Bank of Montreal v. Bail Ltée

Bank of Montreal v. Bail Ltée
Collection
Supreme Court Judgments
Date
1992-06-25
Report
[1992] 2 SCR 554
Case number
21748, 21749
Judges
Lamer, Antonio; La Forest, Gérard V.; L'Heureux-Dubé, Claire; Gonthier, Charles Doherty; Stevenson, William
On appeal from
Quebec
Subjects
Action
Contract
Torts
Notes
SCC Case Information: 21748, 21749
Decision Content
Bank of Montreal v. Bail Ltée, [1992] 2 S.C.R. 554
Bank of Montreal and Gilles Tremblay Appellants
v.
Commission hydroélectrique du Québec (Hydro-Québec),
Bail Ltée, Sotrim Ltée (Bail/Sotrim), and
Travelers of Canada, Indemnity Company Respondents
and between
Gilles Tremblay and Bank of Montreal Appellants
v.
Commission hydroélectrique du Québec (Hydro-Québec),
Bail Ltée, Sotrim Ltée (Bail/Sotrim), and
Travelers of Canada, Indemnity Company Respondents
Indexed as: Bank of Montreal v. Bail Ltée
File Nos.: 21748, 21749.
1992: March 6; 1992: June 25.
Present: Lamer C.J. and La Forest, L'Heureux-Dubé, Gonthier and Stevenson* JJ.
on appeal from the court of appeal for quebec
Civil responsibility -- Delictual liability -- Contract of enterprise -- Obligation to inform -- Delictual action by subcontractor against owner -- Action based on owner's breach of obligation to inform contractor -- Judgment allowing action at trial reversed by Court of Appeal -- Court of Appeal disturbing trial judge's findings and conclusions of fact -- Whether Court of Appeal's intervention justified -- Role of appellate court reviewing trial judge's assessment of the evidence -- Civil Code of Lower Canada, art. 1053.
Contracts -- Contract of enterprise -- Obligation to inform -- Main elements of obligation -- Factors having a bearing on substance of obligation in contracts of enterprise for large projects.
Prescription -- Impossibility of action -- Time at which prescription starts to run -- Owner's breach of obligation to inform contractor -- Delictual action by subcontractor against owner -- Time at which prescription starts to run pushed back to moment when subcontractor discovered facts giving rise to its right -- Civil Code of Lower Canada, art. 2232.
Damages -- Additional indemnity -- No valid reason for refusing indemnity -- Indemnity awarded -- Civil Code of Lower Canada, art. 1056c.
Damages -- Quantum -- Sum of $2,000,000 awarded by trial judge as compensation for subcontractor's financial difficulties -- Amount deducted owing to lack of evidence to justify it.
In May 1977, Hydro-Québec called for tenders for construction and engineering work on a substation. Several documents were made available to tenderers, including a geotechnical report prepared by a firm of experts and submitted to Hydro-Québec in 1974. In late June, on the experts' recommendation, Hydro-Québec changed the plans for the access road to the substation. A few days later, it awarded the excavation, foundation digging and construction work to a contractor, the respondents Bail Ltée and Sotrim Ltée, for a fixed price. The contractor in turn subcontracted part of the work to a subcontractor. From the outset, the subcontractor complained of the poor soil conditions. Experts sent by Hydro-Québec to the site confirmed the subcontractor's assertions by letter and proposed raising the level of the substation as a solution. In late August Hydro-Québec accepted this proposal and agreed to alter its plans by means of an amendment or change order. The subcontractor disagreed with the contractor, however, with respect to the method of calculating payment for the new work set out in the change order. Neither the letter from the experts nor their new geotechnical report received by Hydro-Québec in September was disclosed to the contractor or to the subcontractor. The subcontractor continued to experience difficulties in performing the work and new corrective measures were taken. Hydro-Québec approved the use of well-points to drain the soil, among other things, but it was only after the contractor had waived all claims against it that Hydro-Québec agreed to assume the costs of this major amendment. The contractor obtained a similar waiver from the subcontractor. In both cases, the waivers were given subject to the dispute surrounding the change order. Upon the completion of the work, only the amount pertaining to the change order remained in dispute. In 1980, the subcontractor was put in bankruptcy and the appellant Bank of Montreal, the assignee of the subcontractor's accounts receivable, invoking the change order, commenced an action in contractual liability against the contractor and its surety, Travelers of Canada. The contractor impleaded Hydro-Québec, as owner, in warranty. In 1983 the subcontractor received a copy of one of the plans appended to the 1977 geotechnical report from an anonymous source. It was alleged that it would have been able to see from this plan that there was an error in selecting the precise site of the work, which could have explained its difficulties. The Bank then brought an action in delictual liability against Hydro-Québec. The action in contractual liability against the contractor became subsidiary.
