Reasons for Judgment

Court File No.: CV-06-23359 Date: 2023-01-06 Superior Court of Justice – Ontario

Between: Canada Forgings Inc., Plaintiff

• and - Atomic Energy of Canada Limited, Defendant

Counsel: G. R. Hall and M. Brown, for the Plaintiff R. Gillott, L. Bruschetta, M. Dick, and J. Doris (Limitation Period Issue), for the Defendant

Heard: 18-22 October 2021, 1-2 November 2021, 8-10 November 2021, 12 November 2021, 15-19 November 2021, 10-12 January 2022, 14 January 2022, final written submissions received 14 June 2022

Before: The Honourable Justice J. Krawchenko

Index

• Part I - Introduction
• Part II - Summary of Facts and Evidence
• Part III - Issues
  • a. Limitations Issue
  • b. Procurement Law Issue
  • c. Causation and Damages
• Part IV - Conclusion

Part I - Introduction

[1] In the period between 2004 and 2005, Canada Forgings Inc (“CanForge”) perceived ill treatment at the hands of Atomic Energy Canada Limited (“AECL”) believing that they were being ignored as a supplier of forgings for the nuclear industry and, further, that the AECL was denigrating their products to others.

[2] This perception of ill treatment was intensified in late 2005 when CanForge discovered that a lucrative contract for the supply of end fitting forgings, that they themselves had hoped to secure, would be fulfilled by their only direct competitor.

[3] In December 2005, CanForge retained counsel who put AECL on notice of its various complaints, setting them out in some detail. CanForge sought a resolution that would have resulted in their receiving the end fitting forging work rather than their competitor.

[4] In early 2006, after meetings and calls with AECL regarding these complaints, and not having achieved its desired outcome, CanForge commenced this action.

[5] CanForge’s original Statement of Claim sought 18.5 million dollars in damages and named AECL, Ian Salgo (an AECL employee who had been a part of the procurement team and also alleged to have been the source of negative comments about the quality of the plaintiff’s products) and Linamar Holdings Inc. [1] (“Invar”) (the machine shop that was to produce the final end fitting components), as defendants.

[6] The original Statement of Claim alleged seven distinct causes of action including defamation, tied selling contrary to the Competition Act, civil conspiracy, criminal conspiracy contrary to section 139(3)(a) of the Criminal Code, and various tortious causes of action.

[7] In September 2007, AECL successfully moved to strike six of the seven causes of action, as well as CanForge’s claim against Mr. Salgo personally. As this point in time, only CanForge’s defamation claim against AECL remained.

[8] In April 2009, CanForge moved to amend its Statement of Claim to add a procurement claim for an alleged breach of the duty of fairness as against AECL. At this motion to amend, AECL agreed to the amendment of the claim, retaining its right to argue that this new procurement claim was statute-barred and disclosed no valid cause of action at trial. [2]

[9] In March 2013, the action against Invar was dismissed.

[10] In August 2013, AECL received partial summary judgment dismissing CanForge’s claim for defamation, leaving at that point, only the 2009 procurement claim to be determined.

[11] In October 2015, CanForge further amended its claim to allege another cause of action against AECL. This new cause was based in negligence in relation to the preparation of a CANDU Industry Refurbishment Capability Report where CanForge was not noted as a qualified supplier of end fittings forgings. A few days before the start of this trial, CanForge elected not to proceed with this negligence claim against AECL.

[12] At the start of this trial, we were left with only CanForge’s procurement claim along with the question of damages, subject to the limitations of action issue raised by AECL.

Part II - Summary of Facts and Evidence

[13] CanForge was a forge shop based in Welland, Ontario. It was in the business of producing custom steel forgings, including end fitting forgings [3] for use in the nuclear industry.

[14] AECL was in the business of design, construction, and refurbishment of CANDU nuclear reactors around the world.

[15] As a consequence of many CANDU reactor units being put into service within a few years of each other, their aging components would all ultimately require major refurbishments in or around the same period of time in order to allow for continued operation.

[16] In anticipation of the potential need for multiple refurbishments, AECL was engaged by the CANDU Owners Group (“COG”) to provide an industry capacity assessment report to determine current capabilities to undertake these projects if called upon. Part of this analysis entailed canvassing suppliers, including machine shops, about lead times and rates at which the suppliers could supply the reactor components and if there were any problems with the supply of materials. It was this capacity assessment that would cause CanForge to question whether they had been purposely ignored by AECL as a potential supplier. During the course of the trial, evidence relating to this issue was proffered by both sides. Suffice it to say, the evidence on this point provided some context and background to why this lawsuit ensued, however, was not relevant to the issues that needed to be decided in the end. For that reason, I will not go into the details relating to this area.

[17] Central to this trial were two potential refurbishment projects that were in the planning stages in 2004. The first was a refurbishment at the nuclear power plant operated by Bruce Nuclear in Ontario (“Bruce”) and the second, a refurbishment of the nuclear power plant in Point Lepreau, New Brunswick(“Lepreau”).

