Judgments

[1993] 1 F.C. 371

T-2662-87

Northeast Marine Services Limited (Plaintiff)

v.

Atlantic Pilotage Authority (Defendant)

Indexed as: Northeast Marine Services Ltd. v. Atlantic Pilotage Authority (T.D.)

Trial Division, McNair D.J.—Halifax, December 9, 1991 and October 19, 1992.

Contracts — Action for damages for breach of contract for pilot boat services — Plaintiff not awarded contract although lowest bidder — Defendant relying on disclaimer clause, fearing monopoly — Whether failure to disclose precondition against monopoly in tender specifications unfairly excluded plaintiff’s bid from consideration — Financial Administration Act, s. 124, by-laws not requiring defendant to award contract to lowest bidder — Case law on tendering reviewed — Defendant implicitly bound by preliminary “contract A” to treat all bidders fairly in tendering process — Implied term to award contract to lowest bidder where cost primary factor in evaluation of tenders — All terms and conditions of specifications in call for tenders met by plaintiff — Disclaimer clause not entitling defendant to attach to tender call preferential preconditions concerning monopoly not disclosed to bidders — No right to pierce corporate veil of groups of companies — Erroneous perception of dangers of monopoly — Defendant breaching preliminary “contract A”, prima facie liable in damages.

Torts — Negligence — Whether defendant guilty of misrepresentation in failing to disclose material information on concerns as to monopoly in tender specifications — No fiduciary duty owed with respect to tendering process under Financial Administration Act, s. 124, by-laws, tendering procedures — No special relationship between defendant and plaintiff within Hedley Byrne doctrine requiring disclosure of preconditions against monopoly.

Equity — Equitable doctrine of “clean hands” based on wrongful interference with tendering process by plaintiff — Allegations of bribery and conspiracy irrelevant as concerned officers not parties to action — Equitable defences available only where relief sought subject of separate action or asserted by counterclaim — No evidence to support defendant’s allegations — Equitable pleas no defence to liability for breach of contract.

Damages — Limiting principles — Remoteness — Plaintiff bidding on tender for pilot boat services with expectation of realizing profits — Damages for breach of contract based on loss of profit — Damages for lost profits must be proven on balance of probabilities — Case law reviewed — Doctrine of remoteness explained — Claim for damages for loss of profits not too remote — Defendant must have reasonably foreseen likely consequences of breach of contract.

Practice — Interest — Under Federal Court Act, ss. 36, 37, prejudgment and postjudgment interest now determined by law of province where cause of action arose — Prejudgment interest not awarded — Law of Nova Scotia applicable to postjudgment interest.

This was an action for damages for breach of contract, negligent misrepresentation, breach of fiduciary, statutory or common law duty with respect to the awarding of a contract for pilot boat services. The plaintiff alleged that the defendant wrongfully interfered with sound economic business principles by not awarding the contract to it, even though its bid was the lowest of all those received on Tender 50. The defendant relied on a so-called disclaimer clause whereby it reserved “the right to reject any or all tenders or to accept any tender considered in its best interest”. The main factor inducing the defendant to reject the plaintiff’s bid was a growing concern regarding the perception that a monopoly existed in the pilot boat business in the Cape Breton region. The defendant also invoked the equitable doctrine of “clean hands”, arguing that the plaintiff had sought to improperly interfere with the tendering process. The issue was whether the defendant’s failure to disclose the precondition of monopoly in the tender specifications unfairly stacked the cards against the plaintiff on Tender 50 such that the tendering process became nothing more than a sham.

Held, the action should be allowed in part.

There is no express provision either in the defendant’s by-laws and tendering manual or in the Financial Administration Act, section 124, which imposes a fiduciary duty or statutory obligation upon the defendant to award any contract to the lowest bidder. Such duty or obligation is imposed on the directors and officers of the defendant in their capacity as agents and trustees for the Crown corporation and not as something which might enure to the benefit of a third party stranger. According to the evidence, the preconditions regarding the issue of monopoly were never communicated to the plaintiff prior to the submission of its bid on Tender 50. This contravened the defendant’s desire to give every tenderer a fair chance in the bidding process. The monopoly issue, the driving force behind the decision-making process on Tender 50, was an irrelevant consideration which ought not to have influenced the decision to reject the plaintiff’s lower bid. The defendant’s directors committed an error of law by arbitrarily piercing the corporate veil so as to deny the autonomous and independent existence of the Slater group of companies. It was a foregone conclusion in the collective mind of the defendant that the plaintiff was never in the running for fair consideration with respect to its bids on Tender 50 because of the undisclosed preconditions against a monopoly; the tendering process was rigged against the plaintiff from the outset.

The law on tendering changed with the decision of the Supreme Court of Canada in R. in right of Ontario et al. v. Ron Engineering & Construction (Eastern) Ltd., wherein a tender call became an offer and a tender bid an acceptance which, if made in compliance with the conditions of the call for tenders, created a preliminary contract or “contract A”. On the basis of that principle, a preliminary, unilateral “contract A” was created between the defendant and the plaintiff on the submission of the latter’s bid. This preliminary “contract A” contained the implied term or obligation to treat all bidders fairly; it also contained an implied term or obligation to award the contract on Tender 50 to the lowest qualified bidder, the instant case being one where cost or price would have to be an important criterion in the evaluation of tenders. The plaintiff met all the terms and conditions of the specifications set out in the call for tenders, but its low bid failed because of the defendant’s apprehensions regarding monopoly. The disclaimer clause did not entitle the latter to ignore the implied terms of the preliminary “contract A” arising from the submission of the tender bid by attaching to its tender call preferential preconditions which were not disclosed to the bidders. The defendant has breached the preliminary “contract A” and was prima facie liable in damages.

There was no special relationship between the defendant and the plaintiff such as to impose on the former a duty of care to disclose in the tender specifications the preferential preconditions of monopoly. The elements of negligent misrepresentation as enunciated in the English case Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. were not met in that there was no breach of a duty of care by negligent words as opposed to negligent conduct. The defendant was not liable to the plaintiff for any negligent misrepresentation or misstatement or other breach of duty sounding in tort arising from its failure to disclose in the tender documents the preconditions of monopoly. The defendant’s actions should be judged in the perspective of whether there was any breach of a duty of fairness between the plaintiff and all tenderers, rather than on the basis of an obligation or duty sounding in tort.

The equitable doctrine of “clean hands” relied on by the defendant was based on the allegation that the plaintiff improperly interfered with the tendering process. There was no evidence to support this allegation of a conspiracy and bribery involving executives of various companies. These allegations and any evidence with respect thereto were irrelevant since the persons in question were not parties to the present action nor to any action in which said allegations were brought directly in issue. The equitable defences pleaded would avail the defendant only where the relief sought in respect of the conduct complained of was made the subject of a separate action or asserted by way of counterclaim. The defendant’s equitable pleas were no defence to the liability for breach of contract.

The assessment of damages for breach of contract was based on loss of profit projected over a five-year period. The basic rule with respect to damages, as set out by the case law, is that loss of profits is not compensable if too remote according to the test enunciated in Hadley v. Baxendale. Damages for lost profits, like all damages for breach of contract, must be proven on a balance of probabilities. According to the doctrine of remoteness, a defendant is liable for such losses as, in all the circumstances, he ought reasonably to have contemplated at the time the contract was made. In the instant case, the plaintiff bid on Tender 50 with the full expectation of realizing some profit therefrom over the whole contract period had it been successful on its bid, and the loss of such profit was something which the defendant ought reasonably to have foreseen as the likely consequence of any breach of the preliminary “contract A” at the time it was made. The plaintiff’s claim for damages for loss of profits, based on its reasonable expectation interest, was not too remote under the first branch of the rule in Hadley v. Baxendale. The defendant must be taken to have reasonably foreseen the likely consequences of the breach of its contract with the plaintiff.

As to interest on the damages award, the new sections 36 and 37 of the Federal Court Act divest the Court of much of its discretion in the awarding of both prejudgment and postjudgment interest by making interest determinable according to the law of the province in which the cause of action arose. Subsection 36(6) precludes any award of prejudgment interest on damages for the period prior to February 1, 1992 and new section 37 makes the matter of postjudgment interest determinable by the law of Nova Scotia. Under the Interest On Judgments Act of Nova Scotia, section 2, postjudgment interest may only be awarded at the prescribed statutory rate of 5 percent per annum.

STATUTES AND REGULATIONS JUDICIALLY CONSIDERED

Federal Court Act, R.S.C., 1985, c. F-7, ss. 36 (as am. by S.C. 1990, c. 8, s. 9), 37 (as am. idem).

Financial Administration Act, R.S.C. 1970, c. F-10, s. 124 (as enacted by S.C. 1984, c. 31, s. 11).

Financial Administration Act, R.S.C., 1985, c. F-11, s. 115.

Indian Act, R.S.C. 1952, c. 149, s. 18(1).

Interest On Judgments Act, R.S.N.S. 1989, c. 233, s. 2.

Pilotage Act, S.C. 1970-71-72, c. 52.

CASES JUDICIALLY CONSIDERED

APPLIED:

R. in right of Ontario et al. v. Ron Engineering & Construction (Eastern) Ltd., [1981] 1 S.C.R. 111; (1981), 119 D.L.R. (3d) 267; 13 B.L.R. 72; 35 N.R. 40; Best Cleaners and Contractors Ltd. v. The Queen, [1985] 2 F.C. 293; (1985), 58 N.R. 295 (C.A.); Canamerican Auto Lease and Rental Ltd. v. Canada, [1987] 3 F.C. 144; (1987), 37 D.L.R. (4th) 591; 77 N.R. 141 (C.A.); Chinook Aggregates Ltd. v. Abbotsford (Mun. Dist.) (1989), 40 B.C.L.R. (2d) 345; [1990] 1 W.W.R. 624; 35 C.L.R. 241 (C.A.), affg (1987), 28 C.L.R. 290 (Co. Ct.); Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd., [1964] A.C. 465; [1963] 2 All E.R. 575 ( H.L.); Cabott (Walter) Construction Ltd. v. The Queen (1974), 44 D.L.R. (3d) 82 (F.C.T.D.); vard (1975), 69 D.L.R. (3d) 542; 12 N.R. 285 (F.C.A.); Houweling Nurseries Ltd. v. Fisons Western Corp. (1988), 49 D.L.R. (4th) 205; 37 B.C.L.R. (2d) 2; 29 C.P.C. (2d) 168 (C.A.); varg (1986), 9 B.C.L.R. (2d) 65 (S.C.); Lewis v. Todd and McClure, [1980] 2 S.C.R. 694; (1980), 115 D.L.R. (3d) 257; 14 C.C.L.T. 294; 34 N.R. 1; Hadley v. Baxendale (1854), 156 E.R. 145; 9 Ex. 341 (Ex. Ct.).

DISTINGUISHED:

Guerin et al. v. The Queen et al., [1984] 2 S.C.R. 335; (1984), 13 D.L.R. (4th) 321; [1984] 6 W.W.R. 481; 59 B.C.L.R. 301; [1985] 1 C.N.L.R. 120; 20 E.T.R. 6; 55 N.R. 161; 36 R.P.R. 1; Leo Lisi Ltd. v. Province of New Brunswick (1975), 11 N.B.R. (2d) 701 (C.A.); affg (1975), 10 N.B.R. (2d) 449 (Q.B.).

CONSIDERED:

Northern Electric Co. Ltd. v. Frank Warkentin Electric Ltd. et al. (1972), 27 D.L.R. (3d) 519 (Man. C.A.); Bruinsma (Ben) & Sons Ltd. v. Chatham (1984), 29 B.L.R. 148 (Ont. H.C.); Whistler Service Park Ltd. v. Whistler (Resort Municipality) (1990), 41 C.L.R. 132; 50 M.P.L.R. 233 (B.C.S.C.); Sodd Corporation Inc. v. Tessis (1977), 17 O.R. (2d) 158; 79 D.L.R. (3d) 632; 25 C.B.R. (N.S.) 16; 2 C.C.L.T. 245 (C.A.); The Pas (Town of) v. Porky Packers Ltd. et al., [1977] 1 S.C.R. 51; (1976), 65 D.L.R. (3d) 1; [1976] 3 W.W.R. 138; 7 N.R. 569; Nelson Lumber Co. Ltd. v. Koch (1980), 111 D.L.R. (3d) 140; [1980] 4 W.W.R. 715; 2 Sask R. 303 (C.A.); affg [1977] 6 W.W.R. 25.

