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Citation: Golden Hill Ventures Ltd. v.
Kemess
Date: 20021017
2002 BCSC 1460 Docket: L000508
2002 BCSC 1460 (*)
Registry: Vancouver
BETWEEN:
GOLDEN HILL VENTURES LTD.
AND:
KEMESS MINES INC. and KEMESS MINES LTD.
PLAINTIFF
DEFENDANTS
Counsel for the plaintiff: K.L. Martin
T.J. Rothe
A. Mackay
Counsel for the defendants: J.A. Hall
M.G. Demers
2002 BCSC 1460 (*)
H.E. Maconachie
Dates and Place of Trial: April 17-20,25-28, May 1,2,8-12,23-26,29-31,
June 1,5-9,19-23,26-28,
July 4-6,24-28,31,
August 1-4, Sept.1-13,21,22,25-29,
Oct.4-6,10-13,16-20,23-26,
November 27-30, Dec.5-8,11,13-15,2000.
Mar.12-15, Apr.2,3,17-20,23,25,26,30,
May 1,2,7-10,11,14,15,
June 11,13,14,15,22,2001.
Written Submissions:
July 13,2001
Vancouver, B.C.
INDEX
PAGE (A) Introduction 5
Early History of the Project 8
The C101 Tender 16
The Work Set Out in the Tender Documents 17
The Site Visit 27
Bid Preparation of Golden Hill 43
Comparing the Golden Hill Bid to the
Other Bids 52
Post Tender Meeting 54
The Post Tender Meeting Minutes 62
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June 19 Letter from Golden Hill to Kilborn 68
June 20 Letters from Golden Hill to Kilborn 68
The Letter of Intent 69
What Was The Contract Between The Parties? 73
Weather 77
Effect of Weather Conditions, Unanticipated Soil Conditions, Project
Changes, and Project Delays 84
Are the Claims of Golden Hill Barred? 100
The Exclusion Clause (Article VI)
The Entire Agreement Clause (Article V)
Full Investigation Clause (GC 12.1 AND GC 12.2)
Non-Reliance Clause (GC 12.3)
Representations of Future Behaviour
Effect of General Condition 36.0
Effect of the Over/Under Clause
Alleged Breaches Of Contract And
Tortious Acts 148
Nature of the Work 148
Suitability and Adequacy of
the Soils Sources 153
The Negligent Misrepresentations of Mr. Rempel Regarding the Soil
Conditions 164
The Ability to Commence Earthworks
by July 8 180
Direction And Control Of The Work 182
Failure to Obtain Permits in a
Timely Manner 199
Provision of Appropriate, Timely and Sufficiently Complete Information Pre Tender and Post
Tender 207
Timely Designation of Adequate Topsoil Stockpiles, Borrow Pits
and Waste Dumps 261
Suspension of the Work 279
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Breach of Duty of Good Faith and Fair Treatment and the Tort Of
Intimidation 284
Summary of Findings Relating to Breaches of Contract and Tortious
Acts 328
Was There Contributory Negligence? 329
Was There Acceleration? 374
Damages 397
Introduction – Calculation of Damages
General Measure of Damages in Contract
General Measure of Damages in Tort
The Claim for Loss of Productivity
Total Costs Claimed 418
CONAC System of Golden Hill
Adjustments Which Should Be Made
G.S.T. in the CONAC System
(2) Labour Costs ($213,345.40 Claimed by Golden Hill)
(3) Freight Costs ($100,000.00 Claimed by Golden Hill)
(4) Equipment Cost ($1,455,292.00 Reduction Claimed by Kemess)
Rental Equipment Cost Reduction ($930,314.80)
Repair and Maintenance Costs ($779,280.47 Claimed by Golden Hill)
(7) P.S.T. ($152,633.13 Claimed by Golden Hill)
Loss on Scrapers ($616,942.72 Claimed by Golden Hill)
Nuway Crushing (Credit of
$26,050.00 Claimed by Kemess)
Supplies and Small Tools ($223,118.14 Claimed by Golden Hill)
Deleted Work (Deletion of
$12,717.00 Claimed by Kemess)
Approved Extra Work ($54,006.00 Plus G.S.T. Claimed by Golden Hill)
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Additional Equipment Costs ($300,000.00 Claimed by Golden Hill)
Use Of A Grader by Kemess ($14,030.00 Claimed by Golden Hill)
Summary of Claimed Total Costs, Adjustments Requested, and Rulings Made
Overhead (10% Claimed by Golden Hill) 467
Standby Charges ($482,440.00 Claimed
by Golden Hill) 471
Profit on Work Performed (5% Claimed
by Golden Hill) 478
Claim in Quantum Meruit or Unjust
Enrichment 481
(AA) Is Interest Payable on the Damages Awarded 481
(BB) The Builders Lien 486
Can There Be a Lien For Tort Damages?
Can Interest Be Claimed Under the Lien?
Priority of the Lien
Are Costs Included in the Lien?
(CC) The Counterclaim of Kemess 504
(DD) Summary 509
INTRODUCTION
This action arises from a construction contract awarded to Golden Hill Ventures Ltd. (“Golden Hill”) by Kemess Mines
2002 BCSC 1460 (*)
Inc. (“Kemess”) for the earthworks site preparation and the aggregate production for the Kemess Gold and Copper Mine located in northern British Columbia.
Golden Hill is a Yukon based earthworks contractor.
Kemess was at all material times a wholly owned subsidiary of Royal Oak Mines Ltd. (“Royal Oak”) based out of Kirkland, Washington.
The Kemess South Copper-Gold Project (“Project”) is located on Crown land approximately 300 kilometres north west of McKenzie and approximately 250 kilometres north east of Smithers in the Peace River Regional District of northern British Columbia. The Project is located in a remote, mountainous, undeveloped area at an elevation of between 1225 and 1285 metres (“Site”). The Site is serviced by the 468 kilometre Omineca Resources Access Road (“Omineca Access Road”) which is a gravel road connecting the Project with Highway 97 approximately 30 kilometres south west of McKenzie. The Site is also accessible by air at an Airstrip which is approximately 45 kilometres north west of the Site (“Sturdee Airstrip”).
