Citation: McNamara Construction Co. v. Newfoundland Transshipment Ltd. et al., 1998 St. J. No. 0942

Date: 2002-05-10

Docket: 1998 St. J. No. 3150

Between:

McNamara Construction Company, a division of Tarmac Canada Inc. (plaintiff)

and

Newfoundland Transshipment Limited (first defendant) and Bantrel Inc. (second defendant)

Orsborn, J.

Counsel:

Gillian Butler, Q.C., and John Pratt, for McNamara Construction Co., a division of Tarmac Canada Inc.;

Michael Harrington, Q.C., Ian Wallace and Janie Bussey, for Newfoundland Transshipment Ltd. and Bantrel Inc.

[1]Orsborn, J.: This is a multi-million dollar claim for extra construction costs, management fee and profit. In 1997 a joint venture [see footnote 2] headed by McNamara Construction Company ("McNamara"), under a subcontract with general contractor Bantrel Inc. ("Bantrel"), built for owner Newfoundland Transshipment Limited CNTL") an oil tanker berthing facility at Whiffen Head, Placentia Bay, Newfoundland. The joint venture's work was one component of a transshipment terminal, a stand alone facility required to accommodate shipments of crude oil from the Hibernia offshore oil production platform. The complete terminal consists of heated storage tanks with a working capacity of 1.5 million barrels of crude oil, a jetty, causeway and tug basin, together with offices, warehouse, maintenance shops and equipment, access roads and other similar infrastructure. The joint venture built the causeway and tug basin - a sheltered area for the tugs used to guide the tankers - and the jetty and loading platform for the offloading of crude oil from the tankers to the onshore storage tanks. Also included was related

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[2]The marine facility was completed on time - by December 31, 1997 - and all involved agree that it is "world class". Unfortunately, many of the commercial aspects of the project have been brought to court. The trial arising out of this dispute lasted over 85 days, a trial which in my view was prolonged and complicated by the manner in which McNamara [see footnote 3] chose to frame the dispute and pursue its claim.

McNamara's Claim

[3]McNamara has already been paid $36,877,075 (all figures before H.S.T.). It now asserts various breaches of contract, negligence, and the commission of certain specific torts. It claims that since the breaches of contract are so many and various, and the cause and effect and resulting damages so difficult to identify, trace and quantify, it is therefore entitled to have the work it did valued as a whole, with its entitlement to damages being the difference between that value and the amount actually paid. In the alternative, McNamara claims that Bantrel was negligent or that one or more of the alleged breaches of contract entitle McNamara to have the entire contract set aside, and its claim for compensation assessed on a non- contractual quantum meruit basis. Putting the claims on this 'project wide' approach led to an examination of the full relationship between the parties, including pre-contractual matters, infinite detail of the work performed under the contract, and the cost and value thereof.

[4]McNamara has proposed five methods of valuing the work:

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[5]However, in its argument McNamara relied primarily on the method of global quantification of pecuniary damages put forward by Ms. Tardif, leading to her calculation of a total claim of $49,651,963; after deducting payments of $36,877,075, the pecuniary damage claim is $12,774,888 before interest and costs.

[6]McNamara says it is in addition entitled to each of the following:

[7]The total claim is thus $20,086,896, to which McNamara wishes added its solicitor and own client costs.

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The Project

[11]The subcontract work done by McNamara involved the construction of a jetty -including an approach trestle and a loading platform - together with four breasting dolphins, four mooring dolphins, and a tug basin.

[12]The term "jetty" refers to a dock which extends into the water. The loading platform is connected to the shore by an approach trestle, which in turn consists of 11 trestle bents connected with steel girders to form the spans between the bents. A trestle bent is essentially a grouping of piles which, with concrete components on top, forms the foundation for the spans of the trestle. Figure 1 is a schematic drawing depicting the as-built trestle, loading platform and dolphins.

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[13]As built, the trestle is a ten-span structure, supported on eleven identical four-pile trestle bents. The piles used for the trestle bents were compression piles, piles which are driven to refusal in the sea bed and held in place by a combination of the friction from the pile driving and the placement of the pre-cast concrete cap. The four piles of each bent are connected by a pre-cast concrete cap. A cast in place (poured in place) concrete cap is then formed and poured on top of the pre-cast cap. Each span of the trestle roadway is supported by two steel girders which rest on these concrete caps. A second pair of girders runs alongside the first, to support the oil pipeline which runs from the loading platform to the shore. The first span of girders originates at the shore, on a concrete abutment. The deck of the roadway itself starts with pre-cast concrete panels (planks), which are placed side by side on the girders. The deck slab is then formed with cast-in-place concrete, which concrete is reinforced and poured in sections on top of the pre-cast panels. Although the piling for the approach trestle required only compression piles, the loading platform and dolphins employed a combination of compression and tension piles. Tension piles involve a much lengthier installation procedure than compression piles, since the material into which the pile is driven must be drilled through and cleaned out, thus enabling the pile to be anchored into the underlying bedrock by means of socketing -the use of grouted anchor bars. As such, the placing of tension piles involves not only the initial setup for the driving of the piles themselves, and advancing the piles to bedrock, but also cleaning out the piles, drilling the rock sockets, and placing and grouting the anchors.

[14]The loading platform is a concrete structure supported by 29 piles. Of these, 21 are vertical compression piles, and 8 are battered, or angled, tension piles. The vertical piles each have a pre-cast concrete cap, while the battered piles are capped in pairs, for a total of 25 pile caps in a 5 by 5 array. Pre-cast concrete beams are then set on these pile caps, spanning in the longitudinal direction of the loading platform. The platform deck itself consists of pre-cast planks and a cast in place deck slab.

[15]Dolphins are marine structures for mooring vessels. Breasting dolphins are the larger of the two types, as they are designed to take the impact of the ship when docking and to hold the ship against a broadside wind. They are provided with fenders to absorb the impact of the shi p and to protect the dolphin and the ship from damage. Breasting dolphins also have

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bollards to take the ship's lines, so as to prevent the ship from moving along the loading platform and to hold it against the current. At Whiffen Head, the breasting dolphins are the four structures nearest to the loading platform.

They each have 11 piles, all of which are battered, but the arrangement of compression and tension piles varies slightly. In total there are 21 tension and 23 compression piles. The piles are capped in two groups, with a third pre-cast panel closing the space between the two caps. The cast-in-place concrete is formed and poured after the precast panels are in place.

[16]Mooring dolphins are additional dolphins provided to hold the ship against a broadside wind blowing in a direction away from the dock. These mooring dolphins are located about 45 degrees off the bow and stern of the ship. The mooring dolphins are each supported by eight battered piles. Three of them have six tension and two compression piles, while mooring dolphin No. 1 has four of each. Each mooring dolphin is capped by a single pre -cast concrete panel, and is concreted in place in the same manner as the other structures.

[17]The tug basin or breakwater was constructed using concrete caissons. Caissons are concrete box-like units with a closed bottom and walls dividing the box into compartments. The caissons were built at Argentia, launched, and towed to the site of work; they were then filled with water and sunk in place on a prepared rock or fill foundation called the mattress. This mattress consisted of a levelled layer of quarry rock. The caissons were then backfilled (ballasted) with rock so as to provide added weight for stability. A concrete slab was constructed on top of the caissons.

[18]The use of pre-made concrete caissons has the advantage of reducing the construction work required to be performed over the water, an important consideration when the sea may be rough and where the availability of floating equipment may be limited. The use of concrete caissons were enabled a considerable amount of work to be done in Argentia harbour, using a submersible barge named the Quensa.

[19]McNamara built five caissons - Caissons 1, 2 and 3 extend outwards to act as the breakwater, while Caissons 4 and 5, which are smaller, serve as a retaining structure adjacent to the shore. McNamara also constructed adjacent to Caisson 5 a timber crib slipway used for launching smaller boats. Figure 2 depicts the as-built configuration of the tug basin.

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[20]The causeway and the seaward slope of the causeway were built with rock fill. In addition, there was armour stone placed on the seaward slope of the causeway and caissons to protect from wave damage.

[21]The above summary description essentially reflects the as built marine facility. I have set it out at this stage to enable the reader to have some appreciation of the nature of the facility, the terms used, and the various changes that were discussed and implemented in the course of the relationship between the parties.

[22]The facility built by McNamara and the accompanying onshore facilities were referred to as Phase I of the transshipment terminal. Phase II, about which more will be said later, was a planned additional berth and onshore storage tank to accommodate crude oil coming from Terra Nova, a separate offshore field. Phase II would increase the working capacity of the transshipment terminal from 1.5 to 2.5 million barrels of oil. McNamara has claimed that it was wrongfully denied the opportunity to bid for the work on Phase II and, as noted, has claimed just over $2 million damages for this loss of opportunity.

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[26]Mcnamara has for 59 years been an active and leading participant in heavy civil engineering work, including marine work, in Newfoundland/John Neville, the President and General Manager of McNamara, described his company as the largest heavy works contractor in the province. McNamara has been involved in many of the significant marine construction projects i n eastern Canada; recently it built the oil refinery terminal at Come by Chance a larger facility almost immediately adjacent to Whiff en Head. McNamara also participated as a subcontractor in the construction of the Hibernia oil production facility - a subcontract worth between $60 - 100 million and described by Neville as a "pretty large" contract. Whiffen Head, said Neville, was a "medium size major project". McNamara itself is owned by Carillion PLC, formerly Tarmac PLC of England. In the response to the RFP, Tarmac was described as "one of Europe's largest building materials and construction groups with growing worldwide activities".

[27]Pitts International Inc. was the second participant in the joint venture. Pitts is a North American company associated with other companies including Cartier Construction Inc. and Canadian Dredge and Dock Inc.; it is heavily involved in marine construction, including pile-driving, caisson construction, dredging and blasting. Pitts owned most of the marine equipment used in the Whiffen Head project.

[28]As noted, Ballast Nedam Canada Limited was also a party to the joint venture. Ballast, Nedam Canada is owned by Ballast Nedam International, a Dutch company with worldwide experience in marine projects and the operation and use of heavy marine construction equipment. Ballast Nedam owned the Buzzard, the primary pile driving barge used at Whiffen Head.

[29]Newfoundland Transshipment Limited, the owner of the Whiffen Head facility, is a Canadian company recently incorporated, and which is itself owned by various major oil companies with interests in the Newfoundland offshore.

SC)(NL -62718 CanLII2002

[31]The following is an overview only - for ease of understanding, the necessary details will follow as required and in the relevant sections of these reasons.

[32]In late 1996, Bantrel issued an RFP - a Request For Proposal - for the construction of the transshipment terminal. McNamara responded and eventually formed a joint venture to carry on negotiations with Bantrel and NTL. At the time, the engineering for the project was - although beyond conceptual - still in only preliminary form. Concurrently with the commercial discussions and negotiations between the parties, Bantrel contracted with McNamara (with its joint venture partners) to provide assistance in the design and planning of the project. This "constructability exercise" - for which McNamara was paid separately just over $300,000 - lasted from January to April 1997 and was intended to ensure that the construction methods decided upon were feasible given the equipment intended to be used, and that the project was designed and built in the most effective manner, both as to time and as to cost.

[33]On February 14 and 19, 1997, McNamara and Bantrel exchanged correspondence confirming the award of the construction subcontract, with a formal contract to follow. The formal subcontract was not executed until July.

[34]Under the contract, McNamara agreed to provide the necessary equipment for its work on the project for a lump sum figure of $11,267,775. Additionally, the cost of labour and permanent materials such as. concrete was to be fully reimbursable. Further, McNa-mara would receive a fixed fee of $2,950,000. The owner would supply certain permanent materials such as the pipe piles and steel girders.

[35]There were three formal amendments to the contract. Amendment No. 1 covered an additional $150,000 for the supply and use of a 22 inch rotary drill. Amendment No. 2, (the "Argosy agreement"), provided for an

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extra $600,000 for an additional pile-driving barge following the enroute foundering of the Buzzard, the primary pile-driving barge. More of this later - there are disputes over the interpretation of the Argosy agreement and the application of a $50,000 per week deduction for the late arrival of the Argosy. Amendment No. 3 - the "Cap agreement" -was a renegotiation of the labour portion of the subcontract. It provided for a risk/reward sharing of the labour cost within certain parameters.

[36]In December 1997, with the project essentially complete, Bantrel terminated the subcontract, asserting its right to do so under the provisions of the contract. McNamara says that the termination was wrongful and was intended to provide support for Bantrel's earlier decision to suspend payment of McNamara's progress invoices.

Facts

[37]I will set out the facts here, by subject matter and in general chronological order. Again to promote ease of following these reasons, considerable detail will be omitted, to be provided where relevant and when discussing particular legal issues or aspects of the claim.

(i)Request for Proposal ("RFP")

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"You are invited to submit a Proposal for construction of a Jetty and Tug Basin for the above referenced project, in accordance with the attached documents listed below:

1.Instructions to Bidders, dated: November 7, 1996

2.Proposal Letter (format and text)

3.Subcontract Form of Agreement)

4.Exhibit 'A', General Conditions, dated:)

5.Exhibit 'B', Special Conditions, dated:) To follow

6.Exhibit 'C, Quantities, Pricing and Data, dated: November 7, 1996

7.Exhibit 'D', Scope of Work, Drawings and Data, dated: November 7, 1996

"The purpose of this RFP is to form the basis for negotiating an Alliance arrangement for the construction of the Jetty and Tug Basin. There is no commitment that negotiations will proceed with any of the bidders and the OWNER reserves the right to retender this work at a later date.

"The project is limited to the base case, consisting of a rock causeway, tug dock, trestle and a single berth. No allowances are to be made for the installation of the second berth."

[41]The Instructions to Bidders, in part: "3. ALTERNATIVES

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"4. EXAMINATION OF SUBCONTRACT DOCUMENTS AND EXPLANATION TO BIDDERS

Any BIDDER planning to submit a Proposal is responsible for examining with appropriate care the complete Subcontract Documents and all addenda, and is also responsible for informing itself with respect to all conditions which might in any way affect the cost or the performance of any Work. Failure to do so will be at the sole risk of BIDDER, and no relief can be given for errors or omissions by BIDDER.

"5. RISK EVALUATION

Because the work will be performed on a "Risk/Reward" basis it is very important to reduce the areas of risk. Therefore, please define:

a. the project's primary areas of risk.

b. how your proposed method of execution will negate these risks.

"6. JOBSITE INSPECTION AND CONDITIONS

In addition to examination of the Subcontract Documents, BIDDER shall make whatever other arrangements are necessary to become fully informed regarding all existing and expected conditions and matters which might in any way affect the cost or the performance of the Work. Arrangements may be made for visiting the project area by contacting BANTREL. Any failure to fully investigate the Jobsite or the foregoing conditions shall not relieve BIDDER from responsibility for estimating properly the difficulty or cost of successfully performing any Work.

"13. FINALIZATION OF ALLIANCE

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After consideration of price and other factors, the subcontract will be negotiated with a BIDDER or BIDDERS whose Proposal is determined to be reasonable and in the best interests of OWNER and BANTREL to accept. The lowest priced Proposal will not be the only criteria for selection.

"15. WAREHOUSE, LAYDOWN AND WORK AREA

An adequate laydown and work area will be provided by BANTREL within the jobsite. The successful BIDDER will be required to supply its own warehouse facility.

"16. EXECUTION PLAN

The bidders are to provide an Execution Plan for the Work which should address the following topics

a)Work operations

b)Equipment supporting each operation

c)Sequencing of operations

d)Milestone schedule

e)Cost control and forecasting

f)Temporary facilities

g)Safety and loss control

h)Labor relations strategy

"17. DRAWINGS AND BID DATA

BIDDER is made aware that the drawings are in a preliminary state and that there will be changes as the design progresses. BIDDER is to take this into account in preparing the proposal and assure that all

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equipment necessary to complete the works is covered in the pricing for Part A "Firm Price Units", (sic), (my emphasis)

[42]A response was requested by November 22.

[43]The subcontract form of agreement - a two page document - and the Special Conditions were sent to the potential bidders on November 16, while the General Conditions were forwarded on November 19.

[44]Exhibit "C", Quantities, Pricing and Data, accompanied the November 8 request. It consisted, in part, of Form A - Schedule of Quantities and Prices - which referred to a lump sum price for "all construction equipment", and contained provisions for progress payments, hold back and invoice submission. Form A -1 entitled "Firm Unit Prices" set out a format for breaking out the lump sum price for equipment and referred also to small tools and consumables at an hourly rate, labour at an hourly rate and various allowances and overheads. Form A-2 -Schedule of Approximate Quantities and Budget Unit Prices - contained a detailed listing of estimated quantities of various materials, including piles, steel, rock and concrete; there were blank columns for unit prices and for the total amount.

[45]The work schedule accompanying the RFP was in summary form showing, among other things, mobilization of equipment starting in March 1997 and work going over two construction seasons to completion in August 1998.

[46]Exhibit "D" - Scope of Work, Drawings and Data - also accompanied the RFP. I set it out in full:

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Mobilization and demobilization costs are to include all off site costs and temporary on site equipment necessary to install and remove the construction equipment. Costs for on site labor will be recovered separately. All equipment supplied will be removed from the site at the completion of the project.

The schedule for installation of the Jetty is provided as a guide only. The lump sum prices quoted is (sic) for the duration of the project. No adjustments will be made for schedule changes, (my emphasis)

"1.1.1 PILE DRIVING EQUIPMENT AND SUPPORTING BARGE/PLATFORM

This lump sum price is to cover the barge, crane, leads, drill, hammer and associated equipment necessary to complete the installation of the piles and socketing installation as shown on the attached drawings. The equipment shall be of sufficient size and capacity to ensure the work can be completed in the scheduled time frame as a maximum.

The bore hole results indicate that boulders may be encountered during pile driving. CONTRACTOR is to supply a drilling system capable of drilling out large boulders during the pile driving operation.

A detail listing of the equipment and current location and availability of this equipment is to be provided. State number of days from notice to proceed until mobilization complete.

"1.1.2 OTHER MARINE EQUIPMENT

This lump sum price is to include all other floating construction equipment necessary to complete the installation of the piles, pile caps,

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deck, trestles, causeway and associated permanent equipment for the complete Jetty structure as shown on drawings and data provided.

The BIDDER is to provide a separate listing of this equipment showing the break down of this lump sum amount for each of the items shown.

"1.1.3 CONCRETE BATCHING AND DELIVERY EQUIPMENT

All on site equipment required for the provision of concrete to the Jetty and Tug Basin is to be supplied and maintained by the CONTRACTOR under this pricing.

Raw materials for the concrete and on site labour costs will be recovered separately.

All offsite overhead cost for administration and concrete mix design is to be included.

"1.1.4 ALL OTHER CONSTRUCTION EQUIPMENT

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Work that has a replacement cost of less than $1,500.00. All equipment necessary for the completion of the works valued in excess of this amount is to be included in Items 1.1.1 and 1.1.2.

Consumables are defined as any materials that are not incorporated into the project's permanent works.

Cost of Small Tools and Consumables are to be recovered under this unit rate for each on site craft hour worked, including the on site concrete supply operation.

Craft hours will include all trade labor up to and including the foreman level.

"1.2 LABOR RATES - GENERAL

No overhead or profit is to be included in these hourly rates.

"1.2.1 CRAFT LABOR

All rates quoted are to be firm for the duration of the project. If any element of these rates are not firm, they must be so noted and a description provided as to what may cause a change to the rates stated.

Rates are to be provided for all anticipated trade positions up to and including the General Foreman (if applicable) level. State hours of work per week available at this rate.

Cost allowance for Safety and Health program is to include any normal incentive programs and other materials for administering an onsite program. Cost for full time Safety Coordinator would be recovered for under 1.2.2 or 1.2.3.

Overtime rates are to be provided for any hours at 1.5X or 2.0X (if applicable).

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"1.2.2 STAFF LABOR

Base rates are to be stated on an hourly basis, with monthly salaries converted to an hourly rate assuming 2080 hours/year. Any bonuses or special benefits are not to be included in the base salary rate.

All inclusive mark up is to include holiday, vacation, payroll, benefit costs, etc.

"1.2.3 CONTRACT LABOR

Contract employees base rate will include allowances for statutory holidays, vacations and all benefits.

No mark up will be applicable to contract employee wages.

"1.2.4 TRAVEL AND LIVING. ALLOWANCE - CRAFT

Costs are per day worked unless otherwise noted. Applicable free zone is to be defined.

"1.2.5 TRAVEL AND LIVING ALLOWANCE - STAFF

CONTRACTOR is to advise what is their stated policy as to reimbursement of travel and living expenses and an assessment of the number of positions that will receive this allowance.

"1.3 OVERHEAD - GENERAL

Overhead will cover all non site costs associated with the administration of this work. This will include any head office employee wages, benefits and travel costs who are not permanently assigned to the project site.

Any project financing cost would be recovered under this cost element.

No overhead fee will be applicable to costs defined under Item 1.1.

"1.3.1 OVERHEAD - LABOR

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The percentage overhead fee will be applied to all costs outlined in Items 1.2.

"1.3.2 OVERHEAD - PERMANENT MATERIALS, SUBCONTRACTS

All permanent materials and subcontracts (if any) would be invoiced at cost. The percentage overhead fee will apply to all of these costs. No overhead will be applicable on free issued material.

A listing of anticipated subcontracts is to be attached.

"1.4 NORMAL ANTICIPATED PROFIT

The bidders are to indicate what percentage profit they would normally anticipate under an Alliance relationship as a reasonable profit. This percentage fee would be applicable to all costs defined under Items 1.1, 1.2 and 1.3.

"2.0 PART B - BUDGET UNIT PRICES "2.1 GENERAL

All budget pricing is to include all CONTRACTOR supplied materials, equipment, labor (direct and indirect), expenses, subcontracts, overhead, contingencies and profit to complete the Work in the required schedule. Ail items quoted in Part A are to be included.

Should the bidder feel that any of the units are inappropriate or insufficient to price the Work, additional units with descriptions and quantities are to be provided.

GST and RST taxes are to be excluded from the budget prices.

"2.1.1 PILING

Piling will be supplied to CONTRACTOR free issue. For the purposes of this budget price assume the piles will be supplied full length, complete with shear rings, driving shoes etc. and painted, FOB CONTRACTOR barge in Placentia Bay.

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The quantities provided for reinforcing steel are based on percentage of steel reinforcement to gross concrete volume and are based on historic information for this type of construction.

"2.1.3 CONCRETE

All concrete items are to include falsework, formwork, concrete material, delivery and finishing. Embedded steel and reinforcing steel are covered under other items. Concrete is to be assumed to have a 28 day strength of 35 MPa. CI exposure in accordance with CSA A23.1. All aggregate should be assumed to be imported, crushed and screened from an approved local area pit.

Flyash, water reducers or super plasticisers can be used in the mix design. Because of the marine exposure and the climate conditions the mix design should include a 7% replacement of cement with silica fume.

"2.1.4 STRUCTURAL STEEL

The CONTRACTOR will be required to install the structural steel for the trestles. For the purposes of this budget price assume the structural steel will be supplied painted FOB CONTRACTOR barge in Placentia Bay. Touch up paint and painting of any connection would be required of the CONTRACTOR.

"2.1.5 MISCELLANEOUS STEEL

For the purpose of this budget price, miscellaneous steel is to be supplied and installed by the CONTRACTOR.

The guard rails on the trestle are detailed on the drawings.

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Handrails should be assumed to be industrial standard pipe handrails.

Chain ladders are required at each of the dolphins as an alternative access route.

Embedded steel would be anchor bolts for structural steel, embedded plates equipment or embedded angles or 1/4 pipe for corner protection.

"2.1.6 INSTALLATION OF EQUIPMENT

For the purpose of the estimate assume that equipment, such as fendering, and mooring hooks, would be FOB truck at the jobsite.

Assume that these are package units and that all the anchor bolts are supplied by the manufacturer. The CONTRACTOR would be required to template the anchor bolts and install the bolts during the concrete casting and then install the equipment.

"2.1.7 CAUSEWAY & TUG BASIN

Seabed preparation for concrete caissons to include removal of loose surficial material and placement and levelling of rock mattress. In addition, some seabed removal of the tug basin area will be required to achieve a depth of -7m, as indicated on the drawings. Disposal to be assumed to be incorporated into landfill operations for the tug dock.

Concrete caissons can be preconstructed on location or at another site if assumed cost efficient. Concrete strength will be 35 Mpa, with a steel percentage of 120 kg/m3.

Causeway base material will be delivered and stockpiled on the shore by the site preparation contractor. CONTRACTOR will use these materials for causeway base construction and backfilling of the caissons.

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Asphalt surfacing of the causeway is assumed to be 75 mm thick over 200 mm class A and 200 mm class B road gravel."

[47]Also accompanying the RFP were 13 drawings and draft borehole logs and penetration test logs from the offshore geotechnical survey work already completed

3.0DRAWING AND DATA LIST DRAWINGS

[48]The drawings all contained the following block - "THIS IS A PRELIMINARY DESIGN CONCEPT DRAWING THAT GIVES THE GENERAL SCOPE OF WORK".

[49]The general arrangement of the jetty shows the second loading platform and berth for Phase II; the piling layout and detail shows 10 approach trestle bents with two piles at each bent, other than trestle bents 4 and 7, having four each. Six of the trestle bent piles are shown as requiring anchors and the pile table (drawing 10-Q-0003) shows "typical pile detail" and "tension anchor detail". The structural section plans show, generally,

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cast in place concrete caps on the piles with a concrete deck on top of the trestle girders.

[50]Twenty-four piles are shown for the trestle (excluding the trestle abutment - the first foundation portion of the trestle adjacent to the shore), with 35 piles for the loading platform, 44 for the mooring dolphins, 64 for the breasting dolphins and two for the catwalks. Fifty-two of the dolphin piles are shown as tension piles requiring anchors, for a total of 58 piles requiring anchors.

[51]Drawing 10-Q-0006 set out the sections of the causeway and tug basin. It depicts an 8 m wide caisson on a gravel mattress and, from the si de of the caisson to the seabed, on a 2:1 slope, a layer of armour stone and filter rock described as "armour stone 3 to 6 tonne complete with 1 -2 m thick 300 kg to 600 kg filter layer (Typ)". The caissons are shown as 30 m x 8 m x 9 m.

[52]On November 14, 1996, Bantrel sent out Addendum No. 1 setting out the primary design loading conditions for the loading platform, berthing dolphins and mooring dolphins and giving the pile specifications and loads upon which the pile design was based.

(ii) McNamara's response to the RFP

[53]McNamara provided its response on November 22, 1996. At the time, McNamara intended to use Pitts as a subcontractor to supply the marine equipment. Its covering letter

"We hereby submit our Proposal for the Construction of the Jetty and Tub Basin for the above referenced Project. Included are Pages 2 - 6 of Exhibit "C" - Construction Sub-contract-Quantities, Pricing and Data; also, we are including Exceptions and Deviations as requested in Addendum No. 2.

"The pricing has been carried out to conform with the Base Case Schedule as shown with Project Completion August 14, 1998.

"It should be pointed out, with notification to commence a partial mobilization of marine plant prior to December 15, 1996, we will

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overcome delays due to ice conditions in the Gulf of St. Lawrence, accordingly, we can complete the Contract by the end of November 1997. We estimate that this would result in a savings of $1.500M (One Million Five Hundred Thousand Dollars).

"We consider the mid-winter/early spring mobilization of Floating Plant from Mainland Canada to Newfoundland is not feasible due to possible ice conditions artd Marine Insurance restrictions.

"Our Proposal calls for the manufacture of Concrete Caissons for the Tug Basin at Argentia and towing them to the site at Whiffen Head. We will provide a Concrete Batch Plant at Argentia, however, will procure Ready-Mix Concrete at the site from a supplier some 20 miles away at Northwest Brook.

"We have carried out negotiations with the various Unions. The Carpenters and Labourers have stated they are prepared to give us a 50 hour work week with time and half for overtime. The Operating Engineers have stated that they want assurance that the Site Development will be carried out under Union Agreement, before they will commit to the same conditions.

"In our Budgeting Price we have included for 50 hour work week for the Carpenters and Labourers. The Operating Engineers have been priced at 40 hours per week with double time (overtime). However, based on

5.0hour work week and time and half overtime for the Operating Engineers, we estimate a further savings of $300,000.00,

"All of the Construction Plant; Marine Plant and Land Based Equipment is owned by McNamara and its sub-contractors and available immediately. Complete Project Management and Construction Supervision are available in-house for this Project.

"The remainder of the Exhibits and Forms will be submitted on Friday, November 29, 1996."

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"In response to the Request for Proposal Documents ("RFP") dated November 7, 1996, and in accordance with the accompanying INSTRUCTIONS TO BIDDERS, the undersigned hereby proposes to furnish all plant, labor, technical and professional services, supervision, materials and equipment (other than materials and equipment specified as furnished by others) and to perform all operations necessary and required to construct the Jetty and Tug Basin for the Newfoundland Transshipment Terminal Project near Whiffen Head, Placentia Bay, Newfoundland, in accordance with provisions of the Subcontract Documents and any addenda thereto, and at the prices stated opposite the respective items set forth in the Schedule of Quantities and Prices attached hereto.

"The undersigned agrees that this Proposal constitutes a firm offer to BANTREL which cannot be withdrawn for ninety (90) calendar days from and after the due date or until a subcontract for the Work is executed by the undersigned and BANTREL, whichever is earlier.

"The undersigned certifies that it has examined and is fully familiar with all of the provisions of the Request for Proposal Documents and any addenda thereto; that it has carefully checked all of the words and figures shown in its Schedule of Quantities and Prices; that it has carefully reviewed the accuracy of all statements in this Proposal and attachments hereto; and that it has by careful examination of the Request for Proposal Documents and any addenda thereto and by examination of the actual Jobsite conditions, satisfied itself as to the nature and location of all Work, the general and local conditions to be encountered in the performance of any work, the requirements of the subcontract and all other matters which can in any way affect the Work or the cost thereof. The undersigned hereby agrees neither BANTREL nor OWNER shall be responsible for any errors or omissions on the part of the undersigned in preparing this Proposal.

"The undersigned hereby acknowledges that any subcontract resulting from this Proposal will represent the entire agreement and that any exceptions taken in this Proposal, if not expressly included in the subcontract, will be considered resolved and void and that all exceptions have been listed on the attached Exhibit "C" Form titled

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[55]Exhibit "C" - Form A Firm Unit Prices provided a lump sum price of $9,296,000 for all construction equipment. It concluded -"all lump sum and unit prices are fixed for the duration of the subcontract and are not subject to escalation for any cause".

[56]As required, McNamara also submitted Form A-2 - Schedule of Approximate Quantities and Budget Unit Prices.

[57]Form A-2 apparently was intended to provide an estimate of the materials to be supplied by the subcontractor and for which it was to be reimbursed by Bantrel. All parties agree that Form A-2 played no role in the subsequent negotiations and contract formation. In fact, some of the material listed, such as pipe piles and structural steel (girders) was in the end supplied by the owner.

[58]In its formal response, McNamara listed four subcontractors: P. Sullivan and Sons Ltd. for the drilling and socketing of piles, Deer Lake Rebar for supply and placement of reinforcing steel, Fortis Concrete for concrete supply, and Pitts for the supply of the marine plant for pile driving and steel erection.

[59]On Form K, McNamara indicated its job site requirements as follows:

1.Office .5 ha. Includes Office Parking

2.Fabrication area .5 ha. Templates Fab. & Storage

3.Lay down area 1 ha. Form work - Rebar, Mobile Equipment Parking

[60]McNamara noted the following exceptions and deviations:

"1. Proposal price assumes that underwater excavation of solid rock will not be required in tug dock basin base preparation.

"2. The information on the drawings makes us uncertain as to the grade of reinforcing steel that is required. Our proposal price is based on grade 400. If Bantrel decides that 400W is required, price must be

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[61]McNamara provided two work schedules, a "Base Case" schedule providing for construction over two seasons to August 1998, and an "Alternative" schedule with equipment mobilization in December 1996 and work over only one construction season finishing in 1997.

[62]McNamara also confirmed that its Proposal was "firm for a period of 90 days". It went on, as requested, to provide suggestions for alternatives in construction. Its comments:

"3. ALTERNATIVES

a)We have studied some Alternative Designs for the Jetty, and have come to the conclusion that the design put forward by Bantrel represents the best solution. One Alternative Design we have investigated is the use of concrete caissons for the Main Jetty Structure. However, due to the depth of water and the geotechnical condition of the rock, it would be necessary to have the caissons anchored into a firm rock foundation. This design is not attractive, either from a Technical or Economic assessment. Therefore, we are not submitting an Alternative Proposal for the Jetty.

b)We believe that the design and construction of adequate pile templates along the lines that we propose will serve to reduce on site work hours and improve the overall schedule.

We would suggest that consideration be given to the use of the pre - cast concrete slabs on the Approach Trestle Roadway. This solution would reduce the on-site work hours and speed up access to the loading platform.

Construction of Concrete Caissons will be carried out off- site to enable early manufacture and early completion of the Tug Boat Basin.

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i) General Risk:

Falling into this category, we would see the following items as being typical of what could conceivably happen to any contractor on a project of this nature:

. Labour disruption

. Quality problems

. Accidents to people or equipment

. Equipment failure

ii) Physical Risk

Risks in this category mainly relate to items that have the potential to delay the completion of the project, or cause it to be physically damaged. These are as follows:

. The advancing of the piles from driving refusal to bedrock

. The socketing of tension piles

. The competence of the bedrock to accept the tensile loads required by the design

. Weather-related delays to the piling operation

. Wave damage to the causeway and tug berth areas

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. Instability in some of the trestle bents prior to the placement of the connecting girders.

5b2. Physical Risk Abatement

Our proposed method of execution will reduce the risks defined in the foregoing paragraph. We have had the experience of successfully completing a larger Jetty at nearby Come-by- Chance, and our assessment of the risks associated with this project is based on the Come-by-Chance experience, as well as on the lessons learned on other large marine projects. Specifically, our method of execution deals with each of the risk areas as follows

The advancing of the piles from driving refusal to bedrock: The risk here is one of delay, which can be mitigated by the selection of adequate internal drilling equipment as well as the availability of a second offshore floating setup that would be dedicated to the drilling and socketing operation. An adequate template system, which will be dealt with later in this section, is also a necessity in minimizing delays in this area.

The socketing of tension piles, especially batters, has been identified because of our concerns about the bedrock, which is described in several borehole logs as being "severely fractured" or "fractured", and shows worrisome NQ results. We consider it likely that the drilled anchor holes will become obstructed by rock falling in from the perimeter of the holes, again resulting in delays. We will be using a casing which will be withdrawn during group placement as a remedy for this problem.

The competence of the bedrock to accept the required uplift stresses is a possible area of risk that must be addressed based on the present design. Alternative designs can be looked at for anchorage of tension piles during the review process.

Weather-related delays to the piling operation can be significant, as the worst wave conditions occur during fine weather (west to southwest winds). We propose to minimize these delays by utilizing floating plant

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that we have proven to be adequate at Come-by-Chance, and by using a system of pile templates that also proved successful on the same project. These templates were designed and specified for use by the owner on that project as a result of bad experience with contractor- designed templates on the Jetty at Point Tupper in Nova Scotia, as well as an appreciation of the rough conditions that were likely in Placentia Bay. We propose to use a similar system on this project, and expect that it will contribute to substantial savings in time on both the pile driving and drilling operations.

Wave damage to causeway and tug berth areas: The protection to this area should be increased, both in terms of armour stone size and the height of the causeway crest.

Instability of trestle bents prior to girder placement: We are concerned that wave induced movement could occur in these single-place bents prior to the placement of the girders. This can be prevented by having the girders available for installation before the template is removed, or by leaving falsework in place until girders are available. The second alternative will be more expensive."

[64]Finally, as part of its proposal, McNamara included its "execution plan", a lengthy commentary detailing its plan for the various aspects of construction.

(iii) Following the response to the RFP

[65]Negotiations followed between Bantrel, NTL and McNamara. NTL, through its representative Giovanni ("John") Santarsiere, insisted that McNamara form a joint venture with Pitts and Ballast Nedam, and that the joint venture utilize the Ballast Nedam drilling barge the "Buzzard" instead of the Pitts "Argosy". The Buzzard was a jackup barge which used a different pile-holding mechanism than the Argosy. Apparently NTL had seen and was impressed with the Buzzard and thought that it was more suitable than the Argosy for use in Newfoundland waters; the Buzzard could stay on station longer in worse sea conditions than the Argosy, a "spudded" barge which rests on the water with its legs "spudded", or resting, on the bottom.

[66]On December 18, 1996, McNamara wrote to Bantrel:

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"It is our intent to complete the "Jetty" by the end of 1997, however, we wish to point out that we have assumed sufficient piles will be delivered to Whiffen Head by mid-May, 1997.

"The following are risks which we are prepared to take based on the Lump Sum Figures included

1.Acceptance of the Risk of Additional Rental Costs if the Project should extend beyond 1997 for reasons other than scope change.

2.We will assume the Risk of extra drilling to clean out additional piles to bedrock.

3.We will assume the Risk of drilling sockets deeper into bedrock if required.

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"It should be noted this decision is required no later than Friday, December 20, 1996."

[67]A revised Form A-l was included, providing a recalculated lump sum price of $11,912,775, and a fixed fee - lump sum - of $2,950,000.

[68]The requested net price increase was thus $2,616,775, all under category "1.1.1 -Pile Drilling Equipment and Barge".

[69]On the same day, December 18, Maurice Otto of Ballast Nedam had provided to the joint venture a quote to supply the Buzzard - exclusive of crew labour - for a total of $2,928,100. McNamara had thus allowed a credit of only $311,325 for the deletion of the Argosy.

[70]Bantrel was not particularly impressed with the revised price. It replied to McNamara, also on December 18:

"We acknowledge receipt of your revised quotation of December 18, 1996. However, we do not understand the basis for such a large increase in pricing with the reduced schedule.

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"We have reviewed your concerns and make the following revisions to our Proposal

Item 1.1.1 Pile Driving Equipment & Support Barge/Platform

We offer a Lump Sum Savings of $645,000.00.

There is also the question of eliminating the Second Crane Barge "William Dillv". If Client is prepared to accept the risk of additional rentals beyond 1997, extra drilling to clear out piles to bedrock and drilling deeper sockets, we are prepared to take out the second Crane Barge. The savings for these risks, which were included in our submission of yesterday, is $1.202.000.00.

We hope these revisions are helpful in achieving an acceptable resolution."

[72]Thus McNamara's revised lump sum equipment price proposal now stood at $11,267,775.

[73]On January 8, 1997 Bantrel sought further information, including:

1.Provide Form A-l Item breakdown of $1,202,000 additional price reduction for Alliance to assume schedule risk. Also provide standby and operating rates for schedule extension into 1998.

3.Provide demobilization costs (in addition to the mobilization cost already provided) for equipment required to be mobilized prior to subcontract award date of March 1/97 in order to protect schedule. Also, confirm these costs are an advance against the total lump sum equipment cost.

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submit the following

1.Breakdown Item Form A-l - $1,202,000 additional price reduction for Alliance to assume schedule Risk:

This risk is associated with the elimination of a Second Spudded Crane Barge "William Dilly" and the rental of the Second Pile Hammer as follows:

Spudded Crane Barge - "William Dillv"

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Item 1.

a)Form A-l Breakdown of $1,202,000 additional price reduction for

Alliance to assume schedule risk: This information has been provided by letter on January 9, 1996.

b)Operating and Standby Rates for schedule extension beyond 1997: See Attached.

"Item III. Demobilization Costs for Equipment required prior to subcontract award dated of March 1, 1997 are as follows

"We confirm that these costs are an advance against the Total Lump Sum Equipment Cost.

Item V. Lump Sum Equipment Costs for Second Berth, Terra Nova Project as follows:

"It should be noted that we have assumed the Second Berth to be similar design to the initial Berth. We would require notice to proceed

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with the Second Berth two months prior to completion of the initial Berth to protect the availability of the Marine Plant."

[76]At this point, McNamara had proposed a lump sum price for equipment of $11,267,775, including the Buzzard. Discussions were ongoing about the schedule-related risk costs.

[77]However, before continuing with the discussion of the negotiations, it is appropriate to digress to an issue which arose in January concerning the cost of consumables, pile templates (specifically designed steel structures fabricated to properly hold and guide piles while being driven) and falsework and formwork (essentially specially designed framework for the placing and casting of concrete).

(iv) Consumables. Templates. Formwork and Falsework

[78]Ed Beresford, an engineer designated by McNamara to be the Project Manager, wrote an internal memorandum to Neville on January 17, 1997. This memo followed Beresford's discussion with Landis Krause, Bantrel's Construction Manager. Bantrel had identified a discrepancy in the amount shown on the competing bids for small tools and consumables. The McNamara bid showed $1.00 per labour hour, while the other bidder showed, according to Krause, a "drastically higher" figure; however, McNamara's figures for "All other equipment" was $1.2 million higher than that of its competitor. Bantrel sought clarification of the bids, pointing out that it did not consider templates, falsework and formwork as reimbursable "permanent material". Bantrel wanted confirmation that these items had been included in the bid, since they were apparently not included in the $1.00 per hour consumable price.

[79]Bantrel's own bid tabulation sheet showed, based on 200,000 manhours:

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Item No.