The Superior Court allowed the Bank's delictual action against Hydro-Québec. The court noted that the documents provided with the call for tenders did not allow the contractor and subcontractor to foresee the difficulties in carrying out the work. It also noted that the design described in the call for tenders and in these documents was erroneous and could not be carried out as described. In the court's view Hydro-Québec was aware as early as the tender period that major changes would be necessary and the letter from the experts and their 1977 geotechnical report also disclosed errors committed by Hydro-Québec. The court was of the view that the failure to disclose the information obtained in 1977 played a crucial role in the subcontractor's collapse, preventing it from seeking to have the contract renegotiated. It accordingly found that Hydro-Québec had acted fraudulently in not informing the contractor and the subcontractor that the design set out in the call for tenders was erroneous. The court awarded the Bank $6,438,674 in damages, and $2,000,000 for the ruin of the subcontractor, but without the additional indemnity provided for in art. 1056c C.C.L.C. The main contract between Hydro‑Québec and the contractor, the subcontract between the contractor and the subcontractor and the waivers were set aside. The Bank's contractual action against the contractor and the contractor's action in warranty against Hydro‑Québec were dismissed.
Hydro-Québec appealed and the Bank filed an incidental appeal with respect to the quantum and to the additional indemnity under art. 1056c. The contractor for its part filed an incidental appeal with respect to the setting aside of the contract.
The Court of Appeal dismissed the Bank's action and dismissed the other appeals. The court concluded that Hydro-Québec had not had knowledge of possible errors in the 1974 report and in the documents concerning the call for tenders at the time the contracts were entered into. It also concluded that Hydro-Québec had no obligation to disclose the 1977 report to the contractor since the changes provided for in the amendment had already been ordered and this report contained nothing new.
Held: The appeals should be allowed in part.
The Court of Appeal was not justified in intervening to reverse the Superior Court's judgment. When an appellate court is of the opinion that the trial judge has drawn erroneous conclusions from the evidence, it must provide good reasons for its decision, because in so doing it is taking issue with the results of direct observation of the testimony. It is not sufficient for the Court of Appeal to indicate its disagreement with the trial judge; it must also state its reasons. In this case the Court of Appeal differed with the conclusions reached by the trial judge on several occasions with respect to the main issues, and to other issues of lesser importance, relating to the assessment of the facts and the credibility of the witnesses. The court did not explain in what respect the trial judge may have been mistaken when he weighed the evidence before him, and in particular it advanced no reason why his findings as to credibility, which are at the heart of his sovereign authority, were patently erroneous. In the absence of an explanation, one must conclude that the Court of Appeal simply disagreed with the lower court's appreciation of the facts, and so substituted its own interpretation.
Not only is there no palpable error in the interpretation of the evidence in the trial judgment, but the judgment is well founded in law. Failure to perform a contractual obligation, as a juridical fact, may form the basis for an action in delictual liability by a third party against the contracting party who is at fault. A party to a contract must conduct itself just as reasonably and with the same good faith toward third parties as toward the other contracting parties. A subcontractor may therefore invoke in its favour a failure by the owner to fulfil its obligation to inform the contractor, in so far as the owner failed to meet the standard of conduct of a reasonable person. The main elements of the contractual obligation to inform are: knowledge of the information, whether actual or presumed, by the party which owes the obligation to inform; the fact that the information in question is of decisive importance; and the fact that it is impossible for the party to whom the duty to inform is owed to inform itself, or that the creditor is legitimately relying on the debtor of the obligation. These elements of the obligation to inform are found in contracts of enterprise relating to large projects. In this context, however, the substance of the obligation may vary depending on the allocation of risk, the relative expertise of the parties and the continuing formation of the contract.