[18] AECL hoped to secure the contracts for the Bruce and Lepreau refurbishments and accordingly turned its mind to planning for the procurement of needed components.

[19] During this period of time, CanForge and Patriot Forge Co. (“Patriot”) were end fitting forgings suppliers and Precision Nuclear Inc. (“PNI”), Donlee Precision (“Donlee”) and Invar Manufacturing (“Invar”) were the three machine shops capable of manufacturing end fitting components for the nuclear industry.

[20] In September 2004, anticipating that a head contract would be finalized with Bruce Power for a major refurbishment, AECL issued a call for tenders with respect to the Bruce Project. This call for tenders was issued to Invar, Donlee and PNI, the machine shops.

[21] Responses to this tender were due on 12 October 2004 and bids were to be valid for 180 days, expiring 10 April 2005. If Invar, Donlee or PNI elected to respond to the call for tenders, they were to obtain pricing from their own chosen subcontractors and suppliers as part of their bid.

[22] AECL did not issue any tender for end fitting forgings to CanForge or Patriot.

[23] Stepping back in time for a moment, in early 2004 and prior to the tender being issued, CanForge learned of this potential refurbishment business. In July 2004, CanForge acted upon this information and sent quotations for end fitting forgings directly to Invar, Donlee and PNI in July 2004. Only Donlee had requested this quotation from CanForge, [4] the other two submissions were unsolicited.

[24] Returning now to the September 2004 tender, in response to the actual Bruce tender, CanForge sent fresh quotations to Donlee and PNI only, no quotation was sent to Invar. Patriot, on the other hand, sent quotations to all three shops, Invar, Donlee and PNI.

[25] In October 2004, and in response to its call for tender, AECL received bids from each of Invar, Donlee and PNI to supply the end fittings for the Bruce project. As per the terms of the tender, the bids were valid for 180 days, expiring in April 2005.

[26] Invar and Donlee’s bids carried Patriot as their only forgings supplier. PNI included both the CanForge and Patriot quotations in its bid.

[27] Rob Reid [5], who had been the general manager of Invar, confirmed in his affidavit sworn 26 April 2012 that Patriot was Invar’s sole supplier of end fitting forgings. Notwithstanding having received the unsolicited quote from CanForge in the summer of 2004, which was approximately $50 cheaper than the solicited pricing of Patriot received for the purpose of responding to the September tender, Mr. Reid deposed that “I do not think that the price differential warranted a greater look into changing suppliers. We chose Patriot to supply the end fitting forgings for this project because the quality of their workmanship and of the products were well-known to us and their pricing was satisfactory to us.” Mr. Naar, a witness for the Plaintiff and a principal of CanForge, confirmed during his testimony that the lowest price was not always the winning price.

[28] Upon receipt of the bids from Invar, Donlee and PNI, AECL’s engineering and procurement departments undertook their evaluation. AECL’s engineering and procurement departments concluded that:

• the PNI bid (which was the only bid to carry both CanForge and Patriot) was technically non-compliant as PNI was not yet qualified to manufacture end fittings
• Donlee’s bid was roughly $5 million more expensive than Invar’s and
• that Invar’s bid was the lowest technically compliant bid.

[29] This Court accepted the testimony of the defendant’s witnesses Mr. Salvo and Mr. Alizadeh wherein they both advised that AECL’s primary consideration in evaluating the bids was first and foremost the technical compliance to specifications, followed by price and delivery. The significance of this testimony was to address and negate the Plaintiff’s suggestion that price was the main consideration in this tender process. It should be noted that any recommendation to purchase made by AECL would always represent a joint recommendation of three separate departments, engineering, quality control and commercial, thus ensuring the decision to purchase was sound from all perspectives.

[30] By April 2005 (the expiration date of the quotes as per the tender document), no contract for end fittings had been awarded due to delays in finalizing the construction contract between AECL and Bruce.

[31] CanForge argued that notwithstanding the April 2005 “expiry” of the quotes, AECL did not treat the initial September 2004 Bruce Tender as having come to an end, but rather, AECL chose to extend and modify it. CanForge suggested that AECL chose to change the initial structure of the September 2004 tender and “looped” the procurement of both end fittings and end fitting forgings into a process originally designed for the procurement of end fittings alone – and this was unfair because AECL wrongfully chose to include only one of the two forge shops in this modified process. The evidence did not support that proposition, nor was it important that AECL elected to communicate with the machine shops in later 2005 using the words “successful or unsuccessful tenderer” as opposed to words to the effect that bids expired in April 2005; nothing turns on the use of those words as they reflected the reality of the situation, politely acknowledging the respective bids and advising of the result.

[32] By the fall of 2005, negotiations between AECL and Bruce had not yet concluded. AECL believed that they would receive the contract and that, regardless of the timing of the execution of a contract for the refurbishment, they would still be required to meet an earlier established timetable for the Bruce project. Taking this into account, the supply of end fitting forgings became an important consideration for AECL.