REFERRED TO:

Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147; (1986), 75 N.S.R. (2d) 109; 31 D.L.R. (4th) 481; 186 A.P.R. 109; 34 B.L.R. 187; 37 C.C.L.T. 117; 42 R.P.C. 161; Sun Trust Company Ltd. v. Bégin, [1937] S.C.R. 305; [1937] 3 D.L.R. 81; (1937), 18 C.B.R. 357; Canadian Aero Service Ltd. v. O’Malley, [1974] S.C.R. 592; (1973), 40 D.L.R. (3d) 371; 11 C.P.R. (2d) 206; Re Kinookimaw Beach Association and The Queen in right of Saskatchewan (1979), 102 D.L.R. (3d) 333; [1979] 6 W.W.R. 84 (Sask. C.A.); Salomon v. Salomon& Co., [1897] A.C. 22 (H.L.); Megatech Contracting Ltd. v. Ottawa-Carleton (Regional Municipality) (1989), 68 O.R. (2d) 503; 34 C.L.R. 35 (H.C.); Elgin Construction Ltd. v. Russell (Twp) (1987), 24 C.L.R. 253 (Ont. H.C.); Kawneer Co. Canada (Ltd.) v. Bank of Canada (1982), 40 O.R. (2d) 275 (C.A.); Calgary v. Northern Construction Co. (1985), 67 A.R. 95; [1986] 2 W.W.R. 426; 42 Alta L.R. (2d) 1; 32 B.L.R. 81 (C.A.); Sirois and Therrien v. New Brunswick Teachers Federation (N.B.T.F.) and L’Association des Enseignants Francophones du Nouveau-Brunswick (A.E.F.N.B.) (1984), 56 N.B.R. (2d) 50; 8 D.L.R. (4th) 279; 146 A.P.R. 50; 28 C.C.L.T. 280 (Q.B.); Esso Petroleum Co. Ltd. v. Mardon, [1976] Q.B. 801 (C.A.); The Queen v. Jennings et al., [1966] S.C.R. 532; Guy v. Trizec Equities Ltd. et al., [1979] 2 S.C.R. 756; (1979), 32 N.S.R. (2d) 345; 99 D.L.R. (3d) 243; 54 A.P.R. 345; 10 C.C.L.T. 197; 27 N.R. 301; Andrews et al. v. Grand & Toy Alberta Ltd. et al., [1978] 2 S.C.R. 229; (1978), 8 A.R. 182; 83 D.L.R (3d) 452; [1978] 1 W.W.R. 577; 3 C.C.L.T. 225; 19 N.R. 50; Arnold et al. v. Teno et al., [1978] 2 S.C.R. 287; (1978), 83 D.L.R. (3d) 609; 3 C.C.L.T. 272; 19 N.R. 1; Keizer v. Hanna et al., [1978] 2 S.C.R. 342; (1978), 82 D.L.R. (3d) 449; 3 C.C.L.T. 316; 19 N.R. 209; Vorvis v. Insurance Corporation of British Columbia, [1989] 1 S.C.R. 1085; (1989), 58 D.L.R. (4th) 193; [1989] 4 W.W.R. 218; 36 B.C.L.R. (2d) 273; 94 N.R. 321; Harvey Foods Ltd. v. Reid (1971), 3 N.B.R. (2d) 444; 18 D.L.R. (3d) 90 (C.A.).

AUTHORS CITED

Charlesworth on Negligence, 5th ed. by R. A. Percy. London: Sweet and Maxwell, 1971.

Fleming, John G. The Law of Torts, 7th ed. Sydney: Law Book Company Limited, 1987.

Gower, L. C. B. Gower’s Principles of Modern Company Law, 4th ed. London: Stevens & Sons, 1979.

Linden, Allen M. Canadian Tort Law, 4th ed. Toronto: Butterworths, 1988.

Waddams, S. M. The Law of Damages, 2nd ed. Toronto: Canada Law Book Inc., 1992.

Welling, Bruce. Corporate Law in Canada: the Governing Principles, 2nd ed. Toronto: Butterworths, 1991.

ACTION for damages for breach of contract, negligent misrepresentation, breach of fiduciary, statutory or common law duty with respect to the awarding of a contract for the provision of pilot boat services. Action allowed in part.

COUNSEL:

Michael W. Swinwood for plaintiff.

Tosh Hayashi and Peter A. Heathcote for defendant.

SOLICITORS:

Lang, Michener, Honeywell, Wotherspoon, Ottawa, for plaintiff.

Metcalf, Hayashi, Halifax, for defendant.

The following are the reasons for judgment rendered in English by

McNair D.J.:

The Case

The plaintiff’s action is for damages for the defendant’s alleged breach of contract, negligent misrepresentation, breach of fiduciary duty and breach of statutory or common law duty with respect to the awarding of a contract for the provision of pilot boat services in the Strait of Canso, Nova Scotia, pursuant to the defendant’s tender calls on Tender 48 and Tender 50. In particular, the plaintiff alleges that the defendant breached its duty, both under the Pilotage Act [S.C. 1970-71-72, c. 52] and the Financial Administration Act [R.S.C. 1970, c. F-10], by rejecting on November 25, 1986 all tender proposals submitted on Tender 48. The plaintiff further alleges that the defendant wrongfully interfered with sound economic business principles by awarding the pilot boat contract for the Strait of Canso on Tender 50 to East Coast Marine Services Ltd., notwithstanding that the plaintiff’s bid was the lowest of all those received by the defendant on Tender 50. The plaintiff also alleges that the defendant breached its duties under section 12 of the Pilotage Act and section 124 of the Financial Administration Act [enacted by S.C. 1984, c. 31, s. 11] with respect to the tendering process on Tender 50. As a foreseeable result of the defendant’s alleged wrongdoing in relation to the aforementioned tendering processes, the plaintiff claims damages of $350,000 for loss of profit, expenses of $5,000 incurred in connection with its two tender bids, exemplary damages of $500,000, interest on any judgment award and its costs of the action on a solicitor client basis.

Needless to say, the defendant does not see matters in quite the same light. The defendant alleges that its tendering processes in relation to Tender 48 and Tender 50 were conducted properly and fairly at all material times and that all prospective tenderers were made fully aware that the contract would not necessarily be awarded to the lowest bidder. The defendant pleads and relies on the disclaimer/exclusion clause, so-called, whereby it reserved “the right to reject any or all tenders or to accept any tender considered in its best interest”. Although this disclaimer clause was inadvertently omitted from the specifications for Tender 50, the defendant says that it was inserted in newspaper advertisements announcing the call for tenders and alleges that the plaintiff was fully aware from past practice of its implication and effect. Paragraph 7 of the defence, as amended, reads:

No contract was created at any time between also APA and the Plaintiff as a result of tendering process no. 48 or tendering process no. 50. In putting out each tender, APA invited boat owners and operators to make offers, i.e., APA made only invitations to treat. Boat owners and operators such as the Plaintiff put in bids or offers on Tenders 48 and 50. All bids or offers made on Tender No. 48 were rejected as unsuitable. Plaintiff’s bid on Tender 48 was rejected because the Board of Directors of APA considered it was “too high” or too expensive. As for Tender no. 50 an offer or bid of a party other than the Plaintiff was accepted by the Authority for good and proper reasons, as stated in paragraph 5 above, but more particularly Plaintiff’s bid on no. 50 was rejected in favour of another bid mainly because APA’s Board of Directors did not wish to give all of its business concerning pilot boat operations in the Cape Breton region to a perceived “monopoly”, did not want to put all of that business under one roof: in that connection, APA says Cantow Marine Limited which had been awarded APA’s pilot boat contract on Tender No. 47 for Sydney and Bras d’or Lakes regions in November of 1986, the Plaintiff company which was bidding on the pilot boat contract for the Strait of Canso at the material times, and Chedabucto Shipwrights Limited which was at the material times building a pilot boat for APA for use in Newfoundland, were for commercial and practical purposes “one and the same business” controlled by one Alick Slater, who was also an employee pilot of APA in the Cape Breton region. At all material times: Alick Slater was the majority shareholder in Cantow Marine Limited; Cantow Marine Limited was the majority shareholder of the Plaintiff company; and Alick Slater was majority shareholder of Chedabucto Shipwrights Limited. The three companies referred to will be referred to at trial by APA as the “Slater group of companies”. Whenever officers of APA dealt with any of these companies they would almost invariably deal with Alick Slater and APA believed and relied on the fact that Alick Slater was the primary spokesperson and controlling mind of all of these companies and was in a position of authority to bind these companies in contractual negotiations, etc.

APA also says that on said Tender 47 the Slater group of companies had committed the vessel “Captain Parker” for use in Sydney and Bras d’or Lakes, because pilots had complaints about the vessel “Salvador A” which the Slater group of companies had intended to use to fulfill their obligations under that tender. Indeed, Tender 47 was awarded to the Slater group of companies on the condition that the “Salvador A” be replaced by either the “Captain Parker” or a new purpose built pilot boat. Alick Slater had indicated to APA before the contract for Tender 47 was awarded that the “Captain Parker” would be shifted from the Strait of Canso to Sydney if Cantow Marine Limited was awarded the said contract. The Plaintiff thus did not have the “Captain Parker” available for use on Tender 50, even though it did submit this vessel as part of its tender. Plaintiff’s claim in respect of Tender 50 is based mainly on its submission of the “Captain Parker” and is accordingly prejudiced by these events. (Defendant’s emphasis.)

No action lies in tort for what are essentially Plaintiff’s incurred expenses and disappointment in not being awarded the contract referred to. The risks of not being awarded a contract on either tender were risks the Plaintiff voluntarily and knowingly assumed.

The defendant further alleges in paragraphs 10 and 11 of the defence as follows:

10. The Defendant also relies on the equitable doctrine of “clean hands” and the equitable maxim that “equity suffers no wrong without a remedy”, by reason of the fact that the Plaintiff sought to improperly interfere with the tendering process.

11. The Authority repeats the aforegoing and asks this Honourable Court to condemn the Plaintiff and to dismiss the Plaintiff’s claims, each and every part thereof, with solicitor and client costs. (Defendant’s emphasis.)

Facts

The plaintiff “Northeast Marine” was incorporated in 1981 under the laws of the province of Nova Scotia for the purpose of carrying on the business of providing pilot boat services in the area of Atlantic Canada, including the Strait of Canso. In the fall of 1986 and spring of 1987 Cantow Marine Limited was the majority shareholder of the plaintiff company. At the same time, Captain Alick Slater was the majority shareholder both of Cantow Marine Limited and another associated company, Chedabucto Shipwrights Limited. Captain Slater was a director and officer of Cantow and Chedabucto during the same period, but not of Northeast Marine. He was, however, the principal actor and spokesman for all three companies.

The defendant, Atlantic Pilotage Authority, was established in 1971 as a statutory body corporate under the Pilotage Act, S.C. 1970-71-72, c. 52, with a Chairman and not more than six other members to be appointed by the Governor in Council. Its objects were to operate and maintain in the interests of safety an efficient pilotage service within the area of Atlantic Canada, with authority to make regulations and by-laws for the attainment of its objects and the management of its internal affairs. As such, the Authority was a parent Crown corporation subject to the provisions of the Financial Administration Act, R.S.C. 1970, c. F-10, as amended by S.C. 1984, c. 31, but it was not an agent of Her Majesty. Captain A. D. Latter served as Chairman and chief executive officer of the Authority from the time of its inception in 1971 until his retirement in 1988.

A meeting of the defendant’s board of directors was held in Halifax on November 18 and 19, 1986 for purposes of considering the award of a contract for pilot boat services in North Sydney pursuant to Tender 47, and also dealing with the tender proposals for similar services in the Strait of Canso pursuant to Tender 48. The Pilot Boat Committee of the Authority had met concurrently on November 18, 1986 for the purpose of evaluating the bids on Tenders 47 and 48 and providing the board with a summary of its recommendation. The Committee was an emanation of the board of directors and all of its members were also directors. The persons serving on the Committee at this time were Captain A. D. Latter, D. R. Bell, P. Ennis and J. Sutherland. The defendant’s Director of Operations, Captain Peter J. Stow, customarily attended all meetings of the Pilot Boat Committee, accompanied by a recording secretary. Sometimes other persons were invited to attend. The minutes of this meeting of the Pilot Boat Committee were signed by Captain Stow, and concluded with the following summary of recommendations:

I believe the choice lies between the Seabase and Cantow bids. If the Seabase boat can be modified as required and is acceptable to the pilot, then the Board may wish to consider that bid. If not, then Cantow offers the only viable option.

From a conflict of interest standpoint, I would be reluctant to see one of our pilots have a monopoly on pilot boat services in Cape Breton, particularly since he is also building a new boat for Newfoundland.

The target of the Committee’s concern regarding monopoly was obviously Captain Alick Slater.

The board of directors proceeded to pass resolutions with respect to Tender 47 and Tender 48. Resolution No. 86-95 awarded the North Sydney contract to Cantow Marine Limited for a five-year period commencing January 1, 1987 at a price to be negotiated between the parties, but not to exceed the Option “B” bid price of $197,357.