In this case the trial judge was correct in imposing an onerous obligation to inform on Hydro-Québec after noting that Hydro‑Québec had assumed a certain degree of liability with respect to the accuracy of the geotechnical data, that it had greater expertise than the contractor and the subcontractor in relation to the geotechnical studies, and that the number and scope of the alterations had completely changed the nature of the original contract. His conclusion that Hydro-Québec had failed to fulfil its obligation to inform as early as the pre-contractual period and that this fault continued with the non‑disclosure of the 1977 report was supported by the evidence and the Court of Appeal should not have intervened. Hydro-Québec, which knew that its design was erroneous, refused to admit its error in order to induce the contractor and the subcontractor to complete the work without having to renegotiate the entire contract. The Bank could therefore rely on the failure to fulfil the obligation to inform since it is indisputable that Hydro‑Québec, as the owner, had a duty to act reasonably toward subcontractors, particularly when it was a matter of informing them of errors in the tender documents. In the context of a large project, the contractor commonly uses the services of subcontractors. As well, this possibility was mentioned in the specifications which accompanied the call for tenders. Not only did the obligation to inform benefit the contractor, but it was also to the advantage of the subcontractors.
The delictual action by the Bank against Hydro‑Québec for breach of its obligation to inform is not prescribed. It was in fact impossible for the Bank to act, since it was unaware of the facts which gave rise to its right (art. 2232 C.C.L.C.). In view of the fault committed by Hydro-Québec -- non-disclosure of the information -- the Bank could not know that Hydro‑Québec had this information and was therefore not able to exercise its rights. The time at which the prescription started to run was thus pushed back until the moment when the subcontractor fortuitously discovered this information.
The Bank is entitled to the additional indemnity provided for in art. 1056c C.C.L.C. This indemnity should be awarded where, as here, there is no valid reason for refusing it. Since there is nothing in the evidence to justify the sum awarded by the trial judge as compensation for the ruin of the subcontractor, however, this sum should be deducted.
Since the Bank's contractual recourse against the contractor was brought in the alternative, the trial judge should not have ruled on the contractual action, and should not have set aside the contracts and waivers between Hydro‑Québec and the contractor and between the contractor and the subcontractor, because the parties had not asked that they be set aside.
Cased Cited
Referred to: M. (M.E.) v. L. (P.), [1992] 1 S.C.R. 183; Lapointe v. Hôpital Le Gardeur, [1992] 1 S.C.R. 351; Beaudoin-Daigneault v. Richard, [1984] 1 S.C.R. 2; Construction Glomar Inc. v. Cie de construction Omega Canada Ltée, J.E. 90-1656; Groupe Desjardins assurances générales v. Société de récupération, d'exploitation et de développement forestiers du Québec (Rexfor), J.E. 91-1599; Houle v. Canadian National Bank, [1990] 3 S.C.R. 122; National Bank of Canada v. Soucisse, [1981] 2 S.C.R. 339; Bank of Montreal v. Kuet Leong Ng, [1989] 2 S.C.R. 429; Boucher v. Drouin, [1959] Que. Q.B. 814; Alliance Assurance Co. v. Dominion Electric Protection Co., [1970] S.C.R. 168, aff'g [1967] Que. Q.B. 767; Ross v. Dunstall (1921), 62 S.C.R. 393; Laferrière v. Lawson, [1991] 1 S.C.R. 541; Chouinard v. Landry, [1987] R.J.Q. 1954; Gburek v. Cohen, [1988] R.J.Q. 2424; Baril v. Industrielle (L'), Compagnie d'assurances sur la vie, [1991] R.R.A. 196; Roberge v. Bolduc, [1991] 1 S.C.R. 374; Corpex (1977) Inc. v. The Queen, [1982] 2 S.C.R. 643; Davie Shipbuilding Ltd. v. Cargill Grain Co., [1978] 1 S.C.R. 570; Cartier Building Inc. v. E. Séguin & Fils Ltée, [1985] C.A. 649; Oznaga v. Société d'exploitation des loteries et courses du Québec, [1981] 2 S.C.R. 113; Québec (Communauté urbaine) v. Services de santé du Québec, [1992] 1 S.C.R. 426; Guenette v. Prévost, [1987] R.D.J. 56; Layher v. Continental Holding Inc., C.A.P. 87C-116; Immeubles Maude Inc. v. Farazli, [1991] R.D.I. 616; Air Canada v. McDonnell Douglas Corp., [1989] 1 S.C.R. 1554; Cass. Ass. plén., July 12, 1991, Besse v. Protois, Bull. civ. 1991. Ass. plén., No. 5, J.C.P.1991.II.21743 (note G. Viney).
Statutes and Regulations Cited
Civil Code of Lower Canada, arts. 1024, 1053, 1056c, 1688, 1690, 2232.
Civil Code of Quebec, S.Q. 1991, c. 64 [not yet in force], arts. 1375, 1469, 1473, 2098, 2099, 2100, 2118, 2119.
Code of Civil Procedure, R.S.Q., c. C-25, art. 523.
