COURT FILE NO.: 20-94249
DATE: 2020/11/05
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Ocean Dredging DM Inc., Plaintiffs
AND
Kehoe Marine Construction Ltd., Defendants
BEFORE: Mr. Justice Marc R. Labrosse
COUNSEL: Geoffrey Cullwick and Fred E. Seller, Counsel for the Plaintiff
Shawn J. O’Connor and Allison A. Russel, Counsel for the Defendant
HEARD: October 29, 2020
ENDORSEMENT
OVERVIEW
[1] The Plaintiff Ocean Dredging DM Inc. (“Ocean”) moves for injunctive relief against the Defendand Kehoe Marine Construction Ltd. (“Kehoe”) to prevent Kehoe from unlawfully disregarding and failing to comply with a binding Memorandum of Understanding (“MOU”) entered into by the parties on or about May 13, 2020.
[2] The MOU provides that Ocean will act as an exclusive subcontractor to Kehoe and that Ocean and Kehoe will work together as part of Kehoe’s submission to the Ministry of Transportation of Ontario (“MTO”) on a bid for the dredging and renovation of Lake Ontario, known as the Kingston Shoal and Barret Bay Project (the “Project”). The Project was described as the upgrade of the ferry crossing between Kingston and Wolfe Island being MTO Contract 2020-4010.
[3] The scope of work in the MOU contemplated the rental of Ocean’s scow barges by Kehoe for dredging in 2020 and then dredging services to be performed by Ocean as Kehoe’s subcontractor in 2021. The MOU contemplates that should Kehoe be the successful bidder, the parties will enter into two (2) subcontracts which operate under the main contract to be entered into between Kehoe and the MTO (the “Prime Contract”).
[4] The evidence shows that the parties worked together from April 2020 to May 13, 2020 on negotiating the MOU and particularly Schedule “A” to the MOU which set out the particulars for the two (2) subcontracts and highlighted the areas where the parties did not agree and where further negotiations were required.
[5] After being declared the successful bidder on June 9, 2020, Kehoe was required to enter into the Prime Contract with the MTO and Ocean had a seven (7) day period to review the terms of the Prime Contract. Ocean did not provide its comments within that period. Kehoe took the position that Ocean had to commit to honouring the intent and contract requirements of the Prime Contract within the subcontracts. Ocean was of the view that the subcontracts did not necessarily have to mirror the Prime Contract and that some deviation was possible. Otherwise, Ocean would not be able to maintain its pricing given that it would be taking on greater risk. By the time Ocean responded with its terms, Kehoe had already signed the Prime Contract and communicated with a third party, Dean Construction Company (“Dean”) for the rental of its scow barges. There are questions surrounding Kehoe’s efforts to find a solution to the impasse between itself and Ocean.
[6] For the reasons that follow, I conclude that the request for injunctive relief fails at every step of the analysis. While the MOU contains very definitive wording on the obligations of the parties to negotiate the subcontracts, the evidence demonstrates that there were issues surrounding the subcontracts that were still unresolved. Although the wording of the MOU creates positive obligations, the MOU fails to address a number of key issues and the Plaintiff has failed to demonstrate that it is clearly an enforceable contract. Thus, at the first step of the analysis, Ocean must demonstrate that they are clearly right and almost certain to be successful at trial. This threshold has not been met.
[7] Ocean has also failed to demonstrate that it will suffer irreparable harm. Its claims to loss of reputation and goodwill are not made out. Finally, the balance of convenience clearly favours Kehoe given that this is now an ongoing contract and that the steps required to give effect to the MOU would clearly put the delivery of the Project at risk. The bottom line is that Ocean has a claim for monetary damages.
FACTUAL BACKGROUD
[8] Both Kehoe and Ocean are marine construction and dredging contractors.
[9] On or about March 25, 2020, the MTO published a tender for the Project. The tender submission was a single line lump sum price to do the work identified in the tender documents. The tender was scheduled to close May 13, 2020 at 3:00 p.m.