Description

McNamara

Foundation- Pennecon

McNamara has priced (Nov. 22) Item 1.1.6 Small Tools and Consumables $1.00/hour.

Estimated Labour Overhead $2,660,000 and Direct $3,736,000. Using $30.00 to cover for basic plus burdens and overtime. 213,000 manhours.

This would equate to $213,000 which, obviously, does not include construction material, but only those consumables that are not directly involved in constructing the permanent work.

McNamara has included for Items (e) above and the small tools with value less than $1,500.00 replacement.

2.Bantrel, in their budget projection, would have to use those budget prices submitted in Form A-2, since it is an all inclusive price for the project. Therefore, Bantrel are not out any money as a result of this discrepancy.

McNamara considers the equipment Lump Sum price in Form A-l to be only that, equipment. A review of the Scope of the Work - Section 1.0, Part A, Exhibit D refers only to equipment and does not make any reference that these items should include anything but equipment rent, maintenance (exclusive of site labour) and all operating cost. There is no reference that Templates or Formwork, etc., should be included.

3.Landis Krause, I believe, has stated that, in comparison to other bid prices, McNamara was low on 1.1.6 small tools and consumables, but high on 1.1.4 - all other construction equipment. McNamara has approximately 55% of the equipment in this item. Landis has stated, the approximate sum of item 1.1.4 and an extension of 1.1.6 was equivalent to other contractors' bids.

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Divided by 213,000 manhours $11.21/man-hour

5.New Developments: Loading Platform -Engineering are rethinking to use Pile Caps with concrete girders and precast slabs with a poured in place top. This could reduce formwork and falsework substantially.

6.Landis Krause believes (I think) that all materials, other than permanent, would be included in Item 1.1.6 and we would receive only $213,000 as per Item (1) above. Our exposure could be $1.5 to $2.0 M. We may have to go to Landis and say, simply, it is not included - period.

Other than that to minimize, we could at the expense of productivity build only half the templates, encourage more changes in Engineering as per (5) above, build slip-form boxes on site. Construct Templates on Site and anything else. Get the best out of the Overhead items, (my emphasis)"

[81]Beresford testified that in writing the memo he was advising Neville that "things were changing" and that "if we accept the contract, our exposure could be reduced from what's shown".

[82]Thus on January 20, Neville wrote to Bantrel:

"Referring to the above referenced Project, recent meetings and discussions.

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There appears to be some confusion with regards to the items of Pile Templates, Support Piles, Falsework and Formwork. It is our interpretation and certainly our intent, that these items would be reimbursed if the project proceeded under the Form A-l arrangement.

These items were included in the costs for the various unit prices for piling and concrete under Form A-2 Unit Prices and Estimated for the Project. Accordingly, under Form A-l we estimate the following costs for these items of work.

A. Pile Templates and Support Piles (Manufactured off-site)

Alternative 1

Including Pile Templates for All 8 Dolphins $630,000.00

Alternative 2

Including Pile Templates for 4 Dolphins (and reusing) 315,000.00

We also point out that the Pile Templates can be incorporated into the Permanent Works, as was the case at Point Tupper -Nova Scotia and Nigg Bay - Scotland.

B. Concrete Falsework and Formwork

a)Dolphins and Trestle $304,000.00

b)Loading Platform 400,000.00

It is our understanding that Engineering is re-thinking the "Loading Platform" by way of using Concrete Girders, Precast Slabs and Poured in Place Deck. This will then reduce the costs of these items.

In summary, we estimate the following minimum expenditures based upon the information outlined above.

1.Pile Templates

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3.Loading Platform Formwork Based on Pile Caps, Girders, Precast Slabs/Poured Deck 150,000.00 Total Expenditure $769,000.00

In Form A-l, Items 1.1.1 to 1.1.4 - McNamara included costs for Equipment only, (Rentals, Fuel & Maintenance) for all Marine and Land Based Operations (Tug Basin). Item 1.1.6 Small Tools and Consumables - included for Equipment and Small Tools with a value of less than $1,500.00

We are prepared to further discuss these items to cleanup any misunderstanding."

[83]Bantrel was not prepared to offer anything further. It replied to Neville on January 21:

"Reference your Fax dated January 20, 1996, and discussions with Ed Beresford and Maurice Otto, we propose the following

1.0 Items to be included in Firm Lump sum of $11,267,775.00

($11,912,775.00 per letter dated December 18, 1996 less $645,000.00 credit per letter dated December 19, 1996):

1.1All marine and onshore equipment, including mobilization and demobilization, per Form A-l, Items 1.1.1., .2, .3 and .4 of your letter dated. December 18, 1996.

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1.3All costs of Items 1.1 and 1.2 above associated with the risk of schedule extension beyond 1997, including the risk of extra drilling to clean out piles to bedrock and drilling deeper sockets. The credit option of $1,202,000.00 per your letter of December 19, 1996 will not be exercised.

2.0Small tools and consumables, labour and staff costs, subsistence, etc., per previous pricing.

Please confirm agreement or advise comments by return fax so we may proceed with finalizing commercial evaluation."

[84]As to the cost question, Beresford testified that, with the Buzzard "in the works" with its own gripper and template system, the need for prefabricated templates was not as great as before. Also, an increased use of pre-cast concrete - i.e., cast on land - would reduce the use of over-the- water formwork and templates. (The response to the RFP had been based on extensive use of cast-in-place concrete - an over-the-water operation.) In the course of his cross-examination, Beresford said that "we had bid eight templates into the works" and that "four could be sufficient, since the Buzzard didn't need any". He then retracted this, saying he "wasn't sure" if eight templates had been provided for. Neville explained that he understood Bantrel's position to be that "if you want this contract, you have to include the amount for templates, etc., in the lump sum". In cross-examination Neville said that McNamara could have declined to accept Bantrel's position but, wanting the contract, it chose otherwise. Neville's letter of acceptance was written on January 22:

"Further to your Fax of January 21, 1997 with remarks related to our Fax of January 20, 1997.

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We also wish to point out, this Agreement is based on no change in the Scope of Work as discussed at our Meeting and also no delays with the delivery of Piles to the Project."

[85]Notwithstanding this fully-informed written agreement, McNamara maintains that it was misled by Bantrel on this bid price issue - this will be discussed later.

[86]On February 6, Neville wrote to Martyn Palmer of Tarmac, McNamara's parent company, giving details of the project:

"In late 1996 Bantrel Inc. sent out an RFP for the Jetty and Tug Basin to three prospective contractors - McNamara Construction; Foundation- Pennecon-Beaver JV; Peter Kiewit. Ballast-Nedam were given Documents for information purposes only.

"The Initial Presentation (copy attached) Form "A" requested a Lump Sum Price for all equipment, both marine and landbased, to build the Project. Items were also included for various rates (%) to be applied to labour; materials (permanent); subcontracts which would be reimbursed on a cost basis. Normal anticipated Profit would be a percentage.

"In mid-December - early January we attended several meetings to discuss and review our Proposal. We initially engaged C.A. Pitts to supply and operate all marine plant including supervision.

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"Since that time we have had several Meetings with Bantrel Inc. and after some refining of the Design in consultation with McNamara; C.A. Pitts and Ballast-Nedam a revised submission was made on December 18, 1996 (copy attached). During the negotiations "Bantrel Inc." requested a Fixed Fee (Lump Sum) to cover Offsite Overhead and Profit. They also requested that we form a Joint Venture to ensure a tighter "close knot" Consortium. They preferred that the contract be awarded to McNamara Construction with the Joint Venture formed at the second level. This they wanted for local Political reasons.

"McNamara will be the J.V. Sponsor. We will receive 10% of the Fixed Fee as a Management Charge. The remainder of the Fixed Fee will be distributed on the following basis:

McNamara 40% C.A. Pitts 30% Ballast-Nedam 30%

The JV will be on a back to back basis with the Main Contract that is

awarded to McNamara. ...

The schedule start for the Jetty and Tug Basin is May 1997. The Marine Plant is located in Nova Scotia and Prince Edward Island (Fixed Link) and will be mobilized to the Site late April - early May.

There will also be an Alliance Partnership formed for the whole development to share on a risk-reward basis. The details of this have not been completed as yet, however, the rewards would be shared between the;

Client (Chevron-Mobil) 25% Bantrel Inc. 25% McNamara (JV) 25% Foundation-Pennecon-Beaver 25%

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A Target Price is being established by the Client and Bantrel. If the costs exceed the Target Price by 10% then the Contractors and Bantrel Profit will be at risk. Any amount less than the Target Price will be shared on the basis shown above.

There will be an Alliance Management Board established with equal membership from the 4 Groups listed above.

All project Permanent Materials will be supplied to the Contractor by the Client. All Labour (Staff and Craft) will be reimbursed at Cost including Burdens, Board and Travel Expenses. At the present time it is felt the Labour Content will be between C$5.0M - $6.0M. Construction Materials; i.e. Pile Templates, Falsework and Form Materials will be approximately C$1.200M.

Small Tools and Consumables (office expenses, communications, etc.) will be reimbursed at C$1.00/hour extra for Craft Labour.

A breakdown of the Equipment Rentals, including Mobilization- Demobilization is as follows:

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We have obtained a Lump Sum Fixed Price for all Equipment supplied by both C.A. Pitts and Ballast-Nedam for the entire project.

It is anticipated the Project can be completed in 1997. The Tug Basin for which most of the McNamara Equipment will be used, will be constructed in the first 4 months of the contract.

Funding will be approved and contracts awarded in early March."

[87]Neville said, and I accept, that the figure of $1,202,000 shown in the Equipment Rental breakdown for pile templates, etc., was an error. He mistakenly used an earlier figure representing the possible credit for deleting the barge William Dilly. The earlier documentation showed a range of $769,000 to $1.3 million for the cost of the templates.

[88]Before returning to the discussion of the negotiations leading to the contract, I note that on February 9, Bantrel wrote McNamara looking for, among other things, confirmation that the engineering design cost for the caisson slip forms and the templates was included in the lump sum price. This confirmation was given on February 10.

(v) Letter of Intent

[89]I return now to the general chronology. Following the preceding discussions and correspondence, Bantrel formally, but "conditionally" awarded the contract to McNamara by letter of February 14, 1997

"Bantrel Inc. hereby award Subcontract No. 642-10-YC-01 for construction of the Jetty and Tug Basin for the Newfoundland Transshipment to McNamara Construction Limited, hereinafter referred to as SUBCONTRACTOR. This award is subject to the following

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conditions being satisfied:

. The Project OWNER, NTL, approves funding for the Project.

. A Project Union Agreement is in place which is satisfactory to

OWNER.

. Acceptable SUBCONTRACTOR Parent Company Guarantee is received.

SUBCONTRACTOR also guarantees to furnish the Jack-up Barge "Buzzard" and other named equipment for the duration of the Work.

It is understood that while the subcontract is being awarded to McNamara Construction Limited, the actual work will be performed by a Joint Venture of McNamara Construction Company, Pitts International Inc. and Ballast Nedam Canada Ltd. It is further understood that the Joint Venture Agreement will be back-to-back to the Bantrel/McNamara subcontract and that parent company guarantees for the work will be furnished to McNamara by Pitts and Ballast Nedam.

SUBCONTRACTOR shall commence the Work approximately March 17, 1997 and target complete installation of all piles for no later than December 31, 1997. Prior to commencing Work on the jobsite, SUBCONTRACTOR shall furnish the required Insurance Certificate(s) and Workers' Compensation Commission letter of good standing.

Please confirm acceptance of this conditional award by signing and returning the attached copy of this letter. A formal subcontract will be issued for your signature upon satisfactory conclusion of the above conditions."

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2.Mobilization of Pile Driving and Drilling Equipment.

3.Mobilization work to be carried out on the following Equipment - Pitts Olympic Crane barge

- Pitts No. 2 Barge - Tug - Flo Cooper

- Flat Deck Barge No. 29 - Tug - Oshawa

4.In addition to the above, start of mobilization of Concrete Equipment for the Concrete Caissons, including the building and fabrication of the Slipforms for Caisson construction.

At the present time it is estimated that this cost could be approximately $500,000.00. All these activities must be proceeded with immediately to ensure the equipment will be on site at the scheduled dates.

Ballast Nedam have suggested that the wording "Subcontractor has committed the Jack-up Barge "Buzzard" and other named equipment for the duration of the work" rather than guarantee as should the Buzzard become a "total loss" during "towing" it would not be possible to "Guarantee" furnishing of the Vessel.

If, for whatever reason the project is cancelled, then we would expect to be reimbursed for the mobilization costs incurred prior to March 17, 1997."

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(vi) Consultancy Contract/Constructability Exercise

[91]On January 13, 1997, well before agreeing to the subcontract, McNamara and Bantrel entered into a separate "Agreement for Consulting Services". The "Scope of Services" was described as:

"Consultant shall provide assistance to Bantrel by performing consulting services relating to the Newfoundland Transshipment Project Marine Works as assigned by Bantrel. Services shall specifically cover constructability advice in both design and the scheduling of project activities."

[92]Bill Maddock testified about the consultancy work. Maddock is a design engineer employed by Sandwell Engineering of Vancouver. His work experience is primarily in marine engineering, including the design and construction of offshore and shoreline structures. Bantrel recognized that, although it had significant onshore construction experience, it lacked expertise in the field of marine design and construction. Accordingly, it sought SandwelPs assistance in developing the design for the project, in evaluating the bids and in working with the selected contractor. Maddock moved to St. John's in September 1996 and remained until December 1997.

[93]He explained that in September 1996 he "started from first base" setting up a project team. At the time, the owner had only undertaken very early conceptual studies and had selected Placentia Bay as the general site for the facility.

[94]Maddock was the leader of the engineering team and responsible for the marine component of the facility. He supervised the engineering and technical staff; there were a number of specialist engineers working on the detailed engineering right through the project, from September 1996 to December 1997.

[95]With respect to the constructability exercise, Maddock explained that it was always the intention of the owner, once the marine contractor was selected, to establish a process that, by facilitating design input from the contractor who would actually be doing the work, would develop a design that would be consistent with the capabilities of the available equipment. Maddock himself had not previously been involved in an exercise of this

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nature "to this level of detail". He described the resulting high level of coordination between design engineers, contractor and owner as "unusual".

[96]The constructability exercise was initially estimated to last from January 15, 1997 to March 15, at a cost of $30,000. However McNamara provided assistance into April, at a total cost to Bantrel of over $300,000. This amount was billed and paid separately from the construction subcontract.

[97]McNamara provided the services of Ed Beresford of McNamara, Gerald Moore of Pitts, and Rene Kolkman and Wilheim Vilderbeek of Ballast- Nedam. Moore had extensive experience in marine construction, particularly dredging and wharf and caisson construction; Kolkman, a mechanical engineer, had worked world-wide on heavy marine construction projects including, quite recently, acting as Marine Works Manager on the $965 million Confederation Bridge project linking Prince Edward Island and New Brunswick. Vilderbeek was also a Ballast-Nedam engineer specializing in heavy marine construction and related design.

[98]Keith Smith, McNamara's own project engineer, also joined the group as of March 9, working at the Bantrel offices until he moved to the job site in May.

[99]During this period the joint venture engineers worked predominantly at the Bantrel offices,in St. John's, in close collaboration with Bantrel's own design engineers. As a result of this exercise significant decisions were made concerning the design and method of construction of the marine facility; changes were made from the preliminary plans sent out with the RFP, and the project gradually evolved from the Phase I "front end engineering and design" to the preparation of detailed drawings.

[100]Maddock described the relationship with McNamara, both in the constructability exercise and during construction, as a "functioning intimate working relationship" with all parties being aware of what decisions were made.

[101]The protocol adopted by Bantrel was to issue drawings in three stages. The first -IFR - Issued for Review - involved the initial drawing being circulated among the engineers in the design office - including the joint

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[102]Following the squad check, the drawings were issued IFA - Issued for Approval. The third and final phase was IFC - Issued for Construction. Maddock explained that there should be no substantial changes between the IFA and IFC drawings. While actual material procurement and construction required, with some exceptions, an IFC drawing, Maddock said that he made it clear to McNamara in January that it could proceed with the necessary planning and design - especially of temporary works, on the basis of the IFR drawings.

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girder structures at the same time.

[105]In addition to the concrete pile caps, decisions were taken to also pre-cast the loading platform beams and deck planks. Again, said Maddock, this significantly increased the detailed design work, as well as the quantity of concrete required. On the other hand, the increased use of pre -cast concrete lessened the requirement for supporting falsework and formwork and reduced the time of use of marine equipment.

[106]As part of the coordination between the design engineering group and the marine construction representatives, a marine engineering and construction group met frequently to discuss technical issues. In attendance would usually be Maddock and three or four other engineering or Bantrel representatives. Attending for McNamara would be, usually, Beresford, Kolkman, Smith, and sometimes Moore, Maurice Otto of Ballast Nedam and Ralph Rausch of Pitts.

[107]I set out below, in point form only, a precis of the nature of the items discussed at some of these meetings. It provides an over-view of the type of ongoing discussions concerning the design and planning of the marine facility.

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The group agreed that the engineering schedule for the trestle bent girders could be revised since that the girders were no longer required for trestle stability, given the use of a four pile bent with a pre-cast pile cap.

McNamara suggested its preference for using a partially pre-cast pile cap on the dolphins and agreed to provide Marine Engineering with a proposed detail.

McNamara requested engineering drawings by the end of February in order to start construction of the caissons by April 15. McNamara was advised that Engineering could not furnish IFC drawings that early and the group agreed that specifications, general arrangement and typical details would be issued in preliminary form to permit formwork design to proceed and to obtain material prices. Marine Engineering indicated that they would provide the caisson dimensions early the following week.

The group discussed the size of available armour stone for the tug basin, with Marine Engineering indicating that in the more exposed locations, a larger size than four to six tonnes would likely be required.

February 13, 1997

The group discussed cost comparisons between the five row and three row pile patterns at the loading platform.

Bantrel agreed that the owner's project personnel would be responsible for the purchase of piles, trestle steel, hooks and fenders, while McNamara would provide, on a reimbursable basis, concrete, rebar and necessary embedments.

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Marine Engineering provided an updated schedule showing anticipated IFR, IFA and IFC release dates for all engineering drawings.

Marine Engineering indicated that a four girder arrangement had been chosen for the trestle.

McNamara provided two different details for welding the steel piles to the pre-cast cap.

McNamara produced a construction drawing based on the current design of pile cap for the breasting dolphins using a combination of pre - cast and cast in place concrete pile cap.

McNamara presented a preliminary cost analysis for additional concrete caissons for the tug basin based on labour and materials only. The minute notes that the formwork and equipment required would be onsite for casting the three caissons then planned, and accordingly would not form an additional cost. The group also discussed the possibility of using concrete caissons instead of the planned timber cribs. Marine Engineering agreed to review the cost of one additional caisson compared to savings in armour stone and the possibility of using LOCK - BLOCK instead of timber cribs. The group also discussed and agreed on certain dimensions of the caissons and a 65 metre width for the tug basin.

February 19, 1997

McNamara requested quantity estimates for 4-6/6-8/8-10 tonne armour stone as well as a preliminary specification. It was noted that the final armour stone requirements would depend on results obtained from the model tests yet to be undertaken.

McNamara indicated that it would provide a list of items necessary for a March mobilization "in their letter of acceptance".

McNamara also sought advice from Landis Krause on how to deal with expenditures made on equipment preparation - such as the Buzzard template and the various items of Pitts equipment - in the case of the

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owner deciding to cancel the contract, say, in March. Krause indicated that there would be reimbursement for materials and manhours spent if the contract did not proceed.

Marine Engineering indicated that the welded detail provided by McNamara was acceptable for the compression piles on the loading platform; Marine Engineering was currently reviewing whether or not the detail was also acceptable for the tension piles on the loading platform.

Marine Engineering indicated that a preliminary study showed that the cost of an additional caisson for the tug basin appeared higher than the potential savings in armour stone. It was noted that Marine Engineering and McNamara would arrange a meeting to discuss the fourth caisson option.

Further with respect to the tug basin, at McNamara's request Marine Engineering agreed to investigate whether a cost saving could be achieved by using pre-cast retaining walls instead of timber cribs.

Agreement was reached on pre-casting the trestle pile cap and the dolphin structures.

February 26, 1997

McNamara indicated that its current planning was based on two large capacity cranes - one on the Buzzard to be used for the dolphins and one on the Olympic to be used for the trestle and loading platform.

Concern was expressed that McNamara's current schedule, based on double shifting of crane barge operations had no backup in the case of down time on one of the large capacity cranes.

McNamara suggested that the most efficient method to drive piles was to use piles which are significantly over length, thus avoiding any splicing in the field - which splicing involves expensive time delays. McNamara agreed to develop a piling installation plan to minimize the wastage from pile cut offs.

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The meeting discussed the possibility of more economical alternatives to the proposed timber cribs for the tug basin. A conceptual design was provided for a precast retaining wall as an alternative to timber cribs or concrete caissons in the south side of the tug basin.

March 12, 1997

The socketing procedure for the tension piles was discussed but it was noted that this procedure was dependent on the selection of the drill by McNamara. McNamara indicated that they were leaning towards a Sullivan 10-inch drill but had not made a final decision.

It was decided that small size concrete caissons would be used for the south side of the tug basin instead of the previously proposed timber cribs.

Marine Engineering was still reviewing using some additional caissons at -3.5 metres elevation to replace armour stone.

A union agreement or site agreement had not yet been reached; construction work at site could not begin until this was resolved.

The piles would be delivered to Argentia or to the nearby dock at Come by Chance. McNamara indicated that its planning included only equipment at the Whiffen Head site and did not include a barge and tug to transport piles from Come by Chance to Whiffen Head. Landis Kraus indicated that McNamara should provide these items.

McNamara confirmed that it had previously proposed using pre-cast concrete panels for many of the marine structures to meet project time constraints and to reduce overall project costs by reducing work performed over the water.

Marine Engineering. reported that new contours from the tug basin were expected that day. The preliminary results of the new soundings indicated that the first two sea wall caissons would be in about one metre deeper water than indicated, while the third caisson depth would be unchanged. The difference would be made up by building up a rock

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mattress under the caissons rather than changing the height of the caissons themselves.

March 18, 1997.

Marine Engineering reported that the tug basin modelling test was being conducted that week in Ottawa and the results from the test would be used to design the quantities and size of armour stone for protection of the caissons.

March 26, 1997

Marine Engineering reported on the status of the model test indicating that waves from the southwest direction had been tested and that waves from the northwest direction were currently being tested. As a result of the tests to date the caissons have to be rotated seven degrees. For certain waves from the southwest direction, there was some movement of the 4 - 6 tonne armour stone. The following design changes would be made to the tug basin, based on the tests to date:

An effort will be made to place 5 - 6 tonne armour stone (high grade) in the most exposed areas.

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The tug basin modelling was stated as being complete and the armour stone specifications were updated. McNamara suggested that straightening out the boundary of the zone of armour stone between the causeway south to Whiffen Head would increase the tug basin fill only slightly and reduce the quantity of armour stone.

It was agreed to move the tug basin fire water sump to the small caissons at the south side of the tug basin.

[108]These meetings continued in similar vein throughout the project. The above examples are not exhaustive of the matters discussed at the meetings in question; rather they provide a general indication of the manner in which the project proceeded.

(vii) Alliance

[109]In some of the documents set out above, there are references to the 'Alliance'. This was a concept promoted by the owner NTL whereby the participants in the project - including the onshore contractor - would participate in a risk/reward scheme based on the actual total cost of the project measured against an agreed target price. Under the risk and reward program, each of the Alliance partners would pledge a "fee", (a portion of its profit) against the "Total Installed Cost" of the project in return for an interest in the reward scheme, essentially a percentage participation in any cost underrun. In the event of an overrun, the parties would forfeit their fee, to a specified maximum amount. In McNamara's case, the maximum amount of the fee at risk was $1 million.

[110]In April 1997, Santarsiere forwarded a first draft of the Alliance agreement to the potential partners. On May 12, Neville received What is referred to as AFE Revision No. 1 showing a total construction cost of $136,450,000 and a total project cost of $162,450,000 including a contingency of $9,240,000. Neville wrote back confirming that McNamara accepted the Total Installed Cost as the basis for the risk and reward program. The Alliance partners were to be NTL, Bantrel, McNamara and Foundation-Pennecon, the onshore contractor.

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[111]The draft agreement spoke of providing "good effective teamwork" and of promoting "team work, trust, cooperation, harmony and consensus". It also provided:

"WHEREAS: The ALLIANCE MEMBERS desire to establish this ALLIANCE AGREEMENT to promote cooperation with one another for their mutual benefit and for the benefit of the Newfoundland Transshipment Terminal Project and to participate in a forum wherein matters related to the Newfoundland Transshipment Terminal Project can be discussed with a view to promoting consensus. In consequence, the ALLIANCE MEMBERS do not wish to create any legally binding rights and or obligations under or arising out of this ALLIANCE AGREEMENT, and ...

"9.1 Notwithstanding any other provisions of this ALLIANCE AGREEMENT

(a)This ALLIANCE AGREEMENT shall become effective as of the day and year first above written and shall continue until the latest date for "Final Acceptance" in the CONTRACTS or such other time as may be agreed by the ALLIANCE BOARD.

(b)The provisions of this ALLIANCE AGREEMENT shall not in any way override, vary or prejudice the rights, remedies, duties and obligations of the ALLIANCE MEMBERS under their respective CONTRACTS.

(c)This ALLIANCE AGREEMENT shall not be legally binding and no legal or contractual rights and/or remedies, duties and obligations shall be created directly or indirectly under, or shall arise out of the performance or non- performance of this ALLIANCE AGREEMENT."

[112]On July 2 a final copy of the agreement was forwarded to the

participants. This draft contained a new paragraph 5.2(g) which provided that the Alliance Board could, without unanimous approval, agree to the removal of an Alliance member. On the same day, Santarsiere e-mailed Robert Matheson, an executive with Bantrel, commenting on this change. He wrote:

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McNamara and we would all like to leave the door open to the outside possibility of removing them as an Alliance member ... ."

[113]On July 16 Neville wrote acknowledging McNamara's concurrence with the agreement. However, McNamara never signed the agreement. The other parties signed it on October 20, 1997.

[114]It is not necessary at this point to do more than indicate the existence of the Alliance concept and agreement, and to note that McNamara bases part of its claim on what it alleges is a certain manner of dealing contemplated by the agreement, and on McNamara's assertion that the Alliance arrangement led to certain terms being implied in the subcontract. A further part of McNamara's claim is founded on what it refers to as the "behind the scenes discussions" to remove McNamara from the Alliance itself.

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At bid submission, McNamara took no exceptions to any clauses contained in Exhibit "A", General Conditions and Exhibit "B", Special Conditions. These Exhibits have remained unchanged in the current draft agreement. The letter of award on February 14, 1997 was based on, and bound, to your bid. To submit comments indicating changes in terms and conditions from your solicitors one month after award is totally unacceptable. All comments are invalid and will not be accepted. You are bound by your bid.

As for your other comments on consistent wording etc., we will address these in the final version.

As time is of the essence, please indicate when we can have your comments on the balance of the Subcontract Agreement to enable execution of the contract."

[118]The parties met on July 2 and on July 16 Neville wrote Campbell:

"Further to your letter of May 14, 1997 and meeting held at Bantrel Office on July 2nd, 1997, we are now in a position to sign the above referenced sub-contract.

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Owner". Santarsiere explained that, with labour costs being fully reimbursed by the owner, it was necessary to be able to assess the potential cost before finally committing to the project.

[121]It was Bantrel's responsibility to negotiate the site labour agreement and it took until May 10 to do so. The agreement was influenced by the one in place at the Hibernia construction site, and was a more 'expensive' agreement than that tentatively negotiated by McNamara with its unions as part of developing its response to the RFP..

[122]Without a site labour agreement, construction work could not proceed at site. With the cooperation of its own unions, McNamara started the concrete work at Argentia and also arranged for the slipforms for the concrete caissons to be built in Nova Scotia and shipped to Newfoundland.

(x)Conduct of the Work

(a)Use of the Come by Chance Site

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is the entitlement of McNamara to recover in whole or in part the cost of building a warehouse and a fabrication shop where materials were stored and worked on.

(b)Tug Basin

[126]The first work at the tug basin involved dredging the seabed to the appropriate depth to accommodate the draft of the tugs that would be working there. Dredging started on May 28, 1997, using the barge Olympic and a dump scow, and continued until June 15. At the same time, McNamara readied its concrete batch plant in Argentia and mobilized the sinking scow Quensa to Argentia. The concrete caissons were built onboard the Quensa, towed to site and then sunk. Construction of Caisson No. 1 on the Quensa started on June 4 and continued until June 14.

[127]McNamara's intention was to construct and place Caissons 1, 2 and 3 in that order, followed by the smaller Caissons 4 and 5 on the southside of the basin. However, in May an outcrop of rock was discovered in the area where Caisson 3 was to be placed. It was necessary to remove this rock before the foundation for the caisson could be laid and the caisson sunk. Bantrel retained Polaris Marine Services to drill and blast this rock -more of this later, since McNamara claims it should have been awarded this work, that in any event it had to provide facilities to support the work, and that the inefficiency of the blasting work caused delays in McNamara's own work.

[128]The necessity of removing the rock outcrop meant that Caisson 3 could not be placed when planned.

[129]The construction of Caisson No. 1 was completed on June 14. The placing of mattress material under Caisson No. 1 then took from June 20 to July 9. "Mattressing" refers to the building of a rock material foundation in the water, on which the caisson is then placed. The mattressing process consists of building up this rock material to achieve the grade required at the bottom of each caisson. Because the depth of water under Caissons 1 and 2 was greater than anticipated, a relatively coarse submattress material was used to provide an initial layer. Somewhat less coarse mattress material was then used to fill in the irregularities in the submattress layer, by screeding or "sweeping" it to produce a level surface. This sweeping process is conducted by a sweep scow dragging a heavy beam, set to a pre-determined depth,

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across the placed rockfill. The other vessel used to carry out the mattressing was a dump scow which, as its name implies, was responsible for dumping the material in the appropriate area.

[130]Caisson No. 1 was sunk in place on July 10. In similar fashion, Caisson 2 was sunk on July 20.

[131]Caissons 4 and 5 were two smaller concrete caissons; (the decision to use such caissons instead of timber cribs on the south side of the tug basin had been taken on March 12). Both of these caissons were constructed on the Quensa at the same time -the barge was large enough to accommodate both and construction was carried out simultaneously in order to overcome buoyancy and stability issues on the sinking scow. Construction of Caissons 4 and 5 was completed on July 11, 1997.

[132]Because Caisson No. 3 could not be placed due to the work being done to remove the rock outcrop, the dump scow and the sweep scow were moved to the area of Caissons 4 and 5. Mattressing under these caissons was completed on August 8 following which Caisson 4 was sunk on August 9 and Caisson 5 on August 10.

[133]As for Caisson 3 itself, Polaris mobilized to start drilling and blasting the rock outcrop on July 22. Most of the drilling took place between August 2 and August 6 and the first blasting took place on August 7 and 8. A further round of drilling began on August 15 with further blasting on August 25. McNamara then began placing mattress material and Caisson 3 was sunk on August 29.

[134]Each of the concrete caissons then needed to be backfilled in order to provide added weight for stability. Backfilling started on August 12, 1997 with Caissons 4 and 5. Rockfill was placed using a 150 tonne crane. Once the caissons were completely backfilled, McNamara was able to fill the area behind these caissons, - the area between the caisson wall and the shoreline. On August 18 the "key" - essentially a concrete connection linking the caissons - was installed thus enabling trucks and loaders to cross and bring fill material to the south end of Caisson No. 1. Once that area was filled, direct access to Caisson No. 1 was possible and on August 20 ramps were placed across the caissons to allow trucks to carry out rockfill. Rockfilling in Caisson No. 1 was completed on August 25, in Caisson No. 2

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on September 1 and in Caisson No. 3 on September 6. Once all caissons were backfilled, the structural integrity of the tug basin was established.

[135]The remaining work on the caissons involved the cast-in-place concrete superstructure, including the deck slab, seawall and fire water sump.

[136]The final component of the tug basin was a timber crib - a slipway for launching small vessels - located adjacent to Caisson No. 5. The construction of this crib began on the Quensa at Come by Chance on September 19 and continued intermittently until October 10. Following mattressing, the crib was sunk in place on October 12.

[137]The remaining major activity at the tug basin was the earthworks, involving the construction of a causeway and the placing of wave and scour protection by placing armour stone and filter rock. There is a significant dispute about the scope of this work, of which more later. For present purposes, suffice it to say that with the exception of the first phase of rockfill, the bulk of the earthwork took place during the months of August, September and October. Most of the work was done using land-based equipment, including two excavators, a backhoe, a 150 tonne mobile crane and a 65 tonne crane. Some filter rock and scour protection was placed by the barge William Dilly, working with the dump scow, in areas further from shore that could not be reached by the 150 tonne shore-based crane. The slope adjacent to the caissons was mostly complete by the time work began on the causeway retaining wall on October 27. The 150 tonne crane then moved to place filter rock at the timber crib. Whether or not the design and placing of the scour protection -as built - represents a change in scope of the contract work for which McNamara is entitled to compensation will be dealt with later in these reasons.

(c)Approach Trestle

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redriven as they were initially driven at the wrong angles. The next piles were driven at trestle bent No. 1, followed by trestle bent No. 10; the work at the remaining trestle bents was then carried out in numerical order, with the last piles of the approach trestle driven on September 15. Between July 14 and September 26 the precast concrete pile caps were installed and the cast-in- place concrete work carried out on the trestle bents. The erection of the roadway and the pipe support girders started on September 17 and finished on October 18. The concrete roadway deck - a poured-in-place slab - was finished on November 6.

(d)Loading Platform

[139]Pile driving operations for the loading platform started on August 12 using the Buzzard, the jackup pile driving barge. Pile driving and socketing work on the tension piles was completed by October 5. The precast concrete pile caps were placed between September 27 and October 17, with the installation of the pre-cast concrete beams starting on October 11 and finishing by October 22. The cast in place concrete deck slab for the loading platform was poured in three sections, with the last pour completed on November 22.

(e)Mooring Dolphins

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[143]The Buzzard had been working on the Confederation Bridge project in the Northumberland Strait and arrangements had been made to tow the barge from Prince Edward Island to Placentia Bay. On May 10, during the course of the tow, the Buzzard broke its tow line and ran aground. It sustained extensive damage and was taken to the Marystown Shipyard for repairs. The Buzzard did not actually arrive at Whiffen Head until August 5, some three months after the anticipated date.

(xii) Argosy agreement - Amendment No. 2

[144]When the Buzzard foundered, McNamara claimed the incident as a force majeure event entitling it to an extension of time to complete the subcontract. This claim was rejected by Bantrel and ultimately was not further pursued by McNamara. However, recognizing the impact of the foundering of the Buzzard on the project schedule, the parties did meet on several occasions between May 14 and May 26 to assess what options were open to them.

[145]The parties set up an "Action Team" to assess the impact of the foundering and the need for, and availability of, other equipment. This team had a mandate to prepare a plan of action so that management could make any necessary decisions by May 28. The Action Team consisted of Sandy King (a Sandwell consultant), and joint venture representatives Rene Kolkman and Gerald Moore. The Action Team met over the weekend of May 23 to 25, with Ed Beresford of McNamara also participating in some of the discussions. Kolkman prepared estimates of the additional equipment requirements to complete McNamara's subcontract, including the reintroduction of the crane barge Argosy (which had been previously deleted in favour of the Buzzard). The Buzzard would come to site once repairs were completed. Kolkman then prepared alternative estimates of costs on the basis that the Argosy would arrive on either July 1 or August 1. Sandy King prepared a memorandum dated May 26 summarizing the work of the Action

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Team, including two tentative alternative plans identified as "A" and "B" with a estimated cost of "additional equipment" under each plan totalling, respectively, $5, 312,000 and $7,130,000. 12:38 p.m. on May 26, this memorandum was telecopied to the attention of Landis Krause at Bantrel's St. John's office.

[146]The joint venture partners met on the morning of May 26. They discussed the costs to mobilize the Argosy and other ancillary equipment. At 2:00 p.m. on the 26th, the joint venture partners met NTL and Bantrel; they discussed the costs of mobilizing the Argosy. McNamara requested an increase of $800,000 in the lump sum price for equipment; Bantrel offered only $400,000. McNamara would not accept $400,000 and the meeting concluded without agreement.

[147]Landis Krause and John Neville conducted negotiations by telephone between May 26 and 28. They tentatively agreed to an increase of $600,000 in the equipment lump sum price. Krause telecopied to Neville his understanding of the agreement

. "$600,000.00 increase to fixed fee for equipment.

. Argosy to be mobilized at site by July 1, 1997. $50,000 reduction to fee for each week late at site.

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"The following attachment is a summary of my conversation with Landis Krause yesterday.

"As you can see, he is leaving the commitment partially open until around June 6, 1997 when schedule for 'Buzzard' repairs will be known. However, he confirmed his commitment to proceed with the mobilization of the 'Argosy' and fabrication of the additional templates immediately.

"I will write to remind him that it was our original schedule to have 'Buzzard' mobilized at site and driving piles May 19, 1997.

"Even if all repairs should be completed by July 1, 1997, it will probably be mid-July by the time the 'rig' is towed to site and in position for driving of piles."

[149]On May 28, after Krause's first fax, Murray Campbell of Bantrel had forwarded to Neville a letter setting out the full the 'Argosy Agreement'. McNamara's acceptance on May 29:

"Refer your letter of 28 May, 1997. Your offer as outlined is accepted, however, we would like to point out that as well as reimbursement of costs incurred for outfitting the "Argosy", if approval to mobilize is not given, there could also be some costs associated with the Templates for which we would also be reimbursed."

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necessary for the use of the Argosy, while Bantrel claims that, by its clear wording, it covers all other equipment, whether marine or land-based.

[151]There is also a dispute concerning the enforceability and application of the $50,000 per week deduction. McNamara says it is an unenforceable penalty. Alternatively, McNamara challenges the amount of the deduction. McNamara agrees that the Argosy was four weeks late; thus it was prepared to accept a deduction of $200,000. Bantrel asserts that the Argosy did not arrive until August 25, and that it is accordingly entitled to a $400,000 reduction. McNamara's position is that the additional four weeks are the responsibility of Bantrel since, it claims, as of August 1 the Argosy was ready to be mobilized but was not because of a direct order of Santarsiere. In addition, McNamara claims that it was misled by Bantrel and NTL in that, when negotiating the additional sum for the Argosy, it was unaware of the results of the work of the Action Team, and, specifically, did not have in its possession Sandy King's memorandum which contemplated extra costs in excess of $5 million. Landis Krause testified that, while he participated in the meetings on the afternoon of May 26, he did not then have in his possession the faxed copy of Sandy King's memorandum which had been sent to the Bantrel office just after noon on that day. A discussion of the merits of the various positions will follow in due course.

(xiii) Cap Agreement - Amendment No. 3

[152]This agreement arose out of a concern of Bantrel and NTL that the labour cost on the project, for which McNamara was entitled to be reimbursed by Bantrel, was escalating substantially beyond what the parties had anticipated and indeed was, in the owner's view, "out of control".

[153]The original estimate of direct labour hours was approximately 168,000. By letter dated May 14, 1997, McNamara confirmed that this estimated amount was "adequate". An internal McNamara document dated

January 17 suggests that McNamara's own direct labour forecast was then about 125,000 manhours. By late July and early August, forecasts by both McNamara and Bantrel ranged from 336,000 to 420,000 manhours. At the time, neither the Argosy nor the Buzzard was onsite, and the percentage of labour by then spent - compared to the original estimate - was significantly higher than the percentage completion of

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[154]The parties held, various meetings and negotiations to discuss this situation. Included was a discussion on changing the lump sum price for the equipment portion of the subcontract to a reimbursable basis. This suggestion was not taken up by McNamara.

[155]With respect to the labour component of the subcontract, McNamara, Bantrel and NTL negotiated what was to become subcontract amendment No. 3 - the 'Cap agreement'. This agreement capped the total manhours at 420,000 hours, consisting of 350,000 direct (or craft) hours and 70,000 staff hours. The direct hours included a contingency of 20,000 hours. Thus, there was a target estimate of 400,000 hours, which, with a contingency of 20,000 hours, meant a cap or upper limit of 420,000 hours. The parties converted these anticipated labour hours to dollar amounts, with 400,000 hours converting to $13,892,000 and 420,000 hours to $14,475,000. They agreed that Bantrel and McNamara would participate 50/50 in any labour savings under $13,892,000, with Bantrel being fully responsible for all costs up to $14,475,000; Bantrel and McNamara would share 50/50 in any labour cost over $14,475,000.

[156]The Cap agreement was put in place by exchange of correspondence dated August 22 and August 25. A formal amendment was not signed until December 15, 1997.

[157]The Cap agreement also provided:

"... 6. McNamara shall be responsible for all equipment costs pertaining to any equipment held over for work in 1998 provided that no actions/delays are caused by Bantrel.

7.There shall be no sequence changes to the existing schedule, (i.e. the trestle and loading platform work shall be completed in early November 1997). McNamara shall have full flexibility to work the necessary schedule (workweek and overtime) to complete the work.

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9.McNamara shall provide the management services of Ralph Rausch (Pitts International) and John Mulcahy and shall endeavour to show a recordable change in performance."