The construction of the Project included a large open pit mine to develop a 200,400,000 ton ore deposit, a crushing and concentrating facility south of the open pit to produce
2002 BCSC 1460 (*)
copper, gold, and silver concentrate (“Millsite”), a mine tailings storage facility north west of the open pit (“Tailings Dams”), a series of water collection, diversion and management structures to manage water at the Project, a mine waste rock storage site west of the open pit (“Waste Rock Area”), a permanent housing camp located immediately east of the Millsite (“Mancamp”), a smaller temporary housing camp located adjacent to Kemess Lake (“Exploration Camp”), an air strip located south east of the Millsite on a plateau above Kemess and Attichika Creeks (“Airstrip”), an access road from the Omineca Access Road to the Millsite (“Millsite Access Road”) and an access road to the Airstrip (“Airstrip Access Road”).
Construction on the Project began in 1996 with a budget of approximately $390,000,000.00. The first stage of construction of the Project was to be the site preparation work for the Millsite, Millsite Access Road, Mancamp, Airstrip, and Airstrip Access Road.
The contract for this work was awarded to Golden Hill who commenced work in early July, 1996. The work was scheduled to be completed by October, 1996 but, due to a number of factors, the work took longer than anticipated. Golden Hill worked on the Project until mid-December when its operations were shut
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down. Golden Hill returned to the Site in February, 1997 and worked until early March, 1997 to complete the Millsite Access Road. Golden Hill was scheduled to work to complete the Airstrip and to finish cleanup of the Site following the spring break-up in 1997 but terminated its work at the end of June, 1997 alleging that Kemess had failed to pay the monies owing to it.
Golden Hill subsequently filed builders liens against the various mineral claims and leases held by Kemess and, in the context of an application by Kemess pursuant to Rule 18A of the Rules of Court that the builders liens of Golden Hill had been filed out of time, I found that the builders liens were validly filed.
Accordingly, this Trial deals with the questions of the balances owing to Golden Hill, the amounts that can be claimed under the liens, and the amount of the Counterclaim of Kemess against Golden Hill.
EARLY HISTORY OF THE PROJECT
Between 1991 and early 1996, El Condor Resources Ltd. (“El Condor”) and St. Phillips Resources Inc. (“St. Phillips”) participated in a joint venture to own, explore and develop the Project with El Condor as the operator of the joint venture. In 1994, they applied to the Province for a mine
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development certificate. That application did not include a proposal for an on-site air strip as it was their intention to use the Sturdee Airstrip.
In 1999, El Condor retained Knight Piésold Ltd. (“Knight Piésold”) to perform a variety of services relating to the geotechnical investigation and design of the Project including performing geotechnical investigations for proposed locations of the Tailings Dams and the Millsite. Between January, 1993 and March, 1995, Knight Piésold produced a series of geotechnical reports for El Condor.
One site (“Site M”) was being considered for the location of the Tailings Dams. Site M was subsequently selected by Kemess as the location where the Airstrip would be constructed. The Knight Piésold geotechnical reports for El Condor included: (a) a January, 1993 Report on Materials for Embankment Construction and Concrete Aggregate (“Embankment Report”); (b) a February, 1993 Terrain Analysis and Natural Hazards Assessment (“Terrain Assessment”); (c) a March, 1993 Report on Tailings Facility Surficial Geotechnical Investigations (“Surficial Report”); and (d) a March, 1995 Report on Comparative Assessment of Tailings Sites G and M (“Comparative Assessment Report”). Those Reports and
Assessments are collectively referred to as the “Site M Reports”.
2002 BCSC 1460 (*)
In August, 1995, Royal Oak Ventures Ltd. (also referred to as “Royal Oak”) reached an agreement with El Condor and St. Phillips to acquire, develop and operate the Project. Subsequently, Royal Oak acquired all of the issued and outstanding shares of El Condor and St. Phillips. Kemess was incorporated to develop and operate the mine.
Kemess Mines Ltd. became the owner of the mineral claims and lease which are the subject of the liens of Golden Hill. Before the Trial commenced, it was added as a Defendant to these proceedings. I will refer throughout to Kemess Mines Inc. and Kemess Mines Ltd. as “Kemess”.
In September, 1995, Royal Oak retained PCL Industrial Constructors Inc. (“PCL”) to perform a variety of services relating to the design and construction of the Project including the preparation of budgets and the design of an onsite airstrip. In November, 1995, PCL solicited proposals from Vilholth Jensen & Associates Ltd. (“Vilholth Jensen”) and Kilborn Engineering Pacific Ltd. (“Kilborn”) for engineering and design services for the construction of the Airstrip.
2002 BCSC 1460 (*)
In late November, 1995, PCL provided Royal Oak with a cost estimate that Knight Piésold had prepared for geotechnical investigations at various locations at the Project. In that cost estimate, PCL expressed the importance of geotechnical investigations to the development of the Project. The geotechnical work was described as “critical” to the construction program relating to the Tailings Dam area and in laying out the Millsite location. It was proposed that soil investigation would start immediately and that a site investigation report would be available in January, 1996. In that cost estimate, Knight Piésold listed all of the Site M Reports which it had prepared for El Condor.
In December, 1995, PCL provided Royal Oak with its budget for completing a preliminary set of designs for the Airstrip which included a commitment by PCL to “assemble and co-ordinate the required topographical drawings, topographical maps, preliminary site plan and determine reasonable structural cross-sections working with the soils consultant in the field.”
By December, 1995, Royal Oak had retained Kilborn to act as its design engineer for the civil engineering work on the Project and had retained Knight Piésold to perform a series of geotechnical investigations on the proposed locations of the
2002 BCSC 1460 (*)
Tailings Dams and the Millsite and to prepare a report summarizing geotechnical, geological, and hydro-geological information “as necessary for design and for the Tender documents”. The geotechnical investigation of the original location for the Millsite revealed problems. As a result, Royal Oak elected to move the Millsite to a location adjacent to the open pit.