Authors Cited
Durry, Georges. La distinction de la responsabilité contractuelle et de la responsabilité délictuelle. Montréal: Quebec Research Centre of Private and Comparative Law, 1986.
Ghestin, Jacques. Traité de droit civil, t. II, Les obligations -- Le contrat: formation, 2e éd. Paris: L.G.D.J., 1988.
Jobin, Pierre-Gabriel. Les contrats de distribution de biens techniques. Québec: Presses de l'Université Laval, 1975.
Larroumet, Christian. "L'effet relatif des contrats et la négation de l'existence d'une action en responsabilité nécessairement contractuelle dans les ensembles contractuels", J.C.P.1991.I.3531.
Legrand, Pierre, Jr. "Pour une théorie de l'obligation de renseignement du fabricant en droit civil canadien" (1981), 26 McGill L.J. 207.
Le Tourneau, Philippe. "De l'allégement de l'obligation de renseignements ou de conseil", D. 1987. Chron., p. 101.
Picod, Yves. Le devoir de loyauté dans l'exécution du contrat. Paris: L.G.D.J., 1989.
Rousseau-Houle, Thérèse. Les contrats de construction en droit public et privé. Montréal: Wilson & Lafleur/Sorej, 1982.
Teyssie, Bernard. Les groupes de contrats. Paris: L.G.D.J., 1975.
Viney, Geneviève. Traité de droit civil, t. IV, Les obligations -- La responsabilité: conditions. Paris: L.G.D.J., 1982.
APPEALS from a judgment of the Quebec Court of Appeal, [1990] R.R.A. 3, reversing a judgment of the Superior Court**. Appeals allowed in part.
Colin K. Irving, Daniel Ayotte and Douglas Mitchell, for the appellant the Bank of Montreal.
Séverin Lachapelle, for the appellant Tremblay.
André Simard, for the respondents Bail Ltée, Sotrim Ltée and Travelers of Canada.
Pierre Bourque, Q.C., Eugène Czolij and Paul Charbonneau, for the respondent the Commission hydroélectrique du Québec.
//Gonthier J.//
English version of the judgment of the Court delivered by
Gonthier J. -- These proceedings arose out of construction work done in 1977‑78 at the Abitibi Substation (hereinafter referred to as the "Substation"), located in northeastern Quebec, which is part of a transmission line serving the "James Bay" hydro‑electric power stations. At issue are the duty of Hydro‑Québec, as the owner and principal, to disclose information in its possession concerning soil conditions to a subcontractor, and the resulting liability. Since the dispute between the parties relates primarily to the facts and the consequences to be drawn therefrom, I shall begin with a chronological summary of the established facts, to provide the background.
I -‑ Facts
The established facts may be summarized as follows:
1977
May 2Call for tenders by Hydro‑Québec for the "Construction of seven (7) buildings and related civil work to the whole substation" for the Substation. Several documents were made available to tenderers, including a geotechnical report prepared by the Laboratoire d'Inspection et d'Essais Inc. (hereinafter referred to as "LIE"), which had been submitted to Hydro‑Québec on December 31, 1974 (hereinafter referred to as the "1974 Report"). The 1974 Report contained a description of the nature and condition of the soil on the site selected by Hydro‑Québec, as well as some recommendations for the excavation work. The work to be performed also included constructing an access road to the Substation, for which the call for tenders specified coverage of 18 inches.
May 12Mandate given to LIE by Hydro‑Québec for [translation] "7 test drills at the location of proposed buildings and exploration on foot on the route of the access road to the substation and the route of the access road to the heliport and at the site of the heliport itself".
June 30Internal Hydro‑Québec meeting, at which LIE gave an oral report on its mandate of May 12. Hydro‑Québec decided to change its plans for the access road, and increased the cover to 54 inches from 18 inches. This alteration became amendment No. 1 of July 8 and the plans were changed on July 11.
July 5The contract was awarded to Bail Ltée and Sotrim Ltée, a joint venture (hereinafter referred to as "Bail/Sotrim"). On July 6, a letter to that effect was sent to Bail/Sotrim.
July 7Bail/Sotrim subcontracted the excavation work and foundation digging to Laprise Construction Limitée (hereinafter referred to as "Laprise"). There were lengthy negotiations, and a final contract, incorporating the changes made after amendment No. 10 was issued, was signed in November 1977 and backdated to July 7.
July 8Issuance of amendment No. 1, changing the specifications for the access roads to the Substation.