[158]Item 8 required the parties to meet to resolve current outstanding issues. Negotiations followed, primarily between Roy Lewis (McNamara's Commercial Manager) and Jim Lundrigan, a Bantrel cost specialist, but not all issues were resolved. It was however agreed that the cutoff date for the identification of outstanding issues would be August 3; accordingly, issues arising after August 3 were to be considered without regard to the Cap agreement.

[159]McNamara takes the position that

Bantrel did not give its best efforts to resolving the outstanding issues. It says that the clause in the agreement requiring best efforts is a condition precedent and that accordingly the Cap agreement is void. McNamara further takes the position that the amount of the labour Cap was adjustable based on the issues then outstanding between the parties. Also in issue, assuming that the Cap agreement is valid, is the extent to which subcontractors hours are to be included in the calculation of the labour cap.

[160]Again, these issues, along with additional relevant facts, will be canvassed when dealing with the details of McNamara's claim.

(xiv) Termination of McNamara's Subcontract

[161]On December 22, 1997 Bantrel gave McNamara 'Notice of Termination for Convenience'. McNamara acknowledges that work on the subcontract was by then complete or substantially complete when the notice was issued. But McNamara takes the position that the termination was wrongful since there had been no certificate of completion issued. It also says that in any event, Bantrel did not comply with the provisions of the subcontract's General Conditions allowing for termination for convenience.

(xv) Other Facts

[162] The foregoing, while lengthy, represents only a summary overview of

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Context To The Assessment Of The Contractual Obligations And Conduct Of The Parties

[163]Reaching a decision on the various legal claims asserted - by way of both claim and counterclaim - requires both an interpretation of contractual obligations and an assessment of the conduct of the parties. This interpretation and assessment cannot be divorced from the circumstances in which the obligations were formed. This context provides the 'life blood' of the legal relationship and gives guidance in the determination of the content and meaning of what would otherwise simply be 'sterile words on a page'. Using context and circumstances in this manner is not the same as using inadmissible parol evidence to interpret a contract; rather it is simply an acknowledgement that, to borrow a phrase, 'no contract is an island' and that the interpretation of its terms cannot be artificially and arbitrarily severed from the real world in which the contract was formed and was intended to and did operate.

[164]The parties to the subcontract were not 'babes in the woods of construction'. As McNamara touted itself in its proposal, it was an experienced major civil contractor with an extensive background in heavy marine construction. It was owned and supported by a large international concern with expertise in marine construction. Similarly, Pitts and Ballast Nedam had extensive international experience in marine construction; the individuals representing these companies had for many years worked on precisely the type of project contemplated - pile driving and wharf construction, dredging, caisson construction and wave protection. McNamara also sought legal advice when necessary. In particular it sought and received such advice before executing the subcontract; it was not a neophyte ripe for the commercial picking.

[165]On the other side, Bantrel was a major onshore contractor with

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management and engineering expertise. It too was commercially sophisticated, as was its client, NTL, directly representing a group of oil companies. However, Bantrel had little, if any, experience in heavy marine construction, and none in the Newfoundland labour and physical environment.

[166]The conditional 'letter of intent' was accepted by McNamara on February 19, 1997, with a December 31, 1997 target date for completion. While the parties took the position that they were contractually bound as of February 14, I note that the Bantrel letter of February 14 was expressly noted as being conditional and that it contemplated the issuance and execution of a formal contract once the specific conditions were met. In his reply, Neville expressly acknowledged the conditional nature of the award by noting that, "if for whatever reason the project is cancelled" prior to the "stated commencement date of March 17", then McNamara would expect to be reimbursed for any mobilization costs incurred prior to March 17. I mention this to point out the factual fluidity of the relationship; the award of February 14 was expressly conditional; the acceptance of February 19 accepted this conditional status and sought reimbursement of costs, if necessary. The stated commencement date - presumably the 'point of no return', and the milestone date in the subcontract for "authorization to proceed" - was March 17; yet the site labour agreement, a pre-condition to the award of and the funding for the project was not signed until May 10; the formal subcontract itself was not executed until late July.

[167]When McNamara responded to the RFP on November 22, 1996, it quoted prices both on a lump sum and unit price basis. The response expressly contemplated Having Pitts as a subcontractor supplying all of the marine equipment. The lump sum price for this marine equipment (items 1.1.1 and 1.1.2 on Form A-l) was $5,053,000, plus $1,136,000 for mobilization and demobilization. Pitts was also to provide some of the items under item 1.1.4 for $1,227,000 plus $110,000 again for mobilization and demobilization, giving a total cost (Pitts equipment) of $7,526,000.

[168]Moore explained that he, Rausch and Don Rosetti of Pitts worked on the response to the RFP and contemplated 2260 hours use for most of the floating plant and tugs, and 1600 hours use for the William Dilly; the Pitts price quote to McNamara was also in the context, said Rausch, of construction work of ten hours a day five days a week, extending over two

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construction seasons.

[169]McNamara's own response to the RFP offered an identical lump sum price for equipment - $9,296,000 ($7,526,000 Pitts + $1,770,000 McNamara) over either one or two seasons, thus suggesting that the lump sum price offered was not predicated on a certain duration of work but was more 'project oriented'. Indeed, item 5.0 in Form A in McNamara's response to the RFP confirmed that the lump sum price was "fixed for the duration of the subcontract", i.e., for whatever that duration might actually be.

[170]For his part, Rausch testified that he reviewed the RFP documents and looked closely at the marine components of the project. Rausch had over 40 years experience in marine construction - pile driving, causeways, caissons and tug basins - he described himself as "very familiar" with all types of marine construction and the equipment and construction management required. Rausch had never worked on a project where labour was paid on a reimbursable basis.

[171]Rausch explained that, in marine construction, detailed design work is normally completed early enough to give two or three months lead time before construction starts. Heavy marine equipment, by its nature, is not always quickly available and takes time to mobilize. Similarly, components such as piles, fenders and dolphin embedments are not "off the shelf items" and take time to procure.

[172]Rausch went on to say that he had previously worked on several major marine projects - including construction of the St. Lawrence Seaway - which, as here, had involved model or wave testing. Such testing is necessary to reproduce the actual field conditions and, said Rausch, it is normal that engineering is not completed until the model testing itself is finished and the results analyzed. In turn, he said, engineering would normally be complete before the RFP is sent to bidders.

[173]Rausch said that here, however, at the time of the RFP in November 1996, it was "obvious" that the model testing had not yet been done.

[174]According to Moore, another Pitts witness, the Pitts lump sum price to McNamara for the marine equipment (including operating costs but excluding any on-site labour (crew)) included a 15-20% contingency for

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weather-related downtime, and an additional contingency for mechanical downtime.

[175]The pricing of the marine equipment was not compiled from published rates. Rausch explained that, because of the peculiar nature of marine construction, a lump sum price is generated based on experience, the replacement value of the equipment, the type of work, the duration of the project and market conditions. Accordingly, prices for the same item of equipment will vary from project to project. He went on to say that in the past the rental rate bid for the barge Argosy had varied from $100,000 per month to $800,000 per month, depending on the project. Here, possibly reflecting market conditions which had not seen the Argosy working for an extended period of time, Pitts priced the Argosy at $190,000 per month. I note that a monthly rental rate is itself not consistent with a fixed lump sum price that is the same over either one season or two seasons.

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completed. Together these two phases represent about 35% of the overall design engineering hours for a project. The balance is consumed in the development of detailed drawings and specifications. Only 13 "preliminary" drawings accompanied the RFP.

[179]As noted earlier, after McNamara had submitted its response, negotiations followed leading to the formation of the joint venture, the inclusion of the Buzzard and the deletion of the Argosy. The lump sum price for equipment was renegotiated to $11,267,775 and a fixed fee of $2,950,000 was agreed upon. Once the joint venture was selected to do the marine work, it participated in, and was compensated for the constructability exercise. This directly involved McNamara in many decisions concerning the design and method of construction of the project; these decisions affected the utilization of equipment, the quantity of material and the use of labour. This process had already been ongoing for some time when McNamara accepted the conditional award; the exercise continued until April, and was described by all involved as resulting in an unusually high level of input by the contractor (McNamara) into the design phase of the facility.

[180]A further 'context' circumstance was the agreement that the full project would be carried out based on the Alliance concept -essentially a philosophical approach to coordinating and conducting the various aspects of the project in order to minimize global cost and maximize efficiency. The financial incentive was an ability to participate in any overall savings; the corresponding risk was loss of a portion of each participant's agreed fee should costs exceed the agreed target. According to McNamara, the Alliance approach established a higher standard of commercial conduct than might otherwise have been required.

[181]Finally, at least in terms of the major circumstances which make up the commercial environment, the nature of the financial bargain cannot be overlooked. As of February 19, when McNamara accepted the conditional letter of intent, McNamara had agreed to provide all necessary equipment for the lump sum price of $11,267,775. It had also agreed to a fixed profit amount or fee (over and above any profit in the equipment lump sum itself) of $2,950,000.

[182]By agreement with the other joint venture companies, McNamara itself was to receive 10% of the fee as a management charge ($295,000) and

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40% of the balance ($1,062,000), for a total fee to McNamara of $1,357,000. Also, as of February 6, 1997, McNamara anticipated $600,000 profit from its own equipment rentals, bringing the total profit to McNamara to $1,957,000. By virtue of the nature of the agreement with Bantrel, McNamara and the joint venture had at risk those costs that might arise from the need to employ additional equipment, greater than anticipated usage of equipment (including any increase in non-labour operating costs), and additional administrative or overhead costs that, if the project did not go as anticipated, would encroach on the fixed fee. (As noted earlier, up to $1 million of the fixed fee was at risk through the Alliance risk/reward proposal.) It will also be recalled that McNamara had built into its lump sum price $1.2 million risk money to cover the eventuality that the joint venture equipment might be needed beyond December 31, 1997.

[183]All labour (leaving aside for the moment a dispute over maintenance labour) was to be reimbursable by Bantrel; similarly, all permanent materials such as concrete and rebar purchased by McNamara was reimbursable.

Thus McNamara assumed no risk with respect to these highly variable items. Other major items such as the piles and the steel girders were supplied directly by the owner; McNamara assumed no risk whatsoever with respect to them.

[184]Overall, as of February 19, 1997, McNamara assumed any risk related to the usage of construction equipment, the cost of which usage, with the exception of fuel, did not vary in direct proportion to any increased usage. The risk assumed by Bantrel and the owner was significantly higher, the cost of labour - which was under McNamara's control - varying directly with the amount used and the premium time cost, and the cost of materials varying directly with the quantities used, which quantities, in the case of (e.g.) concrete were increased because of methodology recommendations made by the joint venture and accepted by Bantrel during the constructability exercise. This unique financial situation is a factor which carries considerable significance when determining which party - McNamara or Bantrel - bore the risk of various events and changes in the course of the project.

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were changes in the scope of work contemplated by the subcontract; it alleges that these changes were so many and so fundamental as to amount to a completely new contract. The report of McNamara claims expert Lorna Tardif reflects this approach.

[186]There is a real question whether, in the particular circumstances of this subcontract, there is any room for an argument for extra compensation based on 'scope change'. In reality, McNamara's contract was no more than this - it would arrange for the supply of labour and materials and would bill Bantrel for the cost of such labour and materials; it would, for a fixed amount, supply the necessary equipment for the duration of the project; McNamara anticipated finishing the word in 1997, but its equipment price included risk money for work in 1998. For its services in supplying equipment, material arid labour and in managing the construction, McNamara would receive a $2.9 million fee.

[187]In these circumstances, the scope of work is more a side issue than a reference point against which McNamara's obligation can be measured. From McNamara's point of view, scope was irrelevant to any financial issue relating to the consumption of labour and materials - the owner was obliged to pay, regardless of scope. The lump sum equipment price was geared simply to the project, whether completed in 1997 or 1998. Hence a particular level of use within 1997 was not a consideration.

[188]All agreed that the commercial structure of the contract was most unusual. Given what was almost an absence of real risk assumed by McNamara, there is little if any room for the argument that a particular scope of work defines the risk accepted by McNa-mara. At the risk of repetition, McNamara took on virtually no risk and in such a setting, the scope of work - within reason - is irrelevant to the bargain.

[189]However, given the resources the parties expended in exploring scope of work issues, I am prepared, for the purposes of discussion, to assume that the scope of work is relevant to an analysis of McNamara's claim.

[190]Obviously, in order to assess whether any particular physical aspect of the work is a change from what was contracted, and thus whether it could in principle form a basis for the argument that McNamara is entitled to

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additional compensation, there must be a base or standard to be used as a starting point. This base or standard can then be compared to what was actually done to determine whether or not there is any difference, and, if so, whether such difference may, with the appropriate legal analysis, warrant entitlement to additional compensation. Thus, essentially the questions are: What did McNamara agree to build? What did it actually build? Is there a difference? Bearing in mind the financial structure of the subcontract, is McNamara entitled to additional compensation? If so, how much?

[191]In the case of the marine facility at Whiffen Head, these questions, particularly the first, do not admit of a ready answer.

[192]However the base line must be established. It is in establishing this base line -the determination of what McNamara agreed to build - that the circumstances surrounding the formation of the subcontract assume considerable importance. Consideration of the wording of the contract documents in the proper context leads to a basis upon which to compare what was built to what was agreed to be built.

[193]I turn first to the documents to which some references have already been made.

[194]McNamara's response to the RFP was - apart from a unit pricing proposal that was not pursued - by way of a lump sum equipment price for the use of marine and land-based equipment over either one or two construction seasons. Significantly, McNamara's formal proposal letter confirmed that it had carefully examined both the governing documents and the job site conditions. McNamara's response did include some limited and specific exceptions and deviations - the assumption that "underwater excavation of solid rock will not be required in tug dock basin base preparation" and an assumption as to the grade of rebar required.

[195]In addition to proposing two alternative schedules for the same fixed price, the response also raised the possibility of using pre -cast concrete slabs in the trestle roadway. McNamara documented various physical risks that "have the potential to delay the completion of the project"; among the items mentioned were weather delays affecting piling and wave damage to the causeway and tug basin area. McNamara went on to explain how it proposed to negate or reduce these risks, including the use of a proven

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floating plant and template system. With respect to the issue of wave damage in the causeway and tug basin it wrote - "The protection to this area should be increased, both in terms of armour stone size and the causeway crest".

[196]As noted, McNamara offered an lump sum equipment price that was good for either a one or two season project. McNamara pointed out that, with early mobilization and a one season project, the owner could realize savings of $1.5 million, presumably mostly through reduced reimbursable labour costs.

[197]McNamara's response to the proposal was based on its assessment of the project as then depicted in 13 drawings, all of which were clearly marked "preliminary" and as depicting only "the general scope of work". Exhibit "D" in the RFP - and in the subcontract - explicitly pointed out that the total scope was not defined by these drawings. In the letter soliciting proposals, the project was referred to as a "base case, consisting of a rock causeway, tug dock, trestle and a single berth". Both the RFP and the subcontract stipulated that actual construction would only be done on the basis of detailed drawings to follow.

[198]The foregoing represents the main contractual references to what McNamara agreed to build. But they cannot be interpreted divorced from their context. For present purposes I am prepared to conclude that the parties obligations, subject to the later satisfaction of specific conditions, were established as of February 19 when McNamara formally accepted the conditional letter of intent. The significant circumstances then existing which establish the context for the interpretation of the extent of McNamara's obligation include:

1.The ongoing constructability exercise in which McNamara - through senior joint venture engineers - was separately compensated to work closely with the project engineers and provide assistance, advice and recommendations on construction methods and engineering detail. As of February 19, McNamara was intimately involved in the ongoing decision-making process which moved the project and its engineering from preliminary to functional.

2.Some of the decisions taken in the constructability exercise were

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significant, including extensive changes to material quantities and the projected usage of equipment.

3.McNamara's initial lump sum proposal was good for either one or two seasons, suggesting a less than close correlation between equipment time at the project and the price to be charged. On the basis of the RFP drawings, McNamara was sufficiently comfortable with its assessment of the scope of work to suggest that the owner could save $1.5 million if the project were completed in 1997. McNamara's price included $1.2 million to cover the risk of the project going into 1998.

4.McNamara was aware as of February 19 that the geotechnical investigation of the marine site was less than comprehensive and it was equally aware that, prior to the formulation of its price and bidding approach, no wave or model testing had been conducted although such was still anticipated.

5.The financial bargain between the parties resulted in Bantrel (and the owner) bearing by far the greater risk should the actual work not be as anticipated by the preliminary drawings. McNamara was accepting no risk whatsoever with respect to any direct (craft) or staff labour and permanent material costs. It is obvious that costs of this type have a high potential for significant variation in a project - particularly a heavy marine project in Newfoundland - which is started without a complete and detailed engineering definition in place.

6.The real risk for McNamara was that, within a single construction season, the planned equipment might work more hours than anticipated or that additional equipment might be needed. McNamara had already planned for and priced into its lump sum bid a significant contingency for weather and mechanical downtime, (although it was not made clear to me how this is done - other than by simply inflating the price - or why it is needed when a single season contract involves only a lump sum price). McNamara's fee of $2.9 million was also fixed and guaranteed, subject to the Alliance agreement, which, if finalized, placed at risk a maximum of $1 million of that fee.

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a marine facility having at that time only a very broadly defined scope of the work ultimately to be required. However, its financial risk, compared to that of Bantrel and NTL, was minimal. Overall, the documents which formed the basis of McNamara's acceptance of the contract, and the commercial and engineering circumstances which surrounded such acceptance, lead me to conclude that McNamara was - at the very least implicitly, if not explicitly - contractually accepting the risk that the actual construction of the project could, and indeed probably would, vary substantially from that depicted in the drawings appended to the RFP, and eventually to the subcontract itself when finalized.

[200]Essentially in early 1997, McNamara agreed to build, by December 1997, a jetty and tug basin facility consisting of a rock causeway, tug dock, trestle, loading platform and a single berth. It gave its agreement on the basis of a description and drawings that were described and understood by all to be the "preliminary design concept" showing just "the general scope". And when all was said and done, McNamara did built a jetty and tug basin facility by December 31, 1997.

[201]With this preliminary, general and conceptual base line, considered in all the circumstances at the time, my conclusion is that, for any particular aspect of the work, what was actually built or done by McNamara should be considered as being not what was agreed to be built or done only if it is established that the work in question was an activity, undertaking, task or responsibility:

(i)completely separate and distinct in nature, type and character from those identified or identifiable as of February 19, 1997;

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McNamara's Claims

[202]What follows is my assessment of each aspect of McNamara's various claims, as those claims are set out in the amended statement of claim and, more definitively, in its written argument following trial. At this stage I will consider only McNamara's entitlement to the relief claimed; the discussion of quantification will follow later.

Breach Of Contract By Bantrel

[203]McNamara asserts in its written argument that Bantrel breached the subcontract as follows:

(i)Delay

Causing delays in McNamara's performance of the subcontract by

(a)late delivery of IFC drawings,

(b)failure to provide laydown and working areas,

(c)late execution of site labour agreement,

(d)late delivery of piles,

(e)discovery of rock in the tug basin;

(ii)Interference

Interference with McNamara's performance of the contract through

(a)the July 29 order to go to a single shift,

(b)the order not to mobilize the Argosy,

(c)the failure to promptly and properly deal with the rock excavation under caisson 3.

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(a)increased quantities of material,

(b)design change to pre-cast concrete,

(c)scope changes in the tug basin.

(d)scope changes in the approach trestle;

(iv)Breach of duty to McNamara

(a)Breach of the duty to act in good faith through

(i)the deletion of SC - 16,

(ii)withholding Sandy King's Action Team memorandum, and including the wording "all other equipment ..." in the Argosy agreement,

(iii)improper dealing with the temporary materials estimating error,

and

(iv)removal of McNamara from the Alliance.

(b)Failure to pay progress invoices when due, and

(c)Wrongful termination of the subcontract.

[204]McNamara asserts that, because of the complexity of the job and the interrelationship of all the factors and breaches at work at any one time, it is not possible to isolate the damages or costs flowing from any particular breach, whether such breach flows from a change, delay or otherwise. Accordingly McNamara argues that the measure of its damages for breaches

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of the nature of (i), (ii) and (iii) above - those damages flowing from alleged breaches of the terms of the subcontract - can only be assessed by quantifying the value of the work done by McNamara on a global basis and deducting what McNamara has already been paid, with the damages being the difference.

[205]For breach of the contractual duty of good faith under item (iv), McNamara claims aggravated and punitive damages in addition to those flowing from any related contractual breach. Finally McNamara asserts that the breaches relating to non-payment and to contract termination are of a fundamental nature, and entitle McNamara to have the whole subcontract set aside and compensation then determined on the basis of a quantum meruit assessment as to the value of McNamara's work actually performed.

[206]I agree with the assertion that, in some cases of breach of contract, and perhaps particularly in complex construction cases, the effects flowing from numerous individual breaches of contract, especially those involving delay, will be extremely difficult or impossible in any realistic way to quantify precisely. In such a case, it is recognized and accepted that the plaintiff cannot prove its damages to the same degree of precision as would normally be required. In such a case the court is not however relieved of its burden of assessing damages and may properly resort to one or other of the 'global' approaches here suggested by the plaintiff.

[207]At the same time, however, the fact that the rigour of the proof of quantification of damages may be relaxed does not mean that the plaintiff is relieved of establishing that some compensable loss flowed from any particular alleged breach of contract. A breach 'in the air', so to speak, is not enough. There must be evidence from which the court can conclude - and it may be by way of reasonable inference in the circumstances - that some adverse economic consequences to the plaintiff resulted from the breach. (This issue is canvassed later in the analysis of the quantification of damages and the modified total cost approach.)

(i) Delay

[208]The foregoing principles as to proof of loss and damage in the context of a construction delay claim were specifically recognized by the Newfoundland Court of Appeal in Embar Construction Ltd. v. Newfoundland

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(Minister of Works, Services and Transportation) (1995), 129 Nfld. & P.E.I.R. 3; 402 A.P.R. 3 (C.A.). There the court said, at par. 16:

"In other words, not only must it be demonstrated that a delay occurred which was the fault of the owner or another contractor, unavoidable loss or damage must be demonstrated to have been the result thereof. Counsel for the appellant complains that the trial judge would not allow the appellant to delve into the matter of damages because liability only was the issue at that stage. The trial judge found that there was nothing in the evidence to satisfy him that any damage had been incurred by the appellant arising out of any delay. This did not mean that the appellant had to quantify damages at that stage, but it did without question have to demonstrate that loss or damage had been the direct result of the owner's or another contractor's actions or inactions." (my emphasis)

[209]Embar Construction was dealing with a specific written condition - GC-8 -which provided reimbursement "for any costs incurred by him as a result of such delay I do not consider that the absence of such a clause in the McNamara subcontract here detracts from the application of the basic principle of law that a plaintiff must prove that the impugned act caused some loss. As I have already noted, actual quantification of the loss is a different question. Turning to the specific allegations of delay.

(a) Late delivery of IFC drawings

[210]McNamara starts from the proposition that under the general contract between NTL and Bantrel (not the McNamara subcontract), Bantrel Was required to provide IFC drawings to McNamara by February 14, 1997. This is irrelevant. The contract between Bantrel and NTL was not incorporated by reference or otherwise into McNamara's own subcontract with Bantrel and does not determine the rights of McNamara under that contract.

[211]82 IFC drawings were issued over the course of the project. As noted earlier, the general rule was that construction or material procurement could not proceed until the relevant IFC drawing was provided. As of May 28 (amendment No. 2 - the Argosy agreement) McNamara had been given 13 IFC's, and as of August 3 (the cut off date for the Cap agreement) only 37 had been received.

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[212]McNamara asserts that it frequently complained about the late release of drawings, and that such late releases adversely affected its ability to plan and schedule. It says in its brief:

"Quantification of the impact of this breach can only be approached as part of a global calculation..."

[213]However, McNamara did not point to any contractual entitlement to have IFC drawings provided by a specific date or dates. Lorna Tardif, McNamara's claim expert, provided a schedule showing the dates of actual release of IFC drawings compared to their planned release dates according to a "for review" schedule prepared by Bantrel and given to McNamara on February 18. This graphic shows clearly that in comparison to this schedule, there were delays of some weeks in the preparation of IFC drawings. This is the breach of contract of which McNamara complains.

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"February 13, 1997

2.0Schedule Engineering Deliverables: ME provided an updated schedule showing all IFR, IFA and IFC dates for all engineering drawings.

May 7, 1997

7.0Schedule of Engineering Deliverables Items discussed this week

7.1Drawing Issues: A number of drawings have been issued in the past week. See transmittals sheets appended to the minutes.

Action: MB to update the project schedule

7.2Items Required by Construction: MPB requested the most up to date information on:

. reinforcing steel specification

. concrete repair procedures

. decks and seawalls for caissons

. rebar details for loading platform poured concrete

. plan with centering coordinates for piles at cut-off elevations (ME will provide a CAD file so that MPG can do this, but MPB must back-check with IFC drawings.

May 15, 1997

7.0Schedule of Engineering Deliverables Items Discussed this Week

7.1Drawing Issues: A number of drawings have been issued IFC in the past week (survey dwgs, GA and sections, pile schedule, tug basin GA).

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Action: MB to update the project schedule

7.2Items Required by Construction: MPB requested the most up to date information on:

. reinforcing steel specification (a draft IFC document was faxed to construction on 97-05-16, an official document will be faxed once it is signed off)

. concrete repair procedures

. decks and seawalls for caissons

. rebar details for loading platform poured concrete

. plan with centering coordinates for piles at cut-off elevations (ME will provide a CAD file so that MPB can do this, but MPB must back-check with IFC drawings)

May 22, 1997

7.0Schedule of Engineering Deliverables Items Discussed this Week

7.1Drawing Issues: Precast drawing will be issued Monday. The dredge plan and tug GA will be reissued with hold removed.

Unresolved Actions from Previous Meetings

a) Items Required by Construction (NTP.065)

. concrete repair procedure required WPM comment

. deck and seawalls of caissons

. rebar details of loading platform

June 5, 1997

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7.0Schedule of Engineering Deliverables Items discussed this Week

7.1Drawing Issues: MB to update the schedule.

7.2Items Required by Construction

. drawing issue takes 2 days to receive drawing. TO to discuss with JL

. ME to revise 42" pipe embedded plates from Nelson studs to rebar postmeeting note: done

. rebar at pile tops (next week)

Unresolved Actions from Previous Meetings a) Items Required by Construction (NTP.065)

. concrete repair procedure required WPM comment

. deck and seawalls of caisson

. rebar details of loading platform

. drawings 302 and 305. Quantities of plates.

. Todd talked to M+M. No Nelson stud capability - use alternate detail if possible

. drawings 110/111

. review concrete strength for lifting (discuss with Y. Hughes for site trial mix)

. deliverable: non IFC

. abutment drawing (TM has reviewed issue next week)

. review pile batter revision with RK

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See memo attached to this minutes

July 8, 1997

6.0Schedule of Engineering Deliverables Items Discussed this Week

Drawings to be issued: Trestle Pre-cast planks IFA

Complete pre-cast concrete for loading platform Complete details for caissons.

Items Required by Construction

a) Items Required by Construction (NTP.065)

. deck and seawalls of caisson

. List of embedment Item required

. Abutment DWG required ICF

. Need the release on the inserts for the Loading Platform

. Need details of the Loading Platform joint

. Timber crib drawings."

[216]In none of these extracts is there any reference to construction activity being delayed. The two primary pile-driving barges, the Buzzard and the Argosy, did not arrive on site until August 5 and August 25 respectively, after the date of the last extract. The other pile-driving barge, the Olympic, did not arrive until May 28 - about a month late, according to Moore. It was first occupied with dredging the tug basin, an activity that took longer than

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expected because of an untrained operating crew and bad weather. The Olympic did not start pile driving until June 23.

[217]For its part, Bantrel offered the evidence of Zey Emir who was qualified as an expert in construction claims. I digress here to mention that much of the expert evidence offered - by both sides - was not opinion evidence as such. Rather it was simply an organization of facts - often in graphic form - which showed at a glance the relationship between, for example, drawing release dates and the actual progress of the related activity. Although not opinion evidence as such, this organization and presentation of a mass of detailed evidence was helpful.

[218]I do not propose to review in detail the release dates of all drawings. I found the evidence of Emir to be logical, well organized and thorough. From her presentation -that is, her organization of evidence already before the court -1 am comfortable in drawing the conclusion that the dates of release of IFC drawings had little if any impact on the construction activity in question. The timing of the various construction activities was, to any significant measure, influenced only by the availability of the marine equipment. Similarly for land-based activities such as the pre-casting operation, there is no evidence that such operations were delayed, to McNamara's detriment, by the date of release of the drawings.

[219]Further, even if the late release of a particular drawing had been shown to delay the activity in question, the evidence does not come close to satisfying me, through reasonable inference or otherwise, that in a contract with fully reimbursable labour and materials expense, and a lump sum price for equipment and profit, McNamara incurred any loss or damages because of such delay.

[220]There is a broader context in which this aspect of the delay claim must be considered. When it accepted the letter of intent on February 19, McNamara was well aware of the absence of detailed engineering drawings. Indeed at the time, McNamara itself was being paid to participate in a process that was developing the design and construction methodology. McNamara was making recommendations which it knew, if accepted, would mean additional related engineering work and drawings; in fact, for some of the work, such as the welded pile cap detail, McNamara itself provided the necessary engineering detail.

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[221]McNamara knew that detailed design engineering would be proceeding concurrently with construction. It knew that this was not the normal approach for such a project. It knew that the project was complex and that, given the compressed time frame which McNamara itself had proposed, there were bound to be difficulties in the smooth coordination of all of the activities and functions necessary to bring the project to a successful conclusion by December 31. McNamara also knew that, insofar as labour and material were concerned, McNamara bore no financial risk from any delay in construction. Because of a bid oversight, McNamara did bear some unanticipated financial risk in the provision of temporary materials. In his January 17 memo to Neville, Beresford suggested that certain engineering changes be encouraged in order to lessen McNamara's exposure. In all of these circumstances, McNamara cannot assert a breach of contract based simply on later than originally planned release of engineering drawings.

[222]As noted, and perhaps because of the difficulties in proving cause and effect, McNamara has chosen to pursue its "delay claim" with a very broad brush. No doubt in a complex project there will be delays of one kind or another. But it is not enough to come to court, point to a series of 'irritations', and claim compensation. The parties' affairs are governed by a contract; the court's adjudication of a claim for damages for breach of contract is guided by well known and long accepted legal principles. Simply inviting the court to award and quantify damages on a global basis because of the "impact" of drawing release dates (together with other breaches) is not enough. The fact of an impact, and equally of some loss following therefrom, must be proven.

[223]Thus on this particular aspect of McNamara's claim I find:

1.A delayed or late release of IFC drawings was not a breach of Bantrel's subcontract with McNamara.

2.In any event, McNamara has not proven that any delayed or late release of IFC drawings, either in general or in particular, delayed the execution of the related work so as to cause McNamara to suffer, directly or indirectly, any compensable loss.

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"CONTRACTOR-FURNISHED UTILITIES AND FACILITIES

A. Utilities. The utilities listed below will be furnished by CONTRACTOR without cost to SUBCONTRACTOR, provided that all such utilities will be furnished at outlets existing on the Jobsite and SUBCONTRACTOR shall, at its expense, extend such utilities from said outlets to points of use and at completion of all the Work remove all materials and equipment used for such extensions.

1. Electric power at 25kV, 3 phase.

B. Facilities. The facilities below will be furnished by CONTRACTOR. Such facilities may be used by SUBCONTRACTOR without charge, provided that any such use will be subject to written approval of

CONTRACTOR.

1.Laydown and working area;

2.Space for office facility;

3.Parking area;

4.Security - manned Gate House;

5.First Aid; and

6.Toilets"

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job site. Bantrel paid for the lease costs of this space.

[227]McNamara points to the subcontract milestone date (SC - 8) of March 17, 1997 for "authorization to proceed". McNamara's argument on this aspect of its delay claim:

"McNamara was to commence work on March 17, 1997 (Consent 4, SC8). The most appropriate available site was Come by Chance, three nautical miles away, and by requiring McNamara to establish its own laydown area there, the Plaintiff had to bring all major construction elements (piles, girders, pre-cast, marine fender, reinforcing steel and miscellaneous metals) to the construction site by barge. Work crews also had to be transported to the work site from Come by Chance requiring a "marine taxi service" (Strait Pilot). As of May 28, 1997, it would have been impossible to predict the consequences of continuing to service the project from Come by Chance. Some of the costs associated with the physical changes to the dock, loading areas and warehouse can be taken from McNamara's cost statements (RAL 1, Table 6.2) but these would not include joint venture equipment; Roy Lewis' April 1998 claim document had estimated $376,462.00 for the Come by Chance oil refinery dock facilities as well as $568,019.00 for the Guay crane at Come by Chance. In addition to these direct costs, there are significant impact costs of having to service the project from the Come by Chance, which could not feasibly be recorded on force accounts. Again, these have to be assessed as part of a global calculation using one of the methods referred to earlier."

[228]This submission appears to combine arguments relating to the cost of equipment used at Come by Chance with those relating to the requirement to use Come by Chance as a staging area. In terms of a delay argument, it says nothing. To say that in addition to direct costs, "there are significant impact costs of having to service the project from Come by Chance" is an unproven assertion of no assistance to the court on this aspect of McNamara's claim.

[229]Whether McNamara is entitled to compensation for certain activities undertaken or costs incurred in providing facilities at Come by Chance is an issue to be dealt with later. The question for present consideration is whether or not, in failing to provide a laydown area at Whiffen Head, Bantrel breached

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its contract with McNamara, and if in breach, whether it caused any delay which in turn caused loss to McNamara. I reiterate that each legal element of the claim must be identified and proven.

[230]In its response to the RFP, McNamara confirmed that it had inspected and was aware of the job site conditions, and had satisfied itself as to the nature and location of all the work. The daily diaries of Kolkman and Moore each record a visit to the Argentia site and the Come by Chance dock on January 23. Moore's note:

"Proceed to Come by Chance - visit tug dock and old____wharf.

Appears okay to ship pipe from ... also old building may have possible setup if we go to pre-cast..."

[231] Kolkman's note of January 23:

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laydown area at the 'job site'; but I do note the specific reference to 'job site' in par. A. It is a reasonable inference that such facilities would be provided by Bantrel either at the job site or as close to it as reasonably possible. Some support for this inference is found in the November 1996 "Instructions to Bidders" which states that Bantrel would provide an adequate laydown and working area "within the jobsite". However, it must be remembered that at the time of the RFP, most of the concrete work was expected to be cast-in-place, with the concrete being poured on location rather than pre-cast on land.

[234]As it turned out, a significant portion of the laydown area would be required by the pre-cast yard; the suggestion to use precast material instead of cast-in-place was made by Ballast-Nedam.

[235]It is clear that the joint venture representatives were well aware, prior to accepting the conditional letter of intent, that any onshore working and laydown area would have to be at the Come by Chance dock. Given the manner in which the construction was likely to proceed, these experienced marine contractors knew that there was no suitable space at Whiffen Head. McNamara accepted the contract on this basis, and cannot now assert that Bantrel's failure to provide a laydown area at the Whiffen Head job site was a breach of contract. Further, even if it were proven to be a 'breach', there is no evidence from which I can conclude that, in the circumstances, the failure to provide a laydown area at Whiffen Head led to any delay in actual construction activity and a resulting increase in costs. (As noted above, whether or not McNamara is entitled to additional compensation for any of the facilities constructed and equipment used at Come by Chance is another issue to be dealt with subsequently.)

(c) Late execution of site labour agreement

[236]McNamara's argument:

"Site access at the earliest opportunity was critical for completion of the project by December 31, 1997. Bantrel's subcontract required it to have a labour relations plan in place by September 1996 (JN3, Tab 6). The first milestone date of March 17, 1997 was missed as a direct result of Bantrel's failure to negotiate a site labour agreement until May 10, 1997. At least six weeks of acceleration results therefore from the Defendants' neglect in negotiating a site labour agreement. Further, the

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mark-up process went on into July 1997. While the parties knew on May 28, 1997 that the site labour agreement had been delayed and Bantrel had forecasted costs associated with the delay, this issue was not the subject of negotiations in Amendment No. 2. Again, the impacts of this breach of contract can only be quantified as a portion of a global calculation using SC 16, TMA3, a quantum meruit calculation or modified cost approach."

[237]Again the fact that Bantrel may have been contractually obligated to NTL to conclude a site labour agreement by September 1996 is not relevant to the assessment of McNamara's rights under its own subcontract. There is no date specified in the Mc-Namara subcontract for the completion of a site labour agreement, and McNamara accepted the conditional letter of intent on February 19 with the explicit condition that it was subject to the completion of a site labour agreement satisfactory to the owner. McNamara knew at acceptance that no such agreement had by then been completed.

[238]The site labour agreement was concluded on May 10, by which date McNamara had no marine equipment, and only one excavator, mobilized at Whiffen Head. As originally planned, caisson construction proceeded at Argentia, initially using McNamara's own union labour, which labour was fully reimbursable. The first work done involved concrete setup work. Construction of the caissons themselves did not start until late May, following the arrival of the slip-form boxes and the sinking barge Quensa.

[239]By not concluding a site labour agreement until May 10, Bantrel did not breach its subcontract with McNamara. Neither is there any evidence that "at least six weeks acceleration" resulted from the fact that Bantrel did not conclude an agreement until May 10; McNamara has not proven it suffered any compensable loss as a result of the delayed signing of the site labour agreement.

(d) Late delivery of piles

[240]Bantrel contracted with M & M Engineering to have the pipe piles fabricated and delivered to site commencing May 15, 1997. The schedule prepared in March contemplated that McNamara would commence piling on May 19. Because of problems with the manufacture and painting of the piles, the first delivery did not occur until June 23.

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[241]Thus McNamara asserts the following:

"If the Buzzard had arrived onsite on May 11, 1997, it would have been unable to drive piles until June 23 ... Bantrel cannot take advantage of an excusable delay on McNamara's part (the Buzzard's foundering) to account for their own inexcusable delay in the piling supply ...

According to Sandy King's Plan B, the Olympic should have been pile driving by June 2, but was delayed three weeks as a result of the problem with the delivery of the piles."

[242]And in its reply argument:

in fact, the evidence is clear that, had the Buzzard arrived on station as anticipated, the Defendants would have been unable to deliver the piles needed by the Plaintiff to commence work."

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piles because of template problems. On June 24 and 25 it drove the trestle abutment piles.

[247]McNamara simply was not ready to drive piles on May 15 or on June 2. Had the piles arrived on May 15, McNamara had no equipment onsite with which to drive them. Had the piles arrived on June 2, they could not have been driven since the only pile driving barge on site, the Olympic, was working as a dredge and continued to do so until later in June.

[248]There was no breach of contract by Bantrel and McNamara was not delayed in its work by the fact that the first piles did not arrive until June 19. To suggest that McNamara is somehow entitled to compensation at law because, if the Buzzard had arrived on May 11, (which it did not) there would have been no piles to drive, is an assertion devoid of any legal or logical merit.

(e) Discovery of rock in the tug basin

[249]During a dive survey in mid-April, bedrock was discovered in the area of the tug basin where Caisson 3 was to be sunk. After soliciting and rejecting a bid from the joint venture for the removal of the rock -and rock removal by blasting was specifically excluded from the existing subcontract - Bantrel contracted with Polaris Marine Services to drill, blast and remove the rock. Polaris required the assistance of support of McNamara in carrying out its contract. McNamara asserts that the decision to use Polaris instead of McNamara, the need for McNamara to support Polaris, and the modification to the sequence of caisson installation all combined to delay McNamara's work on the project.

[250]McNamara's argument on this point concludes:

"Quantification of the additional hours the sweep scow and the Dilly were used to support Polaris' operation can be based to a degree upon JN 14, Tab 2 and DG 2, Tab 3. McNamara's estimate was an additional 471 hours for the Dilly (for all causes) and an additional 1237 for the sweep scow (for all causes). Mr. Go we conservatively estimated thirteen days for the Dilly and eight days for the sweep scow for support of Polaris only. The full impact of Polaris' operation, however, can only be quantified using part of a global calculation using TMA3, SC16, a

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[251]McNamara had originally planned to place caissons 1, 2, 3, 4 and 5 in that order. Because of the need to excavate the rock under Caisson No. 3, the sequence was changed to 1, 2, 4, 5 and 3. Moore testified that this sequence was "logical, in the circumstances".

[252]McNamara refers to the rock outcrop as being "a major cause of delay and schedule interruption". While the removal of the rock caused a change in the sequence of McNamara's work, it was not a major cause of delay or interruption. While Polaris was working on the rock outcrop - including some time waiting on McNamara's support -McNamara placed the mattress rock at caissons 4 and 5 and then started to ballast those caissons with rockfill. The caisson placement work as a whole was not delayed. In fact, Keith Smith, McNamara's project engineer, confirmed that the actual time spent in sinking and ballasting all the caissons was less than that originally planned.

[253]More generally, McNamara was again aware, when it signed the letter of intent, of the limited extent of underwater geological examination. Indeed it had the foresight to include, in its 'exceptions and deviations', a reference to its assumption that "underwater excavation of solid rock will not be required in tug basin dock preparation". And it formally confirmed that it had examined the job site.