PCL provided Royal Oak with a revised budget for the Project totalling $553,268,446.00 which was approximately
$190,000,000.00 higher than the pre-feasibility cost estimate of Royal Oak. Royal Oak embarked on a cost-cutting program that culminated with a decision to delete a number of items including the Airstrip. The original cost allowance for the Airstrip was $3,372,694.00.
In March, 1996, Royal Oak decided that a further move of the location of the Millsite was necessary. The new location was approximately one kilometre away from the boundary of the open pit. At about the same time, Royal Oak decided not to retain PCL as its general contractor. Accordingly, PCL removed its equipment from the Site. Royal Oak decided that it would be its own project manager. I am satisfied that Royal Oak had no previous experience as a project manager developing a mine and processing site.
2002 BCSC 1460 (*)
On March 13, 1996, the Province published a report pursuant to the Environmental Assessment Act (“Assessment Report”) making recommendations in favour of the development of the Project. The Assessment Report noted that Royal Oak intended to construct the Airstrip “at a location called Site M that was assessed as a potential Tailings Pond location.” (Emphasis added).
A revised budget totalling approximately $390,000,000.00 was provided by PCL to Royal Oak in late March, 1996. The contingency budget was reduced from over $21,000,000.00 to
$10,000,000.00. The advice received from PCL was that: “This reflects a high level of risk for this stage of engineering and pricing”. The revised budget included the deletion of the Airstrip, a reduction in the cost allowance for access roads and adjustments to the cost allowance for general site preparation.
By mid-April, 1996, Kilborn and Knight Piésold were working to complete the design and geotechnical investigations for the Mancamp and the Millsite. Their estimate was that the engineering work for the Project was approximately 2 months behind schedule. By the end of April, 1996, Royal Oak had reversed its decision to delete the Airstrip from the project
but had not added any cost allowance back into the budget to reflect that addition.
2002 BCSC 1460 (*)
Knight Piésold finished its field work for the geotechnical investigation of the Mancamp site on April 30 and for the Millsite on May 3. The information was forwarded to Kilborn on May 8. PCL sent a package of preliminary designs for the Airstrip to Royal Oak. The cover letter that accompanied the designs stated in part:
Information regarding cut fills and mass halls is enclosed. It was our original intention to perform final estimate of quantities when the site was available for field investigation of overburden and organic depths, etc. Field investigation is also required for gravel fill requirements, etc. Final access road to airstrip has not yet been determined.
Kilborn was retained to prepare the tender documents (“Tender Documents”) for the Project and, on May 3, Royal Oak prepared a preliminary construction schedule that included target dates of May 17 for issuing Tender Documents and of May
28 for awarding the contract which would include the logging of the trees that were on the Site, the clearing of the Site, and the necessary earthworks operations to allow the Project to be built. That contract will be referred to throughout as the “C101 Contract”. A list of selected bidders was compiled by Kilborn and included PCL, Golden Hill, Tercon Construction
Ltd. (“Tercon”), Ledcor Industries (“Ledcor”) and North American Construction Ltd. (“North American”).
2002 BCSC 1460 (*)
Prior to when the Tender Documents were issued, Royal Oak took no independent steps to arrange for a geotechnical investigation of the Airstrip. Jim Koski was hired by Royal Oak on February 14, 1996 as the construction manager for the Project. On the basis of his testimony, I am satisfied that Mr. Koski did not know as late as May 1, 1996 that PCL had intended to conduct a field investigation of the Airstrip but had not done so. I also find that he took no steps to arrange for a geotechnical investigation of the Airstrip before the Tender Documents were issued and that Royal Oak and Kemess relied on Kilborn to direct the geotechnical investigations of Knight Piésold. I also find that Mr. Koski and others at Kemess did not review the Tender Documents before Kilborn issued them to prospective bidders.
On May 3, Royal Oak set a preliminary construction schedule for the Project which included target dates of May 17 for the issuance of Tender Documents for the C101 Contract and of May 28 for the awarding of the C101 Contract.
In May, 1996, Golden Hill was contacted by a senior engineer at Kilborn who asked if Golden Hill was interested in
having its name put on the bidders list. After indicating that it was, Golden Hill received the Tender Documents.
2002 BCSC 1460 (*)
THE C101 TENDER
Kilborn wrote to Royal Oak on May 6 advising that the late entry of Kilborn into the tendering phase of the Project limited its ability to complete the Tender Documents before they went out to potential bidders:
Since our mandate to prepare the contracts for the Project has been a very recent one, we are only now preparing the frontend of the contracts to be used for the Project. We propose issuing the generic portion of the document to you for review and approval at the same time as using it for this contract in order that we do not lose time in the contracting process. We trust you will approve of this method. It is our intent to tidy up the contract during the tender period and hopefully have it finalized by the time the work needs to be awarded.
On May 22, Kilborn forwarded the Tender Documents to seven potential bidders. The Tender Documents included “Instructions to Tenderers” and the “Tender Form” (including a list of items and prices into which tenderers were to insert their unit prices and estimated quantities); a proposed “Form of Agreement”; “General Conditions” and supplementary conditions; detailed “Specifications” for the “Work” (including general requirements and technical specifications); and a list of tender and reference drawings and sketches for
2002 BCSC 1460 (*)
the proposed areas of Work. Also included was a set of drawings (“Drawings”), soils data on the Millsite and Mancamp (“Soils Data”) and an invitation to visit the Site. The Soils Data consisted of test pit logs, bore hole logs, a sketch of the Millsite showing the location of the test holes, and a number of faxes prepared by Knight Piésold.
The cover letter from Kilborn also stated that: “a copy of the currently available soils data is included with this letter for the information of tenderers.” This was not the case as the Site M Reports were not enclosed in the Tender Documents. The cover letter set the closing date for responses as June 11 at 12:00 noon. The letter also stated that the successful tenderer might be required to provide a 50% Performance Bond and a 50% Labour and Materials Bond.