[33] After the tender bids had expired, and knowing that Invar had been their presumptive choice as the lowest price compliant bidder, AECL sought confirmation from Invar that they would agree to maintain their pricing and delivery terms offered in their original tender. It is important to note that at this point in time, AECL did not disclose or otherwise make it obvious to Invar that it was their presumptive choice nor that they were only communicating with Invar about extending their pricing and delivery terms. On this point, the court accepted the evidence of Ian Salgo given at trial.

[34] In order for AECL to “hedge its bets” and ensure the timely supply of materials which was a concern for AECL and Invar, and knowing that it would be selecting Invar who in turn would use Patriot as its supplier, AECL decided to issue a Letter of Intent to Patriot (“LOI”) to provide itself and Patriot with a certain level of comfort. This decision was made in October 2005.

[35] The LOI facilitated Patriot’s ability to order steel ingots for the end fitting forgings while AECL waited to finalize the head contract with Bruce. The LOI provided for a potential indemnification to Patriot to cover its out-of-pocket expenses in the event that Patriot did not receive a purchase order from a machine shop for the Bruce project.

[36] More specifically, the LOI “authorized” Patriot to “proceed with the manufacturing of the forgings” for Bruce and Lepreau. Patriot was advised that it would be receiving a “Purchase Order from either one or more of the following suppliers, Donlee, Invar, or Precision Nuclear in due course”. Under the heading “Terms of Payment” the letter set out that “if Patriot Forge Co. do not receive orders for the End Fitting Forgings for Bruce Units 1 & 2 and Lepreau, AECL shall guarantee that Patriot Forge Co. shall be paid for all reasonable out of pocket expenses in both time and material provided that these costs are substantiated and supported with documentary evidence of such costs.”

[37] To be clear, having submitted quotes to all three machine shops in 2004, Patriot was not aware which, if any of the shops would ultimately be awarded a contract, nor whether Patriot itself would be called upon as a supplier of the forgings for the chosen shop. All they knew from the Letter of Intent was that they could order materials, start forging and if they didn’t receive an order, they would not be out of pocket.

[38] The LOI was not a purchase order from AECL to Patriot, nor did it effectively tie “Invar’s hands” relative to the Bruce project (as Invar had already elected to carry Patriot as its only supplier on Bruce), nor did AECL influence Invar’s choice of end forgings suppliers.

[39] This Court accepted the evidence of Mr. Daw (who had previously worked for CanForge and at the material times to this action was at Patriot) wherein he testified that he knew that the LOI was not a purchase order and that he was expecting a purchase order from either one or a number of machine shops in due course and on the basis of having the LOI he could order the materials with the comfort of knowing that he would not be stuck with them if orders did not materialize. In cross examination by Plaintiff’s counsel, Mr. Daw neatly summarized the purpose of the LOI as, “getting the ball rolling”.

[40] While the LOI addressed the supply of forgings for the Bruce project, it also included supplies for the Lepreau project as well. The evidence showed that even though no formal tender had been made on Lepreau, AECL had determined that it made business sense to include Lepreau with Bruce due to (a) economies of scale and (b) to avoid a potential delay with the Lepreau project which was due to follow Bruce. It must be noted that with regards to Lepreau, AECL ultimately specified in that tender process that Patriot was to be the end forgings supplier, as they were allowed to do. This was an elegant way of tying up loose ends on both potential projects.

[41] The ultimate scope of the Bruce project was reduced by late 2005. The relevant changes were communicated to Invar and not to PNI or Donlee by way of an addendum document. AECL requested Invar’s pricing, based upon these changes set out in the addendum. The Plaintiff argued by using an “addendum” (a document that referenced the original tender), that this had significance and supported the proposition of an extension or continuation of the expired tender process; I do not agree. Here I accepted the explanation provided by Mr. Salgo at trial regarding the reason the term “addendum” was used. This was a requirement in the manner of form, set out by AECL’s engineering department, in order to update technical specifications in their computer system.

[42] On 30 November 2005, Invar provided revised pricing, which was acceptable to AECL. In December 2005, Invar was advised that they had been awarded the contract.

[43] In April 2006, having been awarded the Bruce contract, Invar issued a purchase order to Patriot for the end fitting forgings.

[44] AECL was not required to indemnify Patriot pursuant to the terms of the LOI.

[45] The Lepreau project was the subject matter of a separate tendering process. In that tender, AECL specified Patriot as the end fitting forgings supplier. This was permissible and understandable for reasons noted earlier.

[46] The actions of CanForge and those of their counsel that followed the awarding of the contract to Invar and through Invar to Patriot will be addressed shortly.

[47] From this summary of the facts and evidence, we now move to the analysis of the legal issues.

Part III - Issues

a. Limitations Issue

[48] The original Statement of Claim was issued on 15 March 2006.

[49] As at 27 April 2009, [6] CanForge moved to amend its Statement of Claim to add a procurement claim for an alleged breach of the duty of fairness as against AECL.

