O.J. No. 3247 (QL). Appeal dismissed and cross-appeal allowed.
Earl A. Cherniak, Q.C., Kirk F. Stevens and Sandra L. Coleman, for the appellant/respondent on cross-appeal.
Alan A. Farrer and Leah K. Bowness, for the respondent/appellant on cross-appeal.
The judgment of the Court was delivered by
[1] Binnie J. – This appeal raises the issue of a prime contractor’s legal obligations (if any) to a prospective subcontractor whose bid it has incorporated in its own successful tender for a construction project under the rules of a structured bid depository. The appellant’s Project Manager testified that a bid depository “is just a fancy name for somebody collecting prices”. This, as will be seen, is something of an understatement.
[2] The appellant, Ellis-Don Construction Ltd. (“Ellis-Don”), one of the largest construction firms in Ontario, acknowledges that it generally subcontracts with the trades “carried” in its own bid for a job, but says it has no legal obligation to do so. In this case, the respondent subcontractor , Naylor Group Inc. (“Naylor”), was deemed unacceptable because its employees belonged to the wrong trade union. The respondent subcontractor replies that the appellant not only knew from the outset that the respondent’s workers belonged to an in-house union (the “Employees Association of Naylor Group Incorporated”), but with full knowledge of that fact invited it to bid for the electrical work on a multi-million dollar project for renovations and additions to the Oakville-Trafalgar Memorial Hospital (the “owner” or “OTMH”). Worse, the appellant used the respondent’s low bid to get the job, then “shopped” its bid elsewhere to get the work done at a very favourable price. All of this, says the respondent, undermined the integrity of the Bid Depository process and breached the terms of the tender contract.
[3] The Ontario Court of Appeal rejected the appellant’s arguments. It held that the terms of the contract governing this particular tender required the appellant to enter into the electrical subcontract with the respondent in the absence of reasonable cause not to do so. I think that on the facts of this particular tender arrangement, this conclusion is correct. The issue, then, is whether reasonable cause existed. The appellant had invited the respondent to participate with the assurance that there would be no objection at a later date to its union affiliation, and affirmed this position repeatedly thereafter. The appellant’s eventual reversal of that position was unreasonable. It is in accordance with the tendering contract that it bear the commercial consequences. The appeal must therefore be dismissed.
[4] The respondent subcontractor cross-appeals the award of damages. It says it was entitled to its loss of profit on the lost contract (which the trial judge assessed at $730,286) and that this figure was inappropriately reduced by the Ontario Court of Appeal to $182,500 because of alleged “contingencies” which were not established in the evidence. I think the respondent is partly correct in this respect. Accepting the dollar figures generated by the courts below, but deleting one of the contingencies allowed by the Ontario Court of Appeal, I would allow the cross-appeal and give judgment for the respondent in the sum of $365,143.
I. Facts
[5] In 1991, OTMH called for tenders for the construction of an addition and renovation of its hospital through the Toronto Bid Depository.
1. The Bid Depository System
[6] A bid depository is, in effect, a structured bidding process. The model used here was devised in the late 1950s by the construction industry with the participation of the Ontario government. It is designed to achieve fairness on building construction projects where the owner requires a lump-sum tender based on plans and specifications, and where a multitude of prime contractors, trade contractors and suppliers are expected to get involved in the tendering process. At the relevant time, it worked as follows.
[7] The Bid Depository’s staff was notified of a new project by an owner who wished to make use of their services. A date was fixed by which the pre-qualified subcontractors were to submit on a standard form document (for ease of comparison) a breakdown of their prices. Identical project documentation was made available to all interested bidders in each of the subtrades. Their tenders were sealed and delivered to the Bid Depository office by a specified date and time and deposited in a designated locked box. On the due date, the subtrade bid documents were made available to interested prime contractors who selected the subcontractors (not necessarily the lowest bidder) they wanted to carry as part of their own bid to the owner. Prime contractor bids were required to be filed on a standard form on a fixed date (here, two days after the opening of the subtrade bids). The system offered conformity and comparability. The prime contractor bids were open for the owner’s acceptance for a fixed period (here 90 days) and the subcontractor bids were open for acceptance by the prime contractor for a fixed period after the award of the prime contract (here 7 days). Each prime contractor was required to undertake “to place a Sub-Contract with one of the trade contractors who used the Bid Depository” (Rule 13(c) of the Ontario Bid Depository Standard Rules and Procedures, also known as the rules of the Toronto Bid Depository). These were not informal arrangements for the convenience of prime contractors (i.e., “just a fancy name for somebody collecting prices”). Each participant in the tendering process bound itself by contract to certain obligations and acquired thereby certain rights. The content of those rights and obligations is the subject matter of this litigation.
[8] Thomas Hitchman, President of the respondent, explained it thus:
. . . the purpose of the bid depository is that the sub-trade contractors submit their price through the bid depository and then the general contractor has a time frame, in this case two days, to assemble his bid and in so doing he can use the numbers that come out of the various sub-trades that bid through the bid depository two days earlier.
Q. I gather in the process there are more than just electrical sub-contractors tendering, is that correct?
A. Yes.
[9] The process is considered fair to all participants because all parties bid on identical information, and their bids are disclosed to the relevant parties at the same time. In particular, it assures subtrades that their bids will not be “shopped” by a prime contractor to competing subcontractors to lever a price advantage. “Bid shopping” was defined by the trial judge as “the practice of soliciting a bid from a contractor, with whom one has no intention of dealing, and then disclosing or using that in an attempt to drive prices down amongst contractors with whom one does intend to deal” ((1996), 30 C.L.R. (2d) 195, at p. 200). The Court of Appeal thought it sufficient if the “shopping” was to get a bid “for the same value or less” ((1999), 1999 CanLII 3705 (ON CA), 43 O.R. (3d) 325, at p. 330, footnote 3).
2. The Bidding History in This Case
[10] The owner notified the Toronto Bid Depository of the project and a timetable was established whereby the bids of interested trade subcontractors were required to be made by December 12, 1991. A preliminary procedure was established by the owner and its architect to “pre-qualify” acceptable subcontractors by reference to such factors as their competence, track record on other projects, and financial viability. It being in the interest of prime contractors to have as many qualified firms as possible competing for the subcontracts, the appellant approached the respondent in early November 1991 to bid on the job. The respondent volunteered the important information that its workers were not affiliated with the International Brotherhood of Electrical Workers (“IBEW”). It was told there would be no objection on that account. The then head of the respondent’s construction division, Mr. Colin Harkness, testified as follows:
A. Mr. Quinless [the appellant’s senior estimator] was inquiring whether or not we would, indeed, be bidding the job. I returned the call to Mr. Quinless and spoke to him personally. We had never worked with Ellis-Don. I wanted to advise him at that time of what our union situation was. I told him we were not affiliated with the I.B.E.W.