THE WORK SET OUT IN THE TENDER DOCUMENTS
The Tender Documents called for a unit price contract for all of the earthwork activities and aggregate production. Bidders were asked to set out prices for each step involved in earthworks under the following headings:
“Clear and Grub” (per hectare);
“Strip and Stockpile Topsoil” (per hectare);
“Scarify and Compact Orig Ground” (per hectare);
2002 BCSC 1460 (*)
“Bulk Excavation” including all of the following on a cost “per cubic metre” basis: “Cut to Fill Common Material”, “Cut to Stockpile Unsuitable”, “Borrow to Fill Common Material” and, “Cut to Stockpile Granular Material”;
“Surfacing” including all of the following on a cost “per square metre” basis: “Place Granular Base 300mm” (“Granular “B”), “Place Granular Surfacing 150mm” (“Granular A”) and “Spread Topsoil 150mm”; and
“Overhaul” (cost per cubic metre per kilometre for material hauled in excess of 1 kilometre).
Bidders were asked to submit these unit prices for each of the 5 areas of the C101 Contract: the “Airstrip Access Road”, the “Airstrip”, the “Millsite Access Road”, the “Millsite”, and the “Mancamp”. The unit prices were to include all of the costs for performing that unit of work.
What perhaps makes this unit price contract unusual is that the bidders were to fill in not only the cost per unit of work but also the quantities of each unit of work. Regarding the estimated quantities for each unit price, the contractors were advised: “The Contractor is responsible for establishing the estimated quantity of each pay item on the list, except
2002 BCSC 1460 (*)
for those quantities provided by the Owner which are based on preliminary estimates.” No anticipated quantities of material were set out in the Tender Documents.
Under the category “Bulk Excavation”, bidders were required to estimate: (a) the amount of “cut to fill common”, being soils from design cut areas that would be suitable for use as fill; (b) the amount of “cut to stockpile unsuitable”, being soils from design cut areas that would be unsuitable for fill areas or that were suitable but were surplus to the fill requirements and therefore would have to be removed and placed in waste dumps; (c) the amount of “borrow to fill”, being soils from areas other than design cut areas including within and without the cleared limits of the Project which would be needed to supplement the fill that was available within design cut areas; and (d) the amount of “cut to stockpile granular”, being material from cut areas that was of a granular quality, being material which was to be stockpiled for processing by the crusher to make the granular material or the concrete aggregate which would be required for the Project or which was to be used to provide the surface of the Site once other earthworks were complete.
The Specifications gave definitions for granular fill and for Granular A and Granular B material. Granular fill was
2002 BCSC 1460 (*)
described as: “a mixture of fine and coarse granular material composed of hard durable uncoated particles obtained from naturally formed deposits or crushed rocks.” Granular B material was to be placed in areas where structures, roads or parking areas would ultimately be located. Granular A was to be placed in other areas. The difference between Granular A and Granular B was based on the respective percentages of the size of the material comprising the two granular fills. 100% of Granular B material had to be less than 150 mm in size whereas 100% of Granular A material had to be less than 25.5 mm in size. The granular material also had to have certain “physical requirements”. Granular A material had to have a rating of 60 Los Angeles Abrasion as determined by ASTM C131 and a 0 Plasticity Index as determined by ASTM D4318 and Granular B material had to have a 0 to 4 Plasticity Index as determined by ASTM D4318.
The Tender Documents set out definitions or specifications of “suitable” and “unsuitable” fill for the Project. Under the “Technical Specifications” section of the Tender Documents, “Unstable” or “Unsuitable” were defined as follows:
“Unstable” or “unsuitable” as applied to subgrade materials means in a loose state, or too wet, or frozen, or containing ice or snow, or containing
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organic or other deleterious matter, or having poor characteristics of grading and compaction, or having other characteristics which may result in undesirable settlement or other movement of foundations, fills or other superimposed load, or otherwise not meeting the requirements of the specifications; provided, however, that this definition permits compacting, drying dewatering, thawing and any other remedial work, improvements or processing where same is required by or permitted by the specifications of the Owner.
“Unstable” or “unsuitable” as applied to fill material means too wet, too dry, or frozen or containing ice or snow, or containing organic or other deleterious matter, or having poor characteristics of grading and compaction, or having other characteristics which may result in undesirable settlement or other movement of the fill or within the fill, or otherwise not meeting the requirements of the specifications, provided however that this definition permits drying, dewatering, watering, thawing and any other processing or reprocessing to make the material stable and suitable prior to incorporating it into the fill.
Under the definition of “Fill”, the Technical Specifications indicated that Fill was not to be placed until the “subgrade had been compacted to 90 percent of maximum density determined by ASTMD1557 (Modified Proctor Test)”. The Technical Specifications then set out differing specifications for: (a) “Roads and Parking Areas” (to place subgrade materials and layers not greater than 300 mm thickness before compaction and to select subgrade materials to not less than 95% of maximum density determined by ASTMD1557 - Modified Proctor Test); and (b) “General Site Grading” (to place layers
2002 BCSC 1460 (*)
not greater than 300 mm thickness before compaction and to select subgrade materials to not less than 90% of maximum density determined by ASTMD1557 - Modified Proctor Test).
Concerning the unit prices, the “Notes on the List of Items and Price” under the heading “A. General” stated that:
Each unit price shall be the full and only amount payable by the Owner for the unit and all things directly or indirectly required to complete it in accordance with the Contract... (at para. .06).
Each Unit Price shall be firm for the duration of the Contract” (at para. .07). (Emphasis added).
Section B of the “Notes on the List of Items and Price” set out how the units would be measured for payment and further detailed the activities to be covered by the unit rates.
As part of the environmental requirements of the Provincial Government, the topsoil on the Site (“Topsoil”) was to be removed and stockpiled in order that it could be returned to the Site when the mining and processing operations were concluded. The Section B Notes included the following regarding the stripping and stockpiling of Topsoil:
These items include the removal of topsoil, to an average depth of 150mm, the loading, hauling and placing in stockpile of the topsoil. Also included will be the contouring of the stockpile and all measures taken to prevent erosion and run-off from
the stockpile from carrying sediment to the water courses.