[10] In early April 2020, Ken Kehoe from Kehoe contacted Tommy Theriault of Ocean to inquire about renting scow barges from Ocean. The parties differ as to the extent of Ocean’s involvement in the bidding process. Ocean maintains that Ocean and Kehoe discussed significant confidential and proprietary information including the technical specifications of the methods, equipment and machinery Ocean intended to supply and the manner in which Ocean would perform the dredging work. Kehoe minimizes Ocean’s contributions. Regardless, Ocean and Kehoe entered into a Non-Disclosure Agreement on or about April 21, 2020.
[11] The parties then proceeded to negotiate the MOU from April 23, 2020 to May 13, 2020. During this time, the parties exchanged numerous communications, some of which highlighted a fundamental difference in expectations in the form and content of two (2) subcontracts. The first was for the rental of two scow barges in 2020 and the second for dredging services to be performed in 2021. Kehoe took the position that the subcontracts had to mirror the terms and conditions of the Prime Contract. Conversely, Ocean advised that they would require several modifications to the draft subcontracts and took the position that deviations were permitted from the Prime Contract.
[12] The MOU was signed on May 13, 2020 with a Schedule “A” which included a list of Main Modifications to be made to the subcontract and identified a number of key issues that continued to be subject to further negotiations. The MOU included Ocean’s pricing which formed a part of the Kehoe submission. Some of the key provisions that were not agreed upon were the priorities of the various contracts and if the Prime Contract took precedence over the subcontracts, a limit of indemnification to 50% of the subcontract price and issues surrounding Ocean’s liability for consequential damages.
[13] The purpose of the MOU is set out in section 2 which states that:
Ocean will act as an exclusive subcontractor to Kehoe for the Services (as defined in Section 3) and that Ocean and Kehoe will work together a proposal [sic] as part of Kehoe’s submission to the Client and as such, the Parties will focus on a technical, commercial and operational collaboration, with the objective to provide an attractive and compliant overall proposal for the Project to the Client.
[14] The MOU sets out the parties, the Project, the MOU’s purpose (section 2), and the work Ocean will perform as part of the Project (section 3). The MOU provides that parties were to enter into two (2) subcontracts, one for Ocean’s supply of two “bottom door scows” (scow barges) and their preparation, mobilization, and demobilization (sections 3d and 3e of the MOU); and the second was for dredging of 123,000 cubic metres of the base of Lake Ontario (sections 3a, 3b, and 3c of the MOU) in 2021.
[15] The MOU also imposes the obligation on both parties to work together, negotiate, and enter into these subcontracts in good faith, including in section 1, which states that the parties will “…proceed in good faith to pursue the objectives” set out in the MOU; and in section 2, which states that “[b]oth subcontracts shall be negotiated in good faith by the Parties.”
[16] Section 5 of the MOU lists the circumstances in which the MOU would terminate as follows:
a. the execution by the Parties of the two Subcontracts;
b. the Client definitively abandoning the Project;
c. the Client postponing the Project for a period longer than two (2) years;
d. the Project being awarded to a third party other than Kehoe;
e. two (2) years after signing the MOU;
f. the Parties’ mutual agreement to terminate the MOU.
[17] Section 6 (exclusivity) states that “From the execution of this MOU until its termination, the Parties covenant that they shall not, directly or indirectly, solicit or consider any alternative offers or negotiate with any other entity whatsoever relating to the Project. For greater clarity, Ocean will be exclusive to Kehoe for all the Services and vice versa.”
[18] Kehoe’s bid was accepted on June 9, 2020. By this time, both parties were aware that the first category of dredging work was required to commence on July 15, 2020. Kehoe had until June 15, 2020 to sign the Prime Contract. The MOU provided that Ocean would do its review of the Prime Contract within 7 days but Ocean advised that it would be unrealistic for Ocean to achieve a proper legal review within that time. Kehoe signed and returned the Prime Contract to the MTO on or about June 15, 2020.
[19] Ocean created a climate of uncertainty about the availability of its scow barges for the commencement of the contract on July 15, 2020. Ocean advised that the two scow barges were in need of repair and that they were be going into drydock in Quebec City. Ocean did not provide a firm commitment as to what date the scow barges would be on site but seemed to minimize the July 15, 2020 start date.