Resolution No. 86-96 provisionally approved the award of the contract for pilot boat services in the Strait of Canso to Seabase Offshore Services Ltd., subject to the Authority’s examination and approval of its pilot boat vessel John Eric II. Inspections later in November of that year by authorized personnel on behalf of the Authority revealed that the John Eric II was not suitable for pilot boat service in the Strait of Canso. As a result, the defendant, acting through its Chairman and its Director of Operations, decided to reject all tender bids for the provision of pilot boat service in the Strait of Canso under Tender 48, and put out a new tender call for the same. All of the original tenderers were notified to that effect by a form letter under the signature of Director of Operations, Captain Stow. Advertisements of the new tender call for pilot boat services in the Strait of Canso were published in the local newspapers on December 27, 1986 and January 3, 1987. These all contained the standard disclaimer clause.

During the period between the meeting of the board of directors in November, 1986 and the next board meeting in January, 1987, the defendant became aware that Chedabucto Shipwrights had fallen into financial difficulties, resulting in foreclosure proceedings against its plant facility in Port Hawkesbury by Cape Breton Development Corporation. Chedabucto Shipwrights had been party to contractual negotiations with the defendant for the construction of a pilot boat vessel for Newfoundland. It attempted to assign this contract to Cantow Marine Limited, but the defendant refused its consent. On December 19, 1986, the defendant entered into a contract with Chedabucto Shipwrights for the construction of the Newfoundland pilot boat vessel. Seemingly, any immediate concerns the defendant may have entertained regarding the financial plight of Chedabucto Shipwrights were allayed by assurances from Cantow Marine that the shipbuilding contract would proceed apace. Undoubtedly, all this fostered a growing concern on the part of the defendant regarding the perception of a monopoly involving the Slater group of companies.

Letters went out from the defendant in early January of 1987 enclosing copies of the specifications in response to requests from prospective tenderers. The principal changes in the pilot boat specifications from previous tenders were the increase of the minimum speed to eleven knots, a new provision relating to the Authority’s willingness to accept an interim pilot boat for a period not exceeding three months from March 1, 1986, and a change in the terms of hire from an hourly rate back to an assignment or trip basis. The specifications made no reference to the standard disclaimer clause, whereby the Authority reserved the right to reject any and all tenders or to accept any tender considered to be in its best interest. The following tender bids were received:

Pat Hearn and Omer Boudreau	46 ft. wooden boat	$424.50 per assignment for first 3 years, with final 2 years to be negotiated.
Capt. Alexander Gay on behalf of Northeast Marine Services Ltd.	62 ft. steel boat	$450.00 per assignment for the years 1987, 1988 and 1989.
Seabase Canso Offshore Services Ltd.	45 ft. aluminum boat	$460.00 per trip
Northeast Marine Services Limited	52 ft. steel boat — Capt. Parker	$398.75 per trip
Northeast Marine Services Limited	50 ft. purpose built steel vessel	$441.81 per trip

The meeting for the opening of tenders was held at the defendant’s office premises on January 16, 1987. Captain Stow was in charge of the meeting assisted by a Secretary, Mrs. Dias, and the Authority’s Treasurer, Mr. Michael R. McGrath. All of the tenderers were represented. Mr. James Veitch, a shareholder and purported director of Northeast Marine, had been deputized by Alick Slater to attend and deliver the bids on behalf of the plaintiff. He testified that as the meeting broke up he heard someone, whom he identified as Capt. Gay, say: “I don’t care what you heard today, I am going to get the contract. And before the year is up, the other contract will be up for grabs”. He reported this to his principal, Alick Slater. This may have prompted the letter of clarification from Captain Slater to Captain Stow, dated January 19, 1987, with respect to the plaintiff’s two tenders. The point was made that if the defendant preferred to have the Captain Parker retained in the Strait of Canso, the plaintiff would commence construction of a new vessel for Sydney within two months, backed up by the Salvador A as standby. Alternatively, if the plaintiff’s second proposal for the construction of a twin screw vessel for the Strait of Canso was preferred then construction would be commenced within two months and the Captain Parker would be sent to the Strait of Canso to cope with transit runs until its completion, with the Cantow Cape as the backup vessel in either case. The letter contained some negative comments regarding the proposal for bringing in an American built vessel to compete with local tenderers.

Captain Stow dutifully prepared a chart for evaluating the tender proposals according to certain percentage ratings for boat suitability, company capability, crew, financial assessment, replacement boat and quality of tender submission. He also chose to equate the individual bid prices per trip into their overall bid prices by applying the cost factor of 500 assignments, which calculations yielded the following results:

Tender	Vessel	Bid Price
East Coast Marine Services Ltd.	62 ft. steel boat	$225,000
Pat Hearn and Omer Boudreau	46 ft. wooden boat	$212,250
Northeast Marine Services Limited	52 ft. steel boat (Capt. Parker)	$199,375
Seabase Canso Offshore Services Ltd.	45 ft. aluminum boat	$203,500
Seabase Canso Offshore Services Ltd.	tab 45 ft. steel boat	$230,000
Northeast Marine Services Limited	50 ft. purpose built steel boat	$220,905

The Pilot Boat Committee of the defendant met in Halifax on January 20, 1987 for the purpose of considering the tender bids for pilot boat service in the Strait of Canso. Apart from the usual complement of members and other functionaries in attendance, Captain Terry Pittman was present by invitation on behalf of the Cape Breton Pilots’ Association. Captain Stow presented the Committee with an overview of the tender proposals, consistent with his evaluation table, and the merits and demerits of each were thoroughly canvassed. The Committee reiterated its misgivings concerning the perception of monopoly from the fact that Captain Slater was building a boat for Newfoundland and also providing the pilot boat service in Sydney, which had come to the fore during the November meeting. The Pilot Boat Committee was unable to make a final choice of recommendation, but instead decided to refer the tenders of Northeast Marine Services Limited and East Coast Marine Services Ltd. to the board of directors for decision, albeit expressing the opinion that “the better boat would be from East Coast Marine Services and the better service would be from Northeast Marine”.

The defendant’s board of directors met in Halifax on January 20 and 21, 1987, chaired by Captain Latter. Five other members were in attendance as well as the Director of Operations, Captain Stow, the Treasurer, M. R. McGrath, and a recording secretary. Captain Stow tabled the tender proposals from East Coast Marine Services Ltd., Seabase Canso, Northeast Marine, and Pat Hearn and Omer Boudreau, together with his evaluation table, and the matter was discussed at some length. The majority consensus was “that it was unwise to entrust all pilot boat services in one area to one company”. Captains Goodyear and Bell both expressed concern that Northeast Marine was not as financially sound as they would like to see. The board’s perception of monopoly was undoubtedly a predominant factor in the passage of the following resolution:

RESOLUTION NO. 87-3: Approval to Award a 5-Year Contract for Pilot Boat Service in the Strait of Canso to East Coast Marine Services Ltd.

WHEREAS, the tenders received for pilot boat service in the Strait of Canso were evaluated and discussed; and

WHEREAS, it was deemed by the majority of the Board members to be unwise to give a monopoly for pilot boat services in the Cape Breton Region to one operator; and

WHEREAS, it was agreed that East Coast Marine Services Ltd. could effect a saving of approximately ten thousand dollars off the estimated price quoted price because of the extra speed of the tendered boat;

THEREFORE, on a motion duly proposed by Mr. T. S. Goodyear and seconded by Captain D. R. Bell, it was unanimously resolved that

approval be given to award a contract for pilot boat services in the Strait of Canso to East Coast Marine Services Ltd. from March 1, 1987, to the last day of February, 1992, at the rate of four hundred fifty dollars ($450.) per trip for the first three years of the contract and thereafter at a negotiated rate, provided that East Coast Marine can provide a back-up pilot boat and fulfill all the terms of the contract.

Actually, the resolution was not passed unanimously. The minutes record the fact that Messrs. Latter, Bell, Ennis and Goodyear voted in favour of the motion, and that Messrs. Sutherland and Worthington voted against it.

The word was soon out. Captain Stow wrote Captain Gay on January 22, 1987 advising that the contract for pilot boat services in the Strait of Canso had been let to his company. The unsuccessful tenderers were advised of the result by registered letter. Captain Slater was not reluctant about publicly voicing his grievances and the matter became something of a cause célèbre with the news media. The defendant countered with the explanation that it hadn’t wanted to put all the Cape Breton service in one basket and that the successful tenderer had the better boat. Thus were the battle lines drawn and the stage of conflict set.

The principal issue of the case, as I see it, is whether the defendant’s failure to disclose the precondition of monopoly in the tender specifications unfairly stacked the cards against the plaintiff on the tender call for Tender 50 such that the tendering process became nothing more than a sham from its standpoint, irrespective of whether any consequent liability would sound in contact or in tort. In my opinion, this or any other related issue in the case is confined solely to the tender call for Tender 50. In short, I find nothing improper on the part of the defendant with respect to Tender 48.

The Arguments in Brief

Counsel for the plaintiff pressed the argument that section 124 of the Financial Administration Act (now section 115 of R.S.C., 1985, c. F-11) established a statutory standard of care akin to a fiduciary duty which, coupled with the defendant’s by-laws and tendering procedures, mandated the appropriate course of conduct to be followed with respect to its tendering processes, including the awarding of any contract to the lowest bidder. In his submission, the defendant’s major misconception was its misplaced reliance on the disclaimer clause as a complete answer to any allegations of wrongdoing on its part. He urged that this misconception ignored the current trend of authority relative to the tendering process and, more particularly the Canamerican [Canamerican Auto Lease and Rental Ltd. v. Canada, [1987] 3 F.C. 144 (C.A.)], Ron Engineering [R. in right of Ontario et al. v. Ron Engineering & Construction (Eastern) Ltd., [1981] 1 S.C.R. 111] and Best Cleaners [Best Cleaners and Contractors Ltd. v. The Queen, [1985] 2 F.C. 293 (C.A.)] cases, which stand for the proposition that a boilerplate disclaimer clause cannot be relied upon by a party inviting tenders in situations where there had been a breach of the preliminary contract A resulting from the submission of bids or, alternatively, some breach of a duty of care. Counsel made the further point that claims both in contract and in tort are generally regarded today as being concurrent with respect to the assertion of whatever cause of action appears most advantageous to the injured party, citing Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147. He also argued that the defendant was guilty of actionable misrepresentation in failing to disclose material information relating to its monopoly concerns in the tender specifications.

Plaintiff’s counsel further contended that the defendant had no right to pierce the corporate veil of the Slater groups of companies as a means of raising the spectre of monopoly, having regard to the accepted doctrine that a corporation is a legal personality or entity entirely separate from its shareholders. Essentially, the plaintiff’s bottom line position was simply that the defendant breached its duty of care by rejecting the plaintiff’s lowest bid and awarding the contract to East Coast Marine Services Ltd., based on its erroneous perception of the dangers of monopoly.

Counsel for the defendant went right to the point with his principal contention that the defendant was entitled to rely on the published disclaimer clause in Tender 50 to award the contract in the context of what was perceived to be “the best interests of the corporation”, regardless of whether or not any preliminary contract or contract A, so-called, was involved. Assuming that there was a contract A in the present case, it was his submission that the terms of that preliminary contract, whether expressed or implied, had to be defined in order to determine whether there had been any breach thereof, and that the onus of proof in that regard rested squarely on the plaintiff. Defendant’s counsel further submitted that the disclaimer clause was an essential term of any preliminary contract applicable to the present case, even though inadvertently omitted from the tender specifications on Tender 50, because the newspaper publication of the same was a representation to prospective bidders that the Authority reserved the right to reject any or all tenders or to accept any tender considered in its best interest. As he put it, this was a very clear message that the defendant did not have to accept the lowest qualified bid on Tender 50. He further contended that the plaintiff was acting hypocritically in presuming to judge what was in the best interest of the Authority with respect to Tender 50, having regard to the fact that in its own bid for Tender 48 the plaintiff unequivocally conceded “the Authority’s right to place their interest foremost”. Counsel also argued that the defendant’s perception of the monopoly involving the Slater group of companies was a very real and legitimate concern both from the short-term and long-term standpoint. The short-term concern apprehended the possibility of the financial difficulties affecting Chedabucto Shipwrights spreading to the other member companies of the Slater group. The long-term concern was grounded on the belief that if the Slater group was given a monopoly of the pilot boat business then they could hold the defendant to ransom five years down the road from the fact there would be no competitors still around.

Defendant’s counsel disputed the plaintiff’s contention that section 124 of the Financial Administration Act created any fiduciary or other duty for the direct benefit or protection of the plaintiff. Rather, it was his submission that any duty enshrined in that section was designed for the protection of the Crown corporation itself, in this case Atlantic Pilotage Authority, such that no duty, fiduciary or otherwise, was owed by the defendant to the plaintiff. Finally, counsel for the defendant rejected the plaintiff’s interpretation of paragraph 526(1)(b) of the by-laws as imposing a requirement for awarding a contract pursuant to tender call to the lowest bidder, pointing out that the paragraph was permissive in nature and intended to provide for the delegation of authority to sign contracts to the Chairman and other lesser functionaries in circumstances where certain preconditions had been satisfied. He stressed the fact that the Chairman had remained adamant in his testimony that during all of his years of service in that capacity he had “never signed a contract under 526”.