[50] In this amended claim, five allegations were advanced of AECL’s breach of a duty of fairness and good faith:

1. Negotiating directly with Patriot for the purchase of end fittings for Lepreau without solicitor bids from CanForge;
2. Negotiating directly with Patriot for the purchase of end fittings for Bruce without solicitor bids from CanForge;
3. Instructing machine shops such as Invar, not to use CanForge, but instead to buy from Patriot at the price AECL had negotiated;
4. Using CanForge’s pricing;
5. Providing preferential treatment to Patriot with terms such as a bonus and paying more than they would have if they had used CanForge.

[51] As noted earlier, AECL took the position that CanForge’s procurement claim was statute-barred and disclosed no reasonable cause of action at law but agreed on the amendment to the claim on a provisional basis, retaining its right to argue at trial that the procurement claim was statute-barred.

[52] Section 4 of the Limitations Act, 2002 provides that a claim in Ontario is statute-barred two years after the date on which the claim was discovered.

[53] Section 5(1) of the Limitations Act, 2002 provides that a claim is discovered on the earlier of:

(a) the day on which the person with the claim first knew, (i) that the injury, loss or damage had occurred, (ii) that the injury, loss or damage was caused by or contributed to by an act or omission, (iii) that the act or omission was that of the person against whom the claim is made, and (iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and (b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).

[54] In order to determine whether CanForge’s claim for breach of the duty of fairness was statute-barred, the relevant inquiry is whether the claim was discovered or discoverable by CanForge more than two years before 27 April 2009.

[55] The Supreme Court of Canada summarized the law relating to “discoverability” in Grant Thornton LLP v. New Brunswick (“Grant Thornton”). Although decided under the New Brunswick Limitation of Actions Act, the discoverability principle incorporated into that Act is virtually identical to Ontario’s Limitations Act, 2002.

[56] In Grant Thornton, the court provided the following guidance:

• a plaintiff does not need knowledge of all constituent elements of a claim to discover that claim. A claim is discovered when the plaintiff has knowledge, actual or constructive, of the material facts upon which a plausible inference of liability on the defendant’s part can be drawn.
• For a claim to be discoverable, a plaintiff must be able to draw a plausible inference that: (a) the injury, loss or damage occurred; (b) the injury loss or damage was caused by or contributed to by an act or omission; and (c) the act or omission was that of the defendant.
• a plaintiff is considered to have constructive knowledge when the evidence shows that the plaintiff ought to have discovered the material facts by exercising reasonable diligence.
• a plausible inference of liability is not the same as requiring certainty of liability

[57] In response to question of discoverability, CanForge offered the following to support a proposition that the new claim was not discovered until much later than suggested by AECL and thus the amendment to their claim was not statute barred:

• Actual documentary discovery did not take place until late 2007.
• For costs reasons, CanForge did not want their lawyers to undertake a first review of AECL’s disclosed documents and instead CanForge undertook its own review which occurred in 2008.
• After completing their own internal review of the disclosed documents, CanForge drew two documents to their lawyer’s attention: the LOI and a Recommendation and Authorize to Purchase (RAP).
• With the physical copy of the LOI and the RAP in hand, lawyers for CanForge were only then able to understand what had happened and realized that the procurement claim should have been asserted against AECL instead of Invar.
• CanForge proceeded in 2009, in a timely fashion, to seek to amend the Statement of Claim to assert a procurement claim against AECL that is now before the Court.

[58] The overarching argument advanced by CanForge was that, until their counsel Mr. Graham saw the LOI and RAP, the material facts were simply too uncertain and there was no basis for CanForge to draw a plausible inference of liability against AECL for a procurement/breach of the duty of fairness claim. I reject CanForge’s argument on this issue, in its entirety.

[59] The evidence clearly showed that in December 2005, CanForge became aware that Patriot had been awarded the forgings work for the Bruce project. With this knowledge, CanForge retained Gary Graham of Gowlings WLG to investigate its complaint and bring an action for damages. [7]

[60] On 22 December 2005, Mr. Graham wrote to AECL to express CanForge’s complaint and threatened litigation. Mr. Graham’s letter expressly complained that AECL had made the decision to source certain end fittings from Patriot, a competitor of CanForge, even though CanForge’s pricing was lower.

[61] One need only refer to Mr. Graham’s initial letter of December 2005 to concluded that there was no uncertainty as to any material facts. In fact, that letter speaks to exactly the opposite when he wrote:

“The information we have indicates that AECL, despite having called for bids in 2004, and without notice to our client, went ahead and negotiated a deal directly with our client’s competitor, agreeing to pay a price higher than our client’s price” (emphasis added)

[62] As of 22 December 2005, CanForge had actual and/or constructive knowledge of the material facts upon which a plausible inference of liability on AECL’s part could be drawn that AECL had dealt directly and entered into agreements with Patriot that resulted in CanForge being denied the opportunity to compete fairly for the forgings work for the Bruce and Lepreau projects and that this was unfair.