July 12Beginning of work on the access road to the Substation. Work on the actual site of the Substation began in early August.
July 15Letter from Hydro‑Québec to Bail/Sotrim relating to the changes to the access road.
End of JulyComplaint by Laprise to Bail/Sotrim about difficulties encountered in doing the work.
August 17At a site meeting, Bail/Sotrim asked the site coordinator what Hydro‑Québec would do [translation] "if special conditions are encountered in digging foundations on the site".
August 19Letter from Bail/Sotrim to Hydro‑Québec, complaining of the poor soil conditions, describing certain tests done by Bail/Sotrim and suggesting that the level of the Substation be raised.
August 24Meeting of representatives of Bail/Sotrim and Hydro‑Québec on the site of the Substation.
August 25‑26Visit by LIE to the Substation site in response to a request from Hydro‑Québec to do further tests on the site to verify the facts reported by Bail/Sotrim.
August 29Letter from LIE to Hydro‑Québec (hereinafter referred to as the "August 29 Letter"; this letter is generally considered to be an integral part of the geotechnical report submitted on September 29). To deal with the problems complained of by Laprise, LIE suggested raising the level of the Substation by 3 feet, and added that [translation] "[e]ven if the level of the foundations is raised, there could still be problems with some of the excavations because of unfavourable hydraulic conditions. We are of the opinion that such situations will have to be resolved, where necessary, as they arise." The letter then suggested some other possible solutions. Neither the letter nor its substance was disclosed to Bail/Sotrim or to Laprise.
August 31Letter from Hydro‑Québec to Bail/Sotrim, in reply to the letter of August 19. The level of the Substation was raised by 3 feet, as Bail/Sotrim had requested. Hydro‑Québec noted that [translation] "it is possible that poor sub‑soil conditions may be encountered; in that case, corrective measures will be taken on the site."
September 1Issuance of amendment No. 10, concerning the raising of the level of the site. A dispute between Bail/Sotrim and Laprise with respect to the method of calculating payment for the work performed pursuant to this amendment gave rise to these proceedings.
September 29LIE sent a geotechnical report dated August 1977 (hereinafter referred to as the "1977 Report") to Hydro‑Québec. The 1977 Report was pursuant to the mandates given to LIE on May 12, 1977, as well as the mandate of August 1977. Neither the report itself nor its content was disclosed to Bail/Sotrim or to Laprise.
1978
February 17Letter from Bail/Sotrim to Hydro‑Québec. Because Laprise was still experiencing difficulties in performing the work, Bail/Sotrim sought to have a meeting with Hydro‑Québec, which took place on February 22.
February 20Meeting of the people at Hydro‑Québec in charge of the construction of the Substation, to prepare for the meeting of February 22. The minutes of the meeting set out a list of the problems encountered since work on the Substation started. The site coordinator for Hydro‑Québec stated that it was [translation] "impossible to get around on the site" and "difficult [to obtain] a stable footing for the excavations", and he added that "[it is] impossible to stabilize the trench walls in soil of this quality using the information on the plans". An expert was of the opinion that [translation] "it seems it would have been difficult to foresee the hydrostatic pressures encountered".
February 22Meeting of Hydro‑Québec, Bail/Sotrim and Laprise. Hydro‑Québec agreed to the use of well‑points and to a reduction in the grade of the peripheral trench, but it refused to incur additional costs for these changes, being of the view that they were "contractual". Hydro‑Québec's position was confirmed by letter dated February 27.
February 27Letter from Bail/Sotrim to Hydro‑Québec, asking Hydro‑Québec to assume the additional costs relating to use of well‑points.
April 21Letter from Bail/Sotrim to Hydro‑Québec. Bail/Sotrim offered to drain the land using well‑points for a lump sum of $689,000. This proposal was accepted and became amendment No. 58 of June 28.
May 17Letter from Bail/Sotrim to Hydro‑Québec. Bail/Sotrim waived all claims against Hydro‑Québec with respect to the soil conditions, subject to the dispute surrounding amendment No. 10.
June 28Issuance of amendment No. 58, covering the draining of the Substation site using well‑points.
July 12Letter from Laprise to Bail/Sotrim. Laprise waived all claims against Bail/Sotrim with respect to soil conditions, subject to the dispute surrounding amendment No. 10.
NovemberCompletion of the work contracted to Laprise.
1980
November 4Laprise was put in bankruptcy by a judicial decision retroactive to September 30.