THE COURT: Hold on, please. Mm-hmm.
A. And in that conversation Mr. Quinless identified to me that Ellis-Don were not bound to work with contractors affiliated with the I.B.E.W. and they could work with anyone. I asked him if we were low bidder through the bid depository and met the bidding requirements, that is, our tender form etc. were correct, would they carry us. He identified that if we were low bidder they would carry us.
A. We have had requests from contractors in the past to quote jobs and they say you must be “union” and I usually call to clarify what that implies. Quite often general contractors have told me that we must be affiliated with the international union of electrical workers. We had never worked with Ellis-Don through Naylor and I wanted to clarify with them that we, indeed, could work with them.
Q. After that telephone conversation, what impression were you left with about the union issue?
A. I was under the impression there was no problem whatsoever from their side.
Q. And do you recall whether you communicated this conversation at some point to Mr. Hitchman?
A. I definitely did.
[11] Mr. Quinless, in his testimony, confirmed the substance of that conversation, and added that prior to giving the assurances, he had “checked it out” with responsible people in the appellant organization, as mentioned below. (See para. 66 of these reasons.)
[12] The fact is that the appellant had been in a continuing if sporadic argument over bargaining rights with the IBEW for the previous 30 years. The dispute, in which the IBEW claimed to have been the exclusive bargaining agent for electrical workers on the appellant’s jobs since 1962, came to a head in an 18-day hearing before the Ontario Labour Relations Board (“OLRB”) in 1990. The issues before the OLRB were whether the IBEW had validly obtained bargaining rights in 1962 and, if so, whether those rights had been subsequently abandoned. The OLRB ruling was still under reserve in January 1991. The appellant was undoubtedly convinced of the correctness of its position before the OLRB, but it was aware, whereas the respondent was not, of the details of the IBEW grievance and whether or not an adverse ruling would cause it serious difficulty on the OTMH job.
[13] The respondent tendered a price of $5,539,000. Approximately six weeks of work and 118 pages of calculations went into preparation of the bid. The next lowest bid for the electrical work was from Comstock Canada (“Comstock”), an IBEW subcontractor, whose bid was $411,000 higher than the respondent’s bid. Comstock also bid for the mechanical work.
[14] The appellant carried the respondent’s low bid for the electrical work and Comstock’s bid for the mechanical work in its own tender for the prime contract. It was low bidder at $38,135,900 for the OTMH project. The trial judge found as a fact that if the appellant had carried Comstock’s bid for the electrical work instead of the respondent’s bid, it would not have been low bidder overall and might on that account have lost the prime contract.
[15] By January 1992 it was common knowledge in the industry that the appellant had submitted the lowest bid. Acting on the appellant’s assurances that its “in-house” union affiliation presented no problem, the respondent “assigned personnel to study drawings, set crew sizes and plan the phasing of the electrical work”. At no time did it receive any formal communication from the appellant that it would get the subcontract.
[16] Nor had the appellant received confirmation of the prime contract from the owner. The hospital is partly funded by the Ontario government, and there ensued an unexpected delay in obtaining a commitment of government funds. In February 1992, the owner, OTMH, asked the appellant to extend the date for acceptance of its tender for 60 days (i.e., until May 1992). The appellant, in turn, asked for similar extensions from the subcontractors it had carried in its tender, including the respondent. The respondent prudently requested from the appellant a letter confirming its intent to give it the subcontract for the electrical work, if its prime bid was accepted. The appellant declined, it said, “because it was Ellis-Don’s practice not to enter into letters of intent prior to the award of the prime contract”.
[17] The OLRB decision was released on February 28, 1992 ([1992] O.L.R.D. No. 695 (QL)). The IBEW grievance was upheld. The OLRB decision confirmed the appellant’s collective bargaining commitment to use only electrical subcontractors whose employees were affiliated with the IBEW. The details of this dispute are set out at length in the decision of this Court upholding the OLRB decision: Ellis-Don Ltd. v. Ontario (Labour Relations Board), [2001] 1 S.C.R. 221, 2001 SCC 4. The appellant acknowledged in pre-trial discovery that the OLRB decision had been received by its in-house Director of Legal and Labour Operations, Mr. Paul Richer, on that date or soon thereafter although apparently it was not communicated to their manager on the OTMH project, Mr. Bruno Antidormi, until about March 10, 1992.
[18] In the meantime, the owner had incorporated various changes to its project into Bid Revision No. 1 (also known as Post Tender Addendum No. 1). Despite the OLRB ruling, the appellant asked the subtrades, including the respondent, to submit prices for the contract changes by March 12. The respondent quoted $132,192 (bringing its total bid to $5,671,192). This quote, too, was carried by the appellant in its tender to the owner on March 17, 1992, i.e., three weeks after the OLRB decision and seven days after the appellant’s project management had been made fully aware of the contents of the decision, and had given themselves sufficient time to digest its impact.
[19] When word reached the respondent from some of its suppliers that the appellant was seeking bids from competing electrical subcontractors, one of its managers, Mr. Colin Harkness, called the appellant’s Project Manager to confront him with this information. Mr. Harkness recorded his version of the call on April 15, 1992 in a contemporaneous handwritten note:
Q. Perhaps you could read to the Court given that it is in your handwriting what this note says.
A. It says, “Informed by Bruno Antidormi during phone conversation that he is seeking other electrical prices but is unable to get anyone to do it at our price. Actual comments . . .” and this is in italics, “. . . I can’t use Naylor on this project and I can’t get anyone else to do it at your price.”
[20] The respondent concluded, quite understandably in the trial judge’s view, that the appellant was now “shopping Naylor’s bid” to rival firms.
[21] On May 3, 1992, the President of the respondent wrote a letter to the owner, OTMH, complaining of the appellant’s apparent double game. He obtained no satisfaction. On May 6, 1992, the owner awarded the prime contract, incorporating Bid Revision No. 1 (Post Tender Addendum No. 1), to the appellant, who at that time still had no other electrical subcontractor prepared to do the project at the respondent’s price. In fact, the prime contract contained Article 10.2 under which the appellant ostensibly undertook to hire the respondent:
10.2 The Contractor agrees to employ those Subcontractors proposed by him in writing and accepted by the Owner at the signing of the Contract.