Duties According to Statute and By-Laws

Subsections 124(1) and 124(2) of the Financial Administration Act read as follows:

124. (1) Every director and every officer of a Crown corporation in exercising his powers and performing his duties shall

(a) act honestly and in good faith with a view to the best interests of the corporation; and

(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

(2) Every director and every officer of a parent Crown corporation or of a wholly-owned subsidiary of a parent Crown corporation shall comply with this Part, the regulations, the charter and by-laws of the corporation or subsidiary and any directive given to the corporation.

Section 520 of the defendant’s by-laws authorizes the affixing of the Corporate Seal to contracts and other instruments in writing, and section 521 thereof provides for the execution of such contracts and instruments in writing under the signature of the Chairman and Corporate Secretary or such other persons as may be authorized in that behalf by resolution.

Subsection 524(1), paragraphs 526(1)(a) and 526(1)(b) and subsection 526(5) of the by-laws provide as follows:

524. (1) Tenders shall be called by public notice in accordance with the appropriate manual, for any contract or expenditure for the construction of any object, the purchase or supplying of goods or services or the leasing of any real or personal property for the Authority.

...

526. (1) Subject to sections 520 and 521, the Chairman and the following Officers may authorize any contract or any expenditure referred to in subsection 524(1) on behalf of the Authority, in the maximum amounts hereinafter indicated:

(a) the Chairman: any contract or expenditure for any amount not exceeding twenty-five thousand dollars and all payroll vouchers;

(b) the Chairman: any contract or expenditure for any amount exceeding twenty-five thousand dollars, when

(i) the Members have passed a resolution approving the object of the contract or expenditure,

(ii) tenders have been called, and

(iii) the lowest of two or more tenders has been accepted;

...

(5) Any contract or expenditure for any purpose whatsoever not specifically provided for in subsection (1) shall be authorized and approved by the Members, in accordance with the provisions of these By-laws and in accordance with the appropriate manual.

The manual referred to in the last mentioned subsection is the Authority’s manual of tendering and contracting policies and procedures, which makes no specific reference to the necessity of awarding any contract pursuant to a call for public tenders to the lowest bidder. However, the manual does provide for public calls for tenders for expenditures of $15,000 and over and the public opening of all tenders submitted in response thereto in cases where cost is the chief or sole criterion, and prescribes the following procedure therefor, namely:

As indicated previously, plaintiff’s counsel takes the position that section 124 of the Financial Administration Act, coupled with subsection 526(1) of the defendant’s by-laws, mandated a fiduciary duty to award any contract pursuant to a public call for tenders to the lowest bidder upon obtaining the necessary authorizing resolution of the members. Defendant’s counsel argued that the whole thrust of subsection 526(1) of the by-laws was permissive in the context of bestowing on the Chairman and other officers the power or privilege of authorizing contracts or expenditures in varying amounts on certain terms and conditions. In his submission, the present case did not involve any such delegation of authority and hence did not have to meet the requirement stipulated in subparagraph 526(1)(b)(iii) of the by-laws for accepting “the lowest of two or more tenders”. I agree with the submission of defendant’s counsel. In my opinion, the contract or expenditure in the present case is one coming within the purview of subsection 526(5) of the defendant’s by-laws, requiring the approval of the members in accordance with the provisions of the by-laws and the tendering manual. I find further support for this conclusion in the evidence of Captain A. D. Latter. By the same token, I find it somewhat strange that the actual contract between the defendant and the successful bidder, East Coast Marine Services Ltd., is nowhere to be found in the evidence. One can only infer that there was such a formal contract executed on behalf of the defendant by the Chairman and some other designated officer, if not the Secretary.

I can find no express provision either in the by-laws or in the tendering manual which would specifically require the defendant to award any contract pursuant to a call for public tenders to the lowest bidder. That is not to say, however, that the by-laws and the manual necessarily exclude an implied, qualified obligation to accept the lowest bid in the case of public tender calls, where cost or price is the chief or sole criterion.

I must also reject the argument of plaintiff’s counsel that section 124 of the Financial Administration Act imposes a fiduciary duty or statutory obligation on the defendant with respect to its tendering processes, including the obligation to award any contract pursuant to a call for public tenders to the lowest bidder. In my opinion, the fiduciary duty or obligation imposed on the directors and officers of the defendant by virtue of section 124 of the Financial Administration Act is one imposed on them in their capacity of agents and trustees for the Crown corporation and not as something which might enure to the benefit of a third party stranger: see Sun Trust Company Ltd. v. Bégin, [1937] S.C.R. 305 per Duff C.J. at pages 307-308; Canadian Aero Service Ltd. v. O’Malley, [1974] S.C.R. 592; Welling, Corporate Law in Canada: the Governing Principles, 2nd ed., at pages 378-384; and Gower, Gower’s Principles of Modern Company Law, 4th ed., at pages 572-580.

The case of Guerin et al. v. The Queen et al., [1984] 2 S.C.R. 335, relied on by plaintiff’s counsel, held that the Crown had a fiduciary obligation under subsection 18(1) of the Indian Act [R.S.C. 1952, c. 149] to an Indian Band with respect to the surrender of its lands and subsequent leasing thereof to a third party. I am unable to see how this principle has any application to the facts of the case at bar.

I conclude therefore that no fiduciary duty or obligation was owed by the defendant to the plaintiff with respect to the tendering process on Tender 50, whether by reason of the interaction of section 124 of the Financial Administration Act with the defendant’s by-laws and tendering procedures or otherwise howsoever.

Evidentiary Analysis and Some Findings of Fact

The evidence is incontrovertible that the predominant criterion for evaluating the bids on Tender 50 at the time of the board meeting on January 18, 1987 was the issue of monopoly as it pertained to the plaintiff, viewed both from the short-term concern of the apparent financial difficulties involving the Slater group of companies and the long-term concern that if the tender were let to one of that group then Slater would somehow be in a position to hold the Authority to ransom on the expiry of the contract for the Strait of Canso five years hence. While the issue may not have come openly to the fore until the board meeting of January 1987, the matter had been very much on the mind of the Director of Operations since the meeting of directors on November 18, 1986 and had been the subject of discussions between him and the Chairman on a number of occasions. The fact remains that these preconditions regarding monopoly were never communicated to the plaintiff prior to the submission of its bid on Tender 50. What occurred as a result of that at the meeting of the board of directors on January 18 and 19, 1987 is forcibly illustrated by the following evidence of the Chairman, Captain Latter, under cross-examination:

Q.  And you are now sitting there trying to contemplate whether Northeast Marine should have the contract for the Strait of Canso and the monopoly issue predominated in the decision.

A.   Monopoly became second to safety, yes sir.

Q.  Well, there was no issue in relation to safety. What was the issue in relation to safety?

A.   Safety was the first feeling for the board, and —

Q.  Well, I appreciate —

A.   Both boats—let me put it to you this way. Safety was put aside because there was no factor in safety. Both were safe boats.

Q.  Right. So, safety wasn’t an issue.

A.   No, but I —

Q.  What I’m saying to you, sir, is what predominated was this issue of monopoly.

A.   Monopoly was the second predomination, yes.

Q.  Yes. And that essentially, was a criteria that was applied against Northeast Marine and no one else.

A.   Yes, there was nobody else in that position.

During his examination-in-chief, the Chairman testified to his understanding of the raison d’être for the tendering process as follows:

... the reason for tendering is to go out and see what’s out there, and give everybody an even break.

I accept without question Captain Latter’s evidence regarding the defendant’s desire to give every tenderer an even break or fair chance in the bidding process and, in the case of Tender 50, find this to be an implied term of any preliminary, unilateral contract A arising from the submission of bids.

While price was the governing criterion in the award of the North Sydney contract on Tender 47, there can be little doubt that the monopoly issue was the driving force behind the decision-making process on Tender 50 for the Strait of Canso. The following evidence elicited from the Director of Operations, Captain Peter J. Stow, on cross-examination makes this abundantly clear:

Q.  Well, you see, what you did recommend however, was that we derail Northeast Marine’s bid in both the first and in the second.

A.   No. I don’t believe I did do that.

Q.  Well, it seems to me, sir, that you are the one who raised the issue of monopoly.

A.   I did that in the first instance. That’s correct.

Q.  And it seems to me, sir, that the issue of monopoly prevailed in the bumping of Northeast Marine’s bid in tender #50.

A.   In tender 50 I would say that was correct.

The following excerpt from Captain Stow’s cross-examination is particularly relevant:

Q.  So that essentially when we are talking about this very decision that was made on Tender No. 50, it is quite important to know whether or not it was done on a basis that was fair to all.

A.   That is correct, yes.

Q.  And the concept, for instance, about the issue of monopoly, is not something that was ever, ever communicated to Northeast Marine before they bid, was it?

A.   No, it wasn’t.

Clearly, the preoccupation of the directors with the issue of monopoly militated against their giving any consideration to the plaintiff’s alternate proposal for the construction of a twin screw vessel at a trip price of $440.81, or an overall bid price of $220,905. The only comparison of vessels was between the plaintiff’s Captain Parker and the successful bidder’s Chapel Hill and the directors appear to have conveniently ignored the fact that the plaintiff’s second bid proposal would have yielded a new vessel compared to one sixteen years or so old at a price that was still lower than that of the successful bidder. This can hardly be considered a fair basis of evaluation by any standard.

I am persuaded that I should make findings of fact with respect to certain allegations or statements to the effect that it was a foregone conclusion that the contract for pilot boat services in the Strait of Canso would go to Alec Gay or his company, East Coast Marine Services Ltd., if their bid was within $30,000 of the lowest bidder. In this context, I accept the evidence of James Veitch over that of Captain Gay regarding the boastful comment attributed to the latter at the close of the meeting for the opening of tenders on January 16, 1987 to the effect that he was getting the contract, regardless of what they had just heard. I also accept as evidence the statement contained in paragraph 2 of the affidavit of Captain Terry Pittman concerning what Captain Stow told him about Gay getting the contract for the Strait of Canso if his bid was within $30,000 of the lowest bidder, subject to his qualifying admission on cross-examination that he saw nothing particularly devious or sinister in that remark. Finally, and despite the defendant’s aspersions regarding the credibility of the plaintiff’s witness, Bruce Jardine, in other areas of his testimony, I find as a fact that Alec Gay told him at or about the time of Gay’s application for Incor financing substantially what was averred in paragraphs 4, 5 and 6 of the Jardine affidavit (Exhibit P-25).

Consequently, I am unable to accept Captain Stow’s evidence that he would not have mentioned the $30,000 price spread in his conversation with Captain Pittman nor that he would have been likely to have said anything like that to Captain Gay. The figure of $30,000 and the statements attributed to Captain Stow in reference thereto did not just spring coincidentally from nowhere. Moreover, I consider that Captain Stow played more than the role of a passive, disinterested bystander with respect to the tendering process on Tender 50 vis-à-vis East Coast Marine Services Ltd. He was the one who first raised the issue of monopoly as an arrow pointing directly to the plaintiff. And it was he who alerted Captain Gay to the availability of the Chapel Hill as a pilot boat vessel, following his official visit with the Sandy Hook pilots of New York in July of 1986. However, he was not the only one among the defendant’s officers inclined to possible favouritism. Indeed, I find it to be quite significant in this regard that Captain Gay’s bid on Tender 50 had annexed thereto as Exhibit “B” a letter dated September 11, 1986 on the Authority’s letterhead from the Corporate Secretary, J. B. Kushner, in which the author gives a glowing testimonial to Captain Gay’s personal qualities and capabilities as well as the “eminently satisfactory” service provided by him for the Authority in the North Sydney crewing service and pilot boat operations since 1977. The letter would appear to be in direct contravention of subsection 501(9) of the defendant’s by-laws.

I am also of the view that the defendant’s perception of monopoly was an extraneous or irrelevant consideration which ought not to have influenced their decision to reject the plaintiff’s lower bids and award the contract to East Coast Marine Services Ltd. In my opinion, the directors committed a serious error of law by arbitrarily lifting or piercing the corporate veil so as to deny the autonomous and independent existence of the Slater group of companies in the absence of any evidence at the material time to suggest that the group corporate structure was deliberately designed to perpetrate some fraudulent or collusive purpose: see Re Kinookimaw Beach Association and The Queen in right of Saskatchewan (1979), 102 D.L.R. (3d) 333 (Sask. C.A.) per Culliton C.J.S. at page 336; and Northern Electric Co. Ltd. v. Frank Warkentin Electric Ltd. et al. (1972), 27 D.L.R. (3d) 519 (Man. C.A.). The Northern Electric case was a complicated mechanics’ lien action wherein one of the issues under appeal was the decision of the Trial Judge to pierce the corporate veil and treat the owner, Victoria Park, and the general contractor, Quiring Construction, as one entity. Dickson J.A. (later Chief Justice of Canada), writing the majority opinion overruling the lower court decision to depart from the distinct legal entity principle enunciated in the Salomon[1] case, said at page 530:

Unless it can be established, on the evidence, that the two corporations are but alter egos for Mr. Quiring, or that by reason of mutual covenants, conspiracy, fraud, agency, one of the corporations is liable for the obligations of the other, no legal ground exists for interblending the bodies corporate. The evidence does not support any such findings.