[254]On May 22, 1997, Beresford gave Bantrel notice [see footnote 5] under GC 16 of a 'change in site conditions' resulting from discovery of the bedrock. There is no suggestion in this letter that discovery of the rock was alleged by McNamara to be a breach of contract by Bantrel.

[255]As is evident from the earlier discussion, McNamara cannot, in a court of law, simply put forward the occurrence of various events, classify them as breaches of contract, assert that delay resulted and claim that the entire project must therefore be revalued.

[256]The discovery of rock in a tug basin was not a breach of contract by Bantrel. The reordering of McNamara's planned sequence of work was not a consequence of a breach of contract; it was simply the result of the discovery of a job site condition which, although actually unknown, could not be said to

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have been beyond the reasonable contemplation of the parties given the nature of the job site and the extent of the geotechnical investigation. And in any event, the discovery of the rock and its subsequent excavation did not cause any delay in completion of the project nor did it result in McNamara suffering any compensable loss.

[257]McNamara has not proven that it is entitled to relief as part of its delay claim on account of the tug basin rock. Its entitlement, if any, to compensation for work performed in support of the Polaris operation is a separate issue.

Summary on delay

[258]The foregoing deals with most of McNamara's delay assertions. The assertions remaining from those listed by McNamara were dealt with elsewhere in McNamara's written argument and will be considered in due course. Insofar as McNamara's claim for breach of contract is founded on its assertions of delay, it is without merit. McNamara has not established that the impugned activities or events were breaches of contract; neither has it established that there were resulting delays in construction which in turn caused McNamara to suffer adverse economic consequences.

(ii) Interference

[259]McNamara relies on an implied condition that its work under the subcontract was not to be interfered with by Bantrel or by others whose work Bantrel controlled or directed. As support for this proposition, McNamara offers an article by S.G. Revay, Time Extension in Construction Contract, 6 C.L.R. 253 at pp. 253-254:

"Construction projects today are so complex and involve so many parties that the successful completion is dependent upon the co- operation and co-ordination of everybody. Fortunately, even where the duties of co- ordination and co-operation are not spelled out in the contract, contract law provides that they are implied:

A contracting party implicitly obligates himself to co-operate in the performance of his contract and the law will not permit him to take advantage of an obstacle to performance which he has created or

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'While there are not a great many cases dealing with the question, it seems fairly well settled that a general contractor is under an implied obligation not to hinder or delay performance by his subcontractor and may incur liability for the latter's damages if he does not take all reasonable steps to ensure that the job site is ready and that work proceeds without undue delay.' (American Law Reports at 16 A.L.R. 3d 1252 and 1254)"

[260]The name of the American authority was not given.

[261]McNamara further says that the existence of such an obligation is confirmed in this case by the Alliance arrangement under which the parties intended to operate.

[262]I am prepared to assume for present purposes that, in the circumstances, Bantrel had an obligation under the subcontract not to act in a manner outside the reasonable contemplation of the parties to the contract, so as to cause McNamara to suffer loss or damage.

[263]McNamara puts forward four 'interfering' events

(a) July 29 order to go to a single shift

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Buzzard was onsite.

[266]The initial labour budget for the project was 168,000 hours, an estimate with which McNamara concurred. By late July 80,000 manhours had already been expended, and the work was about 10 - 12% complete. Roy Lewis, McNamara's commercial manager on the project, estimated at the time that the project would consume over 400,000 manhours. Santarsiere felt that there was a "serious disconnect" between the expenditure on labour and progress on the job. He "wanted to see where we were going", and stopped all shift work until Bantrel/NTL could get a "good fix" on the use of labour, equipment and time. According to Rausch, permission was given on Friday, August 15 to reinstate the night shift; this was done on Monday, August 18.

[267]Roy Lewis had joined McNamara in May 1997 as Commercial Manager. He was assigned to the Whiffen Head project in July, with particular responsibility to ensure that the various commercial and reporting requirements were handled properly, including necessary reporting to both the joint venture board and to Bantrel. On his arrival at site, Lewis was concerned over the "atmosphere regarding an apparent escalation of man- hours"; he felt that it was important to revisit the issue of marine manhours and establish a new budget.

[268]Lewis prepared a report indicating that, up to June 21, 28,189 direct (craft) manhours had been spent; he projected a further 512,727 hours, for a total of 540,916. In addition, staff labour of $3 million and allowances was anticipated. Bantrel's reaction, said Lewis, was one of "total dismay", and he was asked to revise his estimate with a view to reducing costs wherever possible. Lewis did so, and presented a new estimate of 420,000 direct manhours at a meeting with Bantrel and NTL on July 29. Kolkman, who was also present, felt that 470,000 was a more realistic estimate. As of the date of the meeting, Kolkman considered the project to be 12% complete, with only about five months left in which to finish the work. Santersarie suggested a craft labour target of 300,000 hours; Kolkman agreed that the staff (indirect) hours could be reduced. Lewis suggested putting together a group to review the manpower estimate.

[269]It was in this context that Santarsiere issued his directive, at the meeting, to lay off the night shift as soon as possible and to not consider the

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Argosy in preparing future manhour estimates (it was still being mobilized after the Buzzard accident).

[270]In these circumstances, this directive from the owner cannot be construed either as wrongful interference with McNamara's subcontract, or as a breach of it. There was nothing in the contract, express or implied, to preclude the owner or Bantrel from making reasonable requests of McNamara - or issuing reasonable directives - with respect to controlling or incurring expenditures for which Bantrel (and indirectly NTL) were fully liable under the subcontract. The reality is that the project was being built with the owner's labour; McNamara was managing the labour, but the owner was paying for all of it.

[271]At the time, although there had been significant manhours expended, there was a lack of corresponding progress in the construction of the facility. Further, the estimates then produced by McNamara were almost three times the initial projection. By acting to reduce labour expenditures while the manpower. issue was being examined, Bantrel/NTL committed no breach of contract nor any wrongful interference with McNamara's performance under the subcontract.

[272]Further, I am not satisfied that McNamara has established that it in fact suffered any compensable loss as a result of the temporary single shift shut down. Indeed some Bantrel representatives thought that productivity actually increased.

[273]McNamara asserts:

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[274]Kolkman's position was that the order to go to single shift had "an enormous effect". It "demotivated the crew", and caused a loss of production in prime construction weather. Further, he said, when the crew returned, there may well have been different workers sent by the union, and there would be a loss of production as they go through a learning curve. Krause, on the other hand, said "we weren't getting anything done at night", and "things were just not working out on the job site".

[275]However, no work was scheduled in any event for the weekend or for the civic holiday August 2-4. The concrete and caisson work continued as planned, albeit with the change in sequence necessitated by the rock removal at caisson 3. In particular, caissons 4 and 5 were ballasted - an activity that Moore said would be normally scheduled for daylight hours in any event.

[276]Some of the employees laid off from the night shift were placed on the day shift; there was no evidence presented or analysis done to determine whether any laid off employees did not return when recalled.

[277]Insofar as equipment was concerned, what equipment there was on site continued to work seven days a week, subject to weather, mechanical down time and labour disputes. The project was completed by December 31 and McNamara has not established any compensable increased equipment usage arising out of the single shift order.

[278]Thus, had I concluded that Santar-siere's direction amounted to a breach of contract, there is insufficient evidence from which I can conclude that the work on the project was delayed or interfered with as a result.

[279]Further, and more fundamentally, the Cap agreement concluded on August 22 represented a renegotiation of, at least, the labour aspect of the subcontract. This new labour arrangement superseded any existing concern of McNamara over increased labour cost as a result of the Santarsiere directive.

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(b) Order not to mobilize the Argosy

[280]McNamara claims that the Argosy was ready to be mobilized to site from Argentia on August 1. Santarsiere directed that it not be mobilized on that date, taking the position that the crane on the barge required additional preparation before it could carry out the task at hand. Bantrel wrote McNamara on August 6:

"1. It is apparent from our inspection of the "Argosy" in Argentia on August 1, 1997 that the crane boom is not properly sized at present so that useful and efficient work can be performed by this equipment when brought to site.

"2. As the outfitting of the "Argosy" will not be complete until the crane boom is shortened, and as the "Argosy" is not yet at site, "mobilization" has not yet taken place and standby charges do not apply. To meet the requirements of "mobilization" under the Subcontract equipment must be:

a)at site, and

b)fully operational and ready for work. Neither condition applies to the "Argosy" in its present state.

"3. The intent of Mr. Santarserie's statement , as partially quoted in your letter, was to request that mobilization of the "Argosy" not be completed until McNamara has given advance notification of the vessel's preparedness to sail from Argentia.

Please advise when the crane boom modifications have been completed and the "Argosy" is fully ready for work and ready to sail for Whiffen Head."

[281]McNamara agreed to undertake the work requested and the Argosy arrived at Whiffen Head on August 25.

[282]There is an issue between the parties as to whether or not the Argosy was ready for work on August 1. However, this is not the same

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question as whether or not Bantrel - through Santarsiere - breached the subcontract by ordering that the Argosy not be mobilized.

[283]McNamara's argument:

"However, if the Argosy had been allowed to proceed to site following Mr. Kolkman's letter of August 1st, she should have commenced work immediately. The Plaintiff therefore says that the Defendants' action in delaying the completion of the mobilization of the Argosy had the further effect of accelerating the work and causing the work schedule of the Argosy, the Argosy crews, and other equipment and facilities attendant on the operation to be compressed. Any labour, temporary materials or subcontract costs associated with this acceleration would also represent special damages associated with this breach. The impacts (particularly on productivity) of the last four weeks would be quantifiable only as part of a global approach using TMA3, SCI6, a quantum meruit, or modified cost approach."

[284]The Argosy agreement sent to McNamara on May 28 and accepted by McNamara contained the following condition:

"2. Approval to mobilize the 'Argosy' is subject to review subsequent final inspection of the 'Buzzard' in Marystown (expected June 6, 1997). If approval to mobilize the 'Argosy' is not given, then McNamara will be reimbursed the actual costs incurred in outfitting of the 'Argosy' up until that time."

[285]It is clear that the parties contemplated and agreed that further authorization would be required before the Argosy would actually be mobilized to site. It is a necessary corollary that Bantrel could delay mobilization of the barge. (I leave aside for the moment the question of whether or not the delay in mobilizing the Argosy is attributable to Bantrel (through Santarsiere) or to McNa-mara. This issue is relevant to the argument on the price reduction clause in the agreement). Even if, as argued by McNamara in this part of its claim, Bantrel delayed mobilization, it was not in breach of contract in so doing. This right - to control the fact or timing of mobilization - was expressly reserved to Bantrel in the Argosy agreement.

[286]The Argosy was later mobilized to site, arriving on August 25. The

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effect of the deduction provision in the Argosy agreement will be considered later.

(c)Failure to promptly and properly deal with the rock excavation under Caisson 3

[287]McNamara says that "the issue of the unforeseen rock" in the tug basin "and its removal" represents a direct interference with McNamara's work plan and a breach of contract. This appears similar to the argument made earlier under delay, and requires no further comment.

[288]But McNamara goes further:

"Numerous witnesses, including John Neville, Ralph Rausch, Lorna Tardif, and Steve Revay testified that in their experience it is very uncommon to award a subcontract for the removal of unforeseen sub- surface materials to an outside contractor, rather than giving it to the company that is primarily responsible for the work. ... effective coordination of on-site activities is essential to the conduct of a complex construction project. The Plaintiff asserts that it was in the best position to coordinate and prosecute the drilling, blasting and the removal of the underwater rock in an efficient manner, with the best utilization of resources, and the optimal utilization of time."

[289]McNamara says:

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(d) Interference from the onshore blasting activities

[291]The onshore construction work was carried on by Foundation- Pennecon. In the course of this work, significant and numerous blasting activities took place. For safety reasons, McNamara personnel had to stop work - if working in a 'danger' area - and leave the site during the blasts. McNamara knew that such blasting would be a 'fact of life', but asserts that it had anticipated that blasting would be completed early in the construction season. In fact, it continued into December.

[292]McNamara says that, since McNamara was required to clear the area, the blasting caused unanticipated interference and delay. Again it claims a resulting breach of contract. Tardif assessed the extra hours expended by McNamara at 7,056.

[293]Shawn Harris was employed by Foundation-Pennecon to supervise the onshore blasting. He worked at Whiffen Head from January to October 1997 and introduced into evidence the records of the daily blasting plan from August 13 to December 16. (Harris himself had no involvement with the blasting after October 20.) A plan was issued in advance for each blast, giving the blast area, the danger area, the safe area and a list of specific areas to be evacuated. Typically, said Harris, the offshore vessels themselves were not in danger, but if moored in the tug basin rather than working offshore, they would be required to move.

[294]Foundation-Pennecon blasted every working day - usually once, late in the day -the blast would require the affected area to be cleared for about 30 minutes. Harris had no idea of the impact of the blasting, if any, on the McNamara operations and said that, at least as of October 1, Foundation- Pennecon anticipated that the work schedule of the Alliance members would not be compromised.

[295]Keith Smith testified that the blasts, often occurring around a change of shift, were a nuisance and that, while the vessels themselves might not be affected, the crews on the vessels had to move their cars from the parking lot, if in the danger area; it took time to ferry the crews back and forth. Further, he said, the blasting closed the main gate to the area, and on occasion concrete and armour stone being delivered to the job site by truck were held up. Smith made some sporadic diary entries concerning blasting

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and its effect on McNamara's activities, but said that he did not record every event. It is apparent from one entry - September 19 -that Smith felt McNamara could "pull rank" and have a blast delayed if it was going to interfere with a critical piece of McNamara's offshore work.

[296]I am satisfied that there was some disruption to McNamara's work due to the blasting activity. However, it seems to me to be properly categorized as more of an inconvenience than a factor causing McNamara's work schedule itself to be enlarged. Further, much of the inconvenience came from workers having to move their cars. Harris explained that there were parking areas available for cars other than the parking area used by the McNamara employees. My impression from the evidence, although it was not completely clear on the point, is that by some forethought and planning, workers could have parked in a more efficient manner and in different areas from which their cars would not have to be moved. The blasting, as Harris said, was a daily occurrence, scheduled around the same time each day; it would not have required significant planning by McNamara to minimize the effect.

[297]Other than Smith's assertion that the blasting went on longer than anticipated, there is no evidence that the blast schedule was extended from that anticipated in August - more particularly on August 22 when McNamara concluded the Cap agreement. Further, there is no basis on which to conclude that any aspect of the blasting or scheduling can be laid at Bantrel's feet in such a manner so as to be considered a breach of Bantrel's subcontract with McNamara. Foundation-Pennecon worked under a separate contract with Bantrel. There is no evidence of Bantrel's knowledge of or participation in establishing the blasting schedule; even if this had been established, there is no proven basis on which to create the necessary legal linkage to McNamara's subcontract.

[298]McNamara's claim that Bantrel breached the subcontract by reason of the Foundation-Pennecon onshore blasting activity is not established.

(iii) Changes in Scope of the Work

[299]McNamara asserts that various changes in the scope of its work represent breaches of the subcontract. Its written argument summarizes:

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(ii)that there is a direct relationship between Bantrel's actions and the increased costs;

(iii)the events referred to herein had a detrimental impact on the work which was difficult to quantify; but

(iv)McNamara's expert's report independently addresses these events and confirms McNamara's claims to pecuniary losses for Bantrel's breaches of contract."

[300]Under the subcontract, Bantrel was entitled to make changes in the 'Work'. Assuming that the subcontractor (McNamara) raised the issue of any such change with Bantrel (written notice and strict compliance with GC -16 was waived) a claim for additional compensation could in principle arise [see footnote 6].

[301]The changes in scope raised by McNamara here do not engage then consideration of breaches of contract as such. What is required is a determination of whether or not there was a change for which McNamara is entitled to additional compensation under the contract and if so, the amount of such compensation.

[302]I have set out earlier in these reasons my interpretation of the "Change to the Work" provision of the subcontract, construed in the context of the unusual financial provisions of the agreement.

[303]Each of the assertions made by McNamara will be addressed. It is necessary to consider, with a number of the assertions, the defendants' argument that the particular claim is precluded by the terms of the Argosy agreement. If the conclusion is reached that the claim is not precluded by the Argosy agreement, then the claim will be assessed against the requirements that I have determined necessary to establish a change of work. Any necessary quantification will be deferred.

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(a) Increased quantities of material

[304]As the basis for its argument that quantity increases in material represent, in and of themselves, a change in scope, McNa-mara refers to Form A-2 in the RFP, This form, headed "Schedule of Approximate Quantities and Unit Prices" listed the various permanent materials, including piles, reinforcing steel concrete, structural steel, rockfill gravel and so on. Estimated quantities were given for each. According to McNamara, the actual quantities of many items increased significantly over the figures shown in Form A-2. McNamara also offers this as further support for the proposition that the project as a whole was so significantly altered that the only fair remedy for McNamara is to have the entire work revalued.

[305]Insofar only as it relates to quantity increases in and of themselves, McNamara's assertion of a resulting change in scope is not made out. The quantities shown on Form A-2 in the RFP were for bidding purposes only.

While McNamara's response did provide a priced Form A-2, that Form and the concept of unit pricing were not referred to after that. It did not form part of the accepted subcontract, which instead provided for McNamara to be fully reimbursed for permanent materials it purchased. Other permanent materials shown on Form A-2, such as piles and structural steel, were supplied directly by the owner. For contractual purposes, there was no further talk of either material quantities or unit prices after submission of the response to the proposal.

[306]The Form A-2 quantities were not part of the bargain between the parties. The difference between those quantities and the actual quantities - even leaving aside certain proof problems - cannot be considered as a change in scope.

(b) Design change to pre-cast concrete

[307]McNamara's argument:

"The original construction proposal submitted by McNamara suggested that an alternative design could include pre-cast concrete panels on the trestle.

"However, during the 'constructability' phase the possibility of extensive

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pre-casting was discussed at the Marine Engineering Construction meetings.

"While the possibility of using pre-cast was a matter of discussion, no decision to proceed with an extensive pre-cast operation was made until, at the earliest, the week of February 19 to 26, 1997. As of February 20, 1997, Bantrel was still assembling information on pre- casting operations.

"Ultimately, it was decided to pre-cast most of the major concrete elements for the trestle and loading platform, including pile caps, concrete beams, deck slabs, and the concrete sump for the loading platform.

This constituted a change in method subsequent to the execution of the subcontract on February 14, 1997.

"As a consequence, it was necessary for McNamara to prepare a concrete pre-casting yard at Come by Chance.

"The operation of this yard required additional labor, equipment, formwork, materials handling, logistical support, and storage space for completed pre-cast units. Special lifting frames for the pre-cast units had to be fabricated and tested and there was an increased demand for accuracy in design and fabrication."

[308]This 'pre-cast' design change was brought about during the

constructability phase because of the strong recommendation of the Ballast Nedam engineers. The primary rationale for this recommendation was that it would reduce 'over-water' time in pouring concrete and would, correspondingly, reduce the use of the marine fleet. The evidence is that this decision did cause an increase in concrete quantity - for which the owner was responsible - and an increase in detailed engineering, for which the owner was also responsible.

[309]While firm decisions to pre-cast specific components were taken at various times,-some of which came after McNamara's acceptance of the subcontract on February 19 - pre-casting was very much a live issue in the

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constructability phase, and as of the date of acceptance. The project minutes do not contain any reference to claims by McNamara for an adjustment to the subcontract price on the basis of the decision to use precast components.

From ail of the evidence, the reasonable inference to draw is that McNamara recognized that the decision to use pre-cast components, while it would likely mean an increase in reimbursable costs to the owner, would also reduce marine operations and thereby reduce McNamara's own cost for the utilization of the marine fleet.

[310]In all the circumstances existing and anticipated as of the date of contract acceptance, the decision to use pre-cast concrete was not such a change in design or method as can properly be considered a change in the scope of work contemplated by the subcontractor.

(c) Scope Changes in the tug basin

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meant more formwork, more hydraulic jacks to operate the slip form, more jack rods, more manhours and a considerable impact on material quantities. The increased width of the caissons also led to a need for additional mattress rock. The details of the larger caissons, said Moore, were in McNamara's possession by late February or early March.

[318]In addition to the size and construction of the caissons, the other primary design issue in the tug basin was the wave protection - involving essentially the size and placement of armour stone and filter rock -and the need for other fixed structures such as a retaining wall and a sea wall. The retaining wall was Moore's idea, and was intended to be placed along the shoreline adjacent to caisson No. 1, thus allowing for the placement of armour stone directly against the retaining wall rather than simply against onshore rockfill. The sea wall was a wall to be added to the deck of the caissons, on the seaward side, so as to protect from sea spray.

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-seawall height may be reduced

-seawall may be extended south from the first caisson a short distance

-toe protection stone for the caissons will be increased from 500 kg to

1-2 tonnes.

16.2Armour South of the Causeway: MPB suggested that straightening out the boundary of the armoured zone between the causeway and Whiffen Head would increase the tug basin fill only slightly and reduce the quantity of armour stone.

Action: ME to consider this option

16.3Tug Basin: Fire Water Sump: both ME and MPB were present at a meeting where a decision was made move the fire water sump to the small caissons at the south side of the tug basins.

Action: ME to include this change in the design of the tug basin."

[320]McNamara was not happy with what it perceived to be changes in the tug basin scope of work. On April 18, Pat Maddigan, a Nolan-Davis engineer seconded to the project by Bantrel to develop the design of the tug basin, sent an e-mail to John Read-shaw of Sandwell. Readshaw was closely involved with the engineering of the wave protection:

"We have a very unhappy contractor after seeing the sketches faxed to you today. It appears that the increased quantity associated with the bench will add about $500,000 to the cost. The contractor is also concerned that the additional work is all associated with the marine operations and therefore 'completely changes the scope of the work'. He is also predicting major impact on schedule.

"The change in the gradation of the filter stone is also a concern."

[321]The MECC minutes of April 23 note:

"6.2 Marine Fleet Requirements: MPB [the joint venture] stated that the

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current requirements for placing rock fill and armour may increase their marine fleet requirements. They will review this and raise issue with L.K. [Landis Krause]"

[322]The same reference appears again in the April 30 minutes.

[323]It was left to Beresford to pursue this issue with Krause.

[324]The minutes of May 7:

"6.0 b) Marine Fleet Requirements

Status: in progress. MPB stated that the current requirements for placing rock fill and armour may increase their marine fleet requirements. They will review this and raise issue with LK."

[325]On May 8, Maddigan forwarded to Maddock, again with a copy to Beresford, the then current estimate of fill quantities, including armour stone, for the tug basin:

"Attached is the current estimate of fill quantities for the Tug Basin. The following comments apply to this estimate:

1)Filling the area south of the causeway is included.

2)The rock submattress is assumed to be well graded from 75mm to 450mm.

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No doubt this arose from the requirement to transport piles from Come by Chance to Whiffen Head.

[331]The Buzzard foundered on May 10. As mentioned earlier, an "Action Team" of King, Kolkman and Moore was set up to assess the impact on the project. Moore testified that his primary concerns were equipment and scheduling; he left issues of cost to the joint venture representatives. Kolkman said that the discussions of the Action Team involved planning, equipment and costs. The Action Team was required to prepare a plan so that any necessary decisions could be taken by project management on May 28.

[332]The Action Team met over the weekend of May 24 - 25. Ed

Beresford was also on site, and spent considerable time assisting the team.

[333]Arising out of the Action Team discussions, King prepared two alternative plans entitled Plan A and Plan B. McNamara claims that it never received a copy of these plans and that, had it been aware of the cost estimates shown on the Plans, it would not have agreed to the Argosy agreement. McNamara claims that the Sandy King memorandum, showing a price tag of $5 million and $7 million for Plans A and B respectively, was withheld deliberately by Bantrel and that in so doing, Bantrel acted in bad faith and induced McNamara to enter into the Argosy agreement while Bantrel had in its hands cost estimates showing millions more dollars than the amounts then being discussed by the parties.

[334]On Monday, May 26, King faxed the plans, with commentary, to the Bantrel office in St. John's, to the attention of Landis Krause. The time of the transmission, as shown on the document itself, was 12:38 p.m.

[335]The full transmission, (excluding the construction schedules and list of potential equipment):

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"Please find attached a copy of the following:

. Plan "A" construction schedule, reflecting the "Buzzard" arriving July 01, 1997.

. Plan "B" construction schedule, reflecting the "Buzzard" arriving August 01, 1997.

. List of potentially suitable equipment, checked out for possible hire.

. Estimate of cost of hire of "additional" equipment assessed to be required to finish construction this year.

"Construction Schedules General

. The schedules indicate the movements of crane/jack-up barges on major items, to check logic and determine equipment, construction methods and sequencing to finish the project this year, as requested by G. Santarsiere last week.

. At the top of each schedule are the mobilization requirements of various pieces of equipment, including "additional" equipment assessed to be required to complete the work this year.

. Construction of a temporary road along the top of the rockfill will permit placing the filter and armour down to the bench. This will require the mobilization of an "additional" 150T crane, but will reduce the rock work of the W. Dilly to about one month and free her up for concrete works and general support.

. After dredging in the tug basin, the "Olympic" will drive the four test piles and an additional six vertical piles at the loading platform, before proceeding to the trestle, to which she will be dedicated, assisted by the "W. Dilly". She will then proceed with catwalk construction.

Plan "A" Buzzard Arrival July 01. 1997.

. Requires immediate mobilization of the Argosy and 2 mooring dolphin

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templates for arrival on site by July 01, 1997. Also required are a flat deck material barge by June 09, a third tug by July 01, and a "Sullivan- type" drill by July 07, 1997.

. The "Argosy" with two templates will drive all the piles of the moori ng dolphins. The Sullivan down-the-hole drill will be used to advance and clean out the socket piles. Socketing will be done using the Sea Core drill.

. The "Buzzard" will drive and socket the remaining loading platform piles and all of the breasting dolphin piles.

Plan "B" - Buzzard Arrival August 01, 1997

. In addition to the equipment mobilization listed above, it will be necessary to mobilize a drill/crane barge to assist the "Argosy" in socketing piles. Further, the increased number of vessels will necessitate a third tug be mobilized.

. With a third template, and the drill barge (Sullivan-type drill), the "Argosy" will complete the remaining loading platform piles, before proceeding to the mooring dolphins, as described in "Plan A".

. The "Buzzard" will be limited to construction of the breasting dolphins.

Availability of Potential Equipment

The attached list indicates vessel availability in the Atlantic region and Eastern seaboard.

Estimated Cost of Hire of "Additional" Equipment

The attached sheets provide an estimate of the cost of hire of the "additional" equipment assessed to be required to complete this year under Plan "A" and Plan "B". These figures have been put together from recent quotes and budget prices, for the purposes of determining approximate costs, as requested by G. Santarsiere.

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Plan "A" would involve an additional expenditure of approximately $5.3 million, Plan "B" approximately $7.1 million. These figures do not include costs of fuel, maintenance and crew, except for the tug. As discussed, we will proceed with reviewing the achievable construction this year, using the equipment as presently planned, with emphasis on completing the trestle and loading platform this year.

ESTIMATED COST OF "ADDITIONAL EQUIPMENT PLAN "A"

ESTIMATED COST OF "ADDITIONAL" EQUIPMENT PLAN "B"

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[336]The document has, on the transmission page, in Krause's handwriting, "cc Santarserie, M. Campbell, C. Penny".

[337]On the same morning, the joint venture partners met to discuss what Kolkman described as a 'crisis - how to get the project back on the rails and who should pay for it'.

[338]Beresford's notes of this meeting contain references to "force majeure; do we mobilize Argosy? What is client prepared to pay - probably nothing". These comments are included on two handwritten pages dated May 26, 1997; there are three other pages, not dated, but provided sequentially in McNamara's document production which contain costing information on the Argosy and other equipment. There is a dispute whether or not these latter pages represent Beresford's notes taken at the joint venture meeting held on the morning of the 26th; if so, the cost details shown on those notes may indicate that the joint venture was in fact aware of the majority of the cost information included in King's Plan A and Plan B.

[339]However, before further considering Beresford's notes, it is

necessary to review some of the evidence on the work of the Action Team.

[340]Plans A and B sent by King, insofar as equipment and costing are concerned, are a reproduction of information put together by Kolkman on May 25. There are two pages dated May 25 and in Kolkman's handwriting, which set out Plan A and Plan B with costs of $5 million and $7 million respectively.

[341]Kolkman's Plan A - assuming Buzzard onsite July 1 - is entitled "Additional Equipment Required in Order to Complete Project This Year". The list includes a crane barge (for six months), a crew boat, a flat top barge, a tug, a drilling rig, a 150 tonne crane and templates. Plan B is similar, but assuming that the Buzzard would arrive onsite August 1. It included two crane barges (for five months each), and the other Plan A equipment.

[342]Kolkman testified that he put the listings and figures together in his office at Whiffen Head. He felt that King was in charge of the process, but King was predominantly involved with the schedule review. Insofar as the listing of equipment itself was concerned, Kolkman explained that the flat top barge, the tug, the drilling rig and the crew boat were necessary to support

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an additional crane barge. The 150 tonne crane was to be used onshore, for placing armour stone further out than could be done with the existing smaller crane, thus freeing up the barge William Dilly from rock placement and allowing it to move to concrete work. The costing figures, said Kolkman, he either "knew by heart" or they came "from the top of his head". He added that, with respect to the estimated price for the crane barge of $15,000 per day ($450,000 per month excluding fuel, maintenance and crew), he must have had that information from Pitts. Alternatively, he said, he maintained an equipment file from his time with the Straits Crossing joint venture in Prince Edward Island, and says he may have obtained prices from information in that file.

[343]In cross-examination Kolkman was referred to a May 21 letter from Rausch (Pitts) to Neville quoting a lump sum price for the Argosy "for the duration of the contract" of $893,435, representing a combination of rental and operating costs. Kolkman said that he spoke to neither Neville nor Rausch before he put his numbers together. He was also questioned about the credit to be allowed for the loss of the Buzzard -$270,000 per month - and asked how he could explain estimating a cost of $450,000 per month for a cheaper crane barge. Kolkman could not satisfactorily explain the $450,000 per month figure.

[344]Kolkman knew that Maurice Otto of Ballast Nedam, in company with John Urie of Ballast Nedam, was coming to St. John's for meetings on the Monday to discuss the time and money implications of the Buzzard foundering. Said Kolkman, "we figured, when we were preparing the estimate, that we would get an extension of time and full reimbursement of the additional cost".

[345]In response to questions from the Court, Kolkman also said that the $15,000 daily charge for the crane barge would stay the same, regardless of shifts worked, and that the price contemplated a barge like the Argosy or the Olympic, both of which were cheaper than the Buzzard. He was asked about Plan A - one barge for six months as compared to Plan B, two barges for five months - a total of 10 months - and specifically asked to explain the additional 4 "barge - months" under Plan B. He could not. Neither could he explain how the work was actually completed in four months after the arrival of the Argosy. Under cross- examination, he conceded that at least 50% of his potential cost shown for the crane barge was "irrelevant". (I note that this

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cost was gross, before allowing any credit for the loss of the Buzzard.)

[346]There is a May 6 entry in Kolkman's diary - before the foundering of the Buzzard - which is perhaps indicative of his general approach to pricing. Kolkman commented at a meeting of the joint venture board -"Ostrich politics - everyone understands that we haven't covered the lacking equipment in our tender - group agreed on crew boat, concrete buckets, truck mixtures, placing boom, tug boats". Kolkman agreed that by this comment he was criticising the joint venture for not having included the needed equipment in the tender.

[347]Other discussions were also taking place following the Buzzard accident. On May 14, Beresford, Moore and Smith met with Santarsiere, Krause, Maddock, and other Bantrel/NTL personnel to review the McNamara execution plan for the marine installations. No marine equipment was yet onsite nor had the Quensa arrived in Argentia. In the course of the meeting, Beresford indicated that the rockfill work was now extending out 12 metres more than contemplated, that as a result the marine fleet would be over- extended, and that the schedule might be affected. He said that another flat deck scow might be required. Beresford suggested that the tug basin now required placement by barge of five times as much rockfill as originally planned; Bantrel did not agree that there had been a significant change in the scope of work, but agreed to review the issue.

[348]Santarsiere raised the issue of mobilizing the Argosy, along with the Buzzard, with a view to minimizing labour overtime and protecting the schedule. Beresford advised that there would be little advantage in using both crane barges since they used different piling systems. However Beresford did agree that McNamara would look into mobilizing other barges.

[349]McNamara asked Pitts for its price to mobilize and supply the Argosy. Rausch faxed Neville on May 20 quoting a price as follows:

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[350]Neville was not happy with the quote since it was higher than that originally given to McNamara by Pitts in December 1996. At that time, the mobilization and demobilization were significantly lower, the quote for operation was $388,000 and for rental $452,890, both over the full duration of the project.

[351]Neville wrote Rausch:

"In December 1996, you were prepared to put the Argosy in at the above rate for duration of project. What would your figure be now for Lump Sum duration of contract?"

[352]Rausch replied:

"OPERATION

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responsible for resolving the cost of additional equipment or otherwise MPB should be prepared to give back the additional Lump Sum price pertaining to the "Buzzard" so that the Project can spend this money on another piece of equipment. MPB agreed.

"NTP advised that MPB must perform as contracted. The Project needs the marine portion completed this year or else the Project must spend additional money for craft overtime in other areas next year. The schedule for the trestle and loading platform has already been impacted. NTP stressed that MPB (specifically Ballast-Nedam) has an obligation to perform."

[354]There was no discussion of cost at this time. Rather, the decision was taken to assemble the Action Team. On May 23, Ballast Nedam wrote to Neville setting out the position that the joint venture:

"... should formally advise Bantrel that a delay in performance of the Works will occur due to force majeure events as described in GC -31 of Exhibit "A" Construction Subcontract General Conditions, being catastrophic (weather) conditions beyond Subcontractor's control. The extent of the delay will be advised as soon as all information has been assembled. ..."

[355]Neville replied to Ballast Nedam the same day:

"We are presently having our Legal Counsel review the contract as it relates to the force majeure Clause GC-31 of Exhibit "A" (this will further be discussed at our Joint Venture Meeting on Monday, May 26). It should be noted that in his opinion, it is very unlikely that we can enforce this occurrence as being catastrophic (weather) conditions as there are no weather reports to indicate such. It should also be pointed out that our other Partner (Pitts International) had a tow underway at the same time.

"In any event, the position of Bantrel at this time is, they insist on the contract being completed on the schedule as requested and that they will not be held responsible for any additional costs incurred."

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[356]The next day, Neville and John Mulcahy of McNamara met with Santarsiere and Krause in Bantrel's office. Neville advised that the joint venture was claiming force majeure; he also indicated that the cost question was an issue for Ballast Nedam (the owner of the Buzzard) - that Ballast Nedam would claim in respect of the tow and that the joint venture would in turn claim over against Ballast Nedam. Neville told the meeting that the mobilization and demobilization of the Argosy would cost $350,000, that its operating cost for 5 months, based on a double shift, would be $1 million, and that the necessary templates would cost $200,000. (The price quoted by Rausch on May 21 was $318,090 for mobilization and demobilization and just under $900,000 for rentals and operation for the duration of the contract.)

[357]Neville also advised the meeting that there would be a two month credit for the Buzzard of $540,000 ($270,000 per month). Finally, Neville said that the joint venture partners were meeting on Sunday evening with Maurice Otto of Ballast Nedam and would be able to advise the owners on Monday if Ballast Nedam would be picking up the additional costs. The parties agreed to meet again at 2:00 p.m., Monday.

[358]The joint venture members met on Monday morning, May 26 before their afternoon meeting with NTP. As noted earlier, Beresford's notes contain two pages dated May 26; three other pages are undated. Neville prepared minutes of the meeting, but they were not written until July, well after the Argosy agreement. Neville's notes with respect to the financial issues discussed at the meeting are of little assistance, since those issues were overtaken by the Argosy agreement. He did note, however:

"Equipment

-It appears the "Buzzard" will be ready to sail from Marystown the week of July 13.

-"Argosy" should arrive on site July 1, 1997. (subsequent to our meeting a further delay has been encountered. "Argosy" will now be two weeks late -mid-July).

-Crane Barges McN. Co. #19 and the "William Dilly" will be commissioned to ensure completion of the works in 1997.

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-Also, an additional small Tug "Whitby" may be required, together with a Crew Handling Boat when the "Buzzard" and "Argosy" enter the Project."

[359]Page one of Beresford's notes of the meeting (Doc. ID F088 684) contain point form references to "force majeure, catastrophic weather, do we mobilize Argosy, what is the client prepared to pay - probably nothing". The following page (F088 685), also dated, contains such comments as "how could they force cost on us - do job now -force majeure, negligence? Buzzard - P.A.B. - towed to Marystown should leave Wednesday; can't go on Marystown dry dock; St. John, N.B. go on dry dock." These latter references are at the bottom of the page.

[360]The top of the next page (F088 686) -undated - reads: "Marystown may be too expensive - may go elsewhere - if other repairs were cheaper (time) (money) BN would have to decide next week - someone has to pick up extra cost - July 1 appears optimistic".

[361]There then follows a listing of costs:

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[363]The following page (F088 687) -undated - starts off "if B say want job done this year - assume extra cost next year if LP and trestle complete this year".

[364]There follow references to contract status and to the joint venture agreement, with particular reference to points made by Ballast Nedam concerning the fee payment to the sponsor company. The bottom of the page reads:

"Scheduled to complete - if plant not provide . default - except in circumstances."

[365]And the top of the next page: (F088 688):

"That are beyond the responsible control of the joint venture partner."

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[370]When asked about the absence of a date on the last three pages, he said that he generally tried to date every page; however, when confronted in cross-examination with four other examples where he did not do so, he acknowledged that he did not do it in every case.

[371]Beresford was adamant about one thing - that the numbers in his notes, and in particular those relating to the tug, crew boat, crane and other equipment, were not discussed or passed on to the members of the joint venture during the meeting.

[372]Neville testified that the two dated pages of Beresford's notes reflected matters discussed at the morning joint venture meeting. He described those attending as the most senior joint venture people - Neville, Mulcahy, Beresford, Otto, Urie and Rausch. With respect to Beresford's notes in general, Neville said that "Beresford will have to answer to his own notes".

[373]The joint venture representatives did discuss claiming force majeure, the position still favoured by Neville in order to get an extension beyond December 31. If force majeure were not recognized, said Neville, the joint venture would have to provide more services which services, unless otherwise agreed, would be at joint venture cost. Although the dated pages of Beresford's notes refer to the lack of evidence to substantiate catastrophic weather and indicate a discussion of possible tow line deficiencies, Neville could not recall any discussion of tow line problems. He however maintained his position that force majeure was applicable. The position of the joint venture on May 26, said Neville, was to "go after force majeure and insist on it".

[374]As to the costs, Neville took the position that he did not see Sandy King's memorandum - Plans A or B - until this litigation had started. When asked about the parallel between Beresford's notes and the Plan A and B costs (other than the crane barge) Neville simply said - "you'll have to ask Beresford". He was not asked directly if the cost and equipment figures in Beresford's notes were discussed at the meeting.

[375]John Mulcahy, McNamara's Vice-President of Operations, was also at the morning meeting. He was "100% sure" that there was no discussion of the work of the Action Team. He had no knowledge of "the papers or work" of

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the Action Team. He was also "100% positive" that there was no discussion of equipment or prices such as that reflected in King's memo, in Kolkman's listing, or in Beresford's notes.

[376]Rausch, representing Pitts, was also present. He testified that the joint venture partners discussed contract matters, engineering, personnel and the holdback; the Argosy was not discussed at the meeting - Rausch said that the reference in Neville's typed minutes is to a discussion following the meeting. On cross-examination, he reiterated that the Argosy was not discussed. Further, said Rausch, he did not participate in any meeting where repairs to the Buzzard were discussed; he did not agree with Beresford's notes that there was discussion as to what the client was prepared to pay, or negligence, or liquidated damages. However, he readily recalled a discussion of those matters as recorded in Neville's typed summary prepared some two months later.

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Team was working. He met with the team on Saturday morning, going over with King details of the then current construction schedule. On Saturday afternoon he prepared a list of equipment he thought "might be usable", reviewed this with the Action Team, and gave them his understanding of the pricing arrangements.

[382]This list of equipment was in fact started by King, who made a listing of seven crane barges, noting their ancillary equipment, availability and suitability. Beresford then added to the list. He listed a crane barge, another barge, a tug, crew boat, 150 tonne crawler crane and a Sullivan drill. There were no costs indicated on this document. Beresford said that he had an equipment file with prices that had been previously quoted to him; he made this available to Kolkman and the Action Team. Both Beresford and Kolkman had access to the same file information.

[383]It is clear from the foregoing, whatever the differences in evidence there may be between Beresford and Kolkman, that King played no part in obtaining or estimating the prices for the marine equipment, nor in listing the equipment that would be required. This information was provided and compiled solely by a combination of Kolkman and Beresford, senior joint venture personnel.