[22] On May 5, 1992, the appellant offered to subcontract the electrical work to the respondent at the bid price if the respondent would align itself with the IBEW. The respondent, which already had a union, understandably saw this offer as a ploy by the appellant to download its union problems onto the respondent and its workforce. It declined.
[23] On May 13, 1992, the appellant wrote to the respondent to say that because of the OLRB decision of February 28, 1992, “we regrettably will be unable to enter into a Subcontract Agreement with your firm for the electrical work”.
[24] In July 1992, the appellant provided Guild Electric (an IBEW subcontractor) with a letter of intent to award the electrical subcontract for $5,671,192, precisely the same amount as had been bid by the respondent. Guild Electric had been pre-qualified for the OTMH project, but had decided not to submit a bid. It was therefore an ineligible subcontractor under Rule 13(c) of the Bid Depository, which was treated by the appellant as of no further relevance. The final subcontract was subsequently signed with Guild Electric with a minor price difference which was conceded to be insignificant.
[25] The respondent sued for breach of contract and unjust enrichment. Its contractual claim was dismissed but it was awarded damages for unjust enrichment at trial in the amount of $14,560, an amount corresponding to the costs of preparing its bid. The respondent appealed and was awarded damages for breach of contract in the amount of $182,500 plus pre-judgment interest and costs. The appellant appeals from that decision on the issue of liability alone. The respondent cross-appeals on the issue of quantum of damages.
II. Judgments
1. Ontario Court (General Division) (1996), 30 C.L.R. (2d) 195
[26] Langdon J. concluded that, under the tender process agreed to by the parties, the award of the prime contract to the appellant did not automatically trigger a subcontract between the appellant and the respondent for the electrical work. According to traditional rules of contract formulation, communication of acceptance was required, and the appellant had never communicated its acceptance to the respondent. In any event, if any such contract for the electrical work had come into existence, it was frustrated by the OLRB decision of February 28, 1992, which precluded the appellant from contracting with a non-IBEW electrical subcontractor. He concluded that, if he was in error on the issue of liability, he would have awarded the respondent’s damages for breach of contract as the lost profit on the project, which he assessed at $730,286.
[27] The trial judge then allowed the respondent’s claim for unjust enrichment. He analysed the work of the estimators in preparing the bid, and the costs of overhead relating to same, and gave judgment to the respondent for $14,560.
2. Court of Appeal for Ontario (1999), [1999 CanLII 3705 (ON CA)](https://www.canlii.org/en/on/onca/doc/1999/1999canlii3705/1999canlii3705.html), 43 O.R. (3d) 325
[28] Weiler J.A., for the Court, held that the prevention of bid shopping is one the objectives of the Bid Depository. She concluded that the appellant had acted in an “unethical” manner in negotiating the respondent’s bid price with Guild Electric.
[29] On the contract issue, she proceeded in accordance with the analysis of tendering procedures set out in The Queen in Right of Ontario v. Ron Engineering & Construction (Eastern) Ltd., 1981 CanLII 17 (SCC), [1981] 1 S.C.R. 111. Those using the Bid Depository system mutually agree to be bound by its terms, so that upon submission of a bid by a subcontractor or of a tender by a prime contractor, this “signifies acceptance of all the terms of the Bid Depository System and constitutes a preliminary contract or contract A”. The rules stipulated that the respondent’s bid was irrevocable for a period of time. The bidding process is dependent upon subcontractors being bound by their bids once they have been incorporated into a prime contractor’s tender and the tender has become irrevocable: Northern Construction Co. v. Gloge Heating & Plumbing Ltd. (1986), 1986 ABCA 3, 19 C.L.R. 281 (Alta. C.A.).
[30] In exchange for binding itself to an irrevocable bid, the subcontractor also acquires rights under Contract A. It is not automatically entitled to the award of the subcontract for the electrical work (Contract B), but such an award must be made unless the appellant (or the owner) has a “reasonable objection” pursuant to Article 10 of the General Conditions of the standard form contract.
[31] Weiler J.A. held that the appellant’s objection to the respondent was not reasonable because she found that: (a) Ellis-Don “shopped” Naylor’s bid; (b) Ellis-Don ought to have made efforts to remove the impediment to its objection by applying to the OLRB to clarify whether it could contract with Naylor; and (c) Ellis-Don should have allowed Naylor the opportunity to enter into an arrangement with an IBEW-affiliated company to retain a share of the profit from the subcontract. In her view, the OLRB decision did not necessarily prohibit the appellant from employing the respondent. On the contrary, citing the OLRB decision in Aluma Systems Canada Inc., [1994] O.L.R.D. No. 4398 (QL), she stated that “the OLRB is sensitive to the prejudice a prime contractor may suffer once it has submitted a tender by which it is bound. It appears that, in such instances, the union would be estopped from claiming any damages.” The appellant having failed to demonstrate that its objection was reasonable, it was held to have breached the terms of Contract A with the respondent.
[32] Weiler J.A. accepted the trial judge’s estimate of the respondent’s loss of profit on the job ($730,286). She then discounted this figure by 50 percent for job site contingencies, and the resulting figure by a further 50 percent to account for the contingency that the OLRB would not have allowed the contract to be awarded to Naylor or that Naylor may have had to enter into a sub-subcontract with another electrical subcontractor with IBEW affiliation. With these factors in mind, the court allowed the appeal and awarded the respondent damages of $182,500.
III. Analysis
[33] The prospect of a major construction job generally initiates a cascade of invitations to bid from the owner to prime contractors to the subcontractors to the suppliers and other participants. The invitations generate a corresponding flow of tenders upwards along the same food chain. The Bid Depository system promotes itself as designed to protect the reasonable expectations of all participants. It does this by establishing clear rules, fixed deadlines, simultaneous disclosure of bids, and an orderly contracting procedure. Those submitting bids incur the obligation to keep them open for acceptance for a fixed period of time. This of course ties up their resources and, depending on the circumstances, may incur some financial risk. In exchange, the tendering parties are assured that they will be fairly dealt with according to the rules established under the particular tendering procedure.
[34] For the last 20 years, the legal effect of tendering arrangements has been approached in accordance with the Contract A/Contract B analysis adopted in Ron Engineering, supra, per Estey J., at p. 119:
There is no question when one reviews the terms and conditions under which the tender was made that a contract arose upon the submission of a tender between the contractor and the owner whereby the tenderer could not withdraw the tender for a period of sixty days after the date of the opening of the tenders. Later in these reasons this initial contract is referred to as contract A to distinguish it from the construction contract itself which would arise on the acceptance of a tender, and which I refer to as contract B.