December 8The Bank of Montreal (hereinafter referred to as the "Bank"), the assignee of Laprise's accounts receivable, commenced an action in contractual liability against Bail/Sotrim and its surety Travelers of Canada (hereinafter included in Bail/Sotrim), invoking amendment No. 10.
1981
June 25Application by Bail/Sotrim to join and implead Hydro‑Québec, as the owner, in warranty. Application granted.
1983
FebruaryLaprise received a copy of one of the plans appended to the 1977 Report from an anonymous source. It was alleged that Laprise would have been able to see from this plan that there was an error in selecting the site of the Substation, which could have explained its difficulties. The Bank obtained other documents from Hydro‑Québec.
April 7Intervention by Gilles Tremblay (hereinafter referred to as the "intervener"), trustee in the bankruptcy of Laprise.
June 8Martineau J. granted an application by the Bank to amend its declaration in order to add an action in delictual liability against Hydro‑Québec. The action in contractual liability against Bail/Sotrim became subsidiary.
June 23Beginning of proof.
1984
February 28End of proof.
May 15Martineau J. allowed an application by the Bank for the production of essential new documents, in order to add certain documents to the record, including the minutes of the internal Hydro‑Québec meeting of February 20, 1978. The Hydro‑Québec site coordinator testified again.
August 22Close of argument.
1985
June 14Martineau J. of the Superior Court allowed the Bank's delictual action against Hydro‑Québec with costs. Hydro‑Québec was condemned to pay $8,438,674 in damages to Laprise. The main contract between Hydro‑Québec and Bail/Sotrim, the subcontract between Bail/Sotrim and Laprise and the waivers dated May 17 and July 12, 1978, were set aside. The Bank's contractual action against Bail/Sotrim and the action in warranty by Bail/Sotrim against Hydro‑Québec were dismissed without costs.
July 9Hydro‑Québec appealed.
July 16The Bank filed an incidental appeal on the issue of the quantum of the Superior Court's judgment, as well as the indemnity under art. 1056c C.C.L.C. The intervener supported the incidental appeal of July 17.
July 17Bail/Sotrim filed an incidental appeal on the issue of the setting aside of the contract and on costs.
1989
November 1The Court of Appeal (Beauregard and Vallerand JJ.A. and Richard J., ad hoc) allowed Hydro‑Québec's appeal, dismissed the Bank's action with costs and dismissed the other appeals without costs.
1990
April 12This Court granted leave to appeal from the judgment of the Court of Appeal.
II -‑ Judgments Below
Superior Court (Montreal, No. 500‑05‑015544‑800, June 14, 1985)
After reviewing the arguments of the parties and the evidence adduced before him, Martineau J. reached the following conclusions. First, he was of the opinion that the documents provided with the call for tenders, including, inter alia, the 1974 Report, did not allow Laprise to foresee the difficulties in carrying out the excavation work. Martineau J. concluded that, based on the testimony given before him and in light of the numerous changes made while the work was being carried out, the design described in the call for tenders and in the accompanying documents was erroneous and could not be carried out as described. He noted several changes which were required in order to complete the Substation, including the use of well‑points, raising the level of the Substation, changing the access roads, reducing the grade of the peripheral trench and using caisson piles.
Martineau J. considered that Hydro‑Québec was aware that changes would be necessary as early as June 1977, during the tender period, when it was established in meetings with LIE that it would be necessary to change the design of the access road. The 1977 Report also disclosed errors committed by Hydro‑Québec, and was [translation] "not only a useful, but surely a necessary working document for any contractor engaged in work of this nature" (p. 141), in the words of Martineau J. Although the exact cause of Laprise's problems was not identified (it might have been a combination of an error in selecting the site of the Substation, an error in the 1974 Report and an error in Hydro‑Québec's plans and specifications), the information in Hydro‑Québec's possession would have made it possible to understand the nature and significance of the problems better and to remedy them.
The failure to disclose the information obtained in 1977 played a crucial role in Laprise's collapse, according to Martineau J. From the end of June 1977, Hydro‑Québec conducted itself in a secretive manner and failed to fulfil its duties by not informing Bail/Sotrim and Laprise that it had realized that the design set out in the call for tenders was erroneous. Hydro‑Québec took advantage of its position of strength to induce Bail/Sotrim and Laprise to continue the work at the Substation, as a result of which Laprise suffered heavy financial losses and eventually bankruptcy. The information that was hidden in this way would have been a deciding factor for Laprise and Bail/Sotrim in their conduct of the negotiations concerning amendments to the contract, and would probably have resulted in their demanding a complete renegotiation. Martineau J. concluded that there had been fraud on the part of Hydro‑Québec. He described Hydro‑Québec's attitude as a [translation] "conspiracy of silence and deception" (p. 156).