[384]Before commenting on the above sequence of events, I also note that Beresford had not been privy to the discussions and exchange of correspondence between Neville and Rausch on May 20 - 21 concerning the possible mobilization of the Argosy. While Beresford knew that Pitts was reviewing the issue, he was, during this period, at the job site and not involved in the commercial discussions. However, the figures for the Argosy noted on the third page of Beresford's notes reflect the essence of the actual exchange between Rausch and Neville. Beresford notes the single and double shift prices of $90,000 and $180,000 and the mobilization cost of $350,000. His figures also reflect the discussion between Neville, Mulcahy, Santarsiere and Krause on Saturday, May 24, when Neville gave the cost of mobilizing the Argosy as $350,000, together with $1 million for operation and rental and $200,000 for templates. Finally, and significantly, Beresford's notes reflect the $250,000 template cost given by the joint venture representatives to the project meeting on the afternoon of May 26. He also records '1.6000', (which I take to be $1,600,000), the figures put to the owner on the afternoon of May 26 as the total of the Argosy costs.

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[385]Based on my review and assessment of all of the viva voce evidence, and of the documentation referred to above, I find:

1.The five pages of Beresford's notes are sequential, and represent notes taken by him at the joint venture meeting held on the morning of May 26. That meeting did include a discussion of the costs of mobilizing the Argosy and the costs of providing the other equipment listed. Although the anticipated cost of mobilizing the Argosy was noted to be $1.5 million, the meeting decided and Beresford noted, to put a cost of $1.6 million to the owner in the afternoon meeting.

2.The joint venture parties also considered at that meeting the extent of and the timing of repairs to the Buzzard, and concluded that a July 1 arrival would be optimistic. Although recognizing that the weather was probably not 'catastrophic' and that there were problems with the tow line, the joint venture nonetheless decided to insist on the application of force majeure and thereby justify its claim to a contract extension.

[386]There will be further discussion of the above events when discussing other aspects of McNamara's claim.

[387]To continue with the events leading to the formation of the Argosy agreement. As already noted, King's memorandum was faxed from Whiffen Head to the Bantrel office in St. John's on Monday, May 26. The faxed transmission is recorded as being sent at 12:38 p.m. Krause testified that he did not have the memo before the 2:00 p.m. meeting. His evidence, taken on discovery and filed at trial:

"A. I can't recall when I did receive this fax. It was subsequent to the meetings of - on the 26th in St. John's and the discussions from Terra Nova Lodge. ... I did not have it for the -at the time of the meeting.

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Q. Can you tell me what the "cc" in the right-hand corner means when it refers to the three names there?

A. It was carbon copy to G. Santarsiere, a copy to Murray Campbell, and a copy to Mr. Ches Penny.

Q. Okay. And can you tell me whose handwriting that it?

A. That's mine. ...

Q. An you tell me why it was not copied for any of the McNamara personnel, specifically Mr. Neville?

A. I would assume Mr. Neville would have got a copy of the - of the information from his personnel that were working on it, on the estimate -

... and the schedule. ...

Q. ... can you tell me whether you were aware of the contents of this formal report prior to your actually receiving it?

A. No. I can't recall having the detail of that information until I saw the

report. ...

Q. And this was faxed to you 12:38 p.m. from Arnold's Cove to St. John's office?

A.Right.

Q.Which is where you were?

A.And I don't know why I wouldn't have it.

Q.How can you be sure that you didn't have it if it was sent to the office where you were an hour before -

A.Well, I guess just reading through it subsequently and now, the disparity in the numbers would have rang a bell to me at the time. You know it wouldn't have been - actually, I would have probably brought it

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A. That's subsequent.

Q. Yes, but not to anybody within McNamara?

A.No. ...

[388]At 2:00 p.m. Neville, Mulcahy, Rausch, Otto and Urie met with Santarsiere, Krause, Campbell and Ches Penney of Foundation-Pennecon.

[389]McNamara advised that revised schedules had been prepared based on the availability of the Buzzard as of July 1 and August 1, with the dolphin work being delayed to 1998. McNamara recommended that an August 1 mobilization of the Buzzard was the most reliable basis for scheduling. I am satisfied that the minutes accurately represent the essence of the discussion:

"2.0 Schedule Alternatives

McNamara advised that revised schedules for the Marine work have been prepared based on the following:

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mobilization of the Buzzard and a July 1, 1997 mobilization of the Argosy, all of the marine work including the trestle and loading platform will be finished by the end of 1997."

There is an obvious parallel between these alternatives and those set out in the Sandy King memorandum. There is also a reference in the King memo - "we will proceed with reviewing the achievable construction this year, using the equipment as presently planned, with emphasis on completing the trestle and loading platform this year". This excludes the dolphins, an area of work specifically referred to by McNamara for possible completion in 1998. I note also the parallel with Beresford's notes of the morning meeting where he refers to completing the loading platform and trestle this year (1997) and not completing the mooring dolphins and breasting dolphins. Further, there is a parallel between the six day double shift proposed by McNamara and the six day double shift on which the schedules accompanying the Sandy King memo were based.

[390]The minutes continue:

"4.0 Argosy costs and Force Majeure

McNamara reconfirmed the mobilization costs for the Argosy as advised at the May 24, 1997 meeting as:

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costs or any Alliance costs associated with Force Majeure. NTP also stated that since NTP had paid an additional lump sum as an "insurance premium" to complete the marine work in 1997 by engaging the Buzzard, then why should NTP pay for the Buzzard if work completion is deferred to 1998. MPB disagreed that all other costs should be to its account and that it should be penalized by losing the price of the Buzzard if work is not completed in 1997.

6.0Ballast Nedam Recommendation and Discussions BN advised that the present situation offered 2 scenarios: a) Bring in additional equipment, or

b) Delay some items to 1998.

These options are the least costly. BN committed to do its best to get the Buzzard to site and reconfirmed McNamara's statement that the trestle and loading platform work can be completed this year, with an Aug 1, 1997 mobilization of the Buzzard.

If Force Majeure is not accepted then MPB has a contractual responsibility to do what-ever is required to recover schedule. BN contended that since BN was not to blame for the delay of the Buzzard, why should it be held responsible to mobilize other equipment. NTP disagreed with this assessment and advised that NTP does not accept Force Majeure. NTP contended that the right thing to do is mobilize the Argosy at MPB's cost."

[391]There followed another discussion of the cost of mobilizing the Argosy - $1.6 million additional cost less three months credit for the Buzzard - $270,000 x 3 -$810,000 - leaving an approximate net cost to the project of $800,000. NTP proposed splitting this cost 50/50; McNamara advised that "using the Argosy would expose it to additional cost estimates of an additional drill ($400,000) and tug ($600,000) for a total of $1 million. McNamara advised NTP that it would accept these costs if NTP would pay the $800,000 net Argosy cost. The minutes continue:

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"NTP reprised that its offer was good for $400 k plus reimbursable labor costs and could not agree to more without consultation with the other alliance partner principals.

"McNamara revised its position and proposed accepting the offer of $400 k if the project would accept the costs for another drill and tug. NTP advised that these costs were open ended and therefore were unacceptable. NTP restated its final offer as $400 k and MPB again declined acceptance.

"The meeting concluded with no agreement on price but both sides committed to further review of the pricing after consultation with the other alliance partners."

[392]Coincidentally, over the next two days, a number of participants in the project attended a "high performance workshop" at Terra Nova Lodge, about two and a half hours drive from St. John's. Santarsiere attended for NTL, Krause, Campbell and Harry Greenberg, (Bantrel's Business Manager) for Bantrel, and Beresford, among others, for McNamara. Neville was not present, but he continued telephone and fax negotiations with Krause during this time.

[393]On May 28, Krause faxed an offer to Neville - for reasons which I will indicate, I am satisfied that this offer followed conversations between Neville and Krause:

"Subject: McNamara Argosy Offer

. $600,000.00 increase to fixed fee for equipment.

. Argosy to be mobilized at site by July 1, 1997. $50,000.00 reduction to fee for each week late at site. ,

. Includes

-Mob/Demob

-Rent, two shifts, fueled & Maintained

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-Templates

-All other equipment necessary to complete total scope by December 31, 1997.

. Mobilization to take place in Nova Scotia and commitment to be reviewed after Buzzard receives final inspection in Marystown (expected June 6, 1997).

. Buzzard to be mobilized by August 1, 1997.

. No labour cost to Alliance for Buzzard until on site."

[394]Krause did not recall having any direct conversation with Neville while at Terra Nova Lodge; he thought that discussions leading to this offer may have been conducted through Beresford. However, Maddock, who was also present at Terra Nova Lodge, remembered being in a room with a group while Krause and Neville spoke on the telephone. The fact of a telephone conversation between Neville and Krause is also confirmed by Neville's own notes of a May 28 discussion with Krause, which notes Neville forwarded to Otto and Rausch on May 29. Neville wrote to Otto and Rausch -"the following attachment is a summary of my conversation with Landis Krause yesterday". His notes, in typed form, as sent to Otto and Rausch:

"Landis Krause

Re: McNamara Argosy Offer

May 28, 199

CONDITIONS

. Increase fixed fee for Equipment by $600,000.00

. Argosy to be mobilized in Nova Scotia and commitment reviewed after "Buzzard" receives final inspection in Marystown (expected June 6, 1997).

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Landis stated he would review the need for the "Argosy" if "Buzzard" is ready by July 1, 1997. My comment was, that money spent on mobilization of the "Argosy" up to that point and any monies spent on preparation and fabrication of templates would have to be reimbursed. He agreed.

Also I stated if the "Buzzard" was available July 1, 1997 and if their decision was to go without the "Argosy we would have difficulty ensuring completion of the Project in 1997. In any event, the fact of having the "Buzzard" mobilized prior to July 1, 1997 is unlikely at the present time.

. "Argosy" to be mobilized at site by July 1, 1997. $50,000.00 reduction to fee for each week late at site. Ralph Rausch assures me the "Argosy" will be at site and ready July 1, 1997.

. "Buzzard" to be mobilized by August 1, 1997 (hopefully earlier).

. No labour costs to Alliance for "Buzzard" until on site.

. Includes:

-Mob./Demob.

-Rent, Two Shifts, Fueled & Maintained

-Templates

-All other equipment necessary to complete total scope of work by December 31, 1997."

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presumably joint venture information rather than Bantrel's, was reflected on the May 28 fax from Krause, thus tending to confirm that Krause included in the fax information received from a prior conversation with Neville. The faxed time on the offer - not otherwise proven - is shown as 8:52. (There is no indication of a.m. or p.m.)

[396]Neville's notes of the May 28 conversation record "all other equipment necessary to complete total scope of work by December 31, 1997". (my emphasis). The May 28 fax from Krause refers only to "total scope". The additional words in Neville's notes indicate both that the matter was discussed between Neville and Krause and that Neville gave it sufficient thought to write the full phrase - "total scope of work" - as he did.

[397]On May 28, after receiving instructions from Krause, Murray Campbell (Bantrel Subcontracts Administrator) wrote to McNamara confirming the offer. (There is no indication that this letter was faxed.) Given the reference to reimbursement of costs if the Argosy were not mobilized, I conclude that the letter was written following Krause's conversation with Neville:

"This letter confirms our fax dated May 28, 1997 which offered an increase to the Lump Sum Price for Equipment of $600,000.00 for the following:

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1.There shall be a $50,000.00 reduction to the above additional Lump Sum price for each week the "Argosy" is late arriving at site.

2.Approval to mobilize the "Argosy" is subject to review subsequent final inspection of the "Buzzard" in Marystown (expected June 6, 1997). If approval to mobilize the "Argosy" is not given, then McNamara will be reimbursed the actual costs incurred in the outfitting of the "Argosy" up until that time, [see footnote 8]

3.The "Buzzard" is mobilized and at site no later than August 1, 1997, and

4.There shall be no labour costs to the Project/alliance partners for the "Buzzard" until arrival at site.

A letter of amendment will be issued to McNamara reflecting this change once the Subcontract agreement has been executed.

Please advise in writing of your acceptance of this offer by May 30, 1997.

If you have any questions regarding this offer please contact Landis Krause at 5702666.

[398]It is significant that the wording of paragraph 4 in Campbell's letter was expanded from the original faxed offer to read "total current known scope of work, based on current drawings and specifications, and a work schedule of 50 hours per week, two shifts with prudent pre-approved scheduled overtime, by December 31, 1997". In addition to the new precise wording on the scope of work, the letter also introduced the reference to a 50 hour week. The joint venture, in its earlier discussions of scheduling, had been contemplating a 60 hour week with double shifts.

[399]Neville accepted the offer on May 29, with additional comments about reimbursement for template costs.

[400]At trial, both parties spent much time examining and re-examining the intention of the parties to the Argosy agreement, and in particular their respective views as to the scope of the reference "all other equipment". Their positions are diametrically opposed. McNamara says that "the only

2002 * 62718 (NL SC)

reasonable conclusion from the evidence as a whole is that the parties were not of the same mind when the agreement was reached".

[401]For the legal basis of this contention, McNamara relies on Colautti Construction Ltd. v. Ottawa (City) (1984), 5 O.A.C. 74; 46 O.R.(2d) 236 (C.A.). There the plaintiff had agreed to install a new sewer line for the city. Because of an error, the line had to be relocated after some work was done, and the company sought to recover its additional costs. At issue was responsibility for the error. In response to the city's defence that the additional cost was not "duly authorized in writing", as required by the written contract, Cory, J.A., wrote, at pp. 242- 243:

"In these circumstances the parties, by their conduct, have varied the terms of the contract which require extra costs to be authorized in writing. As a result, the City cannot rely on its strict provisions to escape liability to pay for the additional costs authorized by it and incurred as a result of its errors."

[402]This has nothing to do with the issue of consensus^ ad idem, as raised by the plaintiff here.

[403]Counsel for Bantrel referred to Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., [1980] 1 S.C.R. 888;.32 N.R. 488, an insurance case, for the proposition that in construing an agreement, the intentions of the parties should be found in the language used, having regard to the purpose of the agreement. . Estey, J., said at par. 26:

"Even apart from the doctrine of contra proferentem as it may be applied in the construction of contracts, the normal rules of construction lead a court to search for an interpretation which, from the whole of the contract, would appear to promote or advance the true intent of the parties at the time of entry into the contract. Consequently, literal meaning should not be applied where to do so would bring about an unrealistic result or a result which would not be contemplated in the commercial atmosphere in which the insurance was contracted. Where words may bear two constructions, the more reasonable one, that which produces a fair result, must certainly be taken as the interpretation which would promote the intention of the parties. Similarly, an interpretation which defeats the intentions of the parties

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Although the references to the "commercial atmosphere" may be appropriate in the present case, Estey, J.'s, comments appear to be more applicable where there is an actual ambiguity in the wording of the agreement.

[404]Of more relevance is Glaswegian Enterprises Inc. v. BC Tel Mobility Cellular Inc. (1997), 101 B.C.A.C. 62; 164 W.A.C. 62; 1997 CarswellBC 2836 (C.A.). That appeal concerned the interpretation of a contract involving the soliciting and obtaining of cellular phone service customers; the dispute involved the commission payable. In the course of his judgment, Lambert, J.A., referred to the "factual matrix" in which a contract is to be interpreted.

"The factual matrix is the background of relevant facts that the parties must clearly have been taken to have known and to have had in mind when they composed the written text of their agreement. It can throw light on what the parties must have meant by the words they chose to express their intention. ...

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the agreement in the foreground as he examined the picture. The words of the contract must not be overwhelmed by a contextual analysis, otherwise there is little point in writing things down. No certainty could be achieved in choosing words to express a bargain. Contract disputes would have to be resolved by lengthy inquiries into what was fair in light of what happened before, during and after the making of a contract.'

"With respect I am content to adopt Mr. Justice Donald's statement. The factual matrix is the background which may deepen an understanding of what the parties meant by the language they used, but the Court cannot make a new agreement. Our search is always for the meaning intended by the parties as expressed in the agreement. I agree with the conclusion of the trial judge about the meaning of the relevant clauses. That meaning is the meaning most consistent with commercial reality and the most consistent with the other clauses of the whole agreement."

[405]To similar effect is the decision of the New Brunswick Court of Appeal in Thuenken et al. v. Schweer et al. (1987), 83 N.B.R.(2d) 244; 217 A.P.R. 244 (C.A.), where Rice, J.A., said at para. 6:

"... the governing principle is succinctly expounded in Fridman, The Law of Contract in Canada (2nd Ed. 1986), p. 431:

'The fact that all or many of the different aspects and obligations of the contract have been expressly stipulated evidences the importance placed by the parties upon the language which they have used. The contents of any express term or terms are basic to a true understanding of the nature, scope and extent of the contractual rights and duties of the parties ... If the parties have seen fit to put their contractual intentions into writing, it must be because they wanted their meaning to be clearly and unequivocally established. There should be no room for argument about what has been agreed. The written word should make plain beyond doubt or question what were the requirements of the contract that was entered into by the parties.'"

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[406]In the case now before me, notwithstanding McNamara's evidence at trial, the contractual intention could not have been more clearly expressed. The wording in the Argosy agreement letter of May 28 is clear and precise. Neville was not caught by surprise; he did not signify acceptance without knowledge of this provision. Indeed, in his own words, and following his conversation with Krause, Neville himself wrote the phrase "total scope of work".

[407]If, as McNamara asserts, this provision refers only to the tug and drill to support the Argosy, then there was absolutely no need to refer to scope of work, drawings and specifications or to a 50 hour work schedule. Such references would be superfluous and irrelevant; however, in construing an agreement, words and phrases actually used should not be readily ignored.

[408]The factual matrix or context surrounding the making of the agreement here also supports the interpretation indicated clearly by the words used. The project had barely started - the Olympic had just started dredging. The foundering of the primary piece of marine equipment led to a significant concern over whether the December 31 completion date could be met. The project records indicate that McNamara was asserting that the scope of work had changed significantly, particularly in the tug basin. The joint venture, and Kolkman in particular, knew that additional equipment was needed, including a crane for the tug basin, a crew boat and a flat deck barge. The Action Team discussed the tug basin and the need to construct a temporary road along the rockfill to allow a 150 tonne crane to place filter and armour down to the bench. This would free up the Dilly for rock work. The Dilly, a crane barge, was listed in the subcontract but was not included in the joint venture agreement listing of equipment being supplied for the $11,267,775 price. In May the joint venture agreed to "commission" the Dilly and a barge in order to complete the project in 1997. The documents indicate that the joint venture considered the Dilly as "additional equipment" supplied by Pitts. Lewis testified that the Argosy, the Dilly and the tug Whitby were tracked separately under the "Argosy agreement". Said Lewis, "That's how we tracked the arrangements with Pitts".

[409]It is also evident that, prior to Neville's acceptance of the Argosy agreement, the scope of work was a live issue, with each party holding differing views. Neville himself testified that, as of May 28, McNamara felt that it was entitled to more money for the tug basin and the Come by Chance

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facilities.

[410]Also to be remembered here is the commercial context in which the "scope of work" risks with respect to labour and material were to be totally borne by the owner; the only risk being carried by McNamara was the utilization of planned equipment, and any need to supply additional equipment.

[411]However, the most significant contextual factor is that McNamara's replacement of the Buzzard with the Argosy or any other crane barge did not give it any legal right to claim additional compensation from Bantrel. McNamara was obliged to complete the project by December 31; if it could not supply a particular piece of equipment, then it was obliged to provide the necessary replacement in order to complete the job. It will be recalled that, when the subcontract was finalized, Ballast Nedam did not want to "guarantee" the provision of the Buzzard. It was prepared to "commit" the Buzzard, but, with amazing foresight, Ballast Nedam wanted to be able to substitute in case of accident. Neville, in his letter accepting the letter of intent:

"Ballast Nedam have suggested that the wording "Subcontractor has committed the Jack-up Barge "Buzzard" and other named equipment for the duration of the work" rather than guarantee as should the Buzzard become a "total loss" during "towing" it would not be possible to "Guarantee" furnishing of the Vessel."

Once the Buzzard foundered, the joint venture's only contractual recourse was to claim force majeure which, even if established, would allow only an extension of time without additional compensation. In the absence of establishing force majeure, McNamara was entitled to nothing for equipment beyond its lump sum contractual entitlement and was itself obliged to perform as the contract required.

[412]The contracting parties were sophisticated and experienced, and were dealing at arms length. It offends commercial reality to conclude that Bantrel would agree to simply give McNamara $600,000 for something McNamara was already contractually obliged to do. By providing the Argosy, McNamara did what it was already required to do -provide equipment to complete the work. What McNamara gave, in return for the extra $600,000,

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was its right to claim for equipment costs arising out of any scope of work issues which had arisen in the context of the scope of work as it was known as of May 29, the date of acceptance of the Argosy offer. What Bantrel received from McNamara was an agreement to provide all the equipment necessary to complete the project as it then stood. This included not only the Argosy and ancillary equipment, but equipment to be used in the tug basin and elsewhere, such as the 150 tonne crane, a flat deck barge and a crew boat.

[413]The Argosy agreement, in essence, established a new lump sum price for equipment and confirmed that the lump sum price to be paid was for the then total known scope of work. In a final comment on this point, I note the answer of Neville when, in response to a question from the Court, he indicated that based on the project as it stood at the time of the Argosy agreement, he was comfortable with the phrase all other equipment; the equipment claim, as I understood his evidence at that point, was based on subsequent scope changes.

[414]I reiterate - the wording of the Argosy agreement is clear; and the context of the agreement and 'commercial reality' do not suggest an interpretation other than that which is evident from the words actually used.

[415]The interpretation of the Argosy agreement, as I noted when digressing to consider it, is relevant to McNamara's claims for additional compensation arising out of alleged changes in the scope of work. To return now to McNamara's assertion of scope changes in the tug basin:

(c)Scope changes in the tug basin (cont'd from par. 313) 1. the configuration and size of the caissons.

[416]The size and details of the three larger caissons were known in March. The relevant IFC drawings were released on May 6. The decision to construct the smaller concrete caissons 4 and 5 was also taken in March; the IFA drawings for these were released on May 8, with the shop drawings approved for fabrication on May 21.

[417]Even assuming for the sake of argument that the caisson arrangement represented a change in the scope of work as it existed on

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February 19 (subcontract acceptance), and it is not necessary to express a final opinion on this, the five caissons as built were all part of the known scope of work as of the date of the Argosy agreement.

2. height of the parapet wall and addition of the sea wall

[418]These terms refer to a wall at the north end of Caisson 3 and the spray wall built up from the deck of the caissons running along the length Of caissons 1, 2 and 3. There is reference to these walls on a Sandwell memo dated March 24; Keith Smith testified that the question of the sea wall had been decided prior to his joining the project on March 19.

[419]These are relatively minor items and there is not sufficient evidence from which I can conclude that they represent a change in scope after May 29.

3.The rockfill "bench", filter stone requirement, and design of rockfill placement

[420]McNamara claims that the bench and filter stone were added after February 14 and that placement design details changed continually until July. (February 14 is the effective date of the subcontract.)

[421]There is a clear reference to filter stone in the RFP drawings. The drawing of the tug basin and causeway sections indicates, above what appears to be a depiction of armour stone and underlying rockfill, the notation - "armour stone 3 to 6 tonne; complete with l-2m. 300 kg to 600 kgs filter layer (TYP)". The evidence of Lorna Tardif on this point is interesting. She said that the notation "TYP" meant that the material specified is to be applied "typically". She agreed that the reference to filter would normally invite an inquiry from the contractor in order to clarify the designer's intention. But she also recognized that the risk structure of the contract itself would be relevant in a contractor actually deciding whether or not to seek clarification:

"A. McNamara should have made the inquiry had McNamara being preparing a fixed price bid for this contract. But in the context in which these were prepared, I don't think ... - it would have been appropriate for McNamara to make such an inquiry.

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Q. McNamara did provide a fixed price, a lump sum price for equipment.

A.Yes.

Q.And to the extent that filter stone had to be placed, would that not have implications for either the marine fleet or the land based crane?

A.Yes, yes, it may have. ...

Q.And to the extent that placement of a filter layer would require additional equipment or additional utilization of existing equipment. Would that not be a matter of concern for them?

A.It may not have been of sufficient concern to provoke an inquiry.

THE COURT: ...are you suggesting to me that if you have something that is not of sufficient concern to provoke an inquiry, that in a context such as this where you've got not a fixed price for the whole contract but you've got the combination reimbursable and lump sum, that the contractor simply picks up the risk?

"A. With respect to the equipment, yes. The difference here is that he had no risk regarding the procurement of the material, in this case of the filter stone, nor of any labour hours associated with the work." (my emphasis)

[422]The use of filter stone did not take, or at least should not have taken McNamara by surprise. Maddock said, and 1 accept his evidence, that the intended use of filter stone was properly annotated on the drawings, and that any experienced contractor involved in placing large rock armour stone would know that there was a requirement for an intermediate material (filter) between the underlying fill material and the armour stone. In fact Mulcahy testified that the use of filter rock was anticipated based on the preliminary drawings. Initially it was intended to use rockfill from the on-shore contractors work; however, this was not coarse enough for filter requirements and ultimately the material had to be obtained elsewhere.

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[423]As noted earlier, the design of the tug basin evolved over time, the wave protection design and material placement detail in particular being influenced by the results of the wave model testing. That testing was not completed until April 2. The MECC minutes of March 26 and April 2 record discussion of the placement of 5-6 tonne armour stone, increasing the layers of armour stone from three to four, and the use of 500 kg - 2 tonne stones for what Smith referred to as scour protection - stones placed at the seaward base of the caissons to prevent undermining the foundation. Indeed, there is a reference in McNamara's risk evaluation, submitted in its response to the RFP, to increasing the tug basin and causeway wave protection through the use of larger armour stone.

[424]As of April 2, McNamara was also aware of the requirement to place armour stone against the retaining wall being built along the rock fill causeway.

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underwater wave protection. All of the essential design elements were known and the detailed drawings had been released. There were some minor changes after May 29, including a change to the design of the rock fill in the area around Trestle Bent 1. But Smith agreed that this particular change should have been anticipated once the four pile configuration had been decided. Any further adjustments were minimal and did not affect the essential scope of work as it was understood on May 29.

4. Timber crib and fish habitat

[428]The timber crib is a slipway for launching oil response equipment, built next to Caisson 5. For trial purposes, it has been acknowledged by Bantrel that this timber crib and the fish habitat area are each an extra, or a scope change not within the known scope of work as of May 29.

[429]Overall, with the exception of the timber crib and the fish habitat, McNamara has not established that, after the Argosy agreement, there were any changes to the tug basin scope of work.

(d) Scope changes in the approach trestle

[430]McNamara's argument points out:

1.The trestle pile arrangement in the RFP called for two vertical piles per structure; it was changed to require four battered (angled) piles;

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McNamara asserts that "this was unanticipated and required extra manhours, material handling and work space".

[431]First some general observations are in order. McNamara's arguments on this aspect of its claim -(with the exception of item No. 4 - a delay argument already dealt with - and No. 6) - reflect the underlying difficulties with McNamara's whole presentation of its case. The argument gives no thought to the possibility that the scope of work may be defined as of the date of the subcontract or as of the later date of the Argosy agreement; McNamara's claims expert Tardif actually established her base line for the scope of work as of the RFP in 1996 - her report:

"Our opinion is based on the assumption that the following changes occurred to the scope of the work and/or the conditions under which this work was to be carried out between the date of the RFP and the completion of the work." (my emphasis)

[432]In the circumstances of this case, the use of this assumption as a basis for Tardif's opinion is completely unreasonable, given the qualifications expressed in the RFP, the explicit notation of the preliminary nature of the drawings, the subsequent change to a one season project, the constructability exercise, and so on.

[433]Tardif's use of the RFP scope as her base line, in light of my interpretation of the effect of the Argosy agreement, and indeed my conclusion as to how the scope of work would be determined as of the date of the subcontract all mean that, generally speaking, McNamara's assertions of scope changes, and their alleged financial impact, have not been made out.

[434]Turning now specifically to the trestle-related aspects, the design of the trestle was known as of May 29. The MECC minutes indicate that, throughout April and May there was discussion of the abutment details, and the vertical piles at the abutment were driven on June 24 - the first piles driven. (The total evidence on this point is scanty, but it is a minor point in itself.)

[435]Overall, McNamara has not established that there were scope changes in the approach trestle work after May 29.

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[436]The issue with respect to the assembly of the trestle girders (item 6) relates to the need for McNamara personnel to assemble these steel girders in pairs, ready for installation, after they arrived onsite at the work area in Come by Chance. It engages the question of whether such work was ever within the scope of work agreed to by McNamara, or was a responsibility specifically reserved to Bantrel; also involved is the issue of the cost of providing the Come by Chance work area. This issue will be dealt with later.

(iv)Breach of duty to McNamara

(a) Duty to act in good faith

[437]McNamara asserts that there is an implied contractual obligation on the parties to act cooperatively and in good faith. It points to the Alliance agreement as supporting the inclusion of such an implied term.

[438]The question of the extent to which a good faith obligation is part of a contractual relationship was canvassed by the Newfoundland Court of Appeal in Health Care Developers Inc. v. Newfoundland (1996), 141 Nfld. & P.E.I.R. 34; 443 A.P.R. 34 (Nfld. C.A.). Cameron, J.A., there limited her conclusions to the government tendering context. At para. 43:

"The doctrine of good faith is applicable in this case. While one can logically conclude that good faith performance of contractual obligations should be imposed on all contracts, the necessity for its application to Government tendering to 'protect the integrity of the bidding system' was expressed in Kencor and I need not state the principle more broadly than that it is a part of the law of tendering for Government contracts. As to the standard of conduct demanded by good faith, at a minimum, it would require that a party not act in bad faith."

[439]Generally as to implied terms, Cameron, J.A., had previously noted, at para. 38:

"In The Law of Contract by G.J. Treitel, 9th Ed. (1995) at p. 185, the author states that there are three groups of implied terms:

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'Terms implied by law are, in truth, simply duties prima facie arising out of certain types of contracts, or, as it has been put, "legal incidents of those ... kinds of contractual relationship." It has indeed been said of such terms that "the test of implication is necessity" rather than "imposition of a term." ... In the context of terms implied in law the courts do not look for any such evidence of common intention; and it is submitted that "necessity" here has a different shade of meaning from that which it has in formulation of the business efficacy test. The House of Lords has distinguished "between the search for an implied term necessary to give business efficacy to a particular contract and the search, based on wider considerations, for a term which the law will imply as a necessary incident of a definable category of contractual relationship".'

"And finally at p. 193;

'In deciding whether to imply a term in law, the courts are guided by general policy considerations affecting the type of contract in question; and to this extent. considerations of reasonableness and fairness may enter into the implication of such terms.'"

[440]And specifically in the Canadian context, at para. 39: "For a

discussion of terms implied by law in a Canadian context, reference may be made to the decision of Le Dain, J., in Canadian Pacific Hotels Ltd. v. Bank of Montreal et al., [1987] 1 S.C.R. 711; 77 N.R. 161, and that of McLachlin, J. (concurring), in Machtinger v. HOJ Industries Ltd., [1992] 1 S.C.R. 986; 136 N.R. 40; 53 O.A.C. 200. At p. 1010 of Machtinger, McLachlin, J., noted that the test for implying a term as a matter of law (that is, necessity as adopted by the House of Lords in Liverpool City Council v. Irwin, [1977] A.C. 239 (H.L.)) "is not whether the term is 'necessary' for the very existence of the contract." Rather, it is a question of whether the term is necessary to the fair

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functioning of the agreement given the nature of the contract under consideration."

[441]Although counsel for McNamara relies on the Alliance agreement as support for an implied term of a requirement to act in good faith, the argument focused on such a term as being necessary for the "fair functioning of the agreement". Such a term is one implied by law rather than by the intentions of the parties, to use the analysis from Treitel adopted by Cameron, J.A.

[442]A term of good faith based on the existence of the Alliance agreement would be based more on the interests of the parties; that is, by proposing to operate under an Alliance agreement, did the parties intend to imply a term of good faith into their formal subcontract? The short answer is no. McNamara never became a signatory to the agreement. However, recognizing that, well into the project, it was intended that McNamara be a party, and that McNamara had signified its willingness to execute the Alliance agreement, I am content to consider the issue as if McNamara were a party to the agreement.

[443]The primary objectives of the Alliance agreement are set out in Clause 2.1:

"The objective of this ALLIANCE AGREEMENT is to seek to achieve the alignment of the duties, obligations and activities of the ALLIANCE MEMBERS to encourage joint cooperation and the promotion of harmonious working relationships and the agreement to perform such actions as are considered necessary to reduce the TOTAL INSTALLED COST and ensure the PROJECT schedule is met. COMPANY expects to issue the CERTIFICATE OF OPERATIONAL ACCEPTANCE by October 1, 1998. All ALLIANCE MEMBERS are committed and dedicated to meeting this objective. In addition, the objective is to promote mutual benefit of the ALLIANCE MEMBERS and the benefit of the PROJECT by achieving the goals set forth in the RISK AND REWARD SCHEME."

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and assisting each other with the performance of the PROJECT, to meet and discuss measures to be taken under the CONTRACTS in order to:

(a)do everything necessary to successfully complete the WORK and to improve upon the success of the PROJECT over and above that which could be achieved by means of a non-Alliance contracting strategy;

(b)develop cooperative relationships with all parties (whether or not such parties are ALLIANCE MEMBERS) involved in the PROJECT to eliminate inefficiencies, duplication of personnel, effort and activities, breakdown and eliminate traditional contract interfaces, identify and develop synergies and develop a common purpose;

(c)share and apportion risks and reward fairly between the ALLIANCE MEMBERS and according to the extent that such members are able to contribute to the PROJECT;

(d)participate in the RISK AND REWARD SCHEME; ...

(f)be open with the sharing and implementation of innovative ideas and solutions which could improve the success of the PROJECT to the benefit of all, including the use of established value engineering procedures;

(g)promote good effective teamwork among all ALLIANCE MEMBERS and their personnel including the development of mutually beneficial relationships, which extend to subcontractors and vendors, together with a commitment to behave ethically and in a spirit of trust, openness, honesty and mutual respect. Toward that end, specialist "teambuilding" exercises shall be employed;

(h)reduce the number of subcontractors and vendors as far as reasonably practicable to minimize interfaces and enhance quality control; develop more cooperative relationships therewith with the aim of reducing costs and delivery periods;

(i)optimize the use of information technology to manage information

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and data between the ALLIANCE MEMBERS and others involved in the PROJECT efficiently, economically and without duplication;

(j)promote a working environment where accidents do not occur and in which employees, customers, contractors and the public will not be exposed to unacceptable health and safety hazards. Towards this end, COMPANY expects the in-house quality and safety management systems of the ALLIANCE MEMBERS (other than COMPANY) to contain self regulating mechanisms that will not rely on COMPANY being involved in any additional checks to ensure quality or safety of the

ALLIANCE WORK;

(k)provide protection of the environment by seeking to minimize the environmental impact of the ALLIANCE WORK;

(l)cooperate in the improvement of the ALLIANCE MEMBERS business processes applied to the PROJECT and to adopt standards and systems which eliminate duplication, inefficiencies and activities with no added value, particularly at the interfaces of the processes including the use of established continuous improvement procedures;

(m)promote teamwork, trust, cooperation, harmony and consensus; to produce "win-win" situations, to reduce and avoid conflict and confrontation; to be proud of the PROJECT and to make the PROJECT and the ALLIANCE AGREEMENT Principles employed an example for others to follow."

[445]The final clauses are significant:

"9.1 Notwithstanding any other provisions of this ALLIANCE

AGREEMENT: ...

(b)The provisions of this ALLIANCE AGREEMENT shall not in any way over-ride, vary or prejudice the rights, remedies, duties and obligations of the ALLIANCE MEMBERS under their respective CONTRACTS.

(c)This ALLIANCE AGREEMENT shall not be legally binding and no legal or contractual rights and/or remedies, duties and obligations shall

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[446]It seems to me that, given the nature of the agreement, and noting the specificity of the last two clauses, the intention of the parties to the Alliance is clear - the governing contracts are not to be affected in any way. Clause 9.1 rules out the incorporation into the subcontract of a good faith term based on intention, at least as that intention is reflected by the existence of the Alliance and the Alliance agreement. The Alliance was no more than a simple agreement between the various parties to try and reduce the Total Installed Cost of the project. Given the lump sum - fixed fee arrangement reached by McNamara, no doubt it was intended that McNamara would try and reduce those variable costs - labour/material - for which the owner was fully responsible. Presumably Foundation- Pennecon would do the same. As such, the agreement was a logical offshoot of the subcontract, given the financial structure of that document. But despite all the 'nice' language, despite the exhortation to produce "win-win" situations and to be proud of the project, the agreement was really no more than this - 'if we can work together to keep the owners' variable costs down, we will all benefit'. The Alliance agreement, as it specifically states, had nothing to do with the contracts between the parties.

[447]That deals with the question as to whether or not an obligation to deal in good faith arose out of the intention of the parti es. However, should such a term nonetheless be implied by law? That is, in the circumstances, was such a term necessary for the fair functioning of the subcontract? Again, the answer is no. The parties to the subcontract were large, sophisticated corporations with extensive construction experience. McNamara for its part had, and put forward itself as having, significant marine construction experience in Newfoundland, an attribute not possessed by Bantrel. Although the parties worked cooperatively from the beginning, with the builder having an unusually high level of input into the design of the project, the parties acted throughout at arms length and each in their own commercial interests. McNamara was compensated for its work in the constructability exercise; rather than lose the contract because of a problem over the lack of a bid allowance for temporary material, McNamara chose to live with its bid and accept the contract. When the time came to execute the formal subcontract, McNamara obtained legal advice; it suggested changes, the changes were

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refused, and McNamara chose to sign. Later in the project, with the Cap agreement, McNamara chose to change the 'labour reimbursable' approach to one in which McNamara could further profit if the agreed target amount were not reached.

[448]Unlike the public tendering cases relied on by Cameron, J.A., in Health Care Developers, supra, the circumstances here do not engage broad issues of public policy and public interest. Within broad limits defined by such parameters as unconscionability, duress, undue influence, or those duties flowing from a fiduciary relationship, commercial parties, particularly as sophisticated as the parties here, are free to make their own bargain.

[449]I conclude that, in the subcontract between McNamara and Bantrel, there was no express or implied obligation to deal with each other in good faith.

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diligence, wilfully rendering only substantial performance, and abusing the power to specify terms or to determine compliance ... interfering with or failing to co- operate in the other party's performance, pretending to dispute or arbitrarily disputing, adopting overreaching or 'weaseling' interpretations or constructions of contract language, taking advantage of the other party's weakness to get a favourable readjustment or settlement of a dispute, abusing the right to adequate assurances of performance, refusing for ulterior reasons to accept the other party's slightly defective performance, wilfully failing to mitigate the other party's damages, and abusing a privilege to terminate contractual relations."'

These are no more than suggested examples of bad faith.

[452]Ultimately then the question is do the circumstances relied on by McNamara exhibit such conduct as should, in all of the circumstances, be characterized as exhibiting bad faith? (Remember that this discussion is based on the existence of a contractual obligation which I have already determined was not present here.) The following discussion considers the actions, or inactions, which McNamara asserts constitute bad faith on the part of the defendants.

(i) Deletion of SC-16

[453]SC -16 - pricing adjustments - was contained in the draft form of subcontract forwarded with the RFP. The condition does not deal with the entitlement to a price adjustment, but rather with the quantification of such an adjustment. The beginning of the clause reads:

"SC-16 PRICING OF ADJUSTMENTS

When costs are a factor in any determination of a subcontract adjustment pursuant to the General Conditions titled CHANGES or DISPUTES, SUBCONTRACTOR shall propose upward or downward price adjustments in one of the following methods as directed by

CONTRACTOR:

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3.Establishing separate cost accounting records, subject to daily end - of-the-day written approval by CONTRACTOR of all allocable costs on a Force Account basis. Reimbursement of reasonable and approved incurred costs, plus specified rates for overhead and profit, as defined below, shall be the basis for Force account adjustment of the subcontract price. ..."

There follow related provisions that apply if the parties are unable to agree on the amount of an adjustment.

[454]On March 4, 1997, Dick McGowan, NTP Contracts Manager, sent to Beresford copies of the General and Special Conditions which Bantrel required to be incorporated into the formal subcontract. McGowan invited Beresford's comments. SC - 16, with some minor modifications from the first draft, was included. Beresford reviewed the conditions, noting specifically the wording changes made in SC-16. In three of the clauses in SC-16 there were blanks for the insertion for percentage overhead and profit and percentage of total direct labour. There was no evidence that the appropriate percentages were ever considered by McNamara or discussed between the parties.

[455]On March 21 McGowan wrote to Beresford advising of a change to SC-2 -Insurance, and asking Beresford's advice on any effect of that on subcontract pricing.

[456]On May 14 Murray Campbell sent to Neville a full draft of the subcontract "for your review". SC-16 is indicated as "NOT USED", both in the table of contents to Exhibit B, Special Conditions, and in the body of the text following SC-15.

[457]Neville wrote to Campbell on May 21:

"Upon review of the 'Draft Copy' of the Construction Subcontract, we

are forwarding to you comments by our Legal Counsel ...

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that all references to 'Absolute Completion' - 'Final Completion' - 'Final Acceptance' should be consistent by using the same wording.

I might suggest that we arrange a Meeting ... to finalize these outstanding issues."

[458]The comments of McNamara's counsel are not in evidence. However, it is apparent that McNamara had subjected the draft to a thorough review. Neville's own letter makes reference to the wording of SC -15 on page 19, the very page on which then appears, in block bold letters "SC - 16, NOT USED".