[35] Subsequently, in M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., 1999 CanLII 677 (SCC), [1999] 1 S.C.R. 619, the Court allowed the appeal of an unsuccessful bidder against the award of a prime contract to an unqualified bidder, contrary to an implied term in Contract A. The Court took the opportunity on that occasion to affirm that Contract A does not automatically spring into existence upon the making of a tender, and if it does, its terms must be ascertained as with any other contract, and not be derived from some abstract legal paradigm. Iacobucci J. reinforced this point at para. 17:
. . . it is always possible that Contract A does not arise upon the submission of a tender, or that Contract A arises but the irrevocability of the tender is not one of its terms, all of this depending upon the terms and conditions of the tender call.
See also Martel Building Ltd. v. Canada, [2000] 2 S.C.R. 860, 2000 SCC 60, at para. 80.
[36] Both Ron Engineering, supra, and M.J.B. Enterprises dealt with owners and prime contractors. The present appeal raises an issue at a lower level of the cascade. Nevertheless, as those decisions made clear, the Contract A/Contract B approach rests on ordinary principles of contract formation, and there is no reason in principle why the same approach should not apply at this lower level. The existence and content of Contract A will depend on the facts of the particular case. Accordingly, the prime contract having been awarded in this case to the appellant, the issue is whether the respondent had any contractual rights under its Contract A with the appellant either to the making of Contract B (the electrical subcontract) or to damages for the appellant’s refusal to do so.
[37] This appeal thus raises five issues:
Was a Contract A formed between the appellant and respondent with respect to this project and, if so, what were its terms?
Was the contract frustrated by reason of the OLRB decision of February 28, 1992?
If not, did the appellant breach the terms of Contract A?
If so, what are the damages?
In the alternative, is the respondent entitled to recover on the basis of unjust enrichment?
[38] There lurked in the background to some of the respondent’s submissions in this Court occasional allegations which seemed grounded in tort, including negligent misrepresentation. However, tort was neither pleaded nor argued in the courts below and tort law will play no role in the disposition of this appeal.
1. Was There a Contract A and, if So, What Were the Terms?
[39] The respondent contended at trial that the appellant, upon winning the prime contract, became automatically obligated to it under the terms of Contract A to enter into the electrical subcontract, i.e., Contract B. The respondent relies in this respect on the decision of the British Columbia Supreme Court in M.J. Peddlesden Ltd. v. Liddell Construction Ltd. (1981), 1981 CanLII 620 (BC SC), 128 D.L.R. (3d) 360.
[40] It is possible that under a different set of bidding rules this could be the outcome, but there is nothing in the call for tender or related documents in this case to give rise to such a result. On the contrary, as pointed out by Weiler J.A. in the Ontario Court of Appeal, the tender documents clearly contemplate the possible substitution of a subcontractor that is different from the firm carried in the tender for the prime contract. Article 10.3 of the General Conditions that govern the tender provides that the owner may, on reasonable grounds, object to a subcontractor and, if so, the prime contractor is required to employ another subcontractor. Article 10.5 states that the prime contractor shall not be required to employ as a subcontractor a person or firm to whom he may reasonably object. These terms are incorporated into Contract A and are plainly inconsistent with the respondent’s theory of a “deemed Contract B”. In accordance with the usual principles of contract formation, communication of acceptance was required to make Contract B.
[41] The tender documents are equally clear, however, that the prime contractor is not free under Contract A of contractual obligation to the subtrades it has carried in its own bid. The Bid Depository does not operate simply for the prime contractor’s convenience.
[42] The Ontario Bid Depository Standard Rules and Procedures assure participants that it “provides for the sanctity of the bid during the tendering process”, and specifically assures a subcontractor that he or she is “[a]ble to bid Prime Contractors knowing his bid will not be ‘shopped’”. The mechanism by which this is achieved is by instructing prime contractors in Article 16.1 of the Instructions to Bidders:
16.1 Bidders shall submit with Bid Documents . . . names of the Subcontractors bidder proposes to perform work under the Contract, and to include in the Agreement he would sign with the Owner.
The attached printed form that is required of prime contractors to submit to the owner includes as Article 3 the term:
- In the Stipulated Price the following Subcontractors are carried and they will perform the work indicated. . . . [Emphasis added.]
[43] The appellant was therefore required to and did include as Article 3 of its tender for the prime contract:
- In the Stipulated Price the following Subcontractors are carried and they will perform the work indicated: . . . Electrical . . . Naylor Group Incorporated. [Emphasis added.]
[44] Further, as noted above, the final contract between the owner and the appellant, which was in a standard form stipulated pursuant to the Bid Depository rules, provided as Article 10.2 of the General Conditions of the Stipulated Price Contract:
10.2 The Contractor agrees to employ those Subcontractors proposed by him in writing and accepted by the Owner at the signing of the Contract.
[45] Outside the framework of a bid depository or comparable scheme, such provisions might operate solely between the owner and the prime contractor, and be of no assistance to a stranger to their contract, such as an aspiring subcontractor. However, in this case, there was a structured Bid Depository, and these standard printed-form documents between the prime contractor and the owner constituted part of the Bid Depository regime as implemented, and formed the contractual basis on which the subcontractors tendered. Indeed, it was on this basis that the Bid Depository could assure them that their bids would not be “shopped”. The assurance of a subcontract to the carried subcontractor, subject to reasonable objection, was for subcontractors the most important term of Contract A.
[46] This interpretation of Contract A is entirely consistent with the answers provided on discovery by the Vice-President of the appellant who actually signed the OTMH bid:
Question 91: Is it fair to say on the afternoon of December 10th, which was the closing of the sub-trade bids, you and Mr. Quinless decided you were going to use the Naylor Group for the electrical job.
COUNSEL: He indicated the word was “carrying” and not “using”.
THE DEPONENT: We would carry their price.
Then on 93, the question is:
Question 93: So if the hospital accepted your bid you would then turn around and award the electrical sub-contract to Naylor at the price indicated.
Answer: Subject to certain clarifications I can’t say that it would be an absolute given.
Question 94: You have mentioned “certain clarifications”. What do you mean by that?
Answer: We have a process where we will sit down with the sub-contractor and go through the job. We have to be assured that he is doing it in accordance with our schedule and he does have a complete scope of the work and certain things of that nature are in order. We would tender the job to the owner and based on the way the process is we are assuming that is the case.