Martineau J. awarded the Bank $6,438,674, the difference between the amount collected by Laprise and the actual costs it had incurred in performing the contract, and $2,000,000 in addition for the ruin of Laprise, with interest as of May 8, 1983, the date of the judgment allowing the request to add conclusions as to delictual liability to the declaration, but without the additional indemnity provided for in art. 1056c C.C.L.C.
On the question of prescription, Martineau J. found that it was impossible for the Bank to act before the 1977 Report was brought to its attention in February 1983, as until then it had no evidence of fraud on the part of Hydro‑Québec.
Court of Appeal, [1990] R.R.A. 3
Beauregard J.A., for the Court of Appeal, dismissed the request by the Bank of Montreal to amend its notice of incidental appeal to include an appeal from the conclusion in the trial judgment dismissing its action against Bail/Sotrim, on the ground that the right of appeal on this supplementary issue had expired more than six months earlier.
In the light of the prescription rules, Beauregard J.A. found that there could be only two possible grounds for the Bank's delictual action against Hydro‑Québec:
1.Hydro‑Québec knew at the time that the contract was entered into that the work could not be carried out on the terms in the call for tenders;
2.Hydro‑Québec was under an obligation to disclose the 1977 Report to Bail/Sotrim.
He then made a detailed study of the facts.
On the first point, he found, on the available evidence, that Hydro‑Québec had not had knowledge of possible errors in the 1974 Report and in the documents concerning the call for tenders at the time the contracts for the Substation were entered into.
On the second point, he reviewed the history of the demands made by Bail/Sotrim and Laprise and the changes Hydro‑Québec had made in the project. Amendment No. 10 was issued in response to the complaints by Bail/Sotrim. Thus Hydro‑Québec had no obligation to provide the August 29 Letter to Bail/Sotrim or to Laprise, since they were aware of the problems and Hydro‑Québec had agreed to their demands. Moreover, Hydro‑Québec had left the door open for future changes in its letter of August 31. The 1977 Report, for its part, was no longer material, since the changes had been ordered earlier (amendment No. 10). The 1977 Report contained nothing new in comparison to the 1974 Report. Beauregard J.A. concluded that the parties had adopted a process for making "piecemeal" changes: Hydro‑Québec studied each complaint, and Bail/Sotrim was aware that any subsequent problems would be resolved when they arose. Finally, the waivers given in May 1978 had been given with full knowledge of the situation.
Beauregard J.A. concluded that Bail/Sotrim had not proved that if the 1977 Report had been disclosed to it, unknown facts which would have altered its subsequent conduct would have come to its attention.
Beauregard J.A. did not rule on the contractual claim, or on the delictual claims which were prescribed at the time.
III -‑ Issues
This appeal raises the following issues:
1.Was the Court of Appeal justified in intervening to reverse the trial judgment?
2.Was the delictual action prescribed?
3.Was the Bank entitled, if the issue arose, to the indemnity set out in art. 1056c C.C.L.C.?
4.Was the Court of Appeal correct to dismiss the Bank's request to amend its notice of incidental appeal?
IV -‑ Intervention by the Court of Appeal
The Court of Appeal indicated its disagreement not only with the findings of fact by Martineau J., but also with the legal structure of his argument.
(A) On the Facts
This Court has often had occasion in recent years to rule on the role of an appellate court, particularly with respect to findings of fact by the trial judge. These issues were very recently discussed in M. (M.E.) v. L. (P), [1992] 1 S.C.R. 183, and Lapointe v. Hôpital Le Gardeur, [1992] 1 S.C.R. 351. I shall only quote the following passage from Beaudoin‑Daigneault v. Richard, [1984] 1 S.C.R. 2, at pp. 9-10, which provides a good summary of the approach that should be taken in decisions of appellate courts:
. . . an appellate court should not intervene unless it is certain that its difference of opinion with the trial judge is the result of an error by the latter. As he had the benefit of seeing and hearing the witnesses, such certainty will only be possible if the appellate court can identify the reason for this difference of opinion, in order to be certain that it results from an error and not from his privileged position as the trier of fact. If the appellate court cannot thus identify the critical error it must refrain from intervening, unless of course the finding of fact cannot be attributed to this advantage enjoyed by the trial judge, because nothing could have justified the judge's conclusion whatever he saw or heard; this latter category will be identified by the unreasonableness of the trial judge's finding . . . .