[459]Bantrel replied on June 5, with Harry Greenberg signing on behalf of Murray Campbell:

"In response to your letter of May 21, 1997:

At bid submission, McNamara took no exceptions to any clauses contained in Exhibit 'A', General Conditions and Exhibit 'B', Special Conditions. These Exhibits have remained unchanged in the current draft agreement. The letter of award on February 14, 1997 was based on, and bound, to your bid. To submit comments indicating changes in terms and conditions from your solicitors one month after award is totally unacceptable. All comments are invalid and will not be accepted. You are bound by your bid.

As for your other comments on consistent wording etc., we will address these in the final version.

As time is of the essence, please indicate when we can have your comments on the balance of the Subcontract Agreement to enable execution of the contract." (my emphasis)

[460]McNamara says of this letter:

"Mr. Campbell's statement was blatantly false particularly in the light of the removal of SC - 16."

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[462]Campbell testified that, when he arrived at Whiffen Head, SC-16 had already been removed from Bantrel's file working copy of the subcontract. As to the letter of June 5, Campbell said that he was in California at the time, and that the letter had been written by Harry Greenberg. Campbell agreed that the statement about Exhibits A and B remaining unchanged was "not correct".

[463]McNamara also entered, as part of its case on other points, portions of the discovery evidence of Harry Greenberg. There was no reference to any question to or answer from Greenberg regarding the letter of June 5 and the deletion of SC-16.

[464]The joint venture partners met with Bantrel on the evening of July 2. Neville's notes, as recorded for the joint venture partners:

"Items Discussed: 1. Subcontract Execution Joint Venture comments had been submitted to Bantrel sometime ago on Schedule 'A' and 'B', i.e. 'General Conditions' and 'Special Conditions'. Bantrel's position is that their Conditions are "boilerplate" and cannot be changed. Our Legal Counsel claim there are discrepancies in the General Conditions, however, it appears Bantrel are not willing or unable to change, stating these are Bechtel's General Conditions. Also, there were no exceptions stated in our submission. It appears we will have to sign the contract and fight our battles afterwards, if we are unable to resolve them through arbitration."

[465]The evidence is that those in Bantrel responsible for drafting the final form of the subcontract deleted SC-16. The evidence does not show a reason for that deletion, although one could reasonably conclude that, given the particular financial structure of the subcontract, adjustment pricing would not be required. In any event, the deletion of SC -16 was not hidden. On the contrary, it was specifically identified in the redrafted documents. Greenberg's "incorrect" statement in the letter of June 5 proves only that one was made; there is no evidence that the statement was intended to mislead or deceive McNamara as to the deletion of SC-16. I note further that SC-16

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itself was not a substantive clause dealing with entitlement to compensation. It was a process clause; should an entitlement to compensation somehow arise, the lack of a specific provision dealing with the method of determining the quantum of additional compensation in no way detracts from the existence of entitlement to compensation. McNamara was not prejudiced by the deletion of the clause.

[466]The existence or otherwise of bad faith necessarily must focus on Bantrel's actions, not on McNamara's reactions. Nevertheless it is worthy of note that there is no evidence of McNamara's reliance on Greenberg's statement in its decision to sign the subcontract. The evidence is to the contrary. McNamara had reviewed and had issues with various other parts of the conditions. It is a fair inference, indeed one that I would be prepared to make, that McNamara actually became aware of the deletion of SC - 16 in the course of its review; notably, Neville did not testify otherwise. McNamara decided to sign the subcontract notwithstanding its views expressed to Bantrel on July 2.

[467]The burden is on McNamara to prove Bantrel's bad faith. Such an allegation is easy to state, but it should not be made lightly. Based on the evidence before me, McNamara's assertion of an absence of good faith through the deletion of SC - 16 is not proven.

(ii)Withholding of the Sandy King Action Team memorandum and including the wording "all other equipment ..." in the Argosy agreement.

[468]Earlier in these reasons I set out the circumstances surrounding the creation of Sandy King's exhibits A and B - the listing of equipment and the costs developed by the Action Team over the weekend of May 24 -25. It will be recalled that Plan A - the Buzzard available by July 1 - showed a total equipment cost of $5,312,000, with Plan B -Buzzard arrival August 1 - being $7,130,000.

[469]The evidence supports the conclusion, and I so find, that this document, as such, was not in the hands of the joint venture representatives when they met with Bantrel at 2:00 p.m. on Monday, May 26. Landis Krause, to whose attention the 12:38 p.m. fax was sent from Whiffen Head to the Bantrel St. John's office, testified on discovery that he did not have the memorandum by the time of the afternoon meeting, although he was unable

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to offer any explanation as to why he did not have it. McNamara asserts that this evidence, given at videotaped discovery, "is incredible and that Mr. Krause's demeanour while giving his testimony confirms its unreliability". McNamara's brief continues:

"McNamara submits instead that Bantrel and NTP as well as Foundation Pennecon had copies of the report in their possession at the 2:00 p.m. meeting and attempted to negotiate Amendment No. 3 with full knowledge that independent estimates of the costs associated with completing the job in 1997 with the Argosy supplementing the fleet, would be in the range of $5-$7,000,000.00. McNamara asserts that this is a further indication of bad faith."

[470]At the time of his discovery, Krause was in poor health. His discovery evidence was introduced because he could not travel to Newfoundland, having recently undergone surgery and treatment for spinal cancer. The discovery was conducted in short sessions to accommodate Mr. Krause's impaired health.

[471]I have watched the videotape of the discovery, and, contrary to McNamara's submission, there is nothing in Krause's demeanour, including when answering questions about the Sandy King memorandum, that indicates to me any unreliability of his evidence.

[472]McNamara asserts that "Bantrel and NTP as well as Foundation- Pennecon" had Sandy King's memorandum in their possession. Other than joint venture representatives, attending the meeting were Campbell, Krause, Santarsiere and Ches Penney of Foundation-Pennecon. Penney was not called as a witness at trial.

[473]Campbell testified that he did not have the document before or at the meeting. He did say that as a rule, when faxes were received at the Bantrel office in St. John's, the 'clerical people would retrieve them periodically and deliver them to the addressee's in-box'.

[474]Santarsiere was also at the meeting. He had no recollection of the information being shared by Krause before the meeting. He quite freely acknowledged that if Krause had been aware of the information, it would not have been appropriate to withhold it from McNamara.

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[475]McNamara has not established that Krause, or any of the other NTP representatives had Sandy King's memorandum in their possession before or at the meeting with the joint venture on the afternoon of May 26. This conclusion disposes of McNamara's bad faith claim on this point. However, a further examination of the facts is warranted, since not to do so may leave the impression that, bad faith aside, McNamara was somehow 'duped' into settling the Argosy agreement at $600,000. Indeed, the nub of McNamara's claim on this point is that factually, it was 'forced' to accept $600,000 while Bantrel knew all along, and McNamara did not, that the estimated cost of necessary additional equipment was $5 - $7 million.

[476]However, subjecting McNamara's claim to even a cursory analysis shows that this assertion is without substance. Sandy King did prepare the memorandum in question, but all of the costing and equipment information came from either Kolkman or Beresford, senior joint venture representatives. King provided no pricing information at all; his emphasis was on scheduling. He simply took the equipment and figures Kolkman and Beresford gave him and included them on his Plans A and B; indeed, as noted earlier, King's Plans A and B are an exact duplicate of Kolkman's own working papers.

[477]Kolkman admitted that his crane barge pricing figure of $15,000 per day was not realistic; neither could he explain the four barge -month difference between Plans A and B. A comparison of Kolkman's barge pricing figures with the actual charges for the Buzzard and the proposed charges for the Argosy, which figures were in the possession of the joint venture, shows how unrealistic Kolkman's estimate was.

[478]The totals of $5 million and $7 million on Plans A and B were, in my view, worthless; they may have been influenced by Kolkman's view at the time that the joint venture was going to obtain a declaration of force majeure, and at the same time have NTP pick up all the additional costs. To suggest that McNamara was somehow prejudiced because NTP deliberately withheld from the joint venture the joint venture's own meaningless figures is far fetched. If there were any substance to McNamara's contention that Bantrel withheld its knowledge of a realistic cost estimate of $5 to $7 million, then surely Bantrel, when presented with an initial offer of $800,000 from McNamara, would have 'snapped it up' immediately, rather than risk trying to negotiate it down to one-half that figure.

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[479]Kolkman's evidence on this issue is worthy of further comment. Kolkman was at Whiffen Head on Sunday, May 25 working with the Action Team. His diary records his leaving for St. John's early on the morning of Monday, May 26. He said that he was leaving for Prince Edward Island the following day and was not called into St. John's for any particular purpose. Apparently Kolkman did not attend either the Monday morning meeting of the joint venture partners, nor the afternoon meeting with Bantrel. However, his diary for Monday contains a reference to "board meeting in St. John's". In his testimony, he said that he was still at Whiffen Head on Monday; he reiterated this when asked if he had seen the 12:38 fax from Sandy King, saying that it wasn't given to him since he was still at Whiffen Head. Nothing turns, as such, on Kolkman's whereabouts on Monday, but the difference between his evidence and his own diary reference, written at the time, is curious.

[480]Kolkman's diary note for Monday records 'meeting up' with Maurice Otto at the hotel in St. John's and "discussed situation Buzzard - no significant development". On Monday night, Kolkman had dinner with Rausch, Otto and Urie, a Ballast Nedam contract manager. Kolkman knew that the senior joint venture representatives had met with Bantrel that afternoon. At trial he was asked if at dinner there had been any discussion about the days negotiations, and in particular, if there had been discussion on the figures put to Bantrel as to what the joint venture was asking for in order to mobilize the Argosy. He replied that the discussion at dinner included the status of the Buzzard and the Argosy, and the fact that no formal subcontract was yet in place. Although the discussion did include the fact that no agreement about additional funding had been reached that day, Kolkman said that there was "not much discussion" on the figures. Although he considered his estimate of an additional $5 - 7 million as being significant, he said that he never shared this information with Otto or Rausch since he assumed that the figures "had been forwarded to our people" . Neither did Kolkman share with the joint venture personnel his view - reflected in the Action Team listing of equipment -that a 150 tonne crane was needed to place armour stone further from the shore, thus freeing up the Dilly to support the on-the-water concrete work. This information, said Kolkman, he kept to himself.

[481]In cross-examination, Kolkman described the situation as being one of 'crossed wires', with 'something wrong about the communication'.

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[482]In the context of all of the other evidence on 'who knew what when' about the information in the Action Team memorandum, it is difficult to accept that, as between Kolkman, Otto and Rausch, Kolkman's opinion on potential greatly increased costs was not discussed. The dinner topics included discussion on the fact that no agreement had been reached with Bantrel that afternoon; it is unrealistic to conclude that the $800,000 offer and $400,000 counter offer were not discussed or that, in that context, Kolkman would not have told his companions of his own estimate of $5 -7 million extra cost.

[483]Another part of McNamara's argument on bad faith singles out the inclusion of the phrase "all other equipment ..." in the May 28 'Argosy' letter from Murray Campbell. McNamara asserts that the inclusion of this wording is again indicative of bad faith.

[484]It is clear that Bantrel intentionally included the offending phrase in the letter sent to Neville. This was confirmed by Krause, Campbell and Maddock. Bantrel was aware of scope change issues that had been previously raised by McNamara and it wished to bring closure to those issues.

[485]McNamara's argument:

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[487]On the basis of the inclusion and modification of the wording, McNamara claims a breach of the contractual duty of good faith; it also claims aggravated or punitive damages. I am quite unable to accept the logic and legal reasoning that enable one to leap from the facts surrounding the Argosy agreement to a conclusion of bad faith and conspiracy. (In passing, i t seems to me that making this argument necessarily requires agreement with Bantrel's interpretation of the "scope of work" provision.)

[488]Neville and Krause discussed the conditions of the offer; included in those discussions was the question of all other equipment necessary to complete the work. Neville himself, in his written recounting of the May 28 conversation, which recounting he forwarded to Pitts and Ballast Nedam, used the phrase "all other equipment necessary to complete total scope of work by December 31, 1997". "Total scope" obviously includes the tug basin and Neville would have known that the Argosy would play no role in the tug basin work. The joint venture representatives knew that a 150 tonne crane was needed for the tug basin; they knew another crew boat and flat deck barge were needed; they also knew that additional equipment would be needed to avoid deferring some work until 1998; they 'commissioned' the Dilly and a tug in May to ensure completion of the work in 1997.

[489]The wording of Campbell's May 28 confirming letter is clear - an increase of $600,000 "to the lump sum price for equipment" for four items, the last of which relates to the provision of all other equipment.

[490]The fact that McNamara now asserts that it did not appreciate the full import of what it was agreeing to does not turn the resulting agreement into the product of a conspiracy or bad faith dealings. That Bantrel wished to bring closure to scope of work issues is understandable given the broadly defined scope of work at subcontract acceptance and the ongoing "scope of work" discussions which followed, particularly in relation to the tug basin. It seems to me that the fact that Bantrel was prepared to pay anything at all arising out of the Buzzard incident is more indicative of good faith than bad faith. McNamara had no claim against Bantrel for compensation because of the Buzzard foundering; at best, had force majeure been established, McNamara was entitled to an extension of time. But on that issue, despite the joint venture's 'publicly' stated position to the contrary, the joint venture knew that it did not have the facts to support a force majeure claim.

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[491]It was, or should have been obvious to McNamara that it was expected to give something in return for the extra $600,000. In these circumstances, a claim by McNamara that Bantrel's insertion of the "all other equipment ..." provision was a bad faith conspiracy is devoid of factual and legal merit.

(iii) Improper dealing with the temporary materials estimating error

[492]This issue relates to the pricing of pile templates, support piles, falsework and formwork [see footnote 9]. McNamara asserts that with respect to this "- it was misled ... or that there was a mistake promulgated by Bantrel". To the extent that there was a mistake on Bantrel's part, McNamara claims:

"... that in the negotiation between the parties in January and February 1997, Bantrel took advantage of their own mistake to McNamara's detriment."

[493]In its response to the RFP, McNamara did not include ah amount for temporary materials on Form A-l Firm Unit Prices; it did include an item for Small Tools and Consumables at $1.00 per labour hour. The pre-printed Form A-l supplied with the RFP had nO line specifically identifying temporary materials.

[494]Foundation-Pennecon, a competing bidder for the marine work, included an allowance for small tools and consumables of $6.50 per labour hour.

[495]In the bid clarification meetings that followed the receipt of the bidder's responses, it became apparent to Beresford, after the issue was expressly raised by Krause. that McNamara had not included anywhere in its estimate an amount for temporary materials. Beresford sent an internal memo to Neville on January 17; (this has been reviewed earlier). Beresford indicated to Neville that Krause had told him that, compared with other bidders, McNamara was low on line 1.1.6 on Form A-l but high on line 1.1.4 - "all other construction equipment". Krause had also said that, adding the two lines together, McNamara's bid was comparable to the others. Beresford concluded his memo to Neville:

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"Landis Krause believes (I think) that all materials, other than permanent, would be included in Item 1.1.6 and we would receive only $213,000 as per Item (1) above. Our exposure could be $1.5 to $2.0 M. We may have to go to Landis and say, simply, it is not included - period.

"Other than that to minimize, we could at the expense of productivity build only half the templates, encourage more changes in Engineering as per (5) above, build slip-form boxes on site. Construct Templates on Site and anything else. Get the best out of the Overhead items."

I note the reference to "at the expense of productivity". Given the anticipated structure of the contract, productivity was not a concern for McNamara since labour was fully reimbursable.

[496]Neville wrote NTP on January 20 explaining that while the cost of temporary materials had been factored into the various unit prices given on Form A-2, they had not been included in the lump sum prices on Form A-l. McNamara had assumed that temporary materials would be reimbursable - Neville went on to point out that, with some adjustments, including the contemplated shift to pre-cast concrete, the necessary unbid expenditures could be reduced to $769,000. Bantrel replied on January 21 taking the position that the adjusted lump sum price of $11,267,775 on Form A -l included temporary materials. Neville wrote on the 22nd indicating his decision to accept Bantrel's position.

[497]Despite all of this, McNamara's written argument on this point

asserts:

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including Burdens, Board and Travel Expenses. At the present time it is felt the Labour Content will be between C$5.0M - $6.0M. Construction Materials; i.e. Pile Templates, Falsework and Form Materials will be approximately C$1.200M

"Small Tools and Consumables (office expenses, communications, etc.) will be reimbursed at C$1.007hour extra for Craft Labour."

[499]Neville then provided a breakdown of the equipment lump sum $11,267,000, including an amount of $1,202,000 for temporary materials. Neville acknowledged, and I accept, that the actual figure he used was an error. The correct figure was $769,000. But regardless, it is clear that McNamara was well aware that it had to pay for temporary materials out of the total lump sum price. Even using the $1,202,000 figure, I note that McNamara still anticipated, for its own account, a total profit of $1.9 million, including $600,000 from equipment rentals. There was no misunderstanding.

[500]It is difficult to understand why McNamara pursued this issue at all at trial given Neville's evidence on discovery:

"Q. Where then in the proposal or in your response to the RFP did you carry a price for these materials?

A. We missed it. We didn't carry it.

Q. Do you know from your prior marine experience that they're required. Falsework and the formwork, pile supports and the templates.

A. The only think I can say about the other marine job is we haven't bid a job like this before in the sense that it was our interpretation, rightfully or wrongfully, that this was going to be reimbursable. Permanent materials were reimbursable here and we looked upon this as a permanent material.

Q. I want to understand this

A. Which was the wrong way of doing it, I know that at the time.

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had to forego on to get awarded the contract.

Q. And did you forego on it?

A. That's 1.3 million dollars. I think there's a letter on file to that effect.

Q. So, Mr. Neville, is it fair for me to say that while you knew these sorts of materials would be required for the project, it was omitted in error from the response?

A. Right. ...

Q. ... So some time in January, perhaps February, you were alerted to the fact that NTP or perhaps Bantrel regarded

A. Well I guess the way this would have worked was that, as I would see it, that someone must have looked at our small tools and consumables and saw the big difference in the rates per hours, shall we say, the rate per hour, and said well, you know, where is your temporary materials.

Q. In fact somebody did bring it back to you then?

A.Yeah.

Q.Yeah. Do you recall who raised it with you?

A.I think it was Landis Krause, but I could be corrected on that, you know.

Q.And do you recall if it was in a meeting or by correspondence or how that came about?

A.I don't think it was any correspondence. I think it was in a meeting but there was subsequent correspondence to it, you know.

Q.And were you alone representing McNamara or were there others there?

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A. No, no there'd be others. I wasn't alone at this meeting.

Q. And do you recall who?

A. No, I don't know specifically which meeting, but it probably might have been John Mulcahy, Ed Beresford. Could have been Ralph Rausch, you know. Maurice Otto, I'm not - these were the people that would have been at some of these meetings, you know.

Q. Yeah. What can you recall from the discussion?

A. Well basically the discussion is saying that, you know, if you're going to - if we're going to award you a contract, as far as we're concerned these materials, as far as the formwork, falsework and the temporary piling is included in your lump sum. And we said well, you know, as far as we're concerned we missed it. This is it, you know. And unfortunately, I mean well at that particular point in time I mean, like I say, it's evidence from this dollar an hour that it's not this there, you know. And they also had the hindsight or well to look at the 6.76 an hour so they could see the difference. So one had it and the other one didn't.

Q. Let me understand you. Did you acknowledge at that meeting that McNamara missed it in its response?

A. I'm not sure if we acknowledged it at the meeting specifically, but we sure as acknowledged when we told them that to get this contract awarded that it was included - we would accept the fact that it is included in the lump sum price.

Q. I think you said to me in response to an earlier question that it was an omission from the response?

A. It was an omission, but what I'm saying that we're into a negotiation now, we're admitting to them now that we will accept this lump sum price and included in that lump sum price I think it was something like a $1,300,000 if I'm - there's a letter on file to that effect that it is included in our lump sum price. We will accept the fact that it is included in our

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lump sum price."

[501]Following NTP's fax of January 21, there was absolutely no misunderstanding. McNamara had not included the cost of temporary materials, now estimated at $769,000 in its lump sum bid. Bantrel said, in essence, 'too bad, but we're holding you to your bid'. There was no contract at this stage. McNamara could have said 'no deal', but it did not. It accepted Bantrel's position. The situation was as clear and simple as that.

[502]At trial Neville himself again said, in response to questions from McNamara's own counsel, that on January 22 the joint venture agreed to include the temporary materials in the lump sum price - 'otherwise we would not get the contract'. He clearly understood Bantrel's position to be that if McNamara wanted the contract, the cost of the temporary materials had to be included in the lump sum.

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McNamara asserts that Bantrel made a mistake - the precise nature of which was not identified - and that in the January-February negotiations, according to McNamara's written argument - "Bantrel took advantage of their own mistake to McNamara's detriment".

[507]Again, as with much of McNamara's claim, this broad assertion is devoid of any supporting , legal analysis and lacks any ofactual foundation. But on the basis of this assertion, McNamara requests the following relief:

"... this court should find that the Defendant never intended the $1.00 per labour hour to apply to templates, falsework, formwork, or support piles.

"If McNamara is correct, McNamara is entitled to $1.00 per labour hour in addition to its costs for all templates, falsework, formwOrk and support piles. In addition, McNamara is entitled to rion-pecurtiary damages for bad faith."

[508]Apparently this argument stems from the fact that in its own estimate of contract costs, Bantrel used a definition of 'small tools and consumables' which did not include temporary materials, and that even without temporary materials, Bantrel estimated a figure of $3.50 per hour of labour. For further support, McNamara points to Krause's assertion to Bantrel that the approximate sum of lines 1.1.4 and 1.1.6 on McNa-mara's bid approximated the total of those two lines in the other bids.

[509]McNamara states:

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[511]I can only assume that the 'mistake' to which McNamara refers is Bantrel's own small tools assessment of $3.50/hour. This was not a mistake - it was an estimate for Bantrel's own purposes and was not conveyed to any bidder. It has no factual or legal significance here;

[512]The 'detriment' to McNamara arose simply, and solely, because McNamara mistakenly did not include temporary materials in its lump sum bid. It discovered its error only after Krause sought clarification. Before accepting the contract, it sought an adjustment from Bantrel. Bantrel refused and McNamara accepted the contract, not in reliance on anything said to it by Bantrel, but based simply on its own desire to get the work.

[513]McNamara's claim on this point is without foundation.

(iv) Removal of McNamara from the Alliance

[514]The intention to form an Alliance arrangement was known from the beginning. McNamara never did sign the formal agreement; nonetheless it asserts that the fact of its 'removal' and the process surrounding that 'removal' were in bad faith and have the effect of nullifying the Cap agreement reached on August 22.

[515]As mentioned earlier, the Alliance concept was a risk/reward scheme whereby the parties - the owner, Bantrel and the offshore and onshore contractors - agreed on a Total Installed Cost of the project and on a sharing of any underrun or overrun. In the McNamara subcontract, any underrun or overrun could occur only in the variable and fully reimbursable costs for labour and permanent materials.

[516]On April 20, 1997, Santarsiere forwarded to Neville and Foundation- Pennecon, for their comments, a draft of a suggested Alliance agreement. The draft contained general provisions relating to the admission of new

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members and withdrawal of an existing member. There was no provision for removal other than by a "deemed " withdrawal in the event of termination of a member's contract.

[517]On May 9, Neville indicated McNamara's acceptance of the estimated Total Installed Cost as the basis for the risk and reward calculations.

[518]On June 12 Neville received another version of the agreement for his review and concurrence. This draft provided that the terms of reference of the Alliance Board included 5.2(g) - "reviewing and agreeing the withdrawal of an Alliance member"; Such a decision required the unanimous approval of the Alliance Board.

[519]Santarsiere forwarded a "final copy" of the agreement on July 2, asking for review and concurrence by all parties. This copy amended s.

5.2(g) to include a reference to "removal" of an Alliance member; it also deleted the need for unanimous approval of the Board for the withdrawal or removal of a member.

[520]On the same date, Santarsiere had emailed Bob Matheson of

Bantrel:

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arrange for formal signing of the agreement prior to that date."

[522]From these facts McNamara asserts:

"Neither the June 24 nor July 2 letters had alerted the recipients to any changes to paragraph 5.2, and McNamara was unaware of the "behind the scenes" discussions to remove McNamara and adjust the draft Alliance Agreement to make this possible. Therefore, without noticing the subtle change to paragraph 5.2(g), John Neville wrote Giovanni Santarsiere on July 16th, 1997 indicating that he had reviewed the final copy of the Alliance Agreement and acknowledged McNamara's concurrence."

[523]The evidence does not support this version of the facts. Neville was not asked whether or not he noticed "the subtle change". (The June 24 letter referred to above is an e-mail from Matheson to Santarsiere about the signing arrangements. It contains no reference to the content of the agreement and was not sent to anyone but Santarsiere.) '

[524]The circumstances in July and August are also important. Neither the Buzzard nor the Argosy were yet on site and it was becoming apparent that Bantrel's original labour estimate of 168,000 manhours was unreasonably low. Estimates in the range of 400,000 manhours were being developed. Bantrel laid the blame for the escalation on McNamara.

[525]On the morning of August 8, senior representatives of the joint venture met with representatives of Bantrel and NTL. Neville's notes of the meeting:

"It was stated by G. Santarsiere that the Budget for labour would double for the Jetty and Tug Basin and accordingly the major portion of their contingency amount would be consumed. Accordingly, any reward for the Alliance Partners in the Risk & Reward formula would be eliminated."

[526]At the meeting, there was a lot of discussion about the project manhours and changes in scope. Roy Lewis indicated that much of the labour overage related to marine crew size and the inability to manage the crews flexibly because of collective agreement restrictions. Maurice Otto

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agreed, pointing out that the crews being used were twice as large as normally required. Lewis told the meeting that the projected manhours at the Argentia site had doubled because of the changes in size and design of the caissons. He agreed with Santarsiere that while the project was only 25% complete, the manhours were already 50% over budget.

[527]Santarsiere agreed that NTP would 'eat the present cost overrun of $2 million if McNamara agreed to accept part of any future cost overrun'. Neville's comment was - 'no - why should we?' Santarsiere reiterated that if McNamara were not willing to give a commitment to get back to budget and pick up a part of any further overrun, then NTP would pay the overrun costs to someone else. Pitts and Ballast Nedam indicated that they were not prepared to add any money either. The parties then agreed to form a group consisting of joint venture, Bantrel, and Foundation-Pennecon personnel to try and analyze the reasons for the significant increase in manhours.

[528]At a subsequent meeting of the joint venture partners, they agreed to write to Bantrel outlining their rights under the sub-contract. Accordingly, on August 8 Neville wrote Krause:

"On July 29, 1997 and August 5, 1997 SUBCONTRACTOR attended meetings with representatives of both BANTREL INC. ("CONTRACTOR") and the OWNER to review and discuss the contract completion schedule and forecasted final cost.

"At the meeting of July 29, 1997 we were instructed by the OWNER to cease the mobilization efforts on the marine barge "Argosy" and to re - schedule our work efforts to a 5 day/10 hour single shift operation. This instruction was instrumental in our action to lay-off all of our multiple shift operations by the weekend of August 2, 1997.

"These instructions were confirmed by the OWNER once more in our meeting of August 5, 1997 and were to remain in effect until further notice.

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would inform you that we consider the action of the OWNER to have created a change to the Work. Furthermore we consider that the direction to modify our work plan by limiting our resources and decelerating our progress has placed us in a position where we are unable to conform to the requirements of the subcontract. In addition we are placed in a position where as a result of such instruction we are unable to provide ample material, equipment, services or labour to perform the Work at a rate which would give reasonable assurance that we can maintain the Subcontract Schedule.

"Accordingly we have been forced by the .action of the OWNER to be in danger of being considered in default of our contractual obligations under this subcontract. We consider this situation to be untenable and request CONTRACTOR issue a Change Notice to protect our interest in this matter. This Change Notice should include, but not necessarily be limited to, a clear direction to return to a work schedule which removes the danger of default and also a clear statement that we will receive full compensation for reimbursable and fixed lump sum costs necessary to complete the Work in accordance with the Subcontract Milestones."

[529]On the morning of August 12, Mulcahy, Lewis and Kolkman met with senior Bantrel/NTL personnel. Mulcahy told the group that McNamara had now gone over the most recent labour estimate and that a total of 350,000 direct (craft) hours was the best that could be accomplished. He indicated that the joint venture was willing to accept 50% of the risk of the manhours going over 350,000, and that the joint venture felt the job could be completed in 1997. (Santarsiere had previously indicated his main concern to be the budget rather than the 1997 schedule.) Said Mulcahy, 'even though labour was reimbursable, we offered to accept a risk to complete in 1997, provided we could operate a double shift.' At the time, the project was operating under the July 29 single shift order by Santarsiere.

[530]When asked at trial why the joint venture would be prepared to accept a risk oh otherwise fully reimbursable labour, Mulcahy explained that Santarsiere had contacted Tarmac executives and expressed his displeasure with McNamara's performance. Mulcahy said that the Tarmac people were upset and it 'came up that we'd offer to share the risk to get back to work' - presumably a reference to the double shift. In fact, when the joint venture

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eventually agreed to the cap on labour, it forecast at the time that the labour cost would end up under the cap, and that the joint venture would thereby benefit from the 50/50 reward provision.

[531]It is worth noting at this point that there was also considerable benefit to McNamara in completing the project in 1997. To have the project go into 1998 . would mean wintering the marine fleet, with obvious cost consequences, and would also eliminate the possibility that Ballast Nedam or Pitts could rent that equipment elsewhere. It will also be recalled that McNamara had earlier told NTP that there was $1.2 million risk money in the equipment lump sum to allow for the possibility of the project going into 1998.

[532]On the afternoon of August 12, the other Alliance members met - without McNamara - to discuss the escalating labour cost and the McNamara proposal. They discussed putting a 400,000 hour cap on total labour (craft and staff) with a sharing of any underrun or overrun. This sharing of any labour savings would take the place of McNamara's participation in the risk/reward of the Alliance.

[533]The next morning Mulcahy met with the Bantrel/NTL representatives. The minutes:

"1.0 Introduction and Purpose of Meeting

1.1R. Matheson (RM), spokesperson for the Alliance Partners, advised that the purpose of the meeting was to discuss possible modification of McNamara's subcontract for the marine work. The Alliance Partners are not happy with the forecasted costs for the marine portion of the project and believe that, if changes are not made, little of the budget contingency will be left and there will be no reward money for the Alliance to share.

1.2McNamara's proposal to share cost . overruns above 350,000 manhours, as presented at a meeting held August 12, 1997, was recapped.

"2.0 Alliance Concerns with McNamara Proposal

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2.1RM cited two issues of concern to the Alliance Partners: a) Premium Time Costs b) Inclusion of Staff Hours

2.2McNamara's proposal is based on 6x12 shifts and thus includes overtime premium costs of about $1.25M. The Alliance sees a risk and no benefit in spending this money if the job has to be extended into 1998 for completion. RM asked McNamara to consider 10 hour shifts with some marine work left to complete in 1998 (mooring dolphins). The Alliance also wants an agreement that there shall not be any additional charges for equipment held over to 1998. J. Mulcahy (JM) confirmed that there would be no charges but that McNamara's offer and manhour total were based on a 6x12 workweek. BM advised that the Alliance's objective was to save money on overtime." (my emphasis)

[534](The underlined passage confirms both the project-dependent nature of the equipment lump sum and the benefit to McNamara of a 1997 completion.) The minutes concluded with the notation that NTP would provide details of its counter proposal. This it did by letter the following day. After setting out the details of the proposal, NTP's letter concluded:

"It must be pointed out in light of the present situation that the Alliance Partners are reviewing the basis of the Alliance Agreement. McNamara's acceptance of this offer and the potential for gains and losses from it preclude McNamara's participation in the risk-reward formula of the Alliance Agreement."

[535]To this Mulcahy replied on August 14. His letter, in part:

"As indicated we are prepared to accept a degree of risk, which would alleviate your concern that we are bearing no apparent acceptance of fiscal responsibility."

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[537]After further discussions and negotiations, on August 25 McNamara accepted the Cap agreement proposal of August 22. The Cap agreement itself contains no reference to McNamara's participation in the Alliance.

[538]On August 30, Santarsiere instructed Ken Wall of Bantrel to produce a redraft of the Alliance agreement which deleted McNamara. And on September 3 Santarsiere wrote Tarmac. His letter, in part:

"To date it is fair to say, that McNamara JV, has not earned the trust of the other partners. The latest man hour escalation has severely impacted the ability of the other partners to make a profit. We have eliminated all the savings we painfully generated on the target cost estimate and also much of our contingency.

"The other Alliance Partners today feel that the McNamara JV has little or no interest in the present Alliance. Recent discussions with McNamara confirm this.

"We have now reached a separate incentive agreement with the JV based on the 400,000 man hours, it may no longer be appropriate to continue with the Alliance Agreement which had been accepted by McNamara but remains un-signed."

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(b)On August 12th, 1997, at a meeting of the Alliance partners (without McNamara present) McNamara was removed from the Alliance;

(c)In the negotiations that followed, NTL/Bantrel attempted to have McNamara voluntarily withdraw from the Alliance (without knowledge that they had already been removed at the meeting of August 12th);

(d)In direct contradiction to this, Giovanni Santarsiere wrote McNamara's parent company on September 3rd, 1997 indicating that McNamara had no interest in the Alliance;

(e)These actions were in bad faith, inconsistent with the Alliance principles and have the effect of nullifying Amendment No. 3 as having been negotiated in bad faith, and with the parties clearly not "of the same mind'."

[541]McNamara says that these conclusions support its claim for aggravated or punitive damages.

[542]Bantrel did not conspire to find a way to remove McNamara from the Alliance. McNamara's assertion reads far too much into what was a difficult, complex, and stressful period of discussions, negotiations and eventual resolution. While the covering letter with the final draft of July 2 did not specifically point out the amendment to clause 5.2(g), Santarsiere invited Neville's review; the change was clear to anyone reading the draft. In his internal e-mail of the same date, Santarsiere referred to "the outside possibility" of removing McNamara because of "inordinate problems" - in particular the escalating labour costs and the lack of progress on the pile - driving activities. Santarsiere's reference does not indicate a then present intention, but rather a desire to have the capability should the occasion arise. Thinking ahead and planning for eventualities, particularly when the probability of those eventualities is realistic in the circumstances, does not equate to either conspiracy or bad faith.

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[543]As I have earlier noted, the essential element of the Alliance

agreement was the risk and reward scheme, albeit surrounded by 'feel good' words wrapped up in a non-binding package. However it was apparent at the meeting of August 8 that due to the escalating fully reimbursable labour costs, there was little possibility of any reward being realized. It is also clear that what was 'on the table' on August 8 was, in essence, a new cost sharing deal, for McNamara alone, involving only the labour costs under the McNamara subcontract. This was confirmed on the morning of August 12 when Mulcahy put forward the 350,000 hours/50% risk proposal.

[544]McNamara places much emphasis on the August 12 afternoon meeting held by the other members of the Alliance. The evidence does not show that there was any actual decision on removing McNamara taken at the meeting. Rather, the removal of McNamara from the Alliance was part of the labour cost/risk - sharing proposal to be put to McNamara. Krause agreed that the other Alliance members did decide to remove McNamara as part of the Alliance before final acceptance of the Cap agreement, but this is not equivalent to saying a decision was taken on August 12. Further, even if such a decision had been taken at that meeting it would not have been indicative of a conspiracy or bad faith dealings. It would have been a decision taken in the context of putting a proposal to McNamara that would establish its own risk/reward scheme, thus replacing the primary substantive basis for McNamara's participation in the Alliance agreement.

[545]The removal of McNamara from the Alliance - assuming for the sake of argument that it was ever actually a member - came about as a natural consequence of the successful negotiation of the new labour cost-sharing arrangement. As earlier noted, other than participation in the risk/reward scheme, there was nothing substantive about the Alliance. And as to the risk/reward, it was evident that the costs of the marine project were significantly higher than expected, that the primary reason was the labour cost, and that the cost overrun to date meant that the Alliance risk/reward arrangement was in serious jeopardy in terms of potential reward to the members.

[546]At the risk of oversimplifying, in the context of this trial the issue of the Alliance agreement and McNamara's 'participation' in and 'removal' from it is a red herring. I reiterate that, apart from the risk/reward scheme, the agreement was not substantive and further was, by its own terms, of no legal

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consequence. McNamara never signed the agreement, so in that sense there was nothing for McNamara to be removed from. At the time in question, the reward program was in jeopardy; any further 'participation' by McNamara would put it well towards the risk end of the spectrum rather than the reward. In the end, McNamara opted for a new risk/reward scheme under the Cap agreement, the necessary and obvious result being that McNamara now had its own separate incentive deal, and would not be participating in the Alliance.

[547]In the circumstances relevant to the Alliance agreement, there is nothing in the activities of any of the NTP representatives that can properly be characterized as exhibiting bad faith. The sequence of events was no more than dealings by commercial arms-length parties in the middle of a difficult project, facing serious financial setbacks, and each trying to protect its own legitimate interests.

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reimbursable costs basis, SUBCONTRACTOR and its subcontractors shall keep, accurate accounts and time records showing all costs and charges incurred in accordance with generally accepted accounting principles and practices. CONTRACTOR and/or OWNER and their authorized representative(s) or agent(s) or governmental agencies shall have the right to examine, during business hours, all books, records, accounts, correspondence instructions, specifications, plans, drawings, receipts and memoranda of SUBCONTRACTOR and its subcontractors insofar as they are pertinent to SUBCONTRACTOR'S performance of this subcontract. SUBCONTRACTOR shall be responsible for ensuring that its subcontractors' documentation specified above is preserved and made available at any time for audit, without any additional compensation therefor, for a period of three (3) years from OWNER'S final acceptance of the overall Project."

[552]Special Condition 15 - Invoicing and payment:

"Any amounts otherwise payable under this subcontract may be withheld, in whole or in part, if:

1.Any claims are filed against SUBCONTRACTOR by CONTRACTOR, OWNER or third parties;

2.SUBCONTRACTOR is in material default of any subcontract condition including, but not limited to, the schedule, quality assurance and health and safety requirements;

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5.Offsets in favor of CONTRACTOR in other transactions are asserted."

[553]Bantrel used a formal process for reviewing and approving

subcontract invoices. Four levels of approval were required, with additional approval required from the owner for payments greater than $500,000. Here, invoice No. 15 received approval from the first four levels, including Campbell and Krause, by November 26. Similar approvals were given for Invoice No.

16 by December 2, and for No. 17 by November 28. Invoice No. 17 in the amount of $620,631 was solely for release of holdbacks previously retained up to October 25.

[554]On December 12 Campbell wrote to Neville:

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amount to be billed for staff labour. In simple terms, the question was whether McNamara could bill, say, 50 hours for a manager who actually worked for 50 hours on the project but who was only paid by McNamara, under the terms of employment, for, say, 40 hours. Bantrel claimed that the billing should reflect only the actual amount paid, while McNamara was billing for all hours worked, including unpaid overtime. The parties agreed that a payroll audit would be conducted by an auditor satisfactory to Bantrel; it was expected that the audit would at least indicate the extent, if at all, to which unpaid staff overtime had been billed to the project.

[557]In early December Campbell drafted correspondence advising of the closure of Bantrel's office over Christmas, and that the closure would affect payment of McNamara's invoices. He submitted the draft to Greenberg. Why such a mundane communication would require prior approval was not explained. Greenberg replied suggesting that Campbell add wording "to the effect that the owner is also on holidays during the period and as such cannot provide the precise dates...".

[558]Campbell complied and wrote to Neville on December 17:

"Bantrel's site and St. John's offices will be closed for the Project winter break from December 20, 1997 through January 4, 1998. Our offices will re-open January 5, 1998. The Owner's office will also be closed during this period (exact dates are not known at this time).

"This closure will affect the processing of previously submitted McNamara invoices. Progress Billing Invoices #13 and #14 are scheduled for payment on or before December 19, 1997. We are unable to provide precise dates for payment of other invoices at this time as per your request (ref. MPB-Ban-307, dated December 12, 1997)."

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"In order to facilitate an appropriate cash flow on the reimbursable works and in response to your early indication that your office would be closing on or about December 20, 1997 significant additional effort was undertaken to submit the November progress invoice in sufficient time to arrange for processing prior to the December 20, 1997 close -down. Furthermore, you had indicated that payment of this invoice would be forthcoming prior to closedown if the invoice was submitted by November 25, 1997. That this deadline was achieved you now seem to have discounted as your letter cannot indicate a precise date that we can expect to receive monies due.

"We cannot accept this situation. The agreement requires payment of invoices 30 days from receipt and your failure to honor this requirement we consider to be an act constituting a change to the Work and we require the issue of a Change Order to cover such act. Therefore we will expect an equitable adjustment be made and the subcontract modified accordingly.

"Furthermore we consider your act to prejudice our position in reference to our obligations under GC-41 TERMINATION FOR DEFAULT Item 4. Any consequence which may arise from your delay in payment we consider to be your responsibility entirely and we advise you accordingly of same.