The “certain clarifications” mentioned by the appellant’s witness would, if lacking, go to the issue of reasonable objection. No other conditions precedent were mentioned.
[47] I therefore reject the dismissive expression of the appellant’s Project Manager that the Bid Depository was “just a fancy name for somebody collecting prices”. It was contrary to the rules of the Bid Depository that a subcontractor’s bid, once disclosed, would become merely a bargaining lever against other electrical subcontractors to obtain the same or a lower price.
[48] The appellant complains that it did not “shop” the respondent’s bid, as the trial judge defined it, because at the time it solicited the bid it did intend to subcontract the work to the respondent if it turned out to be the low bidder, and it subsequently used the respondent’s price as “a budget” to get the work done, not as a lever to obtain a still lower price from other subcontractors. This, while plausible, misses the point. The question at this stage is not whether the appellant engaged in bid shopping as defined by the trial judge but whether the rules of the Bid Depository created an effective contractual barrier to the practice, which was a leading selling point to the industry. In my view, the documentation referred to above, read in light of the rules of the Toronto Bid Depository, were intended to and did bring into existence, upon tender, a Contract A which required the successful prime contractor to subcontract to the firms carried in the absence of a reasonable objection.
[49] The appellant also complains that in effect the court here would be “implying” a term into Contract A without meeting the stringent requirements laid down in Canadian Pacific Hotels Ltd. v. Bank of Montreal, 1987 CanLII 55 (SCC), [1987] 1 S.C.R. 711, and Martel Building, supra. In my view, however, the obligation to contract, subject to reasonable objection, arises directly out of the rules of the Bid Depository and related (and required) standard form documentation, and does not resort to an “implied” term.
[50] Finally, the appellant warns that this conclusion “imposes highly dysfunctional constraints on the ability of prime contractors and owners to deal with unusual problems that may arise in the course of the tendering/bidding process”. It seems to me the rules of the Bid Depository are intended to impose constraints. The prime contractor is protected by Article 10 of the General Conditions of the Stipulated Price Contract that would eliminate a subcontractor if the owner had “reasonable cause” to object (Article 10.3) or if the prime contractor itself “may reasonably object” (Article 10.5). The prime contractor’s protection lies in the contractual right to object. The subcontractor’s protection lies in the concept of “reasonableness”. An unreasonable objection does not suffice. If other participants in the Bid Depository system agree with the appellant that such a constraint is “dysfunctional”, the rules can always be amended.
[51] I therefore agree with Weiler J.A. that the various terms and conditions governing the Toronto Bid Depository, when read together, compel the conclusion that, when the appellant chose to carry the respondent’s bid in its tender to the owner, it committed itself to subcontract the electrical work to the respondent in the absence of a reasonable objection. What is “reasonable” depends on the facts of the case.
2. Was Contract A Frustrated by Reason of the OLRB Decision of February 28, 1992?
[52] The appellant says that even if it was bound by Contract A, whatever its terms, it was nevertheless relieved of any obligation by the supervening event of the OLRB decision dated February 28, 1992 which required it to use IBEW electricians on its projects. The respondent’s employees were members of a different union. Accordingly, it says, the possibility of a subcontract was out of the question.
[53] Frustration occurs when a situation has arisen for which the parties made no provision in the contract and performance of the contract becomes “a thing radically different from that which was undertaken by the contract”: Peter Kiewit Sons’ Co. v. Eakins Construction Ltd., 1960 CanLII 37 (SCC), [1960] S.C.R. 361, per Judson J., at p. 368, quoting Davis Contractors Ltd. v. Fareham Urban District Council, [1956] A.C. 696 (H.L.), at p. 729.
[54] Earlier cases of “frustration” proceeded on an “implied term” theory. The court was to ask itself a hypothetical question: if the contracting parties, as reasonable people, had contemplated the supervening event at the time of contracting, would they have agreed that it would put the contract to an end? The implied term theory is now largely rejected because of its reliance on fiction and imputation.
[55] More recent case law, including Peter Kiewit, adopts a more candid approach. The court is asked to intervene, not to enforce some fictional intention imputed to the parties, but to relieve the parties of their bargain because a supervening event (the OLRB decision) has occurred without the fault of either party. For instance, in the present case, the supervening event would have had to alter the nature of the appellant’s obligation to contract with the respondent to such an extent that to compel performance despite the new and changed circumstances would be to order the appellant to do something radically different from what the parties agreed to under the tendering contract: Hydro-Québec v. Churchill Falls (Labrador) Corp., 1988 CanLII 37 (SCC), [1988] 1 S.C.R. 1087; McDermid v. Food-Vale Stores (1972) Ltd. (1980), 1980 CanLII 1076 (AB QB), 14 Alta. L.R. (2d) 300 (Q.B.); O’Connell v. Harkema Express Lines Ltd. (1982), 1982 CanLII 3198 (ON SC), 141 D.L.R. (3d) 291 (Ont. Co. Ct.), at p. 304; Petrogas Processing Ltd. v. Westcoast Transmission Co. (1988), 1988 CanLII 3462 (AB QB), 59 Alta. L.R. (2d) 118 (Q.B.); Victoria Wood Development Corp. v. Ondrey (1978), 1978 CanLII 1447 (ON CA), 92 D.L.R. (3d) 229 (Ont. C.A.), at p. 242; and G. H. L. Fridman, The Law of Contract in Canada (4th ed. 1999), at pp. 677-78.
[56] While the second approach (“a radical change in the obligation”) is to be preferred and is now the established test, the appellant’s argument would fail under either view. There has been no “supervening event” in the sense required by either approach to the doctrine of frustration and in fact the OLRB ruling against the appellant was a foreseeable outcome.
[57] With all due respect to the learned trial judge, who concluded that any contractual obligation arising under Contract A had been frustrated by the OLRB decision of February 28, 1992, the appellant is in no better position than someone who sells his house to two successive buyers. At issue was the right to do the electrical work. The IBEW said that in 1962 it was promised for its members the electrical work on the appellant’s projects and the OLRB found that the appellant had largely observed this collective bargaining obligation over the next 30 years. The OLRB decision of February 28, 1992 recognized and affirmed the appellant’s obligation to the IBEW. It did not create it. Accordingly, when the appellant approached the respondent to do the OTMH work with non-IBEW workers, and subsequently carried the bid to the owner, it was promising work that, so far as the IBEW was concerned, the appellant had already bargained away.