[20] Ocean provided its response to the Prime Contract in the form of a draft subcontract on June 24, 2020. Ocean was not seeking to alter the Prime Contract but it required changes to the subcontract that deviated from the Prime Contract in a number of ways. Of relevance, Ocean’s modifications to the subcontract required for the subcontract to have priority over all other documents, including the Prime Contract and the tender documents. Ocean advised that if it could not change the provisions of the subcontract, then this could impact its price as it would be taking on more liability. It also stated that it would not be able to get the approval of its legal department.
[21] On June 26, 2020, Kehoe advised that it could not accept the proposed terms for the subcontract and that the parties were at a complete impasse. The evidence then reveals that Kehoe had contracted with Dean for the use of its scow barges on June 25, 2020. While the parties had discussions and one in-person meeting following the unilateral termination by Kehoe, these contacts did not lead to any meaningful negotiations. Dean’s scow barges were on site for the commencement of the Project on July 17, 2020.
[22] Ocean issued a Statement of Claim on August 31, 2020 and served this motion seeking an injunction on September 1, 2020. Initially, both the claim and the motion sought relief prohibiting Kehoe from breaching the exclusivity clause in the MOU and mandatory orders requiring Kehoe to negotiate and enter into the subcontracts. Ocean amended its Notice of Motion to remove the portions that directly seek a mandatory injunction. However, that relief is still sought in the Statement of Claim.
APPLICABLE LAW
[23] The relevant sections of the Courts of Justice Act, R.S.O. 1990, c. C. 43, with respect to injunctive relief and damages are:
Damages in substitution for injunction or specific performance
99 A court that has jurisdiction to grant an injunction or order specific performance may award damages in addition to, or in substitution for, the injunction or specific performance.
Injunctions and receivers
101(1) In the Superior Court of Justice, an interlocutory injunction or mandatory order may be granted or a receiver or receiver and manager may be appointed by an interlocutory order, where it appears to a judge of the court to be just or convenient to do so.
[24] The relevant subrules under the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, are:
40.01 An interlocutory injunction or mandatory order under section 101 or 102 of the Courts of Justice Act may be obtained on motion to a judge by a party to a pending or intended proceeding.
40.03 On a motion for an interlocutory injunction or mandatory order, the moving party shall, unless the court orders otherwise, undertake to abide by any order concerning damages that the court may make if it ultimately appears that the granting of the order has caused damage to the responding party for which the moving party ought to compensate the responding party.
[25] As the Supreme Court set out in RJR-MacDonald Inc. v. Canada (Attorney General), 1994 CanLII 117 (SCC), [1994] 1 S.C.R. 311 , at para. 48, in deciding whether it is just and convenient to grant an injunction, the court must address three questions:
a. Is there a serious issue to be tried?;
b. Will the moving party suffer irreparable harm if the relief is not granted?; and
c. Which party will suffer the greater harm from granting or refusing the remedy pending a decision on the merits?
Is there a serious issue to be tried?
[26] In cases of a prohibitive or negative injunction, the moving party must satisfy the Court that there is a “serious issue to be tried” with respect to the moving party’s case. A serious issue to be tried will be established if the moving party satisfies the court that the claim is not frivolous or vexatious. As stated in RJR-MacDonald at para. 55, the threshold is a “low one”.
[27] However, where a mandatory injunction is sought, the moving party must establish that it has a “strong prima facie case. The test for a mandatory injunction was set out by the Supreme Court of Canada in R. v. Canadian Broadcasting Corp., 2018 SCC 5, [2018] 1 S.C.R. 196, at para 18:
In sum, to obtain a mandatory interlocutory injunction, an applicant must meet a modified RJR — MacDonald test, which proceeds as follows:
(1) The applicant must demonstrate a strong prima facie case that it will succeed at trial. This entails showing a strong likelihood on the law and the evidence presented that, at trial, the applicant will be ultimately successful in proving the allegations set out in the originating notice;
(2) The applicant must demonstrate that irreparable harm will result if the relief is not granted; and
(3) The applicant must show that the balance of convenience favours granting the injunction.