In my view, there is no cogent evidence to support the conclusion of Captains Goodyear and Bell that “Northeast Marine was not as financially sound as they would like to see”. At best, this can be seen as nothing other than far-fetched speculation based on second hand knowledge of apparent financial difficulties besetting Chedabucto Shipwrights. Nor is there any evidence, in my view, capable of supporting the defendant’s long-term concern that the awarding of the contract on Tender 50 would somehow eliminate all future competition for pilot boat service in the Cape Breton area and enhance the risk of ransom demands being made by Captain Slater or his group of companies.

Taking all these factors into account, I find that it was a foregone conclusion in the collective mind of the defendant, acting through its responsible officers and directors, that the plaintiff was never even in the running for fair consideration with respect to its bids on Tender 50 because of the undisclosed preconditions of monopoly. In other words, the tendering process was rigged against the plaintiff from the very outset. The question which remains to be answered is this: what legal consequences does this entail, if any?

Some Law on Tendering

The conventional approach had always been that calls for tender were nothing more than invitations to treat. The tender bids constituted the offers which the tender caller could accept or reject in his discretion in accordance with the usual privilege or exclusion clause in the invitation to tender. All this changed with the decision of the Supreme Court of Canada in R. in right of Ontario et al. v. Ron Engineering & Construction (Eastern) Ltd., [1981] 1 S.C.R. 111; (sub nom. Ron Engineering & Construction (Eastern) Ltd. v. Ontario) (1981), 119 D.L.R. (3d) 267 wherein the tender calls became offers and the tender bids became acceptances which, if made in compliance with the conditions of the call for tenders, created preliminary contracts or contracts A. The strict ratio of the case is accurately set out in the headnote [of D.L.R.]:

A tender for a building contract, submitted on terms that an accompanying deposit is to be forfeited if the tender is withdrawn or if the tenderer refuses to proceed, creates a contract binding on the tenderer. Consequently, when a tenderer discovers shortly after the tenders are opened that an error has occurred in the calculations leading up to its tender, and then refuses to proceed with the execution of contract documents, the owner is entitled to retain the deposit according to the terms on which the tender was submitted.

Estey J. stated the rationale underlying the broader concept of the preliminary contract A at pages 122-123 S.C.R.:

The tender submitted by the respondent brought contract A into life. This is sometimes described in law as a unilateral contract, that is to say a contract which results from an act made in response to an offer, as for example in the simplest terms, “I will pay you a dollar if you will cut my lawn”. No obligation to cut the lawn exists in law and the obligation to pay the dollar comes into being upon the performance of the invited act. Here the call for tenders created no obligation in the respondent or in anyone else in or out of the construction world. When a member of the construction industry responds to the call for tenders, as the respondent has done here, that response takes the form of the submission of a tender, or a bid as it is sometimes called. The significance of the bid in law is that it at once becomes irrevocable if filed in conformity with the terms and conditions under which the call for tenders was made and if such terms so provide. There is no disagreement between the parties here about the form and procedure in which the tender was submitted by the respondent and that it complied with the terms and conditions of the call for tenders. Consequently, contract A came into being. The principal term of contract A is the irrevocability of the bid, and the corollary term is the obligation in both parties to enter into a contract (contract B) upon the acceptance of the tender. Other terms include the qualified obligations of the owner to accept the lowest tender, and the degree of this obligation is controlled by the terms and conditions established in the call for tenders. [Emphasis added.]

The contract A concept enunciated in the Ron Engineering case was applied by the majority of the Federal Court of Appeal in Best Cleaners and Contractors Ltd. v. The Queen, [1985] 2 F.C. 293 (C.A.) to override a stipulation that the respondent department need not accept the lowest or any tender, where the respondent breached the contract A condition for a two-year contract by awarding to the higher bidder what was a four-year contract in substance. Mahoney J., after alluding to the Ron Engineering principle, stated the following ratio of the decision at pages 306-307:

The respondent’s obligation under contract A was not to award a contract except in accordance with the terms of the tender call. The stipulation that the lowest or any tender need not be accepted does not alter that. The respondent might award no contract at all or it might award contract B to Tower, but it was under a contractual obligation to the appellant not to award Tower something other than contract B. [Emphasis added.]

Canamerican Auto Lease and Rental Ltd. v. Canada, [1987] 3 F.C. 144 (C.A.) was an appeal from an unreported decision of the Federal Court of Canada, Trial Division [judgment dated March 4, 1985, T-4780-76] holding that Transport Canada had breached the terms of the bid contract by awarding Tilden its lowest bid in the domestic category for car rental concessions at major airports. The Trial Court awarded Hertz damages of $232,500 equal to the excess amount which was bid because of the breach of the tender contract. Transport Canada appealed and Hertz cross-appealed the refusal to award damages for loss of profit. The Federal Court of Appeal upheld the decision of the learned Trial Judge that there had been a breach of the preliminary contract A created by the tendering process, and dismissed both the appeal and cross-appeal. Heald J.A., in reviewing the findings of the learned Trial Judge on liability, said at pages 157-158:

The Trial Judge rejected the appellant’s reliance on the “no tender need necessarily be accepted” clause. After observing that it was “a ‘boiler-plate’ type” clause she expressed the following view (A.B., Vol. 1, page 43):

If the defendant’s argument is correct, that clause would vitiate any tender contract; it would empower the Department to choose in a completely arbitrary way between tenderers.

I agree with that view of the matter. I would add that to give paramountcy to this clause of the Specifications would be to render nugatory and completely meaningless the Award Procedure clause of the Specifications quoted earlier herein (A.B., Vol. 1. page 98). That clause specifically provides that where a tenderer is successful within more than one counter group, only one counter will be awarded and “the award will be made on the basis of the highest offer made by that tenderer in any group ... ” (emphasis added). As noted by the Trial Judge (A.B., Vol. 1, page 44):

... it was not argued that the award procedure clause of the tender specifications was in any way ambiguous. Both parties treated it as indicating that the highest bid by a tenderer would be chosen.

I agree with the learned Trial Judge.

Chinook Aggregates Ltd. v. Abbotsford (Mun. Dist.) (1989), 40 B.C.L.R. (2d) 345 (C.A.) was an appeal by the respondent municipality from the trial decision [(1987), 28 C.L.R. 290 (B.C. Co. Ct.)] holding them liable in damages for having breached the preliminary contract A by reason of an implied term therein according to industry practice to award the contract to the lowest qualified bidder, notwithstanding a privilege or exclusion clause that “[t]he lowest or any tender will not necessarily be accepted.” [at page 290], where the appellant’s preferential precondition favouring local contractors had not been conveyed to the bidders. The Court of Appeal of British Columbia upheld the decision of the Trial Judge and dismissed the appeal. Legg J.A., writing the opinion of the Court, said at pages 349-350:

I am unable to accept counsel’s submission that the privilege clause gave the appellant the right to exercise a local preference when that local preference was not revealed by, or stated in, the tender documents. The basis for that portion of the reasoning in Ron Engr., supra and for the reasoning in M.S.K. Fin. Services Ltd. [[2]] supra, giving effect to a privilege clause and relied upon by the appellant is the proposition that the tender documents have set out fully all the terms which will be incorporated into contract A once a bidder submits his bid in response to the tender documents. The concept is based upon offer and acceptance in the law of contract. But where the appellant attaches a condition to its offer, as the appellant did in the case at bar, and that condition is unknown to the respondent, the appellant cannot successfully contend that the privilege clause made clear to the respondent bidder that it had entered into a contract on the express terms of the wording of that clause. There was no consensus between the parties that the wording of the privilege clause governed. It would be inequitable to allow the appellant to take the position that the privilege clause governed when the appellant had reserved to itself the right to prefer a local contractor whose bid was within 10 per cent of the lowest bid. By adopting a policy of preferring local contractors whose bids were within 10 per cent of the lowest bid, the appellant in effect incorporated an implied term without notice of that implied term to all bidders, including the respondent. In so doing, it was in breach of a duty to treat all bidders fairly and not to give any of them an unfair advantage over the others. [Emphasis added.]

The learned Judge went on to make the following pertinent statement at page 351:

I agree with counsel for the respondent that it is inherent in the tendering process that the owner is inviting bidders to put in their lowest bid and that the bidders will respond accordingly. If the owner attaches an undisclosed term that is inconsistent with that tendering process, a term that the lowest qualified bid will be accepted should be implied in order to give effect to that process. [Emphasis added.]

In Bruinsma (Ben) & Sons Ltd. v. Chatham (1984), 29 B.L.R. 148 (Ont. H.C.) the plaintiff was the initial low bidder on tenders called by the defendant municipality for the sodding or seeding of soccer fields. The call for tenders reserved to the municipality the right to reject any or all tenders or to accept any tender deemed to be in its interest. After the submission of tenders but prior to acceptance, the defendant altered the terms of the tender by deleting an item pertaining to sodding, resulting in another tenderer becoming low bidder to whom the contract was awarded. The Court held that the tender and contractual documents did not permit the defendant to delete items from the tender before acceptance and that this [at page 161] “was a breach of contract or a breach of duty on the part of Chatham within the contractual relationship with the plaintiff and all the tenderers”.

The New Brunswick Court of Appeal took the opposite tack from Chinook Aggregates in Leo Lisi Ltd. v. Province of New Brunswick (1975), 11 N.B.R. (2d) 701, decided before the advent of the Ron Engineering principle. The defendant called for tenders for the supply of air handling units for a hospital under construction at Fredericton, N.B. The tenders were opened publicly and the plaintiff had the lowest bid of $491,194. However, the contract was awarded to another supplier who was the third lowest bidder at $522,796. The defendant advised the plaintiff that the reason for rejecting his bid was a preferential policy of awarding contracts to bidders located in the Maritime Provinces who were within ten percent of the low bid. The plaintiff brought an action for damages for misrepresentation against the defendant for omitting to disclose in a public tender call the reasons for which a low bid would be rejected. The Trial Judge [at (1975), 10 N.B.R. (2d) 449 (Q.B.)] dismissed the action on the ground that the evidence fell short of establishing that the reason for not accepting the plaintiff’s low bid was the preferential policy of the defendant to award contracts to the lowest Maritime Provinces’ bidders, if their bids were within ten per-cent of the lowest tender. The plaintiff argued that this constituted actionable misrepresentation and strongly relied on the principle enunciated in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd., [1964] A.C. 465, [1963] 2 All E.R. 575. The Court dismissed the appeal on the ground that the defendant was not under a duty to disclose in a tender document its “preferential policy”. Bugold J.A., in delivering the judgment of the Court, set the stage for achieving that result by making the following essential characterizations [at page 707]:

While the so-called provincial or preferential policy may not have been clearly established, I think, in the present case, a reasonable and proper inference may be drawn from the particulars of this case that such a policy existed at the ministerial level and played the major role in the non-acceptance of the plaintiff’s tender.

The basic question for determination is whether the defendant owed a duty to the plaintiff to disclose, in the tender documents, the “preferential policy” as one of the reasons for the tender rejection and whether the failure to do so in the instant case constituted an actionable misrepresentation.

The invitation to tender in the present case was not an offer to enter into a contract with the plaintiff and consequently, at the invitation to tender stage, I think there was no obligation on the part of the defendant to incorporate the ministerial preferential policy in the tender documents.

The learned Judge, after considering and rejecting the application of the Hedley Byrne doctrine, stated the ratio of the decision, at page 711:

In the case at bar, even though no contractual or fiduciary relationship existed between the plaintiff and the defendant, was the relationship between the parties such as to impose upon the defendant a legal duty to exercise such care as the circumstances required in compiling its invitation to bidder documents?

In my opinion, the defendant, having specified certain circumstances in which a tender would be rejected, was under no duty to the plaintiff, as one of the tenderers, to disclose every circumstance in which it might choose to award the contract to a bidder other than the lowest bidder. In any event, the plaintiff has no legitimate ground for complaint in view of the information contained in the “Right to Reject” clause which gave adequate warning to all bidders and which reads as follows: “The Owner reserves the right to reject any or all tenders and the lowest tender will not necessarily be accepted”.

In my opinion, the Leo Lisi case is distinguishable by the fact that the Court found there that the invitation to tender was not an offer to enter into a contract with the plaintiff but was nothing more than an invitation to treat, whereby there was no obligation on the defendant to incorporate the preferential policy in the tender documents. Moreover, the Court was not called upon to consider the creation of any preliminary contract A resulting from the submission of a tender bid in response to a call for tenders, according to the Ron Engineering principle. Had that been the case, the result might well have been different. Mr. Justice Legg made reference to the Leo Lisi case in his reasons for judgment in Chinook Aggregates, supra, pointing out that he preferred the reasoning of the Federal Court of Appeal in Best Cleaners and Contractors Ltd. v. The Queen, supra. Needless to say, I share the same view that the Best Cleaners case represents a better statement of the current law in terms of the application of the Ron Engineering principle.