[58] In my view, the OLRB decision no more qualified as a “supervening event” than would a court decision upholding the validity of the first of two inconsistent contracts for the sale of a house. The judicial decision, far from frustrating and putting to an end the second contract, simply lays the basis for a claim in damages by the second purchaser. The OLRB merely affirmed a pre-existing obligation voluntarily entered into by the appellant that was too late disclosed to the respondent.
[59] There is another reason why the doctrine of frustration is inapplicable. Contract A left open the possibility that for some good reason the appellant might “reasonably object” to the awarding of the subcontract to the respondent. The owner and the appellant had satisfied themselves about the respondent’s qualifications on the basis of information known to them at the time of carrying its bid in the tender for the prime contract. However, there might obviously have arisen subsequent events (e.g., loss of key personnel) or belatedly disclosed information (e.g., financial insolvency) that would render an objection reasonable. The parties to Contract A specifically provided their own test to deal with supervening circumstances by means of a flexible exit option based on reasonableness. As a matter of construction, there is no need here to consider court-imposed remedies based on the allegation of a radical change to the significance of the contractual obligation.
[60] The legal issue raised on these facts is not the doctrine of frustration but whether, in light of its conduct under the rules of the Bid Depository, it was “reasonable” of the appellant to object to the respondent’s union affiliation.
3. Did the Appellant Breach the Terms of Contract A?
[61] The appellant has throughout taken the position that its only objection to the respondent is the fact that it is not an IBEW subcontractor. In my view, its conduct throughout the OTMH project disentitled it from characterizing such an objection as “reasonable”.
[62] This is not to understate the importance of the OLRB’s affirmation of IBEW bargaining rights. I do not agree, as will be seen, with the Court of Appeal’s optimism that the OLRB ruling could be abated or circumnavigated. (Neither, it seems does the OLRB itself: Marathon-Delco Inc., [2000] O.L.R.D. No. 542 (QL).) The IBEW, having established the correctness of its position at much effort and expense, could be expected to insist on the fruits of victory. The respondent says that the appellant simply acted duplicitously and crassly. Depending on who got the electrical subcontract, it knew it was going to be sued by either the IBEW or the respondent. It apparently viewed a suit by the respondent as the softer option. This observation may have a measure of truth, but the more important fact is that the OLRB ruling is backed up by a statutory enforcement scheme that the appellant is obliged to recognize as paramount. An employer is required by the Ontario Labour Relations Act, 1995, S.O. 1995, c. 1, Sched. A (formerly Labour Relations Act, R.S.O. 1990, c. L.2), to comply with an OLRB order (s. 48(18)) which may be enforced in the same manner as an order of the Ontario Superior Court (s. 48(19)). A corporation that contravenes an order is guilty of an offence carrying a fine of not more than $25,000 (s. 104(1)(b)) and each day of a continuing contravention is a separate offence (s. 104(2)). (References are to the present numbering of the relevant sections of the Act.)
[63] The appellant’s argument, with respect, sets up a straw man. The severity of the Act’s provisions simply exposes the folly of the appellant’s assurances and conduct at a time when the OLRB decision was looming. If the appellant had instead been subjected to a court order to sell its house to an earlier purchaser (to revive the analogy), disobedience to the order of specific performance would also bring dire consequences, but nevertheless the court order would not relieve the appellant from its obligation to pay damages to the disappointed second purchaser. And so it is with Contract A. The appellant chose to carry the respondent instead of its IBEW affiliated rival, Comstock, and thereby assured itself as low bidder of winning the prime contract. It was held by the OLRB to have previously promised the work to IBEW electricians. By reason of that earlier obligation, it was unable to fulfill its subsequent obligation under Contract A. It couldn’t keep both sets of promises. It is perfectly fair that it compensate the respondent for its non-performance of Contract A.
[64] The appellant’s dilemma is not without its sympathetic aspects. The OLRB decision was pending for about a year. In the meantime the appellant, as a practical operator, had either to bid carrying IBEW subcontractors (perhaps unnecessarily) and risk losing major projects, or bid carrying non-IBEW subcontractors (perhaps wrongly) and risk the subsequent wrath of the IBEW and, perhaps, the OLRB. The problem, in the end, is that it purported to solve its dilemma at the respondent’s expense.
[65] The appellant, with full knowledge of the IBEW situation, had gone out of its way to assure the respondent that its in-house union affiliation was no cause for concern and would be no basis for objection. It carried the respondent’s bid in its tender for the prime contract in December 1991, with full knowledge both of the IBEW proceedings before the OLRB and the respondent’s non-IBEW union affiliation. It affirmed its agreement to use the respondent when it put forward the respondent’s addendum price in its submission to the owner on March 17, 1992, more than two weeks after its Director of Legal and Labour Operations had received full notice of the OLRB ruling and began to seek advice on its impact. It formally affirmed the respondent’s expected role in the actual contract between the owner and the appellant dated May 6, 1992 because otherwise it would have been obliged to admit it was signing a multi-million dollar contract including major electrical work without anyone in sight who was prepared and IBEW-equipped to perform it at the respondent’s price. The appellant was not prepared to give the electrical work to Comstock, which was already on the job as mechanical contractor, whose bid price had been $411,000 higher than the respondent.
[66] The evidence on these matters was clear and uncontradicted. The potential IBEW problem was flagged by the respondent itself at the initial contact in early November 1991. The “no problem” assurance was given after consultation within the appellant organization by Mr. Paul Quinless, who as the senior estimator had responsibility for bidding on the OTMH project. Mr. Quinless testified as follows:
A. . . . My first job would be to contact all the pre-qualified sub-contractors, all of the invited sub-contractors and basically invite them to bid on the job so a fax would be sent out, or a letter sent out inviting them to bid.
A. I had a specific question from Naylor asking, explaining the fact that they were non-union, or non I.B.E.W., that they had their own in-house union affiliation and the question was asked could we use them? I checked it out and my response to Naylor was that we could use them. [Emphasis added.]
[67] This erroneous advice was not corrected until a month and a half after the adverse OLRB ruling. Indeed, the appellant’s Project Manager on the OTMH job, Mr. Bruno Antidormi, acknowledged that the respondent was not even given the signal that IBEW storm clouds might be gathering on the horizon:
Q. You could have written to Naylor and said “We have had this hearing. We may lose the hearing. There could be a problem down the road.”
A. Okay, a bit of good advice.
Q. But you didn’t do that.
A. No, we didn’t do that.
[68] On March 17, 1992 – well after the appellant acknowledges receiving and considering the OLRB decision – it affirmed its selection of the respondent by approving and submitting Naylor’s price in its response to Bid Revision No. 1 (Post Tender Addendum No. 1). The appellant’s Project Manager so testified:
Q. This letter of March 17th is some 18 days or so after the Ontario Labour Relations Board decision was placed into the hands of Ellis-Don?
