Naylor Group Inc. v. Ellis-Don Construction Ltd.

Naylor Group Inc. v. Ellis-Don Construction Ltd.
Collection
Supreme Court Judgments
Date
2001-09-27
Neutral citation
2001 SCC 58
Report
[2001] 2 SCR 943
Case number
27321
Judges
McLachlin, Beverley; Iacobucci, Frank; Major, John C.; Bastarache, Michel; Binnie, William Ian Corneil; Arbour, Louise; LeBel, Louis
On appeal from
Ontario
Subjects
Contract
Notes
SCC Case Information: 27321
Decision Content
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] 1 S.C.R. 111; M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., [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), 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), 128 D.L.R. (3d) 360; Canadian Pacific Hotels Ltd. v. Bank of Montreal, [1987] 1 S.C.R. 711; Peter Kiewit Sons’ Co. v. Eakins Construction Ltd., [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] 1 S.C.R. 1087; McDermid v. Food-Vale Stores (1972) Ltd. (1980), 14 Alta. L.R. (2d) 300; O’Connell v. Harkema Express Lines Ltd. (1982), 141 D.L.R. (3d) 291; Petrogas Processing Ltd. v. Westcoast Transmission Co. (1988), 59 Alta. L.R. (2d) 118; Victoria Wood Development Corp. v. Ondrey (1978), 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] S.C.R. 858; Woelk v. Halvorson, [1980] 2 S.C.R. 430; Andrews v. Grand & Toy Alberta Ltd., [1978] 2 S.C.R. 229; Laurentide Motels Ltd. v. Beauport (City), [1989] 1 S.C.R. 705; Widrig v. Strazer, [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), 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), 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), 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] 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), 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] 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:
1. Was a Contract A formed between the appellant and respondent with respect to this project and, if so, what were its terms?
2. Was the contract frustrated by reason of the OLRB decision of February 28, 1992?
3. If not, did the appellant breach the terms of Contract A?
4. If so, what are the damages?
5. 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), 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:
3. 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:
3. 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