It is therefore not sufficient for an appellate court to indicate its disagreement with the trial judge; it must also state its reasons. It is often said, with good reason, that the trial judge is the master of the facts. Thus when an appellate court is of the opinion that the trial judge has drawn erroneous conclusions from the evidence, it must provide good reasons for its decision, because in so doing it is taking issue with the results of direct observation of the testimony. The Court of Appeal also takes a deferential approach in the field of contracts of enterprise (Construction Glomar Inc. v. Cie de construction Omega Canada Ltée, C.A. Montréal, No. 500‑09‑000768‑861, November 12, 1990, J.E. 90‑1656, Groupe Desjardins assurances générales v. Société de récupération, d'exploitation et de développement forestiers du Québec (Rexfor), C.A. Québec, No. 200‑09‑000156‑882, September 17, 1991, J.E. 91‑1599). We should now examine the Court of Appeal's judgment in light of these principles.
The Court of Appeal differed with the conclusions reached by Martineau J. on several occasions with respect to the main issues in this case.
1.The Connection Between the Substation Access Road and the Site of the Substation
With respect to the connection between the changes made to the access road in June 1977 and whether or not it was possible to carry out the work, Beauregard J.A. wrote, at p. 15:
[translation] The trial judge did not seem to be capable of ruling on the reason why the design of the access road to the substation was changed, and I cannot blame him for it: I read and reread the testimony and the exhibits on this point in vain, and have not been able to form a firm opinion on this point.
He added, at p. 16:
[translation] It does not necessarily follow that because Hydro‑Québec wanted to reinforce the substation access road it was aware that its plans for construction on the substation site itself could not be carried out using conventional construction methods. On this I am in good company since, while the trial judge noted the argument by the Bank of Montreal on this point, he did not himself state that, as a result of the tests done by L.I.E. in May, Hydro‑Québec knew that its work could not be carried out.
See also, to the same effect, pp. 25 and 29.
Yet Martineau J. had taken the changes made to the access road in June 1977, during the tender period, to be evidence of fraud on the part of Hydro‑Québec, given Hydro‑Québec's expertise and the proximity of the access road and the Substation site. Martineau J. wrote, with respect to the changes to the access road, that [translation] "[i]t is therefore apparent that we have here one or more access roads the design of which is quite different from the tender documents" (p. 131). With respect to the connection between the road and the Substation site, he stated at pp. 136‑37, dealing with the change in the grades of the trenches:
[translation] This is quite different from the original design or the call for tenders, which called for grades of one in two. Even if it could be argued that the five-in-one grades which were recommended in the 1977 report applied only to the access road trench, we still can only conclude that there was a radical change in the original design of the peripheral trench;
Martineau J. refused to separate the road and the site. This led him to conclude, at p. 151:
[translation] Even before the contract was signed by Bail/Sotrim and Laprise, Hydro‑Québec knew that its design for the civil engineering and foundation excavation work was erroneous, but it nevertheless went ahead on the basis of this design . . . .
And at p. 155:
[translation] . . . the evidence revealed an owner, Hydro‑Québec, which was, as noted earlier, an informed owner with the greatest facilities imaginable in terms of technology and expertise, and which had vouched for the geotechnical conditions, hiding studies, plans and other documents, which related to and were essential in carrying out the work it had ordered, from the contractor, which was in the grip of insurmountable problems, while Hydro‑Québec was using that same information to change its own design, during the course of the work and even during the tender process. [Emphasis added.]
In Martineau J.'s view, Hydro‑Québec's fault began when Hydro‑Québec made changes to the Substation access road at the end of June 1977. Given the close connection between the access road and the Substation site, Hydro‑Québec knew at that time that the design described in the call for tenders was erroneous, at least in part.
2.Differences Between the 1974 Report and the 1977 Report
With respect to the geotechnical reports, Martineau J. based his opinion on his assessment of the credibility of the witnesses. This issue is of primary importance if we are to understand his reasoning clearly. During a trial which lasted 45 days he heard numerous witnesses, including the author of the 1977 Report, Hydro‑Québec's site coordinator, the president of Bail/Sotrim, the person in charge of the site for Bail/Sotrim and the president of Laprise. He also heard the testimony of experts for Hydro‑Québec and for the Bank. He seriously questioned the credibility of Hydro‑Québec's experts, at p. 152:
[translation] The Hydro‑Québec experts who testified contradicted themselves on essential issues such as the peripheral trench, the purpose of amendment 10 and the foreseeability of the hydro