A. That is correct. I was aware of the [OLRB] decision at this point.
[69] Even more remarkably, the appellant signed the prime contract dated May 6, 1992 – about two months after the appellant was fully aware of the OLRB decision – undertaking to the owner once again to use the respondent to do the electrical work. This was confirmed in testimony by Bruno Antidormi, the appellant’s Project Manager:
Q. . . . In that paragraph [2.2] in the [prime] contract which you signed, sir, says “The contractor . . .” which is yourself there, Ellis-Don. . .
A. Mm-hmm.
Q. “. . . agrees to employ those sub-contractors proposed in writing and accepted by the owner at the signing of the contract.” Do you agree with me?
A. I agree with you.
Q. Up until that date, May 6th, had you proposed in writing any other sub-contractor for electrical work other than Naylor?
A. On May 6th? No, we did not. . . .
[70] I agree with the appellant that the OLRB ruling of February 28, 1992 put an end to the lawful ability to use the services of the respondent. In my view, however, the fact it lost its OLRB gamble is not sufficient to absolve it of the financial consequences to the respondent. Its belated objection to the respondent, in light of this history, was unreasonable.
[71] The respondent takes a darker view of the appellant’s conduct. It contends that non-disclosure of the IBEW problem and the other matters referred to above were far from innocent. It insists that if the appellant had carried the lowest IBEW subcontractor (Comstock) for the electrical work, it would not have been low bidder on the OTMH project. The respondent says its bid was “used” to obtain the prime contract and “used” again to secure a substitute electrical subcontract at the same price from Guild Electric, all of which it says was contrary to the rules of the Toronto Bid Depository. The appellant’s denial lacked much conviction:
Q. So, Mr. Antidormi, you went to them, knowing Naylor’s price, knowing their bid amount, told the full amount and said to Guild, “Do the job for this”.
A. Yes.
Q. To your way of thinking that is not “shopping” the Naylor price.
A. I didn’t tell them to match the price. I said this is what you can do the job for.
[72] While both the trial judge and Weiler J.A. in the Ontario Court of Appeal found the appellant’s conduct in this respect distasteful, I think it is sufficient to dispose of the case on the narrow contractual ground that the appellant could only extricate itself from Contract A by demonstrating that, in all the circumstances, its objection was “reasonable”, and this it has failed to do.
4. What Are the Respondent’s Damages for Breach of Contract A?
[73] The well-accepted principle is that the respondent should be put in as good a position, financially speaking, as it would have been in had the appellant performed its obligations under the tender contract. The normal measure of damages in the case of a wrongful refusal to contract in the building context is the contract price less the cost to the respondent of executing or completing the work, i.e., the loss of profit: M.J.B. Enterprises Ltd., supra, at p. 650; Twin City Mechanical v. Bradsil (1967) Ltd. (1996) 31 C.L.R. (2d) 210 (Ont. Ct. (Gen. Div.)), at pp. 225-26; S. M. Waddams, The Law of Damages (3rd ed. 1997), at para. 5.890; H. McGregor, McGregor on Damages (16th ed. 1997), at para. 1154.
[74] The appellant accepts these general propositions as correct and, in the event of liability being found against it, does not contest the Court of Appeal’s assessment. It is the respondent who complains in its cross-appeal that this award is too low. Its claim for lost profit was $1,769,412. This was a figure calculated by the President of the respondent, Mr. Hitchman, based on an average mark-up of 12.4 percent on the contract price plus addendum, grossed up to an average mark-up of 31.2 percent on the entire job because of Mr. Hitchman’s demonstrated capacity to squeeze profit out of contract extras.
[75] The trial judge concluded that Mr. Hitchman’s projected profit of $1,769,412 was overly optimistic, and held the respondent to a more realistic mark-up of 11.2 percent plus minor adjustments, producing a figure of $730,286. In making what he called a “highly speculative assessment”, he noted that Guild Electric had suffered a significant financial loss on the job.
[76] The trial judge recognized that there had been unanticipated site problems including what he referred to as “[t]he disaster on the demolition/wireway”. Guild Electric had allowed almost twice the time as the respondent for the “demolition/wireway” (between 300 and 400 hours), but in fact spent 3,000 hours investigating and altering the existing electrical conduits. The trial judge deducted $100,000 from the respondent’s claimed loss of profit on this account.
[77] The trial judge concluded that the respondent was better placed than Guild Electric had been to turn a profit on the OTMH job because it was a tightly-managed local Oakville firm with previous hands-on work experience at OTMH, and had a labour rate advantage over its IBEW affiliated rivals.
[78] He further found that the institutional construction market in Ontario went into a steep decline in 1992. “[T]he economic climate in this industry from 1992 to 1995”, he concluded, “was disastrous”. Accordingly, he ruled that the respondent was in no position to mitigate its damages with other work, and had not succeeded in doing so.
[79] The Court of Appeal reduced the $730,286 by 50 percent because it felt the trial judge had failed to take into account a number of relevant features of the unexpectedly adverse conditions on the job site. It then reduced the resulting figure of $365,143 by a further 50 percent (i.e., to $182,500) for the contingency that the OLRB (if asked) might not have allowed the award of the contract to Naylor, or that Naylor might have been required to enter into an unprofitable arrangement with an IBEW subcontractor to carry out the OTMH work.
[80] It is common ground that the Court of Appeal was not entitled to substitute its own view of a proper award unless it could be shown that the trial judge had made an error of principle of law, or misapprehended the evidence (Lang v. Pollard, 1957 CanLII 79 (SCC), [1957] S.C.R. 858, at p. 862), or it could be shown there was no evidence on which the trial judge could have reached his or her conclusion (Woelk v. Halvorson, 1980 CanLII 17 (SCC), [1980] 2 S.C.R. 430, at p. 435), or the trial judge failed to consider relevant factors in the assessment of damages, or considered irrelevant factors, or otherwise, in the result, made “a palpably incorrect” or “wholly erroneous” assessment of the damages (Andrews v. Grand & Toy Alberta Ltd., 1978 CanLII 1 (SCC), [1978] 2 S.C.R. 229, at p. 235; Laurentide Motels Ltd. v. Beauport (City), 1989 CanLII 81 (SCC), [1989] 1 S.C.R. 705, at p. 810; Widrig v. Strazer, 1964 CanLII 76 (SCC), [1964] S.C.R. 376, at pp. 388-89; Woelk, supra, at pp. 435-37; Waddams, supra, at para. 13.420; and H. D. Pitch and R. M. Snyder, Damages for Breach of Contract (2nd ed. 1989) 15§5). Where one or more of these conditions are met, however, the appellate court is obliged to interfere.