[28] If this injunction were prohibitive in nature, I would have no difficulty finding that there is a serious issue to be tried. However, and despite the amendment to its Notice of Motion trying to word the relief sought as a prohibition from breaching the MOU, the Plaintiff is clearly seeking to require Kehoe to negotiate the terms of the subcontracts and to ensure that Kehoe only deals with Ocean as its sole subcontractor. The substance of the relief sought is clearly mandatory in nature as it requires Kehoe to follow the MOU by negotiating in good faith and goes so far to require Kehoe to subcontract only with Ocean.
[29] Therefore, the question I must answer is whether, on the basis of the record before me, Ocean is almost certain to be successful on its claims at trial.
[30] Turning to the MOU, I agree with the Plaintiff that its wording places positive obligations on the parties. “Ocean will act as an exclusive subcontractor to Kehoe” and “the Parties shall conclude” the subcontracts. Also important is the fact that the subcontracts “shall” be negotiated in good faith by the parties. I also agree with the Plaintiff that it is not up to the Court to re-write the MOU. It is clear that the MOU did not provide for termination other than as set out in para. 5. Thus, it did not allow for a unilateral termination by Kehoe.
[31] However, the Plaintiff must demonstrate that there is a strong likelihood that at trial, the Court will deem that the MOU is a binding contract. I conclude that the Plaintiff has not met this threshold for the following reasons:
a. At the time of signing the MOU, both parties acknowledged that they had not attained the level of certainty to confirm that they had reached agreements on the subcontracts. Both parties acknowledged that they were signing the MOU “in the spirit of working together and resolving these items through negotiations”;
b. In Georgian Windpower v. Stelco, 2012 ONSC 3759, 113 O.R. (3d) 81, at para. 125, the Court recognized a line of cases which support the notion that agreements to provide for future agreements can be binding. The items for negotiation cannot be too uncertain and there should be a mechanism or formula to resolve an impasse. “The issue is whether the provision for the future agreement is directory or mechanical as opposed to the substance of the provision”. In the terms of the ongoing negotiations, one cannot conclude that they were simply mechanical or subject to a pre-existing formula. The issue of the extent to which the subcontracts followed the direction of the Prime Contract is a major issue which could put Kehoe in breach of the Prime Contract if not respected. Issues surrounding limits of liability and a possibility of impact on the pricing are significant. A review of Exhibit “67” of Kehoe’s affidavit demonstrates that the issues that remained for negotiation were substantial and certainly not mechanical.
c. The subjective belief of Ocean is evident in the position it was taking on liability. Ocean advised that if there were not limits on its exposure to liability, that it would have to increase its price. This does not demonstrate a certainty on the terms when an outstanding issue subject to negotiation can then change the pricing. Clearly, this was a major issue that was outstanding and there was no mechanism in place to resolve the divergent views. Furthermore, the evidence is that Ocean would not transport the scow barges to the site or event start the repairs without a signed subcontract and this was another issue that was not finalized. The evidence shows that Ocean went so far as stating that their legal department would never sign off on the subcontracts if they mirrored the Prime Contract.
d. There was no apparent commitment by Ocean to meet the required start date of July 15, 2020. On June 18, 2020, Ocean advised that the scow barges were in need of repair and the draft subcontract required that Kehoe pay a deposit of $393,000.00 to fund the repairs. There were no suggestions of this in the MOU. There was also evidence to suggest that Ocean did not believe that July 15, 2020 was a firm start date. As of late June 2020, the repairs on the scow barges had not been undertaken and they have yet to be undertaken as of this date.
[32] In arriving at this conclusion, I do not comment on Kehoe’s compliance with the terms of the MOU. The MOU created very positive obligations on the parties with respect to the negotiation of the subcontracts in good faith. The evidence surrounding Kehoe’s contacts with Dean and the legitimate attempts to substantively deal with Ocean’s modifications to the subcontracts are matters that are beyond the scope of this analysis.