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The unit measurement for stripping and stockpiling Topsoil would be based on a per hectare basis. The Tender Documents stipulated that this unit measurement for Topsoil would only include an average depth of 150 mm so that any Topsoil below that depth would not be measured with the Topsoil unit measurement.
The Section B Notes also dealt with the distance that material had to be hauled and what was or was not to be included within the unit prices. The “Free Haul” distance would be 1 kilometre. This meant that there would be no additional payments for hauling material under 1 kilometre when stockpiling Topsoil, placing Fill, or moving unsuitable or granular material.
For distances in excess of 1 kilometre, the unit price for “Overhaul” had to be designated and it was stipulated that the distance would be measured: “... based upon the shortest distance between the centre of mass of the excavated material and centre of mass of the place in which it is deposited”.
In addition to the unit prices, bidders were also asked to include separate lump sum prices for the following which were to be paid on a monthly basis: (a) mobilization and
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demobilization costs of equipment and labour forces to and from the Project; (b) insurance costs; and (c) temporary facilities and indirect costs which were to include:
... all indirect costs of a monthly nature associated with overhead costs and maintaining the site temporary facilities, such as, but not limited to, supervisor personnel, office trailers, warehousing facilities, tool cribs, pick-ups, first aid facilities, sanitary facilities, etc.
The Tender Documents specified that bidders provide the following: (a) hourly labour and equipment rates for additional work on a cost plus basis (“Schedule B”); (b) an equipment list setting out the equipment that was required for the work (“Schedule C”); (c) a basic contract schedule setting out the activities involved and an approximate average manpower needed per month (“Schedule “K”); and (d) any exceptions, deviations or qualifications to any of the Tender Documents.
The Form of Agreement set out a number of General Conditions (“General Conditions” or “GC”). General Conditions
3.0 (Contract Schedule), 4.0 (Commencement and Completion of Contract), 5.0 (Time and Order of Construction), 12.0 (Site Conditions), 27.0 (Changes in the Work), 28.0 (Valuation of Changes), 36.0 (Delays And Extension of Time), 37.0
(Suspension of Work), 38.0 (Non-Fulfilment of the Contract, and 40.0 (Disputes) are all in issue in these proceedings.
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There are a number of provisions in the Tender Documents dealing with oral representations including “Instructions to Tenderers”, Articles V and VI of the Form of Agreement, and GC
12.0. Those provisions are also in issue in these proceedings.
There was an over/under clause which was to be completed by Golden Hill (“Over/Under Clause”). This clause provided that, if the final quantity of any of the unit price items varied by more than 50% of the quantities estimated by a bidder for that item, the unit price for that item would be adjusted by a percentage that was to be set by the tenderers. Tenderers were also to provide a percentage increase and decrease where the percentage variation or quantity exceeded 50% but did not exceed 100% and were to provide a percent variation in unit price if the quantity increase exceeded 100%.
Jon Rudolph is the President and sole shareholder of Golden Hill. It was his responsibility to prepare the bid made by Golden Hill on the C101 Contract. When Mr. Rudolph reviewed the Tender Documents and noticed that there was no estimated quantities provided, he contacted Kilborn and was
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advised that the bidders were expected to estimate the quantities. Mr. Rudolph then asked Jerry Quaile of Golden Hill to estimate the quantities from the information supplied in the Tender Documents. Mr. Quaile was the head surveyor for Golden Hill but was not a geotechnical engineer nor a soils technician.
There was no evidence that Mr. Quaile had any experience in evaluating soil conditions in terms of whether those soil materials would be suitable or unsuitable for use in construction. I find that Mr. Quaile had never taken any courses to learn how to analyze test pit logs and could only say that he had read “some documentation on test pit logs and how to analyze them”. I also find that he had never previously been involved in putting together actual bid numbers for prices or for quantities relating to an earthworks contract bid.
Regarding the discussions that Mr. Rudolph had with Kilborn, I accept the evidence of Mr. Rudolph that Mr. Clegg of Kilborn advised him that Kilborn had just become involved in C101, that they were obtaining data from the owner and were “scrambling” to issue the Tender Documents in time for the earthworks to be performed during the 1996 construction season.
THE SITE VISIT
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General Condition 12.1 required prospective tenderers to undertake a careful examination of the Site before submitting a tender:
It is understood and agreed that the Contractor has, by careful examination of the Site and the Contract Documents and by other means before tendering on this Contract, satisfied himself as to the nature and location of the Work, the conformation of the ground, the soil conditions, the character, quality and quantity of the materials to be encountered, the character, quality and quantity of equipment and facilities needed preliminary to and during the performance of the Work, the general and location conditions, and all other matters which can in any way affect the Work.
Part Four of the Instructions to Tenders stated:
A Pre-tender meeting may be held on site on the date noted in the Letter of Invitation. In any event, the Contractors are motivated to make themselves fully familiar with access to the site, and the physical conditions of the site.
The purpose of the meeting is to clarify any questions regarding the Scope of Work and to examine the site. All Tenderers are encouraged to attend this meeting.
Obtain the Owner’s approval before disturbing the Site if any such disturbance is to be made in examining the Site. Restore all such disturbance.
The Contractor will be considered as having taken into account possible site working conditions, abnormal conditions, such as effects on labour productivity, weather, access, soil conditions, lay down areas, congestion, permits, environmental needs, etc., that may arise during the course of
construction. No additional reimbursement will be considered by the Owner to cover extra costs arising from these or similar conditions, other than those specifically provided for.
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There was no date for the site visit mentioned in the Letter of Invitation. Mr. Rudolph had been advised that Kilborn was not planning to hold an official site visit, that it was the responsibility of each tenderer to make their own arrangements to visit the Site, and that Mr. Rempel would be the representative of Kemess on the Site to meet with Golden Hill if a Site Visit was arranged by Golden Hill.