[81] I agree with Weiler J.A. that the trial judge failed to relate the unexpectedly severe site problems, which he found as facts to exist, to his rather summary treatment of lost profits. The severity of the site conditions raised highly relevant considerations that were not restricted to the “demolition wireway”. Guild Electric may not have been a local Oakville firm, but it was a large, successful and experienced electrical contractor which, unlike the respondent, had previously done major jobs of this size. While recognizing the disastrous site conditions, the trial judge preferred to rest his calculation on the respondent’s bidding practices and historical profit levels on other jobs rather than (apart from an imputed loss on the “demolition/wireway”) on the facts of this particular job.
[82] I propose to deal separately with the two contingencies applied by the Court of Appeal.
(a) Unanticipated Job Site Conditions
[83] The hospital no longer retained “as-built” drawings and immense time was wasted during construction trying to identify the source and purpose of various wiring installations before demolition could proceed. Moreover, as the hospital continued to function during demolition and renovation of various parts, scheduling became a serious constraint, as the appellant’s Mr. Antidormi explained:
A. . . . if we had a renovation in a sensitive area such as the operating rooms or the intensive care facilities, it has to be properly scheduled, given the day to day delicate functions at the Oakville Hospital, which does a lot of eye surgery, there is no vibration allowed, no noise, no fumes. . . .
[84] Guild Electric had estimated a total labour cost of 46,000 hours for the project (working within the budget established by the respondent). It expended 66,000 hours. The trial judge found almost a 50 percent cost overrun (20,000 hours) in labour hours, only about half of which was paid for in “extras” by the owner.
[85] While some of these factors were noted by the trial judge, they were not integrated into his calculation of loss of profit. They ought to have been. The correct principle is stated in 12 Halsbury’s Laws of England. (4th ed. 1975), at p. 437:
- Possibilities, probabilities and chances. Whilst issues of fact relating to liability must be decided on the balance of probability, the law of damages is concerned with evaluating, in terms of money, future possibilities and chances. In assessing damages which depend on the court’s view as to what will happen in the future, or would have happened in the future if something had not happened in the past, the court must make an estimate as to what are the chances that a particular thing will happen or would have happened and reflect those chances, whether they are more or less than even, in the amount of damages which it awards.
[86] The site conditions and related performance problems persuaded Weiler J.A. to reduce the loss of profit to $365,143 and, given the necessarily speculative nature of the exercise, we have been given no reason to interfere on this point.
(b) IBEW-Related Difficulties
[87] Weiler J.A., having ruled that the appellant erred in refusing to contract with the respondent because the OLRB might have sanctioned a subcontract with the respondent, then reduced the respondent’s damages to $182,500 on the basis that the OLRB might not have done so. In that event, the respondent might have had to do some sort of deal with an IBEW subcontractor, which would have further squeezed the respondent’s profit, she concluded.
[88] I think this line of reasoning carries the “speculative” exercise too far. As the appellant points out, “[t]he options posited by the Court of Appeal were contrary to what the parties had accepted as common ground (i.e., that the O.L.R.B. decision meant Ellis-Don could not sub-contract with Naylor)” (factum, at para. 64). Section 161(4) of the Labour Relations Act, 1995 (formerly s. 147(4)) provides that a collective agreement is binding on the parties when the union obtains bargaining rights and the Act does not provide for any exemptions from that result. As to a potential business arrangement between the respondent and another electrical subcontractor, the respondent itself wrote to the appellant on May 11, 1992 stating that it would be “impossible” for it to consider aligning itself with an IBEW affiliate. I agree with the appellant that there was no basis to expect any indulgence from the OLRB or the IBEW.
[89] However, on the somewhat different view I take of this case, it was not necessary to establish liability for the respondent to show that the OLRB might have been persuaded to grant the appellant an indulgence. The unreasonableness of the appellant’s objection relates to its own prior conduct and representations, not to speculation about the help the OLRB might have offered had the appellant sought its assistance to award Contract B to the respondent. The fact the OLRB might have been of no help at all is equally irrelevant.
[90] The award of the subcontract to the respondent would have created severe legal problems for the appellant, but the issue at this point is what impact, if any, those problems would have had on the profitability of the subcontract from the respondent’s perspective. If the appellant wished to demonstrate that the respondent could never have turned a profit on a job site already promised to IBEW members (and that the hoped-for Contract B would thus have been a sure loser), or that the respondent’s profit would have been reduced by labour disruption, or some other such theory, there ought to have been evidence in that regard. On the contrary, the appellant’s witnesses did not suggest that labour problems awaited the respondent on the job site, and the respondent filed a convenient letter dated May 5, 1992 from its lawyers expressing optimism on this point:
If the I.B.E.W. pickets the construction project causing either a work slow down or stoppage of work by the various trades visiting the site, the general contractor can apply to the Ontario Labour Relations Board for a cease and desist order. The I.B.E.W. has signed a collective agreement with the Contractors Association thereby rendering any strike activity on their part illegal during the currency of that agreement. If the I.B.E.W. engages in picketing or other activity which causes an illegal strike by another trade, their picketing activity can be enjoined by the Ontario Labour Relations Board. It usually takes anywhere between 48 and 72 hours to proceed to a hearing before the Ontario Labour Relations Board and obtain a cease and desist order.
[91] It seems to me the evidence did not justify the Court of Appeal’s reduction of the respondent’s loss of profit to $182,500 for labour relations contingencies. The cross-appeal, to that extent, should be allowed, and the damage award increased to $365,143.
5. In the Alternative, Is the Respondent Entitled to Recover on the Basis of Unjust Enrichment?
[92] In light of the conclusion that the respondent is entitled to recover damages for breach of contract, there is no need to examine the alternative ground of unjust enrichment relied upon by the trial judge.
IV. Disposition
[93] I would dismiss the appeal with costs to the respondent, and allow the cross-appeal with costs. Judgment will be entered for the respondent in the sum of $365,143 plus pre-judgment interest and costs.
Appeal dismissed with costs and cross-appeal allowed with costs.
Solicitors for the appellant/respondent on cross-appeal: Lerner & Associates, London, Ontario.
Solicitors for the respondent/appellant on cross-appeal: Thomson, Rogers, Toronto.