For other decisions sustaining the lottery theory of tendering or otherwise limiting the application of the Ron Engineering principle, see: Megatech Contracting Ltd. v. Ottawa-Carleton (Regional Municipality) (1989), 68 O.R. (2d) 503 (H.C.); Elgin Construction Ltd. v. Russell (Twp) (1987), 24 C.L.R. 253 (Ont. H.C.); Whistler Service Park Ltd. v. Whistler (Resort Municipality) (1990), 41 C.L.R. 132 (B.C.S.C.); Kawneer Co. Canada (Ltd.) v. Bank of Canada (1982), 40 O.R. (2d) 275 (C.A.); and Calgary v. Northern Construction Co. (1985), 67 A.R. 95 (C.A.).

Whistler Service Park v. Whistler (Resort Municipality) (1990), 41 C.L.R. 132 (B.C.S.C.) was one of the cases relied on by the defendant. The plaintiff, who was a major developer and large local contractor within the defendant resort municipality, brought an action against the municipality for damages for breach of public duty and unfairness with respect to its tendering processes in nine specific instances over the years, and also for breach of contract in the tendering procedures involving two specific work projects. I need refer only to the breach of contract aspect pertinent to these two projects. The plaintiff argued that the work should have been re-tendered in both cases. In the case of the first project, the plaintiff’s bid did not comply with the terms and conditions of the call for tenders with the result that no contract A was found to have been created on the submission of the tender bid. The Court held that the contract for the second work project had been properly awarded to the low bidder, despite the existence of a contract A arising from the submission of bids. The plaintiff’s action for breach of contract on these two tenders therefore failed. Harvey J., after alluding to the Ron Engineering case and other authorities enunciating the contract A principle, stated the following rationale for rejecting the plaintiff’s tender for the second work project, at page 149:

Did the municipality’s action in changing the sand requirement breach its obligations under Contract “A”? This is not a case of the municipality changing a specification set out in the tender call documents with the result that a bidder other than Sabre received the job. This is a case of the municipality changing a term of Contract “B” after it had properly accepted the low bid of the successful contractor.

There is no express term in the tender call document which obligates the municipality, as part of its Contract “A” with all tenderers, not to change the job specifications after selecting the low bidder. The municipality may have an implied obligation not to “rig” the bid by designing tender specifications and requirements so as to discriminatorily exclude all but its preferred contractor or just one disapproved-of contractor. However, the plaintiffs did not put forward evidence of such manipulation. [Emphasis added.]

Sabre submitted a bid on equal footing with the successful bidder and was outbid. Whatever alterations were subsequently made concerned only the parties to Contract “B”; Whistler and the successful bidder. Those alterations in no way breached any obligation owed by Whistler to Sabre or any of the other bidders pursuant to Contract “A”.

Cabott (Walter) Construction Ltd. v. The Queen (1974), 44 D.L.R. (3d) 82 (F.C.T.D.); vard (1975), 69 D.L.R. (3d) 542 (F.C.A.) was an interesting case which raised the issue of the breach of implied terms in a contract for the construction of a fish hatchery facility on the Capilano River in North Vancouver pursuant to tender calls, and the concomitant issue of negligent misrepresentation for withholding material information from the successful bidder. The Federal Court, Trial Division, found for the plaintiff on both issues and awarded damages for breach of contract and damages for negligent misrepresentations occurring prior to the creation of any contractual relationship between the parties. The Trial Judge, Mahoney J., after alluding to a statement of law propounded by Lord Devlin in the Hedley Byrne case, stated the following principle with respect to the misrepresentation issue at page 98 (44 D.L.R.):

I have no difficulty in finding that the relationship between the person who invites tenders on a building contract and those who accept that invitation is such a particular relationship as to impose a duty of care upon that person so as to render actionable an innocent but negligent misrepresentation in the information which he conveys to those whom he intends to act upon it. I am further of the view that, where the information is clearly material and obviously very much in the mind of the party withholding it, as in this instance, the failure to disclose it is a breach of the duty owed.

The defendant appealed that judgment to the Federal Court of Appeal, and the plaintiff cross-appealed the dismissal of the claim for extras and the assessment of damages. A majority of the Court upheld the findings of the Trial Judge on the breach of contract issue on the ground that it was an implied term of every building contract that the owner would provide sufficient space around the work site to enable the contractor to carry out his work unimpeded. However, the full Court rejected the principle enunciated by Mahoney J. with respect to negligent misrepresentation, but without fully elaborating the reasons therefor. Pratte J., from whom the majority differed on the breach of contract issue, held that there was no negligent misrepresentation because the appellant in inviting tenders was under no duty to disclose its intentions with respect to another proposed project in the vicinity of the one first contracted for. Urie J., writing the majority opinion, simply allowed the appeal in respect of the damages awarded for negligent misrepresentation and reduced the quantum accordingly, at the same time dismissing the respondent’s cross-appeal on the assessment of damages.

Cf. Sodd Corporation Inc. v. Tessis (1977), 17 O.R. (2d) 158 (C.A.). This case was an appeal by the defendant from a judgment at trial in favour of the plaintiff in an action for damages for negligent misrepresentation. The defendant, a chartered accountant and licensed trustee in bankruptcy, advertised for sale by tender the stock-in-trade of a bankrupt represented as having a certain retail value, on which the plaintiff relied in submitting his tender. The advertisement for tenders contained an exemption clause to the effect that the purchaser had inspected the goods and that no warranty or condition was expressed or could be implied with respect thereto. The Trial Judge held the defendant liable for negligent misrepresentation on the basis of the Hedley Byrne principle. On appeal, it was argued by the defendant that this principle did not apply because there was no special relationship between the parties giving rise to a duty of care. The Ontario Court of Appeal held that the defendant as a professional accountant and trustee in bankruptcy was in a special relationship creating a duty of care to the plaintiff and was negligent in his representation concerning the retail value of the stock-in-trade. The rationale of the decision with respect to the application of the Hedley Byrne principle was thus stated by Lacourcière J.A. at page 160:

... the present case did, in fact, involve a pre-contractual negligent misrepresentation which induced the plaintiff to submit its tender, and the defendant’s liability follows on the authority of Esso Petroleum Co. Ltd. v. Mardon, [1976] 2 All E.R. 5; see also Walter Cabott Construction Ltd. v. The Queen (1974), 44 D.L.R. (3d) 82; varied (1975), 69 D.L.R. (3d) 542, 12 N.R. 285.

For other cases on the applicability of the Hedley Byrne principle, see: The Pas (Town of) v. Porky Packers Ltd. et al., [1977] 1 S.C.R. 51; Nelson Lumber Co. Ltd. v. Koch (1980), 111 D.L.R. (3d) 140 (Sask. C.A.); and Sirois and Therrien v. New Brunswick Teachers Federation (N.B.T.F.) and L’Association des Enseignants Francophones du Nouveau-Brunswick (A.E.F.N.B.) (1984), 56 N.B.R. (2d) 50 (Q.B.). For the views of eminent textbook authors, see Linden, Canadian Tort Law, 4th ed., at pages 398-424 and Fleming, The Law of Torts, 7th ed., at pages 607-616.

In The Pas (Town of) v. Porky Packers Ltd. et al., supra, a majority of the Supreme Court of Canada allowed the appellant’s appeal from a judgment in favour of the respondent for negligent misrepresentation by officials of the appellant municipality on the basis of the Hedley Byrne doctrine. The doctrine was thus explained and defined by Spence J., who wrote the majority opinion, at page 63:

I agree with Matas J.A. that if the plaintiff’s claim is to succeed it must be upon the basis of the doctrine considered in the important decision of the House of Lords in Hedley Byrne. I quote the statement in Charlesworth on Negligence, 5th ed., para. 49, p. 32, as being a proper statement of the principle applied in that authority:

The House of the Lords has thus expressed the opinion that if in the ordinary course of business including professional affairs a person seeks advice or information from another who is not under any contractual or fiduciary obligation to give it, in circumstances in which a reasonable man so asked would know that he was being trusted or that his skill or judgment was being relied on, and such person then chooses to give the requested advice or information without clearly disclaiming any responsibility for it, then he accepts a legal duty to exercise such care as the circumstances require in making his reply; for a failure to exercise that care, an action for negligence will lie if damage or loss results.

The learned Judge, after reviewing the evidence, concluded that there was no negligence on which the respondent could base its action under the principles in the Hedley Byrne case, for the following reason (at page 68):

It is a requisite for liability under the Hedley Byrne principle that the representations be made to a person who has not expert knowledge himself by a person whom the representee believes has a particular skill or judgment in the matter, and that the representations were relied upon to the detriment of the representee.

Nelson Lumber Co. Ltd. v. Koch, supra, was an appeal from a judgment at trial [[1977] 6 W.W.R. 25] in favour of the plaintiff respondent in an action for damages for negligent misrepresentation, based on the application of the Hedley Byrne principle. Appellant, who was a manufacturer of packaged homes, recommended a particular contractor to construct the home purchased by the respondent, knowing the contractor to be bankrupt. The contractor failed to complete construction because of financial problems. The Saskatchewan Court of Appeal dismissed the appeal on the ground that the appellant’s failure to disclose the fact of the contractor’s bankruptcy constituted the breach of an actionable duty of care within the scope of the Hedley Byrne doctrine. Bayda J.A. alluded to the Hedley Byrne principle as stated in the headnote of the case reported in All England Law Reports and the Charlesworth on Negligence version approved by Spence J. in the Porky Packers Ltd. case, supra, and proceeded to make the following analysis thereof at page 151:

As noted the principle encompasses three broad elements: (1) there must exist between the person giving advice or information and the person receiving the advice, a special relationship imposing a duty of care upon the former; (2) there must occur a breach of that duty by negligent words (as distinct from negligent conduct); (3) there must be reliance by the person receiving the advice or information upon the negligent words.

See also Esso Petroleum Co. Ltd. v. Mardon, [1976] Q.B. 801 (C.A.) per Lord Denning M.R. at page 820.

Application of the Law and Further Findings Consequent Thereon

I turn now to the issue of negligent misrepresentation. Was there in the present case a special relationship between the defendant and the plaintiff within “the broad embrace of the Hedley Byrne doctrine” such as to impose on the former a duty of care to disclose in the tender specifications the preferential preconditions of monopoly? In my opinion, there was not. Where are the negligent words with respect to overt advice or information sought from a person believed to have particular skill or judgment in a matter on which the seeker intended to rely, as opposed to conduct, negligent or otherwise? Mr. Justice Mahoney held to the contrary in Cabott (Walter) Construction Ltd. v. The Queen, supra, but the full panel of the Federal Court of Appeal was unanimous in rejecting his finding of negligent misrepresentation based on a “particular relationship” between the person inviting tenders and those submitting tender bids. Despite the persuasive reasoning of the Ontario Court of Appeal in Sodd Corporation Inc. v. Tessis, supra, I am bound by the decision of our appellate Court, notwithstanding the paucity of its reasons with respect the issue of negligent misrepresentation. I am further supported in my opinion by the New Brunswick Court of Appeal’s rejection of the Hedley Byrne principle in the Leo Lisi case and the reasoning of Spence J. in the Supreme Court of Canada decision in The Pas (Town of) v. Porky Packers Ltd. et al., supra.

I find therefore that the defendant is not liable to the plaintiff for any negligent misrepresentation or misstatement or other breach of duty sounding in tort arising from its failure to disclose in the tender documents the preconditions of monopoly.

In my opinion, the matter of liability, if any, falls to be determined on the basis of contract. I have already found it to be an implied term of any preliminary contract A arising from the submission of bids that the defendant would treat all bidders fairly in the tendering process. As I see it, the defendant’s actions in that regard will have to be judged in the perspective of whether there was any breach of a duty of fairness within the contractual relationship established between the plaintiff and all the tenderers, rather than on the basis of an obligation or duty sounding in tort: see Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147 per Le Dain J., at page 205; and Bruinsma (Ben) & Sons Ltd. v. Chatham, supra, per Craig J., at page 161. Earlier in his reasons for judgment in Bruinsma, Craig J. made the following significant statement (at page 156):

I think council’s action is at the least unfair and at its worst it smacks of trickery for its result was to freeze out the low bidder by a comparatively trifling amount. This in light of the course of conduct that council saw fit later to adopt creates the appearance of a deliberately contrived device to prevent Bruinsma from succeeding in obtaining the contract.

A similar implied term imposing on an owner calling tenders the obligation to treat all bidders fairly and not unfairly prefer one over the other was recognized by Legg J.A. in the Chinook Aggregates case as being referable to a statement made by Mr. Justice Pratte in the Best Cleaners case, which he then proceeded to quote as follows (at page 350):

In Ron Engineering the Supreme Court had to deal with rights and obligations that were clearly stipulated in the tender documents. Here, the situation is different. The tender documents contained no express provision prohibiting the Crown from entering into negotiations with the bidders and changing the terms of the proposed contract. If the Crown was nevertheless prohibited from doing those things, the source of that prohibition could only be found in some implied terms of the unilateral contract resulting from the making of the tender. Those implied terms were not the subject of the Supreme Court’s decision. In my opinion, they do nevertheless exist. I would not however describe them in the same manner as counsel for the appellant. In my view, they simply impose on the owner calling the tenders the obligation to treat all bidders fairly and not to give any of them an unfair advantage over the others. [Emphasis mine.]