[63] On 9 January 2006, Mr. Graham and two representatives from CanForge met with AECL. Only members of the AECL team made contemporaneous notes of this meeting, the contents of which this court accepts as an accurate record. During this meeting, Mr. Graham expressed CanForge’s complaint that AECL had dealt directly with Patriot, that CanForge’s pricing was lower than Patriot’s, and that this was unfair. Mr. Graham expressed the view that it looked like the normal process had been followed and then subverted by AECL going directly to Patriot. This was the very essence of the duty of fairness complaint that CanForge would assert over three years later.

[64] As of January 2006, CanForge had actual and/or constructive knowledge of the material facts upon which a plausible inference of liability on AECL’s part could be drawn that AECL had dealt directly and entered into agreements with Patriot that resulted in CanForge being denied the opportunity to compete fairly for the forgings work for the Bruce and Lepreau projects and that this was unfair.

[65] Following the 9 January 2006 meeting, AECL made enquiries into the subject matter of the complaints raised by CanForge and then reported the results of those enquiries to Mr. Graham in a phone call on 3 February 2006. Mr. Graham’s notes of that phone call confirmed being advised that enquiries had been made of Invar and that Invar had stated that AECL had not influenced their decision to use Patriot. Mr. Graham’s notes further recorded being advised that AECL and Patriot had entered into a LOI in order for Patriot to buy steel for both the Bruce and Lepreau projects. Mr. Graham testified that he understood that the purpose of the LOI was to provide Patriot with some comfort that it could go out and buy steel. Oddly, Mr. Graham did not request a copy of the LOI at that early stage, nor did he make a point of reviewing it once documentary disclosure had been completed. During the course of this 3 February 2006 call, Mr. Graham indicated to AECL that he had evidence that AECL had influenced Invar in its decision to use Patriot but declined to share this evidence or to divulge the source of same.

[66] Based on the foregoing evidence regarding the February phone call between AECL and Mr. Graham, as of February 2006, it is apparent that CanForge again had actual and/or constructive knowledge of the material facts upon which a plausible inference of liability on AECL’s part could be drawn that AECL had dealt directly and entered into agreements with Patriot that resulted in CanForge being denied the opportunity to compete fairly for the forgings work for the Bruce and Lepreau projects and that this was unfair.

[67] Additionally, as a further example of having actual and/or constructive knowledge of material facts upon which CanForge and their counsel could draw upon in support of a plausible inference of liability, Mr. Graham testified that prior to the 3 February 2006 call, he had dictated a memorandum to two Gowlings’ litigators (Alex Spyridakis and Louis Frapporti). The memorandum was typed by Mr. Graham’s secretary and subsequently dated 5 February 2006. In this memorandum, Mr. Graham asked his colleagues to prepare a draft Statement of Claim that would be reviewed at a meeting with CanForge in mid-February 2006. He wrote:

“… as the documentation in the file shows, AECL has entered into a deal with Patriot whereby Patriot has quoted a fixed price for the end caps for Lepreau but they have done so on the condition that AECL must source the end caps for Bruce from Patriot. Is this actionable? Is this a buyer or owner simply deciding from who they will purchase a given commodity? Or is this wrongful or intentional interference by AECL in Canada Forgings’ relationship with Invar?...Who pursued who? Was it Patriot going after AECL for Lepreau as a means of tying the Bruce work? Or was it AECL wanting to get the end fittings going for Lepreau and thought there might be an opportunity to add quantities and therefore lower pricing by engaging the same supplier that Invar was going to use in any event?” (my emphasis added)

[68] The original Statement of Claim issued by CanForge in March 2006 showed that the Plaintiff had the requisite knowledge of the material facts to draw a plausible inference of liability that AECL breached a duty of fairness, even without seeing the actual terms of the LOI, which CanForge argued had a bearing on their ability to assert this additional cause of action. At paragraphs 26 - 29 of the original Statement of Claim, CanForge pleaded that:

• AECL agreed to source forgings from Patriot for the Lepreau project;
• AECL agreed to accept a condition from Patriot that required that Patriot would be issued purchase orders for both the Bruce and Lepreau projects;
• AECL agreed to issue a purchase order to Invar for the Bruce project and to issue instructions to the manufacturers to carry Patriot’s forgings for the Lepreau project;
• CanForge’s pricing for fittings for the Bruce project was lower than the pricing offered by Patriot;
• Patriot received an unfair and unreasonable windfall when it was offered the Lepreau work without competition.

CanForge’s attempts to explain its delay in asserting the AECL duty of fairness cause of action in April 2009 based on “discovering” the actual terms of the LOI is simply not credible.

[69] Equally telling is the lack of significance attributed to the LOI in the initial and amended Statement of Claim.