GOLDEN HILL REPRESENTATIVES AT THE SITE VISIT (“SITE VISIT”)
Mr. Rudolph arranged for a site visit for June 5. On that day, Mr. Rudolph was accompanied by Mr. Lyons of Golden Hill as well as Mr. Adams of Nuway Crushing (“Nuway”). Golden Hill would subcontract with Nuway to perform the aggregate production work required under the C101 Contract.
I am satisfied that Mr. Adams had extensive experience observing soil conditions and the suitability of soil for fill and aggregate purposes. Mr. Lyons was the senior superintendent of Golden Hill and was later to be one of the superintendents on the job supervising the work undertaken. I am satisfied that Mr. Lyons had extensive experience observing
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soil conditions, and the suitability of soil for earthworks, and supervising earthworks operations. I am also satisfied that Mr. Rudolph had extensive experience observing soil conditions, the suitability of soil for fill and aggregate purposes, and the preparation of bids for and the operations relating to earthworks contracts.
Mr. Rudolph had a very long history of participating in site visits. He described his general practice during such visits was to focus on the following elements: (a) the geographical location of the site to assess the ability of Golden Hill to mobilize equipment, labour, parts and supplies;
(b) the general layout or slope of the land, including the availability of water for use in dust control; (c) the tree cover on the site and the magnitude of any clearing that would be required under the contract; (d) the general slope of the terrain to begin to envision the location of the cut and fill areas and to assess the haul gradient; (e) the location of potential campsites and laydown locations; and (f) the location of any exposed soils to assess the general soils’ condition and determine whether the soils were generally granular, silty or wet.
I find that Mr. Rudolph followed this general practice on the Site Visit. I also find that, prior to going on the Site
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Visit, Mr. Rudolph was advised by Mr. Quaile that no soils data for the Airstrip or the Millsite Access Road areas had been received.
MR. REMPEL REPRESENTING KEMESS
By the time of the Site Visit, Mr. Rempel had spent approximately 4 to 5 days reviewing construction drawings with Kilborn engineers in Vancouver. Mr. Rempel testified that Mr. Collins of Kilborn had advised him that the Millsite had granular deposits suitable for concrete aggregate and an abundance of Granular A, Granular B and concrete aggregate materials. Mr. Rempel also testified that he had discussions with several other Kilborn engineers to confirm that understanding. Mr. Rempel testified that the information about the availability of granular deposits on the Millsite was important to his job because large earthworks projects like the C101 Contract required a large supply of granular material.
At Trial, Mr. Rempel admitted that his conversations with representatives of Kilborn led him to expect that the Millsite had good quality granular material at elevations that would allow “a cut fill operation to construct the Millsite area... I had fully expected to see a good quality granular material at lower elevations.” As to what he meant by “lower
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elevations”, I am satisfied that this referred to what would be below the “topsoil, the silty, sandy, wet saturated material” which Mr. Rempel expected to find on the Site.
From his testimony, I am satisfied that Mr. Rempel had expectations that good quality granular material would be found at elevations at Millsite that would “allow a cut/fill operation to construct the Millsite area.” I find that Mr. Rempel made no effort to ask anyone at Knight Piésold about the availability of soils information for the Airstrip.
After meeting with Kilborn and Knight Piésold employees in Vancouver, Mr. Rempel spent a short time in the Smithers office of Kemess before driving to the Project in the third week of May, 1996. While in Smithers, Mr. Rempel flew by helicopter to the Kemess Site on 3 or 4 occasions and, while he knew only the approximate location of the proposed Airstrip and did not know that the open areas which could be seen would ultimately fall within the clearing limits of the Airstrip, Mr. Rempel testified that his flights over where he thought the Airstrip would be located gave him “no impression” about the soil conditions that might be encountered during construction at the Airstrip. However, Mr. Rempel did form an opinion about whether good granular material could be found at the Airstrip based on his own observation of the side slopes
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“on the road leading up to the airport strip”. I find that, by the end of May, Mr. Rempel expected to find good granular material at the Airstrip.
THE JUNE 5 VISIT
Golden Hill representatives met with Mr. Rempel about noon, had lunch at the Exploration Camp, accompanied Mr. Rempel to the Kemess site office where they reviewed the plans for the Project and discussed in general terms the locations of the Millsite, the Mancamp, the Airstrip and the access roads. Mr. Lyons testified that Mr. Rempel told them that: “the soils reports were coming, they weren’t ready yet”. I accept the testimony of Mr. Lyons in that regard.
The group then used all-terrain vehicles to travel south on the main access road from the Exploration Camp to the general area of the Millsite. Mr. Rudolph testified that the flat ground near the Exploration Camp appeared to have “very clean granular material”. He recalled that there was a small “borrow pit” near a creek adjacent to the Camp and that it also had “very clear, clean gravel”. Mr. Rudolph also remembers seeing what he considered “granular-type material” in the road cuts between the Exploration Camp and the Millsite. I accept their evidence in that regard.
MILLSITE AREA
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There was no road into the Millsite area. However, the centre line of the Millsite had been cleared and, when the group reached the intersection of the Millsite centre line and the Exploration Road, they turned south on to the Millsite centre line and started to drive through the proposed location of the Millsite before stopping at the remains of a back-filled test pit.
There were no open test pits available for viewing on June 5. However, the group was able to observe the pile of material that had been produced when the test pit had been dug and the material from the test pit had been replaced into the test pit.
While there was some dispute about the exact location of this first stop, I find that it was near a test pit and that the results of the testing of the materials at this test pit were included in the Soils Data received by Golden Hill.
Messrs. Lyons and Adams stayed behind the rest of the group to look at the soil material that was exposed in a side cut on the edge of the Millsite centre line. Mr. Lyons recalled that the 1 to 1.5 metre deep side cut exposed “lots of gravel” and “very little if any” silt. This location was
approximately 30 to 40 feet away from the remains of the back-filled test pit. I accept his evidence in this regard.