"The McNamara office in Whiffen Head will be open up to December 24, 1997 and re-opens from December 28 to December 31 1997 to process payroll and other statutory business connected with the Work and will therefore be available to accept receipt of payments due. We are obliged to so do and we consider this the responsible thing to so do. At the very least Contractor should act in a similar responsible manner and make the necessary arrangement to ensure payment occurs when due notwithstanding the temporary closure of Contractor's local office.

"Please advise by immediate return of your intentions in this matter."

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"We are in receipt of your letter of December 3, 1997 on Additional Manhours and Associated Costs advising us of your position for an adjustment to the lump sum portion of your subcontract and on other outstanding commercial issues. We disagree with your contention that the cost and manhour target should be revisited. With regards to your position on the lump sum, we find that you have not provided us with any substantive proof that increased costs were incurred and due to you. We therefore dismiss any such claims. "Additionally, we are notifying you that McNamara Construction Company has failed to meet its performance obligations under the above noted subcontract and as a result has caused the total subcontract price to escalate well beyond foreseeable limits. We are therefore advising you that until we have completed audits, performed reconciliations of material purchases, costs of temporary facilities provided at the Come by Chance Refinery and other outstanding and/or disputed items, and the costs of overtime billed to us and actually paid to your staff, we are suspending all further payments to McNamara. Arrangements have been made to pay your Progress Estimate Nos. 13 and 14. ..."

[561]Thus Bantrel formally suspended payment of the invoices. Krause explained that, although he had earlier signified his approval of the invoices, Bantrel subsequently discovered "some irregularities" that needed to be clarified, and also that the billing for labour exceeded the manhour cap. The decision to suspend payment, said Krause, was made together with the owner.

[562]Bantrel argues that its failure to pay was justified. It points to the payroll audit which later concluded that McNamara had overbilled for staff labour by $836,068. (With further analysis, on March 18, 1998, the auditor reduced this amount to $710,330.)

[563]Bantrel also argues that the McNamara billings were presented without reference to the Cap agreement - that is, McNamara billed 100% of the labour rather than reduce by 50% the amount of any overrun beyond $14,475,000.

[564]Was Bantrel's refusal to pay the invoices by the due date justified? In my view it was not.

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[565]It is true that there was an escalating commercial dispute between the parties. McNamara's labour forecasting had not been accurate, and a significant overrun was now anticipated. McNamara was also claiming substantial additional compensation. Bantrel had a legitimate concern over the amount of the billing for staff labour.

[566]Special Condition 15 provided for specific situations in which payment could be withheld "in whole or in part". In his letter of December 19 suspending payments, Krause referred to none of these provisions. Neither did Bantrel make any effort to calculate or estimate what it considered to be properly payable. The labour cap 'overbilling' could have been readily calculated, with Bantrel being able to take the most favourable interpretation it wished of any issue in the calculation. Further, invoices 15 and 16 did not even reflect the full contract amount payable under either the lump sum for equipment, or the fixed fee. Had it wished to, Bantrel could easily have calculated the lump sum and fee amounts billed on invoices 15 and 16 and paid those amounts. Finally, invoice No. 17 was for release of the holdback only, on amounts billed on invoices up to October 25, which invoices themselves had already been paid, less the holdback. There was no suggestion that any liens had been filed, but still Bantrel made no attempt to pay this invoice.

[567]In addition to setting out specific circumstances under which payment could contractually be withheld, as noted the sub-contract also contains an audit provision which allowed Bantrel to audit McNamara's books within three years of the end of the project. The obvious corollary is that if the audit were to find monies wrongly claimed and paid as reimbursable, then Bantrel would have a right to recover such monies. In essence, 'pay now, audit later'.

[568]Simply withholding payment until audits and recalculations are done was not an option open to Bantrel under the contract. I do not go so far as to say that the subcontract required payment of any invoice presented. But if an invoice on its face reflected an appropriate type of billing, and if the required supporting documentation was provided, nonpayment was not an option in the absence of one of the circumstances specified in the contract. Even if the invoice on its face reflected a disputed item - such as an apparent billing in excess of the Cap -where the amount in dispute could be calculated, the reasonable interpretation of the obligation to pay requires that the disputed

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amount be deducted and the balance paid. Withholding full payment until the resolution of a dispute over what could be an insignificant amount would require an unreasonable interpretation of the contractor's obligation to pay and its right to withhold.

[569]Bantrel took no such reasonable steps. It simply withheld payment, notwithstanding that the invoices were approved for payment by those closest to the commercial and construction issues - Campbell and Krause. In suspending the payment of invoices 15, 16 and 17 Bantrel was in breach of its obligation to pay within 30 days. (A payment of over $3 million was made in June 1998, with a further payment in excess of $4 million in September 1999.)

[570]A breach of Bantrel's contractual obligation to McNamara having been established, what is the appropriate remedy? McNamara argues that the breach is fundamental and that it is thus entitled to have rescission of the contract and to be paid for its work on a quantum meruit basis.

[571]McNamara refers to the comment of Cameron, J. (now J.A.) in Gushue (Leo) Construction Ltd. v. Thistle (1990), 81 Nfld. & P.E.I.R. 220;

255 A.P.R. 220 (Nfld. T.D.) at para. 12:

"Failure to pay when payment is due becomes a fundamental breach by the owners entitling the plaintiff to consider the contract rescinded provided of course the defendants were not justified in refusing to pay by the plaintiff's conduct".

[572]That case involved the construction of a house for $118,000. For various reasons the owner refused to make any progress payments at all. The contractor abandoned the work and sought compensation for the work done. The owner agreed at trial that the contractor was entitled to payment on a quantum meruit basis, but argued about the offsetting costs of correcting alleged deficiencies.

[573]Other than the single conclusion reproduced above, there is no discussion of the principles or application of the notion of fundamental breach.

[574]I am not satisfied that here the failure to pay the three invoices when

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due was a breach going to the root of the contract. By December 19, the contract was substantially complete. Bantrel had already paid almost $29 million on total invoices of $34.6 million. Bantrel was not stating that no more money would be paid at all; rather, its stated intention was to suspend payment until the audits and reconciliations were conducted. In these circumstances, I am unable to conclude that the breach was such as to allow McNamara the equitable remedy of rescinding the entire contract and claiming quantum meruit compensation for work by far the majority of which was in fact already billed and paid for.

[575]Even if I were to consider such breach fundamental, there is another hurdle in McNamara's way to recovery on a quantum meruit basis. In order to avail of the equitable remedy of rescission with quantum meruit following, an aggrieved party must signify its election to treat the contract at an end within an reasonable time following the breach. In Morrison-Knudsen Co. v. B.C. Hydro and Power Authority (1978), 85 D.L.R.(3d) 186 (B.C.C.A.), the judgment of the court reads, at p. 224:

"It is well established law that a plaintiff's remedies for a defendant's default under a contract between them are limited to those provided in the contract or which may be awarded for breaches of the contract for so long as the contract remains open and available to the parties. To enable the Court to award compensation by quantum meruit the respondents must show that Contract 25 has been rescinded or discharged and that mutual obligations thereunder have ceased to exist. ...

"The trial Judge has found many breaches of contract. However, it is not every breach which determines a contract and puts an end to contractual obligations. There are breaches compensable in damages only and breaches called fundamental breaches which can bring the contractual relationship to an end and free the parties from further performance. When faced with a fundamental breach the innocent party is put to an election. He may elect to affirm the contract and to hold the other party to the performance of his obligations and sue for damages as compensation for the breach. He may, on the other hand, elect to treat the breach as a fundamental breach and accept it as such. Thus, he would terminate the contract and thereafter be relieved of any further

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duty to perform and he could sue at once for damages or quantum meruit for performance to that point. It is essential that such election, an election between inconsistent rights, be made promptly and communicated to the guilty party. Once made, the election is binding and cannot be changed."

[576]The court went on to note the distinction between inconsistent rights and alternative remedies - at p. 227.

"It is necessary at the outset to distinguish between the two kinds of election that one must consider in a case such as this: an election between inconsistent rights and an election between alternative remedies. When faced with a fundamental breach the innocent party to a contract may elect to affirm the contract and hold the other party to the performance of its contractual obligations and sue as well for damages. On the other hand, he may elect to accept the breach as a repudiation of the contract. This is an election between inconsistent rights. It must generally be made with promptitude and communicated to the other party, and, once made, it is irrevocable. Where a plaintiff, having elected to accept the breach as a repudiation commences proceedings for his remedy, he may have, in a proper case, the right to quantum meruit as an alternative to the right of damages. His elections between these alternatives is an election between alternative remedies and need not be made until judgment. The taking of judgment on one of the alternatives binds the plaintiff and he may not then have the other remedy."

[577]Here there was no election by McNamara to accept what it now says it considered to be Bantrel's repudiation of the contract. To the contrary, McNamara specifically affirmed the continuing existence of the contract and its intention to pursue its rights under it. On December 22, in a letter headed Termination for Convenience (another issue, to be dealt with below), Krause said to Neville:

"This is your notice that we consider your scope of work for this Subcontract for the Jetty and Tug Basin Facilities as complete except for such work as is required to safely secure the facilities and to demobilize your remaining equipment. You have 48 hours to complete

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your demobilization of equipment, craft labour and McNamara owned/leased facilities (with the exception of office facilities as previously agreed).

"We will finish all remaining outstanding McNamara work and deficiencies. The labour cost of correcting deficiencies will be advised later and will be included in manhour cost calculations. This notices does neither detract from nor replace any other obligations or responsibilities of McNamara under the Subcontract including deliverables and documentation requirements."

[578]Neville replied on January 21, 1998:

"We are uncertain whether the contents of your letter ref. Ban-McN-070 dated 22 ? December, 1997 were intended to be notice of final acceptance in accordance with paragraph GC-49.4 of our Agreement. Therefore, in an abundance of caution and in an effort to meet the time limits imposed upon us in the contract, we write to provide our Notice of Claim.

"We are unable at this time to determine the final outstanding amounts of reimbursable costs and, therefore, are providing our best possible estimates. Currently your own auditors (as well as those of Tarmac) are in attendance at our Head Office and hopefully more precise figures will be available shortly.

"However we do recognise our obligations and now submit our claim for additional lump sum costs and increase in the man-hour target identified in Amendment 3. You were informed of our claim for work related to post 03 August 1997 activities in our letter dated 3 December 1997 and we have taken the opportunity to identify also those items of additional lump sum cost which you have agreed review for work related to pre 03 August 1997 activities and those which you have agreed to pay in your letter of 26 March 1997. In addition, is a calculation of the additional financing costs incurred to date through the delinquent payment of progress invoice #'s 15, 16 & 17."

[579] After listing claims totalling $20.6 million, Neville continued:

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"We request therefore that CONTRACTOR review the claims identified above, issue the necessary Change Notice to revise the contract accordingly and make the equitable adjustments.

"Failing agreement we should suggest that a dispute exists, which we would like to see resolved as soon as possible under the Term of G.C. 33."

[580]McNamara thus clearly affirmed the contract and McNamara's intention to exercise its rights under the contract. It cannot now claim that Bantrel's suspension of payment was such as to warrant rescission of the contract. Bantrel breached the subcontract by refusing to pay when due the invoices in question. But the contract was not thereby discharged. The question of the alternate remedy of damages in respect of this breach will be dealt with later.

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forecast would be doubled."

[584]However, the context of Greenberg's e-mail must not be forgotten. On the morning of August 8, in St. John's, senior joint venture personnel met with Campbell, Krause and Santarsiere. It was a special meeting to discuss costs and schedule issues. McNamara was then forecasting an overrun of almost $5 million. The same day Neville wrote Bantrel asking for a "Change Notice to protect our interest in the matter". Neville wished the requested Change Notice to include "a clear statement that we will receive full compensation for reimbursable and fixed lump sum costs necessary to complete the work in accordance with the subcontract milestones".

[585]Greenberg's e-mail to Krause commenced:

"Some of my thoughts on our options for the McNamara contract issues are as follows

The issue: We believe that McNamara is not controlling or executing their work in a cost effective manner, nor is it in control of the work force thus jeopardizing completing the work according to schedule and/or budget. ..."

[586]He then set out three options. One: -"termination for default" - his recommendation - "this will be a very messy action. Very complex and to be avoided". Two: - "Flip the lump sum and take/over augment day to day management and the work force". And three: -

"Maintain the lump sum and take over/augment (direct) day to day management and the workforce and deal with the claim in year two. This may or may not change the working relationship with them."

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[588]Krause replied on August 11 setting out his own comments on the proposed options. As to the termination for default he wrote:

"Although there is a risk of losing time if this option is pursued it is possible that because most people are project hire they would stay on and certain key positions could be filled with Foundation - Marine personnel or possibly from within our existing group (Don Brophy will be able to comment on this on Tuesday).

"The other recourse, although not a likely option, is to accept a delay to completion and stop the work, get rid of the equipment, and tender the completion of the work on a firm price basis. The contractor could mobilize this year and start work first thing in the spring. There could be a savings in cost with this option that would come from the risk dollars in the McNamara lump sum."

[589]A few hours later, Krause e-mailed Santarsiere and a group within

Bantrel:

"We are drafting a notice of default to McNamara in the event we decide to proceed with that option. Would you please give Murray Campbell a list of items you may consider as reasons why we could consider McNamara in default. Murray will combine the list and have it ready for review with the lawyers on Wednesday of this week."

[590]All this was nothing more than the consideration of options, and of whether or not Bantrel could claim, on the basis of the significant cost overrun, that McNamara was then in default. It does not amount to, as suggested here by McNamara, an attempt to actually terminate the subcontract.

[591]Santarsiere was also involved in assessing the situation. His e-mail of August 11:

"As a matter of urgency we need to reply to Mac's letter of last Friday with urgency. I suggest that we use Harry's e.Mail as the centerpiece for the letter. I would also recommend that we Jim Thistle put together the final draft. We should also ask him to draft a letter of 'notice to cure'

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and be ready to send it out next Wednesday when the Alliance Board has met and agreed. If you agree Landis, we should free Murray to put this together and make contact with the lawyer in St. John today. As discussed yesterday we also need to get to the bottom of what happened over the weekend and what position we need to take with respect to removing Roy. We do not appear to have carried through as agreed last Friday a lot of experienced peoples time was lost and derailed by a junior contracts person."

[592]Out of all this McNamara takes the position:

"McNamara submits, therefore, that Bari-trel/NTP's conspiracy to remove McNamara from the Alliance was directly tied to its consideration to terminate McNamara's subcontract for default and that both were discussed at the meeting "next Wednesday", being August 12th, 1997."

[593]There was no conspiracy. The owner, who was paying the reimbursable bills and who was concerned with finishing the project - as yet only 25% complete - was discussing the situation with the general contractor and examining its options. The Alliance issue is irrelevant in this context. McNamara did not sign the final Alliance agreement because it had negotiated its own risk and reward arrangement, the Cap Agreement.

[594]McNamara's position that there were earlier attempts to terminate the contract is also untenable. The plain, simple, uncontradicted fact is that the contract was not terminated by Bantrel until December 22, 1997. Further, the position that any earlier "attempt" to terminate the subcontract has legal ramifications ignores the fact that on August 22, after the above series of e - mails complained of by McNamara, the parties negotiated and agreed to the Cap amendment, thus clearly confirming the continued existence of the subcontract.

[595]To return to the actual termination on December 22, McNamara asserts that this was an attempt by Bantrel:

"to avoid its own obvious breach of contract (advising McNamara in writing on December 17th, 1997 of their intention not to pay legitimate progress payments in accordance with the Subcontract)".

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[596]There is no evidence linking the decision to terminate with Bantrel's decision to suspend payment. The reasons for suspending payment have already been considered, and I have found Bantrel to be in breach of its payment obligation. But I accept that the reasons given by Krause, both in his correspondence and his discovery evidence, were the actual reasons for the suspension of payment. From the evidence, I am not prepared to draw what McNamara's counsel refers to as "the reasonable conclusion" that the December 22nd termination was an attempt by Bantrel to avoid its "own obvious breach of contract".

[597]McNamara further claims that the termination was in any event wrongful since, although GC 42 was invoked to support the termination, other requirements of GC 42 were not followed, in particular the payment of the contract price and negotiation of an "equitable adjustment".

[598]GC 42, in part:

"CONTRACTOR may, at its option, terminate for convenience any of the Work under this subcontract in whole or, from time to time, in part, at any time by written notice to SUBCONTRACTOR.

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9. A reasonable overhead and profit on items 6 through 8 of this clause.

"SUBCONTRACTOR shall submit with thirty (30) calendar days after receipt of notice of termination, a written statement setting forth its proposal for an adjustment to the subcontract price to include only the incurred costs described in this clause. CONTRACTOR shall review, analyze, and verify such proposal, and negotiate an equitable adjustment, and the subcontract shall be modified accordingly.

"Optional termination by CONTRACTOR in accordance with the provisions herein shall not constitute a breach of this subcontract nor entitle SUBCONTRACTOR to any damages or claims excepted as expressly provided under this clause."

[599]On January 21, 1998, in compliance with the 30 day notice requirements in GC 42, Neville wrote Krause giving McNamara's proposal for an adjustment. The requested adjustment totalled $20.6 million, and included the three unpaid invoices. Neville requested an "equitable adjustment" under GC 42, or failing agreement, resolution pursuant to GC 33 - 'disputes', the last sentence of which reads:

"If the parties do not agree to an ADR process or are unable to resolve the dispute through ADR, either party shall have the right to pursue any legal remedy".

[600]There was no reference in Neville's letter to the termination being a breach of contract by Bantrel. Nor did Neville take issue with Krause's statement that the scope of work was complete except for securing the facilities and mobilizing equipment. Indeed, Neville was unsure whether Krause's letter represented "final acceptance", suggesting that McNamara itself considered the work to be, at a minimum, substantially complete. However, McNamara's argument now is that Bantrel did not comply with clauses 5 to 9 of GC 42 "and therefore was in breach of the subcontract".

[601]The obvious reason that Bantrel did not pay an "equitable

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adjustment" was that McNamara's claim was substantial - $20.6 million - and in reality required a review of the entire project. There was no obligation on Bantrel to.simply pay on demand; time was reasonably required for review and negotiation. McNamara submitted a further and more detailed claim on April 6, 1998. In this claim, McNamara increased its total subcontract value to $51.8 million, now $23.2 million more than the $28.7 million by then already paid. The parties conducted extensive negotiations and, as already noted, Bantrel made further payments in June 1998 and September 1999.

[602]Bantrel was entitled to terminate the subcontract when it did; it exercised a specific right under the contract. McNamara sought an equitable adjustment, but this adjustment was not tied to the contract price, but to claims by McNamara over and above the equipment lump sum, the fixed fee lump sum, and the Cap agreement target. Bantrel cannot be faulted for the manner in which it dealt with McNamara's claim. There was no breach of GC 42.

[603]Even assuming for the sake of analysis that Bantrel did breach the contract by terminating, McNamara's suggestion that in the circumstances, such breach was fundamental cannot be maintained. McNamara says:

"... that the manner of termination of this Subcontract entitle it to calculate its damages on both a breach of contract/tort and quantum meruit basis with an election to be made later on which calculation it accepts."

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termination.

[605]From the facts in Potter Station, it appears that the $5 - 6 million mechanical contract was in fact essentially complete. The scheduled completion date was November 30, 1990, but when it became apparent that this target would not be met, work was accelerated to meet a revised date of December 15. The letter of termination was given two days earlier, on December 13. Unfortunately the decision does not give any details of the incomplete work. At par. 9(i) Rosenberg, J., simply says that on December 13 the design engineer, on behalf of Inco, "accepted the Bluebird contract as being complete. In fact, there was still some of the contract work to be done."

[606]Rosenberg, J., comments on the quantum meruit issue at pars. 27 -

28:

"As previously set out, the plaintiff takes the position that they are entitled to the finding in their favour of the amount of the contract claim and the amount of the quantum meruit claim and are then entitled to choose between the two amounts to be incorporated into the judgment.

"In the case of G.N.C. Realty Products Ltd. v. Wrightglen, an unreported decision of Borins L.J.S.C. (as he then was) heard October 30 - December 7, 1978, released April 18, 1979, Borins J. stated at p. 28:

'It remains now to assess the amount of the plaintiff's recovery. Since the plaintiff has been prevented by the defendant from completing its contract the plaintiff is entitled to recover damages for breach of contract, or, in the alternative, it can recover reasonable remuneration on a quantum meruit for what it has done.'

Borins J. then stated at p. 35:

'The plaintiff was also required to elect between alternative remedies the right to quantum meruit as an alternative to the right of damages. The election between alternative remedies need not be made until judgment.'"

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[607]To the extent (if it does) that Potter Station stands for the proposition that any wrongful termination of a contract entitles resort to the equitable remedy of rescission and compensation by way of quantum meruit, with respect, I am not prepared to follow it. It seems to me that all of the circumstances of the termination must be assessed before characterizing the breach as one going to the root of the contract.

[608]In the circumstances now before this court, the work was complete, apart from some minor finishing and painting. For McNamara to rely on such minor items to support "incompleteness" is to ignore the uncontradicted evidence of witnesses from both sides who acknowledged the marine facility as having been completed on time and to a "world class standard". As well, Kolkman confirmed that, after November, the joint venture was in "demobilization mode". A substantial portion of the contract price had been paid, and what remained was the subject of dispute. McNamara did not assert that it was precluded from finishing the job, and it has not - in its contract claim - sought loss of profit on any work it was prevented from performing. Indeed, there was no such work.

[609]Finally, McNamara's complaint here appears to relate more to the 'formalities' of the process of termination rather than to the fact of termination itself.

[610]All these factors are more than sufficient to satisfy me that, had I found Bantrel's termination to be in breach of contract, I would not have considered the breach as one entitling McNamara to recission and to a quantum meruit claim outside the contract.

[611]McNamara's claim for wrongful termination is not made out.

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(b)conditions 3.3.2(e), (f) and (g) were conditions precedent; [The numbering here is taken from the formal amendment No. 3 executed in December and refers to exhibit C in the subcontract. The corresponding references in the letter of agreement are items 6, 7 and 8.]

(c)Bantrel did not give its best efforts to resolution of the current outstanding issues;

[613]For its part, Bantrel asserts that the Cap agreement labour cost was intended to incorporate the $1.00 per hour charge for small tools and consumables.

[614]The Cap agreement represented a renegotiation of the labour portion of McNamara's subcontract. Instead of being fully reimbursable, labour was now cost-shared in relation to the target amount. Further, the agreement gave McNamara the flexibility to work whatever hours it considered necessary to complete the work in 1997. This, obviously, contemplated that the equipment would work whatever shifts were established as appropriate by McNamara.

[615]The full Cap agreement, as accepted by McNamara on August 25:

"The following proposal summarizes the items reviewed and agreed in Bantrel-McNamara negotiations held Thursday, August 21, 1997 and supersedes all previous proposals:

1.The agreed total manhour target for completion of the jetty and tug basin subcontract work is 400,000 man hours.

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3.McNamara and Bantrel shall share all cost savings under $13,892,000 on a 50-50 basis.

4.Bantrel shall be responsible for all costs between the $13,892,000 and $14,475,00 target levels.

5.McNamara and Bantrel shall share all costs over $14,475,000 on a

50-50 basis.

6.McNamara shall be responsible for all equipment costs pertaining to any equipment held over for work in 1998 provided that no actions/delays are caused by Bantrel.

7.There shall be no sequence changes to the existing schedule, (i.e. the trestle and loading platform work shall be completed in early November 1997). McNamara shall have full flexibility to work the necessary schedule (workweek and overtime) to complete the work.

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around August 3, the date the parties picked as the cut off date for all then outstanding issues. That is, if a pre-August 3 issue was not specifically reserved and presented for resolution, it was considered to be encompassed in the Cap agreement itself and could not later be brought forward.

[617]I do not propose to review all of the detailed negotiations leading to the Cap agreement. However, one point is of particular interest.

[618]On a number of occasions during the Cap agreement negotiations, McNamara was offered the opportunity to change its lump sum equipment price ($11,267,775) to payment on a reimbursable basis. Neville, and later Mulcahy, who was carrying the negotiations for McNamara, refused, saying that this could not be done without establishing an equipment pricing mechanism. At trial, Mulcahy was asked why McNamara did not "leap at" the no-risk equipment offer. He replied that he had no answer, other than the fact that he needed "parameters". Such "parameters" - rental rates - could readily have been negotiated. Roy Lewis confirmed that it would not have been difficult to develop rates for this purpose. Indeed, the parties had already negotiated other pricing changes to the subcontract involving equipment.

[619]It seems to be a reasonable inference, and one that I make, that in refusing to entertain the proposal of a reimbursable equipment price, McNamara was anticipating making a profit on its lump sum price. It must be taken as having reaffirmed the lump sum price, except in respect of pre - August 3 claims specifically identified and reserved for further negotiation.

[620]Dealing now with each of McNamara's assertions on this issue:

(a)The labour cap was not adjustable based on outstanding issues. The cap was fixed. Subsequent changes or extras, if any, would be dealt with on their own merits. Issues existing as of August 3, if not settled, would also be dealt with on their own merits. There is nothing in the agreement or in the discussions preceding the agreement which suggests any intention to adjust the target hours based on unresolved issues.

(b)Although McNamara asserted that conditions 6, 7 and 8 in the letter of August 27 were conditions precedent, its actual argument focused only on condition No. 8 - the 'best efforts' clause. In written argument,

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McNamara retreated from use of the term 'condition precedent', recognizing that the concept is properly reserved for necessary external conditions upon which the existence of an obligation depends. Rather, says McNamara, condition 8 is a fundamental obligation which, if breached, leads to justifiable termination of the contract. Such an obligation is often described as representing the root or essence of the contract. McNamara's argument is that Bantrel did not use its best efforts to achieve a resolution of all issues and that, accordingly, the Cap agreement is discharged.

[621]On occasion, the intention of the parties will be of assistance in determining the importance or characterization of an obligation and the effect of a breach of such obligation on the contract as a whole. The severity of loss flowing from a breach may also be considered in determining whether or not the breach warrants discharge of the whole contract.

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party to a remedy, but not to the discharge of the contract.

[624]Having concluded that, even if this term were breached, the Cap agreement would not thereby be discharged, it is not necessary to consider Bantrel's argument that, at various times after the first set of negotiations, McNamara affirmed the continued evidence of the Cap agreement.

(c) Did Bantrel give its best efforts to resolve the outstanding issues?

[625]What does 'best efforts' mean? In Atmospheric Diving Systems Inc. v. International Hard Suits Inc. 1994 CarswellBC 158 (S.C.), Dorgan, J., considered the content of a "best efforts" obligation to sell certain products. After review of a number of authorities, the judge summarizes - at par. 75 and following:

"In summary, the principles extracted from the cases on the issue of 'Best efforts' are:

1. 'Best efforts' imposes a higher obligation than a "reasonable effort".

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damage but not to the issue of liability. The onus to show that failure was inevitable regardless of whether the defendant made 'Best efforts' rests on the defendant.

7.Evidence that the defendant, had it acted diligently, could have satisfied the 'Best efforts' test is relevant evidence that the defendant did not use its best efforts.

The 'no stone unturned' test has been applied to contracts relating to a wide variety of subject matter. Further, courts routinely imply a term in contracts that the parties will make reasonable efforts to fulfil their respective contractual obligations. Where the parties include a 'Best efforts' clause in a contract, as they did in the case at bar, they must surely intend that something more than 'reasonable efforts' be used."

[626]Obviously the circumstances of each case will dictate the legal outcome. "Best efforts' here related to reaching agreement, not simply to the achievement of a particular and defined objective, such as the sale of product, or obtaining subdivision or zoning approval - see also Dynamic Transport Ltd. v. O.K. Detailing Ltd., [1978] 2 S.C.R. 1072; 20 N.R. 500; 9 A.R. 308; B.E.M. Enterprises Ltd. v. Campcau Corp. (1980), 24 B.C.L.R. 244 (S.C.). Here the parties said, in effect, that they would do their best to settle all outstanding issues. They did not actually agree to settle all issues, as was the situation in Frascr v. Van Nus (1985), 22 D.L.R.(4th) 459 (B.C.C.A.).

[627]In my view the parties committed themselves here to making a genuine bona fide effort to agree, that is, to not continue to hold unreasonable positions, and to give serious consideration to reasonable positions advanced by the other side. Further, it seems to me that, in the circumstances, and particularly given that the list of outstanding issues was not defined or delineated as of the signing of the Cap agreement, there was also an obligation not to advance frivolous or spurious claims. In short, each party was obliged to take all reasonable steps to reach agreement on each of the outstanding issues.

[628]Roy Lewis represented McNamara in the 'best efforts' process, while Jim Lundrigan and Murray Campbell spoke for Bantrel. Lundrigan was a cost specialist who worked on the McNamara and Foundation-Pennecon subcontracts, reviewing and auditing invoices. In the negotiation process,

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both sides, following each exchange of views, took the information back to their respective superiors for instructions and guidance on what adjustments, if any, should be made to their negotiating positions.

[629]The group first met on August 25, the date specified in the Cap agreement, (and the date of McNamara's acceptance of the agreement). This meeting was generally exploratory in nature, with both sides exchanging lists and trying to identify issues common to each list and those that were considered to be in dispute only by one side. McNamara's list included six items under "Argentia operation", twenty one under "Whiffen Head operation" and five under "Additional ongoing". By way of example, included under Whiffen Head were such broadly worded claims as:

k.Provision of all site labour - craft and staff for onsite work activities both permanent and temporary, including but not necessarily limited to, constructability modifications necessary to undertake the work. ...

s. Review of additional office, overhead, vehicle support etc. to

increased staff and craft operation. ...

v. Specialised engineering service support to construction activities.

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nothing' approach and said that he proceeded as if it did not exist. Lewis' position was that anything tentatively acknowledged by McNamara as being acceptable was dependent in terms of final acceptance on all issues being settled. Such a stance would suggest that any attempt at resolution of all the issues was likely doomed from the start. Particularly with the number and scope of issues put forward by McNamara, making agreement on one contingent on agreement on thirty or so others would be extremely problematic.

[633]Two later formal meetings were held -September 12 and October 6. It was soon apparent that there was a major disagreement over the interpretation of the Argosy agreement - whether the $600,000 extra funds referred only to the Argosy and ancillary marine equipment, or extended to other marine and land-based equipment necessary to complete "the total scope of work". Lewis' notes of the meeting of September 12 include - "agree to differ on this". Lewis testified that "we knew we had significant problems concerning the Argosy agreement -I warned Lundrigan and Campbell that if Bantrel pursued its interpretation, Bantrel could be exposed to a significant claim from McNamara regarding the Argosy on the basis that the Argosy agreement", (said Lewis,) "contemplated working on the basis of 100 hours per week and it was now [actually] working 144 hours per week". (This position of a potential claim based on equipment hours is inconsistent with the work schedule flexibility which had been sought by McNamara and agreed to in the Cap agreement -"McNamara shall have full flexibility to work the necessary schedule (workweek and overtime) to complete the work.")

[634]Bantrel indicated its willingness to put some money towards some of the claims. For example, Lundrigan felt that in order to get the process moving, some concessions could be made on the cost of the Guay crane used for material handling at Come by Chance. McNamara's claim for this was over $500,000 and Bantrel offered to pay 50%. Lundrigan explained that he had to go to Krause and convince him it was appropriate to make this offer in order to get some movement. Said Lundrigan - "I spent a lot of time with Krause on this".

[635]After the first three meetings, the negotiation process evolved into infrequent informal meetings, generally between Lewis and Lundrigan. Bantrel made numerous requests for additional information to support McNamara's claims; Bantrel was especially interested in seeing supporting

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invoices for McNamara's claims for additional rented equipment, since Bantrel took the position that it was obliged to pay, if anything, only McNamara's cost of such items and not McNamara's 'selling price'. The issues would be revisited whenever Bantrel received a progress invoice, and the parties exchanged a number of letters commenting on various positions.

[636]As time went on and the project moved into October, the cost of labour again came to be a significant concern for all parties. The discussions of the outstanding Cap issues became less important. Lundrigan said that, given that under the Cap agreement McNamara was now bearing 50% of the impact of any labour overrun, 'that's where it stood to lose most of its money'.

[637]McNamara was thinking along the same lines. Lewis explained that because of the labour overrun and other important issues, he had to change his focus from resolution of the Cap issues and turn to protecting McNamara's interests 'on a different level on a day- to-day basis'.

[638]The minutes of a joint venture meeting of October 30-31 reflect the concern over the potential manhour overrun:

"Manpower Review

It appears we will overrun on the man-hours some 30,000 - 40,000. It should be noted that there are hours for extra work, which will have to be backed out. Roy Lewis also commented that Bantrel would, undoubtedly, be looking for credits of man-hours, for some items in dispute; i.e. scope changes, etc. In any event, if we overrun by 25,000 man-hours the cost could be approximately $1.0M extra, for which we (JV) will be charged 50%. It will be necessary for Roy Lewis to keep an update of this situation, together with hours that are questionable as reimbursable."

[639]Lewis said that, by the end of October, "it was quite likely" that McNamara was discussing ways and means of recovering the extra manhour cost and "revisiting" the Cap target. Indeed, by that time, McNamara was anticipating making an actual claim against Bantrel for extra compensation. The October 30 - 31 joint venture minutes:

"It is essential that all extra Lump Sum items; i.e. equipment, etc.

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should be identified and itemized. All outstanding issues of Scope changes, etc. should be evaluated. This process should be completed ASAP while it is fresh in people's minds. We also need a total figure for which we will be seeking extra compensation.

"4. Based on taking no Income for settlement of claims and maximum exposure due to labour overruns, we could have potential Loss of approximately $2.0M.

5.It is now anticipated that the total amount we will be claiming for as extra to the contract will be approximately $5.0M. This figure should be finalized before mid-December.

6.There is also the fact that "Bantrel" will, undoubtedly, have a counter claim against us for failure to meet "milestone dates" etc.

7.It would appear that these claims, and counter claim, will require some independent means to enable a conclusion; accordingly, when an impasse is reached we will have to refer back to the contract and the Dispute Mechanism and possibly Arbitration."

[640]Lundrigan learned indirectly from Kolkman of the potential joint venture claim and, looking to protect Bantrel's interests, commenced within NTP a series of "claim discovery meetings" to gather the information necessary to respond to any such claim. Notwithstanding these initiatives however, Lundrigan and Lewis continued to communicate on various outstanding items, going into 1998, well beyond the December 22, 1997 termination of the subcontract. Both Lundrigan and Lewis described their relationship throughout as 'professional'.

[641]McNamara asserts that when Lundrigan initiated the claims discovery meetings, Bantrel thereby abandoned any 'best efforts' and switched its focus from negotiating to preparing to defend a claim. However, it seems to me that Lundrigan's response was reasonable and prudent. Bantrel had been made aware that a claim would be coming; the joint venture itself was gathering the necessary information to support a claim for additional compensation. In addition, the joint venture was contemplating "revisiting" the Cap agreement in order to increase the labour target, no

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doubt concerned that its 50% overrun risk was fast becoming an expensive reality. In the circumstances, Lundrigan's actions cannot be considered as a breach of Bantrel's 'best efforts' obligation.

[642]It is not necessary to review all of the evidence as to the dealings between the parties from October to December 1997. The reality is that the project had now shifted into 24/7 mode and the parties were consumed with more pressing construction and commercial issues than resolution of the Cap agreement claims. I am satisfied that Bantrel tried to take a reasonable approach to resolution of the issues, that it made available the necessary and appropriate personnel, and that it showed good faith in the process, by, for example, its 50% offer in respect of the Come by Chance Guay crane. The fact that it held to its interpretation of the Argosy agreement is not at all indicative of a lack of best efforts. Both sides held opposing views and in the circumstances neither was being unreasonable in maintaining them.

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settlement. This orientation, says McNamara, is proof of a failure or refusal to exercise its best efforts to resolve the outstanding issues.

[646]Lewis' evidence on this point had been less pointed at discovery. There he testified that the impasse was generally due to the difference of opinion over the Argosy agreement and that he was getting 'vibes and signals' that other things were going on and that McNamara should not keep 'flogging a. dead horse'.

[647]For Bantrel's part, Lundrigan said that he never warned Lewis that Bantrel might seek to use McNamara's negotiating stance and information to its own advantage. At no time did he caution Lewis or anyone else at McNamara not to give information to Bantrel. He said that it was commented between them many times that "we'd both end up in court".

[648]It is not necessary to resolve this particular conflict in the evidence. The issue is not relevant in the light of all of the other circumstances of the October - December period. Those circumstances include, as I have noted, Neville's signature to the formal Cap amendment on December 15, some considerable time after the "warning" alleged by Lewis.

[649]Based on consideration of all of the circumstances following August 25, some of which circumstances are recounted above, I am satisfied that Bantrel was not in breach of its obligation to use its 'best efforts' to achieve resolution of the issues that were outstanding prior to the Cap agreement.

(ii) Small tools and consumables

[650]Earlier in these reasons I dealt with McNamara's claim that Bantrel took advantage of McNamara's failure to include in its lump sum bid the cost of temporary materials such as form work, false work and templates. That issue involved McNamara's bid of $1.00 per craft labour hour for small tools and consumables and has been resolved in favour of Bantrel. But there is also a question as to whether or not the small tools allowance is a labour charge for purposes of the Cap agreement..

[651]The McNamara bid for the small tools allowance was reflected in the subcontract. Form A-l - schedule of lump sum costs, line 1.1.6 reads "small tools and consumables -$1.00 - $/hour.

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[652]Exhibit D:

1.2Labour Rates for Reimbursable Work -General ...

1.2.6

Small Tools are defined as any equipment necessary to complete the Work that has a replacement cost of less than $1,500.00. All equipment necessary for the completion of the works valued in excess of this amount shall be included in Items 1.1.1 and 1.1.2.

Consumables are defined as many materials that are not incorporated into the project's permanent works.

Cost of Small Tools and Consumables shall be recovered under SUBCONTRACTOR'S unit rate for each on-site craft hour worked, including the on site concrete supply operation. Craft hours will include all trade labour up to and including the foreman level."

[653]Bantrel takes the position, espoused in its expert's report, that the labour rate on which the Cap agreement was based included the $1.00 per hour for small tools. Hence, the argument goes, this charge - $398,513 - should be included in the cost of labour when calculating the effect of the Cap agreement.

[654]The Cap agreement accepted by McNamara on August 25 converted the man hour target into a dollar figure. That letter reads, in part:

"2. The calculation of the monetary value of the 400,000 manhours (includes staff and board/allowances) is as follows:

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(My emphasis)

The starting figure, including staff and board allowances is $15,240,000.

[655]On August 13 Krause prepared a document headed 'Marine Subcontract Review'. The document sets out the options then under consideration by Bantrel, and McNamara's forecast:

McNamara Forecase: (6 x 12 x 2 shifts)

[656]The $15,240,000 is the same McNamara forecast figure referred to in the Cap agreement. There is no indication that the $1.00 per hour small tools allowance is included.

[657]The formal amendment to the subcontract was executed in December 1997. That amendment recites, in part:

"The subject contract is herein amended to incorporate the following:

1)Add to Exhibit 'C, Quantities, Pricing and Data, dated April 17, 1997 the following:

3.3.1Additional Cost Reimbursable Price for estimated labour as per conditions . stated in CONTRACTOR'S letter Ban- McN- 046 dated August 22, 1997: $5,218,340.00

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3.3.2Conditions stated in the CONTRACTOR'S letter Ban-McN-046 include, but are not limited to, the following: ..."

[659](Letter Ban/McN/046 is the proposal letter of August 22 accepted by McNamara on August 25.)

[660]The amendment then contains the seven conditions reflecting those of the earlier letter agreement. Again the references are simply to manhours as expressed in dollars; there is no reference to any allowance for small tools.

[661]I was not referred to any document which supports Bantrel's

contention on this issue. Further, the cost of small tools and consumables is not actually a part of the cost of labour. While the unit rate of $1.00 may be applied to each craft labour hour, this is only for the purpose of quantifying the cost of small tools, presumably on the basis that there is some degree of proportion between hours of labour and consumption of small items. But that does not convert the cost of such items into a labour cost. The cost of small tools and consumables is identified separately in the subcontract, and there was no agreement to consider it as part of the Cap agreement. Indeed, the documentation points to the opposite conclusion. Bantrel's position is not sustainable.

(iii) Subcontractors' labour

[662]There is also a narrowly defined dispute between the parties over the identification of subcontractors (to McNamara) whose labour costs are to be included as labour for the purpose of the Cap agreement. The. subcontract provides (Exhibit C-3.0) that the cost of "subcontractors" is reimbursable, with an approval process stipulating various steps to be taken depending on the cost of any particular subcontract. Attachment One to Exhibit D lists the work to be subcontracted - pile clean out, drilling and socketing; reinforcing

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steel supply and placement.

[663]As a result of the negotiations that followed the Cap agreement, the parties agreed that the following subcontractors, and amounts, should be included in the Cap agreement labour calculation:

Polaris Marine Services (diving inspection) $14,025.05

Sam Roberts Limited (cement finishing) $ 2,536.40

Terra Nova Tile Limited (cement finishing)

$ 4,497.50

[664]The parties also agree that the cost of certified welding of the pile caps, subcontracted to M & M Engineering Inc., should be included, but they differ as to the amount. McNamara refers to $219,187.35 in its brief; Bantrel suggests $340,941.00 but concedes that a portion of this may be properly chargeable to Bantrel itself for repair work.