Irreparable Harm
[33] It is well established that in order to demonstrate irreparable harm, the Plaintiff must demonstrate that a refusal to grant the injunction will cause it harm that cannot be remedied by an award of damages.
[34] In RJR MacDonald, the Supreme Court of Canada confirmed that “irreparable” harm refers to the nature of the harm rather than its magnitude. It is harm that cannot be quantified in monetary terms or which cannot be cured. This can include market share loss, loss of goodwill or irrevocable damage to its business reputation: see Sadlon Motors Incorporated v. General Motors of Canada Limited et al., 2011 ONSC 2628, at para. 85.
[35] In support of its motion, Ocean claims three areas where it will suffer irreparable harm: damage to its reputation, damage to its market share, loss of goodwill and loss of actual or prospective projects. During the motion, Ocean argued the loss of reputation and loss of goodwill.
[36] The factual matrix used to support the claims to irreparable harm is as follows:
a. Loss of Reputation: The fact that Kehoe proposed to use Ocean’s scow barges and is now proceeding with scow barges from Dean.
− However, this ignores that Ocean was not mentioned on the bid proposal. Price was the only issue on that document and it did not include the scow barge certificates. MTO would not have known that Ocean was supplying scow barges until June 16, 2020 when the Prime Contract was signed. Subsequently to the award of the contract, Kehoe was required to provide the certificates for the scow barges to be used but there is no evidence that a change of scow barges would in any way reflect negatively on Ocean. Those certificates were part of a long list of certificates provided for the Project. There is no evidence to support a claim of loss reputation other than Ocean’s bald assertions. To the contrary, it seems that all MTO wanted were valid certificates. They did not prequalify the use of equipment or subcontractors.
b. Damage to its market share and loss of goodwill: With respect to the loss of market share and goodwill, the evidence provided was that without the Project as one of Ocean’s ventures in Ontario, its plans to expand into Ontario and establish a permanent office to manage this Project and future projects will no longer be financially viable.
− Once again, the Plaintiff does not provide any specific information about how it had determined that this Project was the key to its entry into the Ontario market. To the contrary, the evidence is that Ocean has already undertaken other projects in Ontario such as a larger project in Sarnia and it now has a contract for the Cornwall Bridge project. In addition, Ocean admitted to making good progress in negotiating agreements to be involved in other projects in Ontario including one of the project involved with the Wolfe Island Ferry. There is also no evidence that the fact that Kehoe is not using Ocean’s scow barges or that Ocean will not be doing dredging work on the Project in 2021 that this will limit its opportunities on other projects. Again, these are bald assertions made by Ocean that are not supported by evidence.
c. With respect to actual or prospective projects, Ocean has not provided any evidence of how its lack of involvement in the Project has negatively impacted its credibility, reliability and general legitimacy in such projects. As previously stated, Ocean’s role in the bidding process was limited to its price and the certificates for the two scow barges. There is no evidence that the switch of those certificates in favour of Dean’s certificates have in any way impacted Ocean’s credibility or reliability. Also, the tender for the Project was only based on price. There was no qualification of subcontractors and no requirement that subcontractors have a certain level of experience. All that was required was to have the certificates for the required equipment.
[37] In summary, there is no evidence of irreparable harm and I am certainly not able to draw any inferences of irreparable harm based on the evidence before me. I appreciate that the events surrounding the decision by Kehoe to proceed with Dean’s scow barges may be fairly recent and difficult to fully appreciate. However, I fail to see how the substitution of the Dean scow barges can negatively impact a company like Ocean who is active in the marine construction industry. There was evidence from the cross-examinations that Ocean has secured the Cornwall Bridge project and that it was well on its way to securing other projects in Ontario. Any harm suffered from the alleged breach of the MOUwould clearly be compensable by way of an award of damages.
Balance of Convenience
[38] The third stage of the RJR MacDonald test for injunctive relief is to determine which of the two parties will suffer the greater harm from the granting or refusal to grant the injunction.