[70] Even though Mr. Graham was advised by Mr. Sebastiano in February 2006 that AECL and Patriot had entered into the LOI, there is not a single reference to the LOI in the original or amended (2009) Statement of Claim. The pleading asserted that AECL and Patriot had entered into an agreement that resulted in Patriot getting the forgings work for both Bruce and Lepreau to the detriment and exclusion of CanForge. The pleading pointed out that the agreement between AECL and Patriot was prior to the issuance of a purchase order to Invar. Mr. Graham agreed, as does this Court, that not having a copy of the agreement or having a copy of any of the purchase orders referenced did not preclude CanForge from pleading that there was such an agreement between AECL and CanForge or that purchase orders were to be issued to Patriot.

[71] Additionally, the LOI was expressly referenced in the Statements of Defence filed by AECL and Linamar (Invar) in October 2007, which Mr. Graham would have seen and appreciated.

[72] Paragraph 22 of AECL’s Statement of Defence even included a summary of its material terms. The material terms summarized included:

(a) Patriot was authorized to proceed with the manufacturing of the forgings for the Bruce and Point Lepreau Projects; (b) Patriot will be receiving a firm purchase order from one or more of Invar, Donlee or Precision in due course; […] (f) if Patriot does not receive orders for the forgings for either of the projects, AECL will compensate Patriot for its costs incurred, plus a reasonable profit.

[73] Despite the express references to the LOI and its material terms in the Statements of Defence, neither the Plaintiff nor its counsel either requested a copy of the LOI (as they were entitled to under the Rules of Civil Procedure - in order for them to better understand what had happened) or took any other procedural steps.

[74] Why CanForge did or did not do anything with this information regarding the LOI, is not important. What is important for the purpose of this analysis is that upon receipt of the Statements of Defence, CanForge had actual and/or constructive knowledge of the material facts upon which a plausible inference of liability on AECL’s part could be drawn that AECL had dealt directly and entered into agreements with Patriot that resulted in CanForge being denied the opportunity to compete fairly for the forgings work for the Bruce and Lepreau projects and that this was unfair and did nothing with this knowledge until the spring of 2009.

[75] When CanForge and their counsel ultimately read the LOI, there were nothing newly disclosed therein that they were not already aware of at the time that it commenced the action in March 2006. As noted earlier, the lack of any new information gleaned from the LOI was confirmed by the fact that the amended pleading asserting this duty of fairness claim, did not contain any reference to the LOI and made no amendment to the material facts pleaded in detail in respect of the dealings between AECL and Patriot, nor was there any evidence to support a finding that CanForge had been misled or in any way relied to its detriment upon some statement made by AECL.

[76] Applying the law of discoverability, there is no doubt that CanForge’s duty of fairness claim against AECL was discoverable prior to 27 April 2007. For these reasons CanForge’s action is dismissed on the grounds that it is statute-barred.

b. Procurement Law Issue

[77] In the case of The Queen (Ontario) v. Ron Engineering & Construction (Eastern) Ltd [8], the Supreme Court of Canada defined the modern law of tendering where the Court developed the Contract A / Contract B analysis of a tendering process.

[78] Contract A is the preliminary contract created in formal tendering situations, where a purchaser (in this case AECL) issues formal tender documents, calls for bids, and bidders submit compliant bids to the purchaser. In contrast, Contract B is the contract for services or materials that is entered into at the close of a tendering process.

[79] Contract A only comes into effect in tendering situations, and even then, Contract A does not always come into effect upon a call for tenders or when a formal tendering process takes place. It cannot simply arise spontaneously.

[80] Whether or not a Contract A is formed depends on the intention of the parties to create legal relations through a call for tenders and the submission of a compliant bid. The terms of any Contract A are grounded in the terms of the contract documents and no contractual duties (including the implied duty of fairness) arise between a purchaser and a bidder unless and until a Contract A is formed.

[81] Once the tendering process has come to an end, through rejection of all bids, or through the expiry of the irrevocability period, the Owner/purchaser are free to enter into individual negotiations with the former bidders.

[82] Putting aside the implications of the limitations of action component of this decision, this case also had to do with the existence, scope and terms (if any) of a Contract A. The determination of who the parties privy to the Contract A were and the terms of such, was fact specific.

[83] With regards to the facts specific to this case the Court accepts that:

(a) AECL never held a tender process for the supply of end fitting forgings on the Bruce or Lepreau Project. (b) AECL never issued a tender document for the supply of end fitting forgings to CanForge or any other forgings suppliers on the Bruce or Lepreau Project. (c) AECL never requested pricing for the supply of end fitting forgings from CanForge on the Bruce or Lepreau Project. (d) CanForge never supplied AECL with a bid, tender, or pricing for the supply of end fitting forgings on the Bruce or Lepreau Project. (e) CanForge provided its end fitting forgings pricing to Invar, Donlee and PNI in July 2004 prior to a call for tender, and only to Donlee and PNI respect of the Bruce Tender in October 2004 – not AECL. (f) There was no communication whatsoever between CanForge and AECL in respect of the pricing CanForge provided to Invar, Donlee and PNI in July 2004 and to Donlee and PNI in respect of the Bruce Tender in October 2004. (g) The Bruce Tender had expired in April 2005 [9], and AECL’s procurement department internally discussed the need to address the now expired major bids received in respect of the Bruce Project. (h) AECL and CanForge did not communicate at all until December 2005 when CanForge threatened this litigation.