[665]The parties disagree on the inclusion of the cost of the services of Whittle Brothers Limited - $103,518.12 - for painting, secondary coating and sandblasting. Bantrel takes the position that the amount is properly included in the Cap amount; McNamara takes the opposite view.

[666]The Cap agreement itself is silent on the inclusion or exclusion of subcontractors in the labour target. I have earlier reviewed the evidence - in particular the documentation - of the various man hour targets that were developed and reviewed in July/August as part of the process leading up to the Cap agreement.

[667]There is nothing that suggests to me that, before the Cap agreement, the parties had seriously addressed the relationship of subcontractors' work to the labour target.

[668]Soon after his arrival on site, Roy Lewis prepared a labour forecast which showed, as of June 22, anticipated total direct labour hours of 540,916, at a cost (before board) of $18.8 million. This cost was part of a summary forecast Lewis prepared for the project showing a total anticipated

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cost of $45 million. On the summary forecast, subcontractors are shown separately from labour, at a projected total cost of $2,107 million. It seems that no subcontractors were included in the labour hours of 540,916. Lewis then used the same base labour forecast to, as he put it, 'fine tune' the labour estimate. He subsequently revised the figures, to completion as of June 22, to 420,198 hours. As of August 3, a further projection resulted in hours of 366,593. On the weekend of August 9, Lewis again reworked the labour forecast. A new estimate, shown as 'revised from meeting 09 August 1997' shows total direct labour hours of 349,014. No doubt it was this forecast that was used by Mulcahy on August 12 to advise Bantrel that 350,000 hours was the "best that can be done". This figure of 350,000 hours found its way, indirectly, into the Cap agreement. The Cap target (converted to dollars for the purpose of the agreement) was 400,000 hours, made up of craft labour of 350,000, and staff labour of 70,000 less a contingency of 20,000 hours. Nowhere in the makeup of the 350,000 is there any specific reference to subcontractor hours. McNamara indicated, after the Cap agreement, that the hours for Seacore, Sullivan and Harris (the subcontractors for the activities noted in Exhibit D to the subcontract) were not included in labour hours and that certain inspection labour done by Polaris Marine was included.

[669]One would have thought that the parties would have defined which subcontractors were not to be included in the labour target, at least if the point appeared to be an issue. They did not. Only after the target had been developed - and my view is that the target was developed with reference only to direct labour hours and did not incorporate any 'non- reimbursable' subcontractors - did the parties turn their minds to the issue.

[670]They did reach agreement after the fact and there is of course no reason to disturb what amounts to a de facto agreed amendment to the Cap agreement. But there was no agreement reached on the labour charge for Whittle Brothers Limited for painting and other services; there was no agreement that this subcontractor would be classified as being 'reimbursable'. The work in question was also not identified as reimbursable subcontract work in Exhibit D and there is no evidence of any subsequent agreement to the contrary. Thus there was no agreement to remove this labour charge from the ambit of the Cap agreement. Accordingly it seems to me that the only conclusion that can be reached, on the documents and all the other evidence, is that the charge is simply equivalent to normal direct

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labour, is properly treated as direct labour, and, as such, is to be included in the calculations under the Cap agreement.

[671]The difference between the parties over the amount for M & M Engineering's welding services is approximately $120,000. The evidence suggests that McNamara excluded from its calculation a premium of $133,000 based on the difference between the craft rate used for the Cap agreement and the rate actually paid to certified welders. The figures are not exact, but this appears to be the primary reason for the difference.

[672]The Cap agreement, as finalized, provided a dollar target and range. In his evidence, Lewis was emphatic that the agreement should be considered as 'dollar based' and not 'hour based'. After the Cap agreement McNamara was free to work whatever shifts and pay whatever shift premiums it felt necessary. Any hourly rate underlying the conversion from the man hour target to a fixed dollar target was not a part of the resulting agreement. McNamara had no entitlement to deduct the certified welders premium from the labour cost for purposes of the Cap agreement. Bantrel's figure of $340,941 is shown on McNamara's December 31, 1997 listing of subcontractor costs. It is the appropriate figure to use in the Cap agreement calculations. The evidence does not allow me to determine how much of this, if any, is properly chargeable to Bantrel for repair work, and accordingly 1 make no such deduction.

(iv) Maintenance labour

[673]The parties dispute the responsibility for the cost of repair and maintenance labour. These costs represent the wages of mechanics and others, such as oilers on the barges, who are not 'production' workers as such, but whose responsibility it is to ensure that the equipment is properly maintained while working. Bantrel asserts that such labour is part of the operating and maintenance costs of the equipment and is properly included in the lump sum price for equipment; McNamara takes the position that it is on-site labour and as such is fully reimbursable.

[674]On McNamara's records, almost $1 million was recorded and charged as labour to "Equipment Repair". As the labour was billed, the invoices identified each worker by classification, including the classification of "mechanic". Bantrel paid the labour charges as thus identified throughout the

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course of the project; the issue was not raised until the 'claim discussions' in early 1998.

[675]The contract provisions: "Exhibit C

3.0 REIMBURSABLE CONSTRUCTION SERVICES

3.1.3Costs for Craft Labour shall be charged at the hourly rate and fringe benefits included in the Project Labour Agreement.

Exhibit D

1.0FIRM LUMP SUM PRICE

1.1CONSTRUCTION EQUIPMENT -GENERAL

"All equipment shall be in good repair and maintenance costs for the duration of the project are included in this lump sum pricing.

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The risk that has been included in the pricing includes for downtime due to weather related risks, together with normal on the job mechanical running maintenance. This factor will vary for different operations and equipment. It varies between 15% - 20% most of which is weather related."

[677]I do not read these statements as necessarily implying that regular maintenance labour was to be included in the lump sum price or risk. The reference to maintenance in the first paragraph could well refer only to necessary repair parts or third party service; similarly, the second paragraph appears to be referring to the risk of equipment down time because of normal maintenance. In any event, the subcontract by its terms - as pointed out by Bantrel -"embodies the entire agreement", and stipulates that the parties "shall not be bound by or be liable for any statement, representation, promise, inducement or undertaking not set forth herein". Further, there is no suggestion by Bantrel that there was any misrepresentation by Neville, nor, concomitantly, any reliance by Bantrel to its detriment.

[678]Section 1.1 of Exhibit D refers to "maintenance costs" being included in the lump sum. "Operating costs" are also included in the lump sum, but on- site labour is specifically excluded. In the paragraph dealing with mobilization and demobilization costs there is a standalone sentence - "Costs for onsite labour are recovered separately."

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be excluded from the separate, fully reimbursable status of onsite labour, I would have expected to see the onsite labour exclusion in s. 1.1 of Exhibit D clearly say just that.

[680]The clarity of the exclusion of onsite labour answers any question about whether onsite labour is included in "maintenance costs". It is not, and thus the maintenance labour is recoverable by McNamara under the reimbursable craft labour provisions of Exhibit C.

(v) Mobilization of the Argosy

[681]The Argosy agreement called for a $50,000 per week deduction from the additional $600,000 equipment lump sum price for every week beyond July 1, 1997 the Argosy was late being mobilized to Whiffen Head. Bantrel takes the position that the Argosy was not mobilized to site until August 25, eight weeks late, and it claims the right to a deduction of $400,000. McNamara argues that the $50,000 per week deduction is a penalty and is therefore unenforceable. Alternatively, it says that the Argosy was in fact ready for mobilization on August 1, and was delayed only because of an order given by Santarsiere not to mobilize the vessel until modifications were made to its crane. Accordingly, says McNamara, the deduction, if any, should only be $200,000.

[682]McNamara refers to Thermidaire Corp. Ltd. v. H.F. Clarke Ltd., [1976] 1 S.C.R. 319; 3 N.R. 133, for the proposition that the courts will not enforce the application of a formula fixing damages which is not a genuine pre-estimate of the actual damages likely to be suffered in the event of the breach in question. In Thermidaire, the parties addressed the consequences of a breach of a three year non-competition clause by providing "liquidated damages equal to the gross trading profit realized through the sale of such competitive products". There was evidence at trial that the gross trading profit formula would result in damages of $200,000 while the actual maximum loss to the complaining party (by way of net profit) was only $92,000. In a majority decision, the Supreme Court of Canada determined that the formula there imposed a penalty.

[683]The power to relieve against a penalty is a "recognized head of equity jurisdiction". At para. 28, Laskin, C.J.C., wrote:

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"I regard the exaction of gross trading profits as a penalty in this case because it is, in my opinion, a grossly excessive and punitive response to the problem to which it was addressed; and the fact that the appellant subscribed to it, and may have been foolish to do so, does not mean that it should be left to rue its unwisdom. Snell's Principles of Equity (27th ed. 1973), at p. 535 states the applicable doctrine as follows:

'The sum will be held to be a penalty if it is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach.'

"This proposition comes from a statement by Lord Halsbury in the House of Lords in Clydebank Engineering and Shipbuilding Co. Ltd. v. Don Jose Ramos Yzquierdo y Castaneda, at p. 10, and was reiterated by Lord Dunedin in Dunlop Pneumatic Tyre Co. Ltd. v. New Garage and Motor Co. Ltd., at p. 87. I do not think that it loses its force in cases where there is difficulty of exact calculation or pre-estimation when the stipulation for liquidated .damages, as in this case, is disproportionate and unreasonable when compared with the damages sustained or which would be recoverable through an action in the courts for breach of the covenant in question: ..."

[684]Such an equitable jurisdiction should be exercised sparingly, and should take into account not only the parties and the circumstances surrounding the formation of the agreement, but also the fact that the court is interfering, after the event, with a bargain reached between the parties and which bargain is not otherwise subject to complaint by reason of fraud or duress.

[685]In Collins (J.G.) Insurance Agencies Ltd. v. Elslcy et al., [1978] 2 S.C.R. 916; 20 N.R. 1, Dickson, J., said at para. 47:

"It is now evident that the power to strike down a penalty clause is a blatant interference with freedom of contract and is designed for the sole purpose of providing relief against oppression for the party having to pay the stipulated sum. It has no place where there is no oppression."

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[686]This was written in the 'reverse' context of consideration of a penalty clause that provided a lower recovery than the damages actually incurred. Dickson, J., continued:

"If the actual loss turns out to exceed the penalty, the normal rules of enforcement of contract should apply to allow recovery of only the agreed sum. The party imposing the penalty should not be able to obtain the benefit of whatever intimidating force the penalty clause may have in inducing performance, and then ignore the clause when it turns out to be to his advantage to do so. A penalty clause should function as a limitation on the damages recoverable, while still being ineffective to increase damages above the actual loss sustained whei! such loss is less than the stipulated amount. As expressed by Lord Ellenborough in Wilbeam v. Ashton (1807), 1 Capm. 78, 170 E.R. 883: '... beyond the penalty you shall not go; within it, you are to give the party any compensation which he can prove himself entitled to.'"

[687]I note again the discussion on the comparison between the recovery permitted by the penalty clause and the damages resulting from the breach in question.

[688]For the moment, and for the sake of argument, I shall assume that the $50,000 per week deduction is indeed a clause which was intended to operate should McNamara breach a contractual obligation to mobilize the Argosy by July 1.

[689]It will be recalled that, during the Argosy negotiations, the joint venture had presented the Argosy costs as a fixed cost of $350,000 for mobilization/demobilization, together with approximately $200,000 per month rental, based on a double shift. Labour costs were not included as they were considered to be reimbursable. As of May 21, McNamara had in hand from Pitts a quote of $893,000 to provide the Argosy for "the duration of the contract". With a six month expected duration, the monthly cost would be just under $150,000. At the negotiating meeting with NTP - on the afternoon of May 26 - McNamara put forward a monthly rental of $206,000. Using any of these figures, a reduction of $50,000 per week for each week the Argosy is unavailable cannot be characterized as oppressive or punitive. It should be pointed out that the $50,000, while it operates as a reduction from the $600,000 additional lump sum, should not be compared against that amount

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for its characterization as oppressive or otherwise. As I have already concluded, the $600,000 was an adjustment to the lump sum price and was not referable only (indeed, if at all) to provision of the Argosy. Further, the $600,000 is itself a compromise of the $800,000 net cost put forward by the joint venture. That net cost allowed for a credit of over $800,000 for time the Buzzard would not be on site. Thus the total Argosy costs - excluding labour, but including mobilization/demobilization and templates - were put by the joint venture at $1.6 million. Viewed against these figures, $50,000 per week for lost time of the Argosy is not unconscionable.

[690]Further, McNamara has not established that any damages to Bantrel which actually flowed from the late arrival of the Argosy were themselves so far removed from $50,000 per week as to require interference by the court.

This comparison is also an integral part of the necessary assessment.

[691]Finally I note that, during the final months of the project, McNamara's only contention on this aspect was that the 'penalty' should be $200,000 and not the $400,000 claimed by Bantrel. Indeed, McNamara's own billings reflected the $200,000 reduction. The present assertion that the $50,000 was a penalty was not put forward until after completion of the contract.

[692]Thus I am content to conclude that the $50,000 per week is not an unenforceable penalty. However, I am not convinced that the clause in fact or law represents an estimate of damages for breach of contract. It seems to me that, while the Argosy agreement contemplated arrival of the Argosy at site by July 1, the agreement by its terms simply provides for the eventuality of late arrival. It will be recalled that all parties were aware that the mobilization date could be subject to some slippage. Accordingly, the $50,000 may more properly be viewed as a contemplated price adjustment - a sliding scale if you will - to take into account variable potential arrival dates. Bantrel did not claim that McNamara was in breach of the Argosy agreement when the barge did not arrive July 1; neither did McNamara concede that it had breached the agreement because of the non-arrival on July 1. The parties did not, in my view, attempt to pre-estimate damages for a particular breach; they simply provided for an adjustable price depending on the delivery date. Viewed in this light, consideration of breach, penalty, damages and unconscionability does not even arise.

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$400,000? In my opinion, the proper reduction is $200,000 as argued by McNamara.

[694]It is a fact that the Argosy was not mobilized to site until August 25. It is also a fact that the joint venture (Kolkman/-Rausch) chose to carry out the crane modifications requested by the NTP representatives, notwithstanding that Kolkman and Rausch felt that the Argosy was ready to be towed to site August 1.

[695]However, a review of all the facts leads me to the conclusion that the actions of NTP at the end of July/early August in refusing approval to mobilize the Argosy were related not to NTP's assessment of the capability of the vessel, but more to general commercial concerns about whether the vessel was still required at all.

[696]On July 29, Krause and Santarsiere met at Whiffen Head with representatives of McNamara and Foundation-Pennecon. The purpose of the meeting was to review McNamara's labour forecast. The forecast was $11 - 12 million in excess of Bantrel's estimate. At the meeting, Santarsiere gave the order to go to a single shift only. In an e-mail to Bantrel's managers the next day, Krause provided further details of the discussions:

"In the interim we advised them to discontinue the second shift until we have completed the review. We also indicated that we no longer see the merits in bringing in the 'Argosy' at this stage as it is 5 weeks late and will not have the impact on the schedule that was originally contemplated."

[697]On August 1, apparently unaware of these earlier discussions at site, Campbell wrote to Kolkman:

"Please formally advise us when the 'Argosy' is ready to be moved to Whiffen Head. Such notice should be provided 24 hours prior to the tow actually beginning and should include the estimated date and time of arrival at site."

The same day, Santarsiere and Doug Gowe, an NTL Project Inspector, visited the Argosy at Argentia. Gowe, with experience in marine construction, concluded that, as rigged, the crane on the Argosy could

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not lift the boom to its full working height. This meant the crane would not be able to lift material off the deck of the Argosy, and would also be limited in its capacity to lift off a supply barge moored alongside. Kolkman and Rausch disagreed that the working ability of the Argosy was so limited, asserting that any lifting deficiency could be offset by properly-positioning the supply barge. In his evidence, Rausch said that there was also a problem with a frozen shim on one of the legs of the Argosy. Rausch felt that this could be freed up on site with manipulation; but he agreed that if this did not work, the barge would have to be taken out of service for repairs.

[698]Although Rausch and Kolkman disagreed with NTP's position that the crane was limited, they agreed to obtain and fit a bridle to the crane so that the crane could be raised to its full working height. It took time to obtain and install the bridle, and Rausch made use of that time to also repair the frozen shim. The Argosy was eventually mobilized to site on August 25.

[699]The Argosy agreement gave Bantrel the right to withhold its approval to mobilize the Argosy. However, this right was not related to Bantrel's assessment of the capability or physical condition of the barge; it was in connection with Bantrel's view of the state of the project at the relevant time, taking into account the availability of the Buzzard. Neither the Argosy agreement, nor the subcontract, gave Bantrel the right to withhold approval of mobilization for reasons of capability; indeed the responsibility for providing the barge and being able to work properly with it was that of the joint venture.

[700]While it is true that Kolkman and Rausch agreed to do the requested work on the crane, the reality is that they had little choice. It was not a decision they would have taken without being instructed to do so by the owner. The fact that the owner may not have had the legal authority to issue the instruction could not have been a 'burning issue' at the time. At the instruction of the owner, the joint venture delayed mobilization of a barge that it considered already suitable for mobilization. Such a delay cannot be attributed to the joint venture. To interpret the $50,000 per week provision as being applicable to delay precipitated by Bantrel would be an unreasonable and unwarranted interpretation, one which the words do not require.

[701]Further, the evidence satisfies me, and I so find, that the decision not

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to mobilize the Argosy was in fact taken by Bantrel on July 29. Coincident with the order to go to a single shift, NTP determined that the Argosy should not be mobilized since - now already a month late - its impact on the schedule would not be as productive as originally thought. This decision was made before the Argosy was inspected by Santarsiere and Gowe; the later instruction and the joint venture decision to modify the crane simply complemented a decision already taken.

[702]At the same time, the decision taken on July 29 was completely within Bantrel's rights under the Argosy agreement. Indeed, it was precisely because of the potential for such considerations that the right to withhold mobilization approval was included in the Argosy agreement. But equally, a decision by Bantrel to delay mobilization of the Argosy, could not in law and in these circumstances have the effect of imposing on McNamara a corresponding delay price reduction. It is not necessary to consider the financial effect of a decision not to mobilize the Argosy at all.

[703]However one looks at the circumstances surrounding the delay in the mobilization of the Argosy from August 1 to August 25, it is not a delay that is attributable to McNamara so as to engage the $50,000 per week reduction.

[704]Thus Bantrel was entitled to reduce the $600,000 payable pursuant to the Argosy agreement by only $200,000.

(vi) Delivery of owner supplied material to Come by Chance

[705]The parties have identified two issues relating to the Come by Chance facilities. The first is whether or not delivery of pipe piles and structural steel to other than the Whiffen Head job site was a breach of contract. This issue involves interpretation of the provisions in the subcontract dealing with material delivery. The second issue requires consideration of whether or not the facilities constructed by McNamara at Come by Chance, and charged to Bantrel, were properly charged to the project or, alternatively, were excessive when compared to what was reasonably required. It will be considered under Bantrel's counterclaims.

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SUBCONTRACTOR free issue. Piles shall be supplied full length, complete with bottom shear rings, driving shoes etc. and painted, FOB SUBCONTRACTOR'S barge in Placentia Bay.

"2.1.4 STRUCTURAL STEEL

SUBCONTRACTOR shall install the structural steel for the trestles. The structural steel shall be supplied painted FOB SUBCONTRACTOR'S barge in Placentia Bay. ..."

[706]The subcontract draws a distinction between "Placentia Bay" and "Job site". For example

"2.16

Installation of equipment

Supplied equipment to be installed, such as tendering, and mooring hooks, is FOB truck at the job site."

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[710]On January 23, Kolkman and Moore visited Come by Chance to inspect the site "for possible splicing and pre-casting". Splicing is the joining of pieces of pipe pile. Moore's diary entry - "proceed to Come by Chance - visit tug dock and old private wharf - appears okay to ship pipe from". Moore returned to Come by Chance on February 9. His diary entry - "went to old dock at Come by Chance - appears enough flat ground to construct pipe welding setup". To be fair, however, this visit may have been in connection with McNamara's separate bid to be the pipe fabricator, of which more in a moment.

[711]There is an undated page of notes in Beresford's handwriting, on McNamara paper, headed "Pile Delivery locations". The notes:

"Come by Chance

Wharf upgrade required for loadout

precast

Lighter ashore.

Lead transport to splice Bed.

Bull Arm

Ocean Going Ship.

Truck CBC. Splice bed.

Argentia

Ocean going ships

Splice MPB

Barge transport 40 mc

Marystown

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Ocean going ships

Splice. MSY

Barge Transport"

[712]Beresford was adamant that the question was never raised about McNamara's sending a barge to any of these locations to take delivery of piles. He said that Bantrel discussed giving the Marystown Shipyard an opportunity to bid on fabricating the piles, but that McNamara was never asked to consider the possibility of taking delivery at Marystown. It was, he said, never discussed as a "feasible option" since McNamara would have needed another barge and tug. If the piles were fabricated in Marystown, Beresford said that they could have been trucked to site. His page of notes was a "doodle exercise - occasionally I'd set down what I might perceive". According to Beresford, the notes were his impression of the sites Bantrel could be considering and the modes of transportation that were available. The fact that trucking was not mentioned under Marystown with only "barge transport" being noted was, said Beresford, "an oversight". I do note however that there is a reference to "truck" under the Bull Arm site notes. Further, there is reference to a wharf upgrade requirement at Come by Chance for pre-cast load out. The loading of pre-cast was not a Bantrel problem; it would have no place in a "doodle exercise" on Bantrel's consideration of its options.

[713]Beresford's testimony at trial is not consistent with either his notes or the concurrent activities and notes of Moore and Kolkman. McNamara knew that Bantrel did not have any marine equipment; there is no evidence to suggest that anyone considered that Bantrel would engage marine equipment to deliver the piles to McNamara's crane barge at the job site.

[714]Rather, the notes of Kolkman and Moore and the musings of Beresford are consistent with the point of delivery of piles being somewhere other than Whiffen Head. Consistent also is a letter written by Neville to Bantrel on February 12, two days before Bantrel forwarded the conditional letter of intent. Bantrel was in the process of obtaining quotes for the fabrication of the piles, and invited McNamara to bid. Neville quoted a price of $1.3 million to fabricate the piles at Come by Chance. Included in his quotation:

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"Pile sections to be supplied by Owner f.o.b. Argentia Dock.

Loading of Pile Sections unto Trailer Transport at Argentia, transport to site and off-load.

Purchase and installation of equipment required to establish a weldingbed.

All labour to be reimbursed at cost as per the Contract Agreement.

Handling, transport and loading of fabricated piles onto Barge at Come by Chance Dock." (my emphasis)

[715]Neville did not state that the barge in the last item was to be the "owner's barge". However, by this date, Neville would have been aware that Bantrel did not have, and was not planning to engage, its own marine equipment. Neville was quoting on work that would carry out the owner's responsibility under the subcontract to supply piles to McNamara FOB McNamara's barge. If Neville had thought that McNamara would be loading onto Bantrel's barge at Come by Chance, surely McNamara, with the resources of Pitts available, would have taken advantage of the opportunity to offer another piece of equipment for the purpose of satisfying the owner's obligation to deliver the piles to McNamara's barge at Whiffen Head.

[716]The documentary and other evidence is consistent with the clear wording of the subcontract. Those provisions were first reflected in the draft contract accompanying the RFP (except for a typographical error referring to Contractor instead of Subcontractor; all agreed that the reference to Contractor in the RFP should be read as Subcontractor.) "In Placentia Bay" is not the same as "job site". It encompasses a wider geographic area which in fact includes Marystown, Argentia and Come by Chance. The flexibility of the delivery locations reflects the uncertainty at the time as to where the piles would be manufactured and where they would be further fabricated on arrival in Newfoundland. McNamara knew of the possible locations; they are all identified and assessed in Beresford's note.

[717]Bantrel was not in breach of contract by delivering piles and structural steel to McNamara's barge at Come by Chance.

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[718]The subcontract is equally clear that Bantrel was obliged to deliver the piles and structural steel FOB the barge, that is, to actually place the material on the barge. However, Bantrel actually required McNamara to handle the piles and steel from the point of their delivery by truck to the Come by Chance facility, up to and including loading the material onto the McNamara barge. This material-handling was thus an extra to McNamara's contract, for which it is entitled to receive reasonable compensation, including a reasonable profit. The labour used by McNamara at Come by Chance was fully reimbursed by Bantrel under the subcontract, and the Come by Chance labour was incorporated into the Cap agreement. However, the equipment used by McNamara was not incorporated into any of these adjustments. In particular, I do not consider that the equipment used by McNamara to perform what were Bantrel's material handling obligations - that is, work specifically reserved to Bantrel under the subcontract - is covered by the "all other equipment" phrase in the Argosy agreement. That phrase referred to the "current known scope of work In my view this does not include work and obligations that, under the subcontract, were clearly the responsibility of a party other than McNamara.

[719]In conclusion on this aspect of the claim, McNamara is entitled to reasonable compensation, including reasonable profit, for the use of joint venture or third party equipment at Come by Chance for handling piles and structural steel, which handling was the obligation of Bantrel under the subcontract. This entitlement was not taken away by the Argosy agreement. However, any relief arising out of this entitlement has, in the same manner as relief on account of other discrete claims in contract, been pleaded and presented only on a global basis. Hence, while McNamara may have succeeded in establishing the entitlement, whether or not any actual relief is available depends on whether the global claim is accepted.

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are facts which are as indicative of Bantrel's negligence as they are of breach of contract. The measure of damages in tort, however, is intended to restore the Plaintiff to the pre-negligent state."

[721]McNamara founds its negligence claim on duties it alleges were owed by Bantrel to NTL pursuant to Bantrel's contract with the owner. These provisions do not define Bantrel's duty to McNamara. Assuming only for the sake of argument that assertions (a) and (b) describe a duty owned by Bantrel to McNamara, McNamara has failed to establish a link between any breach of these duties and any loss suffered by McNamara. Assertion (c) is a 'basket' provision, trying to sweep all manner of impugned conduct into a characterization of negligence. Proof of a claim in negligence requires more - proof of each and all of the elements of that tort. The negligence claims have not been established.

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6.The failure to invite McNamara to bid on Phase II.

[723]The tort of inducing breach of contract has six elements, each of which must be proven:

1.Intention to cause loss;

2.Knowledge of an existing contract;

3.Breach of an existing contract;

4.Wrongful procurement;

5.Actual damage as a necessary consequence;

6.Lack of justification.

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or negligence in place of intention in actions for economic wrong."

[726]And para. 177:

"Inducement and interference in the legal sense of an economic tort generally mean the conduct of a third person who, to use the language of Lumlcy v. Gye (supra), 'wrongfully and maliciously' disturbs a legal relationship between two parties."

[727]Chipman, J.A. of the Nova Scotia Court of Appeal took a similar view in Chcticamp Fisheries Cooperative Ltd. et al. v. Canada (1995), 139 N.S.R.(2d) 224; 397 A.P.R. 224 (C.A.). In the context of an assertion of unlawful interference with economic relations, he said, at para. 28:

"The intention to cause injury is an essential element of this tort. Clerk and Lindsell, supra, continue the discussion at p. 851:

'So, where the defendant commits an actionable wrong, such as inducing a breach of contract by X, or committing, or authorizing or procuring a breach of copyright, deliberately to harm the plaintiff, he commits the tort. ... The "purpose or intention of inflicting injury on the plaintiff" is an essential criterion of the tort. This has been repeatedly affirmed both in the English and the Common-wealth decisions; the move from intentional to foreseeable injury is "not a step but a leap".

'So, in Van Camp Chocolates Ltd. v. Aulsebrooks Ltd., [1984] 1 N.Z.L.R. 354, the New Zealand Court of Appeal affirmed that the intent to injury was an essential ingredient of the tort. The court said at p. 360:

"If the reasons which actuate the defendant to use unlawful means are wholly independent of the wish to interfere with the plaintiff's business, such interference being no more than an incidental consequence foreseen by and gratifying to the defendant, we think that to impose liability would be to stretch the tort too far".'"

[728] After a further review of the authorities, Chipman, J.A., said, at para.

2002 * 62718 (NL SC)

35:

"These cases support the conclusion that both in Great Britain and in other parts of the Commonwealth there is a requirement that the purpose or intention of the unlawful conduct at issue must be to infli ct injury upon the plaintiff. It must be more than just an incidental or foreseeable result of the conduct."

[729]And para. 42:

"... The Courts have stopped short of substituting for an intention to cause damage to the plaintiff a mere foreseeability that such damage may result from the unlawful conduct. A constructive intent to injure or foreseeable injury may have a place in the tort of conspiracy but not in my opinion in the tort of interference with economic relations."

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[733]McNamara claims $2,179,872 for the profit it says it would have made if it had been awarded the Phase II (Terra Nova) subcontract to expand the marine facility.

[734]Pre-qualification Phase 11 packages were distributed by NTL in December 1997, with the formal bid package sent out in March 1998. Pitts and Ballast Nedam we're invited to bid, McNamara was not. In October 1998 the contract was awarded to Peter Kiewit Sons Co. Ltd.

[735]McNamara's position is that "the defendants conspired between themselves" to deny McNamara the opportunity to bid on Phase II.

[736]Phase II had indeed been discussed from the outset. As early as January 1997, in response to a request from NTL, Neville provided a Phase II lump sum equipment price of $7.1 million. Phase II continued to be the topic of informal discussions throughout the project. In November 1997, Santarsiere was starting to assemble the Phase II bid package. On November 21 he e-mailed Krause, with a copy to George Houston (Bantrel) and others:

"I have obtained concurrence from NTL to go out for bid for the Terra Nova marine work as soon as the engineering package is ready. (By December 12, 1997 by last estimate). Keith please put together a bid slate for consideration. Once agreed we would like to go out with letters soliciting interest, then we will follow with a qualification effort and target bid document issue for just before Xmas. Two points of issue:

1.We should only solicit interest from Ballast Nedam and Pitts and deliberately exclude McNamara. This should drive a wedge in the JV for the time to takes to resolve the possible claims."

[737]Houston did not agree with this approach. He wrote to Santarsiere the next day:

"John, if we 'drive a wedge' between McNamara and their partners at this stage I think we will have backed McNamara into a corner and they will become more belligerent than usual simply because there is

2002 * 62718 (NL SC)

nothing in Terra Nova for them and there will be a huge loss of face in the community.

"If we solicit interest from McNamara and their partners as a group, they will put pressure on each other to settle any outstanding claims reasonably as they know they have a better chance than any other contractor to get Terra Nova. Further, we don't know who stands to lose or gain most from the claims being developed - we could be assuming that McNamara are "in a hole" whereas it may be Ballast Nedam and or Pitts or any combination.

"I think we should treat them as a group while we solicit interest. We will continue to worry them with the chance that we may use another contractor. We will keep up the pressure for them to be reasonable.

"Once we have settled the claims we then have the opportunity to ask Ballast Nedam and Pitts to bid and exclude McNamara. I have no ethical problems with any of this while dealing with McNamara."

[738]Robert Matheson of Bantrel concurred:

"I agree with George. With the way things are going on getting the marine work completed, potential claims etc., I think holding a Terra Nova carrot in front of McNamara for as long as possible is a good idea."

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Santarsiere/Houston exchange of e-mails, Kolkman had, on November 5, written Campbell concerning oil spill response:

"Our contract work is scheduled to be completed in mid-December of this year and the Owner has indicated that it is unlikely that McNamara would be further involved in additional marine works at the Newfoundland Transshipment Project. Therefore we fail to see any advantage to either NTP or NTL by McNamara being the subscriber to an agreement which is more likely to be activated after McNamara's presence on site has ended." (my emphasis)

[741]This information likely came out of a November 4 meeting between Harvey Mott, President of NTL, Mulcahy and Martyn Palmer of Tarmac. Mott testified, and I accept, that he decided not to invite McNamara to bid because of the ongoing dispute. Simply put, Mott told Mulcahy and Palmer that McNamara would not be invited to bid on Phase II while the current dispute existed. Mott testified that the fact and magnitude of the dispute with McNamara gave him considerable concern about the potential for future disputes if McNamara were to become involved in Phase II.

[742]McNamara's claim here is another example of one which, when subjected to proper analysis, does not contain within it the basic elements of any cause of action. There was no evidence of any representation by Bantrel, nor of any reliance by McNamara, nor of any resulting loss or detriment to McNamara. McNamara was not a tenderer, and accordingly was not a party to any "Contract A", as that term is now applied to the relationship between an owner and a bidder. McNamara was simply not asked to bid, and it had no legal right to be asked to do so.

[743]Even if McNamara had a legal right to be invited to bid - which it did not - it must still establish that it lost the reasonable probability of a benefit. That benefit cannot be assessed as if the outcome were a certainty. As Cameron, J.A., said in Health Care Developers, supra, at par. 83:

"In B.P.I. Resources Ltd. v. Merrill Lynch Canada Inc. and Anderson (1989), 95 A.R. 211; 43 B.L.R. 1, the Alberta Court of Appeal expressed the view that the chance of an economic gain must be reasonable, real, significant or substantial as opposed to speculative, fanciful, remote or conjectural."

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[744]Here again, McNamara has failed to establish the basic elements of its claim. There is no evidence of what McNamara would have bid, other than the estimate provisions in January 1997. There is no evidence of the details of the other bids received, and no way to assess how McNamara's bid may have stood. For proof of its "loss", McNamara assumes that the award to it of Phase II was a certainty, and points to a November 1996 estimate by Sandy King for Phase II which shows a total civil cost of $21,798,758, and allows for a 10% profit of $2,179,876. McNamara refers to this and says:

"Damages for loss of opportunity are, due to their nature, difficult to quantify. However, that does not mean that the Court cannot or should not attempt quantification. The Plaintiff submits that it is appropriate for the Court to evaluate the loss suffered by the Plaintiff based on the profit it would have otherwise realized had it been awarded the Phase II (Terra Nova) Subcontract, namely $2,179,876.00"

[745]Difficulties of quantification are one thing; guessing in the absence of any substantive evidence is something else; being pointed to "evidence" which in all likelihood bears no resemblance to an actual bid price, a realistic profit margin or, fundamentally, to the net profit which could have been reasonably anticipated by McNamara itself, is insufficient.

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WHEREFORE THE PLAINTIFF CLAIMS as against both the First and/or Second Defendants

(a)pecuniary damages (including consequential pecuniary damages), special damages, damages for economic loss including but not limited to loss of profits, and/or loss of business opportunity, and/or damages on a quantum meruit basic totalling $22,065,465.00 (inclusive of HST);"

[748]Eliminating HST, the pleaded claim for pecuniary loss is

$19,187,360. No breakdown is given in the statement of claim. But from the documents filed at trial, it appears that the claim is made up as follows:

[749]As noted, in September 1999, Bantrel paid another $4,298,966, thus reducing the amount claimed in the pleadings to $14,888,394 (before HST).

[750]Based on the several causes of actions set out in its pleadings and after the evidence at trial, McNamara ultimately quantified its claims (the negligence, quantum meruit and contract claims are each in the alternative and are not cumulative)

1. Damages for negligence - $51.892.073

($15,015,028 after deducting payments to date)

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2.Damages for inducement of breach of contract (tort) - $800.000.00 Similarly, this claim has not been made out.

3.Damages for lost opportunity - Phase II -$2.179.869.

Again, this claim has not been made out.

4.Compensation for work done on the basis of quantum meruit - $51.892,073

($15,015,028 after payments to date).

Some further comment is necessary.

[751]In its statement of claim, McNamara puts forward four different bases for its alternative claim for compensation assessed on a quantum meruit basis. The first:

"(i) The Plaintiff states that during the course of the Subcontract, the First and/or Second Defendants' construction management philosophy and physical changes to the scope of the Work in the tug basin resulted in changes so fundamental that the Subcontract was substantially different from that originally contracted for and therefore the Plaintiff is entitled to claim on a 'quantum meruit' basis."

[752]I have already discussed in detail the circumstances surrounding the delineation of the scope of work at the time of the subcontract. McNamara's assertion that the contract should be set aside because of scope changes in the tug basin has not been made out. I note further that McNamara signed the formal amendment No. 3 in December 1997; in January 1998 McNamara put forward various contract provisions when it sent to Bantrel its Notice of Claim. The scope of work was obviously known at that time, but McNamara then made no suggestion that the contract was fundamentally different from what it had bargained for and that the contract should therefore be set aside.

"(ii) The Plaintiff states that the express terms of the Subcontract are so inconsistent with the Project management Alliance Concept imposed by the Second Defendant that the express terms of the Subcontract have

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become vague, ambiguous and unenforceable and that the Plaintiff's claim must be calculated on an implied contract/quantum meruit basis."

[753]The factual and legal bases of this assertion have not been made out. The assertion does not provide a basis for setting aside the contract.

"(iii) The Plaintiff states that the Defendants' actions (particularly between December 17 and December 22, 1997) amount to a wrongful termination of the Subcontract and/or breach of an express term of the Subcontract (refusal to pay legitimate invoices), and/or breach of the implied term of good faith dealings entitling the Plaintiff to claim on a quantum meruit basis."

[754]As previously discussed, the only breach established is the non- payment of the progress invoices, and this breach does not warrant setting aside the contract.

"(iv) The Plaintiff states that there was some work done at the Second Defendant's request (express or implied) for which the Subcontract has no express provision (extras) and the benefits of which work have been accepted by the Second Defendant thus entitling the Plaintiff to claim for these portions on a quantum meruit basis."

[755]While I may speculate that such work included the fish habitat, the timber crib slipway, the material handling at Come by Chance and the support to the Polaris rock excavation work, McNamara has not pursued these claims separately, but rather has elected to pursue all of its claims on a global (inclusive) basis. Further, even if such work had been satisfactorily quantified during the trial, it would still need to be established that payment for it had not already been made. There is evidence of a $3.5 million payment in June 1998, but the particulars of that payment are not in evidence. Further, the payment in September 1999 includes a $452,078 "allowance for resolution of outstanding items"; again no particulars are in evidence. This "part" quantum meruit claim has not been proven. In any event it is overtaken by and subsumed in McNamara's decision to pursue its claim - either by way of damages or quantum meruit - only on a global basis. Accordingly there is no basis upon which to grant relief in respect of any discrete claim or breach.

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[756]McNamara is not entitled to relief through a quantum meruit assessment of compensation.

5.Pecuniary damages for breach of contract.

[757]McNamara pleaded and presented its claim for damages for breach of contract on the basis that it was entitled to an award of damages assessed on a global basis - that is, without quantifying the damages that flow from, and without seeking specific relief for, any particular breach. McNamara offered three different ways of calculating the global 'value' of the contract - using SC-16, the modified total cost approach, and Lorna Tardif s report and opinion.

[758]Throughout these reasons I have reached conclusions on various matters in dispute - predominantly issues of interpretation and characterization, but including some factual issues. I will not repeat here all of those findings - many of them are simply to the effect that the breach alleged by McNamara has not been established.

[759]The following are among the significant findings:

1.The construction of the fish habitat and timber crib slipway were acknowledged by Bantrel to be extras to McNamara's subcontract.

2.Bantrel breached the 30 day payment provision of the subcontract when it failed to pay progress invoices 15, 16 and 17 by their due dates.

3.The cost of maintenance labour is properly considered as labour for all purposes, including the Cap agreement, and not as part of the lump sum price for equipment.

4.The appropriate reduction for the delayed mobilization of the Argosy is $200,000.

5.The allowance for small tools is not a charge for labour and is not part of the Cap agreement.

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8.McNamara is entitled to compensation, including a reasonable profit, for equipment use only in respect of:

(i)its handling of the piles and structural steel from the point of delivery by truck at Come by Chance up to and including the loading on McNamara's barge at Come by Chance, and

(ii)its support to Polaris Marine for the underwater rock excavation.

[760]Some of the above conclusions support McNamara's position; others do not. Some would affect calculations under the Cap agreement; the issue of timely payment of the progress invoices may engage only a matter of interest. As I have already said, the evidence is not sufficient for me to make a final determination as to precisely what has or has not been paid.

[761]In any event, my conclusions, some of which relate more to differences in calculation than to damages for breach of contract, do not warrant a holding that McNamara is entitled to have its damages assessed on a 'global' basis. It is not a case of numerous breaches, with some resulting loss, and with such complex interaction and interrelationships as to make it impossible to actually quantify the damages, if any, by other conventional and appropriate means. Most of McNamara's claim has not been made out; on those aspects where I have accepted McNamara's position, quantification of the financial effects of such findings is not particularly difficult.

[762]However, as already noted, for all purposes of the trial of this action, McNamara has chosen to plead, present and pursue its claim on the basis only of an entitlement to a global assessment of damages. It chose not to present and pursue its claim on the basis of issues individually and specifically quantified. Accordingly its global claim for an award of defined pecuniary damages for breach of contract cannot succeed.

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[763]However, given the time and effort spent at trial on the quantification of McNamara's pecuniary damages claim on a global basis, I will offer my assessment of the acceptability of each of the three alternative global quantification methods put forward by McNamara.

(i)Alternate calculations of a global award

(a)Using SC-16

[764]McNamara proposes that a pricing of adjustments clause - similar to the deleted SC- 16 - should be considered to be an implied term of the subcontract. In its written argument, McNamara points to selected provisions of the deleted SC-16 and concludes:

"The application of SC16 therefore results in the following valuation of the Subcontract's value:

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