[39] In considering this step, I accept Ocean’s evidence that it can have the scow barges mobilized within two weeks even if the repairs to the scow barges have yet to be done. There is no evidence to contradict this but I was not directed to any evidence of what “mobilize” specifically means in these circumstances. I also accept that the Court could allow for Kehoe to continue using the Dean scow barges until the subcontracts are negotiated, signed and time is afforded to repair the Ocean scow barges and get them on site and ready to be used. However, I cannot assume that Dean would be prepared to accommodate the timing and how it would react to Kehoe terminating its scow barge rental agreement.
[40] It is relevant to consider that in granting the injunction, this simply sends the parties back to the negotiating table. It was apparent in the original negotiations that the parties had very differing views on what the requirements were for compliance with the Prime Contract. I am unable to assume that Ocean would simply reverse its position that it firmly maintained. Also, I do not place any weight on Ocean’s offer to do so in July at a time when Kehoe was already proceeding with Dean. Thus, there is a real risk that Ocean would maintain its position that the subcontracts can vary away from the Prime Contract. This could be problematic for Kehoe and place it in conflict with the MTO.
[41] It is also impossible to assume what the impact of switching from Dean to Ocean at this point would be on the Prime Contract and Kehoe’s relationship with the MTO. Faced with the upcoming termination of the agreement between Kehoe and Dean, I am unable to determine if Dean would be accommodating or not.
[42] While Ocean spent significant time arguing the uncertainty of harm to Kehoe if the injunction were granted, it did not argue much harm to Ocean if the injunction was not granted. I have already dealt with their claims to irreparable harm
[43] I conclude if the injunction was granted, Kehoe is at risk of suffering the most harm. I am of the view that the Plaintiff is not certain to be successful on its claims at trial. The MOU is an agreement to negotiate the subcontracts with many terms outstanding. They truly signed the MOU (with its very strong wording) in the spirit of cooperation while acknowledging that they still had a long way to go before reaching consensus on the form and content of the subcontracts.
[44] Having come to the conclusion that the Plaintiff’s case is not strong, I consider the likelihood that all the pieces to the puzzle fall in line as the Plaintiff claims that they could. This requires that the negotiations reach agreement on the subcontracts, that Dean is prepared to cooperate until Ocean is ready to supply the scow barges and that these can be mobilized in two weeks or such other convenient time. This also assumes that the content of the subcontracts are not problematic for MTO and that MTO does not claim any breaches of the Prime Contract. Finally, it assumes that there will be no delays to the Project and that this does not have the risk of impacting the subsequent contracts associated with the Wolfe Island Ferry.
[45] Consequently, the risk of harm is far greater for Kehoe and I conclude that the balance of convenience falls in Kehoe’s favour.
[46] As a final comment, I also conclude that in looking at all the circumstances, it would not be just and equitable to grant the relief sought and risk causing disruption to the Project which is well on its way. The parties agreed to move forward in the spirit of working together and while they may have rights under the MOU, those rights do not warrant the granting of interlocutory relief.
DISPOSITION
[47] For the reasons set out herein, the Plaintiff’s motion for injunctive relief is dismissed.
COSTS
[48] If the parties are unable to agree on costs, the Defendant will have 15 days from the date of this Endorsement to provide the Court with written costs submissions. Thenceforth, the Plaintiff will have 15 days to respond. Each written costs submission shall not exceed three (3) pages, excluding additional attachments.
Justice Marc R. Labrosse
Date: November 05, 2020
COURT FILE NO.: 20-94249
DATE: 2020/11/05
ONTARIO
SUPERIOR COURT OF JUSTICE
RE: Ocean Dredging DM Inc., Plaintiffs
AND
Kehoe Marine Construction Ltd., Defendants
BEFORE: Mr. Justice Marc R. Labrosse
COUNSEL: Geoffrey Cullwick and Fred E. Seller, Counsel for the Plaintiff
Shawn O’Connor and Allison A. Russel, Counsel for the Defendant
ENDORSEMENT
Justice Marc R. Labrosse
Released: November 05, 2020