[84] The evidence at trial demonstrated that AECL did not issue any call for tenders for end fitting forgings, either verbally or in writing, on either the Bruce or Lepreau projects. Furthermore, it demonstrated that CanForge never submitted a bid to AECL for end fitting forgings on either project.

[85] CanForge argued that AECL unilaterally extended and modified the expired Bruce tender between AECL and the machine shops. This extended tender (which CanForge was not a party to) “swept in” the procurement of end fitting forgings, which would mean as a potential supplier of such forgings, CanForge would be a party to this Contract A. This novel argument is rejected. There was no extension or modification of the Bruce Tender or any sweeping in of the procurement of end fitting forgings. CanForge, was and always remained, what would be properly characterized as a subcontractor. In advancing this argument, CanForge was simply attempting to recast the facts into a novel mold in a bid to avoid the established principal that subcontractors are not party to the Contract A that can be formed between an Owner/purchasing entity and bidders during a tender process.

[86] It is worthwhile noting that CanForge never pleaded the existence of any Contract A between AECL and CanForge in this lawsuit. At best, if this Court had found that there had been an extension of the Bruce Tender (which it did not nor could have, given the express finding made by Justice Matheson that the tendering period had long since passed and that AECL could negotiate with suppliers, without the need of a bid process), this would mean that the only unsuccessful compliant bidder, being Donlee, might have had a cause of action against AECL. Even in that scenario, CanForge would have received no additional rights as it was one level below the level of any Contract A that might have been created or extended.

[87] In summary, CanForge was not a party to the original Bruce Tender – nor would it have been party to any Contract A formed in relation to the Bruce Tender. The tendering period expired in April 2005 and was not extended nor modified to “sweep” Canforge into the process. There was no implied duty of fairness owed to CanForge. For those reasons, their claim must fail.

c. Causation And Damages

[88] I have determined that this claim is statute barred and on that basis dismissed it. Additionally, I have found that, even if the claim had not been statute barred, I would dismiss it on the basis that no Contract A (modified or otherwise) existed and accordingly no implied duty of fairness flowed from it that could have been breached.

[89] Notwithstanding these findings, it is important that I address the evidence on causation [10] and damages.

[90] In support of their respective positions under this heading, CanForge relied on the expert opinion of Dwayne Pyper, while AECL relied upon the critique of that opinion from Scott Davidson, both qualified in economic loss quantification.

[91] There were only two main areas of disagreement between these experts. The first was the issue of whether Mr. Davidson could opine on the probability of CanForge receiving a contract, and the second was a disagreement over the appropriate margin that CanForge would have earned if it had received the forgings business.

[92] On the question of Mr. Davidson opinions on probability, Mr. Pyper stated at trial “…I don’t want to go so far as to say they were incorrect in applying a probability factor. My question would be whether there is enough information in order to do so.”.

[93] While Mr. Davidson’s opinion on probability was in no way binding on this court, it was appropriately offered, sufficiently supported and was helpful information. This was an unusual fact scenario and Mr. Davidson had the necessary expertise which lent itself to offering up such opinions. It was up to this Court to analyze the evidence on this or any other point and to give some or no weight to such opinions. In this case, I did not need to rely upon Mr. Davidsons views on this point, having arrived at my conclusions, independently, based on the totality of the evidence.

[94] As would be expected, Mr. Pyper and Mr. Davidson arrived at different conclusion regarding what profit CanForge might have potentially earned had it been awarded the Bruce or Lepreau contracts. They arrived at different conclusions regarding the gross margin percentage or profit percentage that ought to be applied in calculating CanForge’s lost profits. Mr. Pyper’s analysis resulted in an estimated CanForge’s profit margin at 38 percent on both the Bruce and LePreau projects while Mr. Davidson arrived at a lower percentage in the range of 15 to 25 percent profit.

[95] With regards to the issue of calculating these margins, Mr. Pyper’s analysis was based on selectively curated information and data provided to him by CanForge, some of which originated in the context of a mediation held many years after the cause of action arose. This diminished the evidentiary value of the calculations.

[96] If it had been required, this Court would have rejected the 38 percent profit margin due to

a) the conflicting evidence relating to industry standards showing a lower profit margin, b) the curated data provided to Mr. Pyper from which he prepared his expert report; and c) the lower profit margins included in industry reports tendered by CanForge at trial.

On this point I would have accepted the evidence of Mr. Davidson on the mid point margin of 20%, which the Court found to be reasonable.

[97] If it had been required and using a profit margin of 20%, the lost profit on Bruce would have been $1,477,200 and on Lepreau $630,000. These amounts would then have been discounted by the probability of success on both projects, which I have determined on the totality of the evidence to have been nil. Nil for Bruce because CanForge had not even delivered a bid to Invar, the presumptive and ultimate choice of AECL. Invar would not have used CanForge even if they had provided a bid. Nil for Lepreau because AECL acting appropriately, required their contractors to use Patriot as the supplier of end forgings and therefore there was no chance for CanForge to obtain that business. Accordingly, there would have been no loss of profits.