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At the test pit, Mr. Lyons recalled that the members of the group commented that the pile of gravel at the top of old test pit was “good material”. Mr. Lyons quotes Mr. Rempel as saying: “The whole site is of the same material. It’s all over” and that he was referring to “good granular material” at the time. Mr. Lyons rejected the suggestion made that Mr. Rempel made a comment that he “expected” that there would be good granular material on the site.
Mr. Rudolph testified that the pile of gravel at the first back-filled test pit was “good gravel, fairly clean, well graded and not too big... a little dirty”. He testified that the group commented that the pile of gravel “looked like very good material” and that he recalls Mr. Adams saying that “it would be no problem at all making Granular A or Granular B out of that material.
Mr. Rudolph testified that Mr. Rempel stated that the pile of gravel was “pretty much representative” of what Golden Hill would find on the whole Millsite. Mr. Rudolph testified that Mr. Rempel said on more than one occasion that the granular material on the first stop on the Millsite was representative of the material across the Millsite.
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It was also put to Mr. Rudolph that Mr. Rempel had said that he “expected” that the material at the first stop on the Millsite was present throughout the site. Mr. Rudolph testified that, while he could not be 100% sure, his recollection was that Mr. Rempel used words to the effect that the gravel was “indicative” of what Golden Hill would find in the whole area.
In direct examination, Mr. Rempel could not recall what, if any, conversations he had with Messrs. Rudolph and Lyons at the first stop at the Millsite but he did not deny the evidence of Messrs. Rudolph and Lyons regarding what he was alleged to have said. Mr. Rempel admitted that the Site Visit had taken place after he spent time at the offices of Kilborn where he gained the impression that the Millsite had an “abundance” of good granular material.
In cross-examination, Mr. Rempel agreed that he expected that there would be “a good source of good material on site”. However, Mr. Rempel does recall telling Mr. Adams that “the granular material was at lower elevations, beneath the organics in certain areas of the Millsite.”
I accept the evidence of Messrs. Lyons and Rudolph regarding what Mr. Rempel said on June 5. I find that he expressed the opinion that “good granular material” would be
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found throughout the Millsite. I reject the suggestion made by counsel that Mr. Rempel was merely commenting about what he “expected” to find. I also do not accept the testimony of Mr. Rempel that he restricted his comments to the material that would be found at “lower elevations” and only in “certain areas of the Millsite”.
First, in direct examination Mr. Rempel testified that he could not recall specifically the conversations he had had with Messrs. Rudolph and Lyons. Second, I accept the evidence of what Messrs. Rudolph and Lyons report Mr. Rempel as saying as they had specific recollections of the conversations. Third, I am satisfied that Mr. Rempel made sweeping statements about what would be encountered and it is unlikely that he would have put a caveat on such sweeping statements that the statements only related to “certain areas”. Fourth, the Tender Documents contemplated that the organics (Topsoil included) would only be 150 mm throughout the site. Because of that, I am satisfied it would have been in the contemplation of Mr. Rempel and that he would have been of the belief that the “good granular material” he was referring to would be consistently found below 150 mm of Topsoil so that there would be no need for him to indicate that the good granular material would be at “lower elevations”. Fifth, if
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any such statement was made, I am satisfied that it would be in the context of the inability of the group to travel below about half way down the centre line of the Millsite. They were moving downhill, and I find that any reference to “lower elevations”, referred to further down the centre line rather than below the organics/Topsoil.
Mr. Rudolph also testified that he had a discussion with Messrs. Rempel and Adams whether it would be necessary for Nuway to process the Granular B material on the Millsite or whether Golden Hill would be able to “free dig” the material out of the Millsite because it appeared that the gravel material at the test pit could satisfy the specifications for Granular B without processing. Mr. Rudolph testified that Mr. Rempel said that Kemess would not require Golden Hill to process the Granular B if it was not necessary. I am satisfied that this discussion became reflected in the bid of Golden Hill as Mr. Rudolph wrote “don’t anticipate” beside the unit price for processing Granular B material. I accept the evidence of Mr. Rudolph in this regard and I am satisfied that this discussion also would have reinforced the view of Mr. Rudolph gained from the statements of Mr. Rempel that there was adequate good granular material at the Millsite.
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After their discussions at the first stop, the group drove further south on the Millsite centre line. There were a few areas near the centre line which were impassable and, eventually, the trail began to deteriorate significantly so the group stopped. The best estimate is that the group travelled a little more than half way down the Millsite centre line. They decided not to go further and Mr. Rudolph quotes Mr. Rempel as saying that the remains of the 2 or possibly 3 back-filled test pits that they had driven by were “representative of the rest of the test pits”. Mr. Rempel could not recall any of the details of the discussion at the second stop.
A number of photographs were taken that day. From the photographs it is apparent that there are a number of areas of wet Topsoil. In fact, one of the all-terrain vehicles became stuck on a log in an area of wet Topsoil. The pictures show a number of pockets of water as well as black soil indicating soil rich in organics. I am satisfied that none of the group expressed concern about the areas of standing water at the locations visited that day. In fact, Mr. Rempel thought that it was quite possible that frost conditions in the ground could have caused the spring melt water to pool at the surface. He testified that nothing happened during the Site
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Visit to cause him to think that Golden Hill might encounter a significant amount of silty saturated materials when the earthworks operation started at the Millsite. I find that to be the case.
MANCAMP AREA
The group then retraced their route to the Exploration Road and turned south on the access road driving towards the perimeter of the Mancamp. Once close to the proposed location for the Mancamp, the group stopped. Mr. Rempel admitted that he told the group that it was not possible to access the Mancamp using all-terrain vehicles. Golden Hill representatives looked at the perimeter of the Mancamp from the Exploration Road to get a feel for the lay of the land and concluded that the portion of the Site which would be the Mancamp and the Exploration Road both had materials similar to the Millsite area. I find that this conclusion was reached after the statements made by Mr. Rempel regarding the nature of the material that would be found throughout the Site.
AIRPORT AREA
Mr. Rempel testified that he told the Golden Hill representatives that, because of snow conditions, they could not travel up to the Airstrip area during the Site Visit unless they wanted to park the all-terrain vehicles and walk.