Actually, the passage so quoted in an obiter statement from the dissenting reasons for judgment of Pratte J., who dismissed the appeal on grounds of the lack of any pleaded allegation and supporting evidence of a simulated transaction with respect to the two-year contract entered into by the Crown. Nonetheless, I consider that the statement of Mr. Justice Pratte regarding the implied term of contract A imposing on owners a duty to treat all bidders fairly represents an accurate statement of the law in the particular context in which it was uttered, as did Legg J.A. in the Chinook Aggregates case.

Applying the Ron Engineering principle, I am of the opinion that a preliminary, unilateral contract A was created between the defendant and the plaintiff on the submission of the latter’s tender bid. It goes without saying that similar contracts A were formed between the defendant and each of the other bidders on Tender 50. From the standpoint of the plaintiff’s case, this preliminary contract A contained the implied term or obligation to treat all bidders fairly in the sense of not giving any of them an unfair advantage over the others, as I have already found to be the fact. I also found as a fact that the defendant rigged the bid against the plaintiff in the tendering process for Tender 50 by adopting as its governing criteria for the awarding of the tender conditions which excluded the plaintiff from any consideration whatever, and thus unfairly preferred the rival bidder, East Coast Marine Services Ltd., to whom the contract was awarded.

Considering the evidence in its entirety, I find that this preliminary contract A also contained an implied term or obligation to award the contract on Tender 50 to the lowest qualified bidder, given the case of a call for public tenders by a Crown corporation for the supplying of a pilot boat service where cost or price would have to be an important criterion in the evaluation of tenders and the ultimate accountability of such Crown corporation to the Parliament of Canada for the conduct of its affairs. It seems to me that this is implicit from the plain meaning of the words contained in the defendant’s own tendering manual and according to the weight of the evidence. Captain Slater had testified under cross-examination to a customary low bidder practice. When questioned on redirect examination regarding his “expectations with respect to Tender 50”, he replied to the effect that they expected to be treated fairly and had presumed they would be likely to get the contract, based on the low bidder concept and from the fact of having the right equipment.

There is no question here that the plaintiff met all the terms and conditions of the specifications set out in the call for tenders, but that its low bid failed because of the defendant’s apprehensions regarding monopoly. Does the exclusion or disclaimer or privilege clause, call it what you will, entitle the defendant to ignore the implied terms of the preliminary contracts A arising from the submission of the tender bids by attaching to its tender call preferential preconditions which were not disclosed or communicated to the bidders? In my opinion, it does not. I adopt the reasoning of Legg J.A. in Chinook Aggregates Ltd. v. Abbotsford (Mun. Dist.), supra, that the defendant, by attaching the undisclosed preconditions of monopoly to its tender offer, deprived itself of any benefit or advantage afforded by the disclaimer clause because it would be inequitable to allow that clause to govern in the face of the contractual duty or obligation to treat all bidders fairly. In the result, I find that the defendant has breached the preliminary contract A with the plaintiff and is prima facie liable in damages.

The Equitable Defences and Related Matters

In its amended defence, the defendant pleads the equitable doctrine of “clean hands” and the sweeping maxim that “equity suffers no wrong without a remedy” and alleges that the plaintiff improperly interfered with the tendering process. The evidence said to support these pleas and the allegation of wrongful interference, coupled with the submissions of defendant’s counsel, point the finger of suspicion to a conspiracy between the one-time Executive Director of Incor, Bruce Jardine, and Captain Slater with respect to Alec Gay’s application for Incor funding and the leaking of information by Jardine to Slater regarding Captain Gay’s bid on Tender 50, thereby enabling the latter to undercut the Gay bid. The other wrongful interference imputed to Captain Slater relates to an alleged bribe he offered Edward Yorke Barrington at their meeting in the dining room of the Isle Royal Motel in Sydney, Nova Scotia, in late February of 1987. Barrington was the owner and operator of the tug Offshore Diver, which was being utilized by Captain Gay as a back-up vessel for his Strait of Canso contract until the vessel he had purchased in New York, Chapel Hill, could be brought into service. According to Mr. Barrington, Alick Slater offered the bribe during the course of their meeting in the motel dining room by stating: “Well, just how much would it take to have you not fill in for Alec Gay?”, or words to that effect. Mr. Barrington professed to be shocked by this blatant bribery attempt. However, the matter only came prominently to light on or about December 8, 1991 as the result of investigative efforts on the part of the defendant’s private investigator, John E. Norton.

Plaintiff’s counsel takes the position that these allegations and any evidence bearing thereon are totally irrelevant by reason that Alick Slater and Bruce Jardine are not parties to the present action nor indeed any action in which these allegations of bribery and conspiracy are brought directly in issue. I quite agree. In my view, the equitable defences pleaded would only avail the defendant where the relief or remedy sought in respect of the conduct complained of on the part of Slater and Jardine was made the subject of a separate action or asserted by way of counterclaim, which is not the present case. Moreover, I am not persuaded that Captain Slater was in any legal sense the alter ego of the plaintiff company with respect to the matters complained of. However, the matters do go to the issue of credibility and I propose to deal with them on that footing.

Mr. Barrington’s memory was sketchy regarding specific details surrounding the incident in the Isle Royal Motel and yet his recollection of the exact words said to have been spoken by Alick Slater was letter perfect almost four years after the event. He says he told his wife about it on returning home and may have reported the incident to Alex Gay that same evening. He claims to have also told his partner shortly afterwards. Nothing more was said until December 8, 1991 when Captain Gay called him about being interviewed by the investigator, Mr. Norton. I consider Mr. Barrington’s version of what Slater is alleged to have said to him at their meeting in the Isle Royal Motel in late February of 1987 a little too pat and prone to the power of suggestion to be completely credible. In short, I accept Captain Slater’s unequivocal denial of ever having offered a bribe to Mr. Barrington. Furthermore, I find no evidence to support the defendant’s contention that the much maligned Executive Director of Incor, Bruce Jardine, and Alick Slater were party to a conspiracy to sabotage Alex Gay’s application for Incor funding or undercut his bid on Tender 50. Mr. Jardine testified that he never saw Gay’s complete and final bid package (Exhibit D-20) in the Incor file and denies ever having leaked details of the same to Captain Slater, and I believe him on both scores.

It follows therefore that the defendant’s equitable pleas are no defence to the liability for breach of contract.

Assessment of Damages

I turn now to the assessment of the plaintiff’s damages for breach of contract, based on loss of profit or earnings projected over a five-year period. The plaintiff claimed for loss of profit on both Tender 48 and Tender 50. Incidentally, the plaintiff chose in its statement of claim to set the limit of these damages at $350,000. I have already found that the defendant incurred no liability to the plaintiff with respect to Tender 48 so I can confine myself to the damages attributable to the breach of the preliminary contract A on Tender 50. Opinion evidence was adduced from the plaintiff’s expert accounting witness, Oscar Boyd Tilley, who swore an affidavit of his proposed evidence on November 28, 1991.

The plaintiff’s expert testified on his examination-in-chief to the methodology employed. Without going into elaborate detail, Mr. Tilley reviewed the financial statements of the plaintiff prepared by its Chartered Accountant, Leo D. Sears, for the two-year period ending December 31, 1986 and, based on information provided by corporate management, postulated nine assumptions supporting his projection of the likely earnings of the plaintiff over the five-year period ending March 31, 1992, had it been awarded the contract on Tender 50. His initial calculations showed net earnings, after taxes, of $49,826 for 1988, $58,028 for 1989, $61,396 for 1990, $73,415 for 1991 and $86,646 for 1992 for a cumulative total of $329,311.

Mr. Tilley admitted on cross-examination to the possibility of having committed three major errors in his assumptions relative to his lost earnings projections on Tender 50, namely:

(1) by utilizing an assumed 3% inflation rate add-on to expenses over the five-year period of the contract instead of the annual inflation rates indicated by The Consumer Price Index For Canada for the same period, averaged at 4.9%;

(2) by neglecting to include as a foreseeable expense during the whole five-year period a cost figure of $10,000 incurred for “Vessel Hire” in 1986; and

(3) by mistakenly assuming an annual reduction of $28,000 in wages and employee benefits in his projections relative to Tender 50 through a reduction of crew to three members, instead of the actual crew complement of four members required by the more onerous manning terms of the tender specifications.

The following evidence from Mr. Tilley’s cross-examination is particularly illustrative with respect to item (3):

Q.  Right. The difference being that in tender 48 you could leave it unmanned when it wasn’t in use. In tender 50 you could never leave it unmanned. It had to be partially manned. Now, let’s look at the mathematical implications of what we’ve been talking about—or financial implications. By overlooking this extra man on paper you effected a cost saving in expenses of 28,000 a year. Right?

A.   Plus 3% inflation. Right.

Q.  Plus 3% inflation, which we’ve added on. So it’s more than 28,000 a year. And over the life of the five year contract we’re talking about 140,000 plus interest. Right?

A.   Yes. Less income taxes.

Q.  Without getting into the other calculations. So in effect what you’ve done is you’ve decreased expenses by 140,000 plus inflation and you’ve increased earnings by the same amount. Right?

A.   Yes

Q.  Do you have a calculator handy?

A.   I’m sorry. I don’t.

Q.  Can you calculate for us what the actual figure is, 140 plus interest? What are we talking about?

A.   It will take me a while. Do you wish to inflate it by 3% annually?

Q.  Well, at this point you can do that because that’s the figure you’ve used.

A.   Let me understand the calculation you require. Could you repeat the —

Q.  Well, what I’m saying is add in the extra man. Just talking about that one man. I want to know to what extent — what is the full extent to which you’ve reduced expenses and inflated earnings when you add in the interest on that amount as well?

A.   If wages had — if salaries had not reduced from four to three the earnings for the five year period would be less by 148,600.

Q.  148 —

A.   Plus — I’m not able to quickly do the interest factor here.

Q.  Just an approximation. 148,600. Is that what you’re saying?

A.   Yes. Plus approximately fifteen thousand dollars ($15,000.00) interest.

Q.  Plus 15,000 interest. So we’re talking about —

A.   163,000 before tax reduction in earnings.

Q.  That’s a fair bit of money, isn’t it, 163,000 if that’s your approximate figure?

A.   Yes.

Q.  We won’t hold you to that being mathematically accurate, but around there.

A.   Yes.

Q.  And if in fact what happened here was based on an incorrect assumption, this is a rather significant and major error, isn’t it?

A. Yes.

By agreement of counsel, an undertaking was given at the conclusion of Mr. Tilley’s testimony that he would revise his projected earnings calculations on both Tender 48 and Tender 50, having regard to the three major assumptive errors, and file amended schedules of projected earnings on both tenders, which would be treated as the defendant’s evidence. The undertaking was complied with and filed as Exhibit D-33. Exhibit D-33 discloses that Mr. Tilley chose to apply the inflation factor indicated for each year instead of the weighted average of 4.9 percent for the whole period.

In my view, the final result as it pertains to the schedule of projected earnings for Tender 50 is inexplicable, inconclusive and inordinately low, having regard to the overall weight of evidence. The revised figures for net earnings over the five-year period ending March 31, 1992 show the following results: for 1988, $9,106, for 1989, $11,314, for 1990, $5,521, for 1991, $9,174 and for 1992, $9,464, for cumulative total of $44,580. Defendant’s counsel makes the point in his written brief that the original cumulative earnings figure of $329,311 is approximately 738% higher than the cumulative net earnings total of $44,580 shown in the revised schedule of projected earnings on Tender 50. I am unable to credit or accept that such a monumental difference could be attributable to the so-called three major errors which were so painstakingly explored during the course of the witness’ cross-examination. However, before delving further into the realm of figures there are several legal points which must be addressed and resolved.

In Canamerican Auto Lease and Rental Ltd. v. Canada, supra, the Trial Judge, Madam Justice Reed, allowed the plaintiff damages of $232,500 based on the excess amount of its bid and rejected as being “just too remote” the alternative damages claim for loss of profit on what might have been earned had Avis been forced off the airport. The Court of Appeal upheld her rejection of the damages claimed for loss of profit based on Hertz’ expectation interest. Heald J.A. stated the following rationale for his opinion on the point at pages 165-166:

From this evidence, I think it clear, that in so far as Transport Canada was concerned, it was not in their “reasonable contemplation” that Avis would be forced off-airport at the time the tenders were submitted. At that point in time, they did not know what the amounts of the tenders were going to be. At that juncture, everything was speculative. Accordingly, neither the objective nor the subjective test of Hadley v. Baxendale were met in the circumstances of this case, in my view.