Part IV - Conclusion

[98] For the foregoing reasons, the Plaintiff’s claim is dismissed.

[99] If the parties are unable to agree on costs, they may forward brief written submission to my attention, via the trial coordinator’s office. The Defendant shall do so within 30 days of the release of this decision and the Plaintiff within 45 days.

Justice J. Krawchenko Released: January 6, 2023

Footnotes

[1] Linamar was a corporation which was created by a series of amalgamations of a number of subsidiaries of Linamar Corporation. Among these amalgamated subsidiaries was Invar Manufacturing Limited, a manufacturing company producing machined products for the nuclear industry.

[2] CanForge served its motion to amend (seeking to add its procurement claim against AECL) on 27 April 2009. In her Order of 7 August 2012, Madam Justice Carpenter-Gunn wrote that, the “effective date of the amendments is the date of service of the Motion Record of CanForge in the Motion to Amend, and [that] the amendments are not being made nun pro tunc”. Therefore, for purposes of calculating limitation periods in this case, two years prior to serving the Motion Record would be 27 April 2007.

[3] End fitting forgings are stainless steel blanks that specialized machine shops fashion into components known as end fittings for use in nuclear reactors.

[4] Donlee and CanForge had a previous related business relationship from earlier CANDU projects, while Invar and Patriot had developed a similar relationship on more recent projects.

[5] Mr. Reid had passed away before trial. His evidence was tendered through filing of affidavit material and transcripts of cross examination on same.

[6] In addition to the reference to this date in Justice Carpenter-Gunns Order of 7 August 2012, the Parties also agreed that this is the relevant date for purposes of determining the limitations issue, as confirmed in the Judgment of Matheson J. reported at 2013 ONSC 5347 at para. 81.

[7] Mr. Naar, who had been instructing Mr. Graham, was evasive when challenged in cross examination on his level of knowledge of the underlying material facts. His credibility was significantly undermined in his attempts to avoid answering questions relating to the discoverability issue and deflecting.

[8], [1981] 1 S.C.R. 111

[9] It is important to reference paragraphs 45 and 46 of the Judgment of Matheson J. relating to the earlier mentioned summary judgment motion between these parties, the court found that:

“[45] I, therefore, find that the tendering period had long since passed and that AECL could negotiate with suppliers, without the need of a bid process. Having stated that, I find that there is a duty to act in a fair way. There are arguable issues to be dealt with. Those issues, dealing with the duty of fairness are:

1. If CanForge was the lowest bidder, why was there no reason given for not asking them to bid a second time?
2. Did AECL not disclose all the information so that CanForge would have understood why it was not allowed to bid?
3. I will deal with the issue of defamation later, but I find that there might be a degree of ill will between the parties.

[46] I find that there are issues that would require viva voce evidence on this point, and thus I would not grant summary judgment to AECL on that point.”

For the sake completeness, I will address these three points raised by Justice Matheson in this footnote:

1. LOWEST BIDDER: The evidence at trial did not support the conclusion that CanForge was the lowest bidder at the relevant times or that price alone was significant. It is also important to note that (a) CanForge did not even deliver a bid for the forgings to Invar in response to the September 2004 call for tender and (b) that Invar only carried Patriot in its bid and (c) regardless of any minor differences that might have existed in pricing, would not have changed Invar’s mind on who to carry as their supplier for the end fitting casting forgings.
2. DISCLOSURE OF INFORMATION WHY CANFORGE COULD NOT BID: This issue appears to be linked to the initial suggestion that AECL had anti CanForge animus. Having heard all the evidence in this trial, I cannot find that this animus existed, in fact, once CanForge made its complaints known to AECL, they were addressed in a proper business-like manner by AECL including expedited visits and assessments of the physical plants to ensure that CanForge could continue to be involved in the business of supplying forgings for the nuclear industry. With regards to the issue of disclosure of information, at the time of the initial tender of September 2004, the machine shops received the same specification/tender packages from which they were to bid. They, in turn, communicated these specs to their subcontractors or suppliers, who in turn would respond to the machine shops and not to AECL. In short, CanForge had the same information everyone else had and, in fact, did bid for the work, through two unsuccessful machine shops and not through Invar.
3. DEFAMATION: As noted, this earlier cause of action was not before the courts, however on the question of a potential degree of ill will between the parties, the evidence at trial did not support a conclusion that AECL had any particular anti CanForge animus as was suggested by the plaintiff. If there was ill will, it was related to the protracted litigation that would continue for years after 2006 and not with the central issue(s) to this case.

[10] Causation is used in the assessment of damages as a means of connecting alleged conduct with a corresponding result. Here, CanForge sought damages for loss of potential profits (the result) on the basis of an alleged breach of a modified Contract A in a procurement scenario (the conduct). Those Losses could only be recoverable if the losses were caused by the breach.