Stone J.A., who agreed with his colleague in the final result, felt constrained to make some additional observations on the damages aspect, wherein he stated, inter alia, at page 170:

I agree that the expectation interest is not compensable. The preliminary or initial contract came into existence when Hertz submitted its bid in conformity with the Specifications. It was breached by non-compliance with the Award Procedure clause. I do not consider this to be the classic breach of contract scenario with a single contract, two parties and loss of profits stemming directly from the breach. Some factors are unique to the present situation. Here we have multiple double contracts (initial and final), breaches of the initial contracts, numerous parties and indirect loss of additional profits based upon the continued presence of Avis at the airports. Notwithstanding these breaches, a number of final contracts did come into existence. One such contract gave Hertz a counter at the airports and left Hertz to profit by that contract if it could. It is not complained that the breach caused Hertz to lose profits under its final contract but that the configuration resulting from the breach prevented Hertz from gaining additional profits from a share of Avis’ business. I agree that loss of those profits is not compensable because they are too remote according to the test enunciated in Hadley v. Baxendale. [Emphasis added.]

The emphasized passages from Stone J.A.’s reasons amply serve to distinguish Best Cleaners from the present case, where loss of profits directly occasioned by the breach of contract A forms the basis of the plaintiff’s claim as having been within the reasonable completion of the parties at the time of contracting.

In Houweling Nurseries Ltd. v. Fisons Western Corp. (1988), 49 D.L.R. (4th) 205 (C.A.) the British Columbia Court of Appeal upheld an appeal from a judgment at trial [(1986), 9 B.C.L.R. (2d) 65] awarding global damages of $2 million for lost profits suffered by the operator of a plant nursery. The Trial Judge expressed dissatisfaction with the expert accountants’ evidence of lost profits without making specific findings on the amount of lost sales or the rate of profits. The Court of Appeal, in allowing the appeal, held that it was for the Court, not for the accountants, to estimate the lost profits but that the Judge should have made findings with respect to the factual assumptions on which the calculations were based. Under the circumstances, the Court held that compensation was recoverable for lost future sales with a reduction on account of uncertainty, and made the necessary findings in order to avoid the expense of a new trial. McLachlin J.A., delivering the judgment of the Court, noted several relevant English authorities pertaining to the recovery of damages for loss of future business, and said at pages 210-211:

In my view, the law may be summarized as follows. The basic rule is that damages for lost profits, like all damages for breach of contract, must be proven on a balance of probabilities. Where it is shown with some degree of certainty that a specific contract was lost as a result of the breach, with a consequent loss of profit, that sum should be awarded. However, damages may also be awarded for loss of more conjectural profits, where the evidence demonstrates the possibility that contracts have been lost because of the breach, and also establishes that it is probable that some of these possible contracts would have materialized, had the breach not occurred. In such a case, the court should make a moderate award, recognizing that some of the contracts may not have materialized had there been no breach.

The matter may be put another way. Even though the plaintiff may not be able to prove with certainty that it would have obtained specific contracts but for the breach, it may be able to establish that the defendant’s breach of contract deprived it of the opportunity to obtain such business. The plaintiff is entitled to compensation for the loss of that opportunity. But it would be wrong to assess the damages for that lost opportunity as though it were a certainty.

I turn to the other principle upon which the defendant relies—the doctrine of remoteness. This doctrine is sometimes expressed as consisting of two rules, one dealing with imputed knowledge and one with actual knowledge of special circumstances: Victoria Laundry , supra, per Asquith L.J. at p. 539. However, for our purposes it may be conveniently stated as one rule—that the defendant is liable for such losses as, in all the circumstances, he ought reasonably to have contemplated at the time the contract was made.

The effect of the doctrine of remoteness is to exclude losses which it is established were caused by the breach of contract, but which were not reasonably foreseeable when the contract was made. The rationale for this exclusion is that it would be unfair to require the defendant to pay such damages, when, if he had been aware of them, he might have declined the risk or made other arrangements: Hadley v. Baxendale (1854), 9 Ex. 341 at p. 355, 156 E.R. 145 at p. 151.

In my opinion, the evidence, weighed on the balance of probabilities, establishes to a sufficient degree of certainty that the plaintiff bid on Tender 50 with the full expectation of realizing some profit or monetary advantage therefrom over the whole contract period had it been successful on its bid, and that the loss of such profit was something which the defendant ought reasonably to have foreseen or contemplated, in the usual course of things, as the likely consequence of any breach of the preliminary contract A at the time it was made. Consequently, I am unable to find the plaintiff’s claim for damages for loss of profits, based on its reasonable expectation interest, to be too remote under the first branch of the rule in Hadley v. Baxendale [(1854), 156 E.R. 145 (Ex. Ct.)] or otherwise. The defendant was experienced in the practice of calling tenders for the provision of pilotage service, knew the plaintiff and the nature of its business, and was aware that the plaintiff would be acting in accordance with the low bid concept on Tender 50. In the result, I find as a fact that the defendant must be taken to have reasonably foreseen the likely consequences of the breach of its contract with the plaintiff.

I return to the question whether Mr. Tilley’s arithmetical calculations can serve as a useful guide in assessing the plaintiff’s damages for loss of profit. Unfortunately, these afford little real assistance in arriving at a precise mathematical calculation of such damages, except to reinforce my belief that Mr. Tilley’s original cumulative total of $329,311 is too high and that his revised cumulative earnings figure of $44,580 in Exhibit D-33 is inordinately low. Mr. Tilley made deductions for income taxes at the rate of 22 percent in calculating his net earnings projections for each of the years 1988 to 1992. In my opinion, this constituted an error according to the principle established by the Supreme Court of Canada that income tax should not be deducted in calculating damage for loss of future earnings, except in fatal accident cases: Waddams, The Law of Damages, 2nd ed., paras. 3.320, 3.950-3.980; The Queen v. Jennings et al., [1966] S.C.R. 532; Guy v. Trizec Equities Ltd. et al., [1979] 2 S.C.R. 756; Andrews et al. v. Grand & Toy Alberta Ltd. et al., [1978] 2 S.C.R. 229; Arnold et al. v. Teno et al., [1978] 2 S.C.R. 287; Keizer v. Hanna et al., [1978] 2 S.C.R. 342; and Lewis v. Todd and McClure, [1980] 2 S.C.R. 694.

In my opinion, Mr. Tilley’s revised calculations of projected earnings set out in Exhibit D-33 are little more than the composite result of assumptions put to him by defendant’s counsel. The witness admitted on cross-examination to an erroneous expense saving of approximately $148,600 over the period of the contract by overlooking the additional crew member requirement on Tender 50. I can find nothing in the evidence to support a mandatory requirement for a four-man crew at all times and seasons. The specifications in Tender 48 and Tender 50 are identical with respect to the conditions pertaining to boat service and manning, except for the deletion from the former of the word “unmanned” so as to leave the latter reading “but may be partially unmanned when not in use”. The defendant’s Director of Operations, Captain Stow, explained the significance of the term “partially unmanned” in his examination-in-chief:

Q.  It’s the “ ... but may be partially manned ... “ is the change, I gather. Whereas before it said “ ... may be unmanned or partially manned ... “

A.   That’s correct, yes.

Q.  So, now there is no longer the option of leaving it unmanned?

A.   No. It had to be now manned alongside because of the fact that we knew for sure it was going to be compulsory. There was also one other change which we missed, and it related to that one. If it had been unmanned in the first instance there was no requirement for it specifically to have a shore phone. And in the second one there was, and therefore that was added.

Mr. Tilley reaffirmed on redirect examination that his initial projection calculation for crew expenses was based on information provided him by management that the plaintiff would be operating with a three-man crew after September of 1986. I consider on balance that the validity of this initial assumption remains largely intact. However, the witness’ lack of conviction for his opinions and readiness to agree with assumptive postulates put to him by defendant’s counsel cast an element of doubt over the whole spectrum of his expert evidence. Under the circumstances I feel constrained to adopt a global approach in endeavouring to arrive at a fair and realistic assessment of the plaintiff’s damages for breach of contract. I find some comfort for this approach in the following statement by Dickson J. in Lewis v. Todd and McClure, supra, at pages 708-709:

If the courts are to apply basic principles of the law of damages and seek to achieve a reasonable approximation to pecuniary restitutio in integrum expert assistance is vital. But the trial judge, who is required to make the decision, must be accorded a large measure of freedom in dealing with the evidence presented by the experts. If the figures lead to an award which in all the circumstances seems to the judge to be inordinately high it is his duty, as I conceive it, to adjust those figures downward; and in like manner to adjust them upward if they lead to what seems to be an unusually low award.

Taking Mr. Tilley’s cumulative earnings figure of $329,311 as a starting point, I would add back income tax of $72,448, calculated at his 22 percent rate of tax, which yields the gross-up total of $401,759. I feel this should be reduced by the deduction of a 42 percent contingency factor to account for uncertainties, which leaves a net balance of $233,020. I would allow the plaintiff the additional sum of $2,390 for the cost of preparing its bid on Tender 50. The resulting total is $235,410 which I hereby assess as the plaintiff’s damages for breach of contract, rounded off to $235,000.

The plaintiff claimed exemplary damages of $500,000 owing to the defendant’s conduct. Punitive or exemplary damages are rarely awarded in breach of contract cases. In any event, such damages could only be awarded in a case where the conduct complained of was so harsh, vindictive, reprehensible or extreme in nature as to be deserving, by any reasonable standard, “of full condemnation and punishment”: Vorvis v. Insurance Corporation of British Columbia, [1989] 1 S.C.R. 1085, per McIntyre J., at pages 1107-1108; and Harvey Foods Ltd. v. Reid (1971), 3 N.B.R. (2d) 444 (C.A.), per Hughes J.A., at pages 448-450. I can find nothing in the defendant’s conduct in the present case to justify an award of punitive or exemplary damages.

Interest

I turn now to the question of interest on the damages award. Prejudgment and postjudgment interest were not specifically claimed in the plaintiff’s statement of claim, although tacitly recognized as being part and parcel thereof.

Sections 36 and 41 of the Federal Court Act [R.S.C., 1985, c. F-7], dealing with prejudgment and postjudgment interest respectively in cases involving claims against the Crown, were repealed by Statutes of Canada 1990, c. 8, ss. 9 and 11, which enacted new sections 36 and 37 providing for such interest in proceedings other than those involving the Crown, that is, between subject and subject. The new provisions came into force on February 1, 1992. Their general effect was to divest the Court of much of its discretion in the awarding of both prejudgment and postjudgment interest by making the same determinable according to the law of the province in which the cause of action arose, in this case Nova Scotia. Several exceptions were created in both cases with respect to causes of action arising outside any province or in more than one province, where more discretionary latitude was permitted. In the case of prejudgment interest only, another exception was created for cases coming within the ambit of Canadian maritime law. The present case, in my view, does not fall within this last mentioned exception. Subsection 36(6) of the new statutory provisions relating to prejudgment interest provides as follows:

36. …

(6) This section applies in respect of the payment of money under judgment delivered on or after the day on which this section comes into force, but no interest shall be awarded for a period before that day.

In my opinion, this would seem to preclude any award of prejudgment interest on damages for the period prior to February 1, 1992.

Whether I am correct or not in my interpretation of the subsection, the point becomes academic for purposes of the present case. If I apprehend the evidence correctly, Mr. Tilley’s projection of cumulative earnings on Tender 50 made provision for the inclusion of “an average of 10% interest annually”. I agree with the submission of defendant’s counsel that any award of prejudgment interest on damages would result in interest being factored in twice, absent any adjustment therefor. In my judgment, there should be no award of prejudgment interest in the present case.

The new section 37 of the Federal Court Act, effective February 1, 1992, makes the matter of postjudgment interest determinable by the law of Nova Scotia. Section 2 of the Interest on Judgments Act, R.S.N.S. 1989, c. 233, reads:

2. (1) Until it is satisfied, every judgment debt shall bear interest at the rate of five per cent per annum or, where another rate is prescribed pursuant to subsection (2), at that other rate.

(2) The Governor in Council may make regulations

(a) determining rates of interest on judgment debts, including judgment debts which are, on the coming into force of this subsection, unsatisfied in whole or in part;

(b) respecting the method and frequency of determining the rates of interest;

(c) fixing the periods during which the rates of interest are in effect.

(3) The exercise of the authority contained in subsection (2) shall be regulations within the meaning of the Regulations Act.

In my opinion, section 2 of the Interest on Judgments Act prevents my awarding postjudgment interest at anything other than the prescribed statutory rate of 5 percent per annum in the absence of any proof of a regulation of the Governor in Council of Nova Scotia providing for a higher rate.

Conclusion

For the foregoing reasons, I award judgment in favour of the plaintiff for total damages of $235,000, together with postjudgment interest thereon at the rate of 5 percent per annum, compounded annually, from the date of judgment until payment or satisfaction. The matter of the disposition of costs is reserved, pending further submissions by counsel.

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