Further along the Exploration Road, Mr. Rempel stopped the visit to point out the general location of the Airstrip.
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Mr. Lyons testified that Mr. Rempel told the group that the soil conditions at the Airstrip were good granular, the bench where the Airstrip was going to be built had exposed granular deposits and was “showing a good granular on the side” and that there was good granular on the “whole site”.
Mr. Rudolph testified that Mr. Rempel told the group that the Airstrip “would be good gravel, similar to the rest of the site”, that it was “virtually impossible” to get to the Airstrip, that they could fly over the Airstrip in the helicopter when the Golden Hill representatives left the Site, that it was possible to see “high cut gravel banks” leading down from the Airstrip to the Omineca Access Road, and that there was evidence of “granular outcroppings in 4 or 5 places” on the Omineca Access Road directly below where the Airstrip would be. I accept the evidence of Messrs. Lyons and Rudolph as to what was said by Mr. Rempel regarding the material at the Airstrip.
HELICOPTER RIDE OUT FROM THE SITE
The group then drove back to the Exploration Camp. The Golden Hill representatives left the Site by helicopter at approximately 5:00 p.m. After circling the Millsite and the
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Mancamp, the helicopter flew down the Exploration Road to the Omineca Access Road and then followed the Omineca Access Road towards the bench where the Airstrip was to be built.
From a height of between 75 – 100 feet, Messrs. Rudolph and Lyons saw exposed deposits of gravel material between the Omineca Access Road and the proposed location of the Airstrip. Mr. Lyons described the materials as being: “good granular materials, like lots of gravel, coarse gravel... 1” to maybe 2” and smaller”. Mr. Rudolph described the same area as “good gravel, good gravel cuts, gravel washes”. The helicopter then moved up to the bench and made one or two passes over the bench looking for the vest that Mr. Rempel said identified the proposed centre line of the Airstrip.
Mr. Rudolph testified that he noticed that the tree cover at the Airstrip was lighter and more sparse and was “more predominantly pine”. Mr. Lyons testified that he saw a mix of pine and spruce from the helicopter, “probably half and half”. Mr. Rudolph testified that his observation of the tree cover did not cause him to draw any definite conclusions about the soil conditions at the Airstrip although, from his own experience, he believed pine trees preferred to grow in drier conditions than spruce trees.
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Mr. Lyons testified that he saw a couple of brown areas” off to the side of the cut line that he thought might be the proposed centre line of the Airstrip but he did not see any standing water. Mr. Rudolph testified that he noticed there were some areas on the east side of the Airstrip that had fewer trees than other areas but Mr. Rudolph was not particularly concerned with the sparse area as he was “more concerned with where the Airstrip was being built”.
On the basis of the testimony of Messrs. Rempel, Lyons and Rudolph, I find that anyone flying over the area that would ultimately be the Airstrip would not observe in May or early June of 1996 anything that would allow them to conclude that the soil conditions at the Airstrip would not be “good granular material”, being the description given by Mr. Rempel when he spoke to Messrs. Lyons and Rudolph during the Site Visit.
On the basis of the testimony of Messrs. Lyons and Rudolph, I find that there is nothing about the tree cover or the areas without trees in the area that would ultimately be the Airstrip which would allow a person observing the area in May or early June from the air to conclude that the soil conditions at the Airstrip would not be “good granular” material.
BID PREPARATION OF GOLDEN HILL
The bid was prepared by Messrs. Quaile and Mr. Rudolph.
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Mr. Quaile calculated the quantities of materials and Mr. Rudolph conceived the plan for the Work, selected a fleet of equipment, developed a schedule for the Work, and prepared the detailed estimate of the expected cost of the work for the purposes of developing the unit prices which were then inserted in the bid.
PLAN FOR THE WORK
In order to determine his prices for bidding on a unit price contract, Mr. Rudolph testified that he usually looked at the overall quantities to determine the magnitude of the job and then inserted a “representative” or “historic” unit price into the quantities schedule in order to determine a rough dollar cost of the job. Mr. Rudolph testified that he performed that exercise on this bid but that he was unable to locate his worksheet setting out these calculations.
After reviewing all of the testimony of Mr. Rudolph, I am satisfied that nothing turns on his inability to produce his worksheet for the C101 Contract bid. First, the worksheets for other jobs which were in evidence allow me to conclude that Mr. Rudolph followed his invariable practice on this bid. Second, the bid flowing from the worksheets is in evidence.
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Mr. Rudolph testified that the Soils Data provided was very important in determining his prices as the Soils Data: “has a lot to do with it, both the soils, the haul distances, and the gradients are basically the things that control price...what it relates to is your production rate, the production of material that you can move in a given period of time.”
Regarding the equipment that would be needed, Mr. Rudolph testified it was his experience that a “three piece truck spread” would result in a production rate of approximately 150 loads of material (each load being 15 cubic metres) per shift in a short haul cut/fill situation but that a “three piece scraper operation” in the same circumstances would achieve approximately 300 to 400 loads per shift. Where the material had to be hauled a longer distance, Mr. Rudolph testified that a truck operation was more efficient and that he usually limited a scraper operation to hauls of less than 2 kilometres. The latter was what he anticipated on this Project so that his plan centered around a three piece scraper operation.
Mr. Rudolph decided to use two scraper operations for a number of reasons. First, there was a large volume of soil to be moved in a short period of time. Second, the work was to
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be undertaken in a confined site with relatively short hauls and slight gradients. Third, Mr. Rudolph expected that his competitors would likely use scrapers which are more efficient in a short haul situation. Fourth, his equipment and labour would be most productive using two scraper operations on the Project. Fifth, Mr. Rudolph testified that his impressions of the availability of good granular material throughout the Site were gained during the Site Visit and on the basis of what Mr. Rempel stated. Because Mr. Rempel stated that the soils were well graded granular material, he expected that they would not be much affected by weather. He concluded that the soils described by Mr. Rempel were a perfect material for a scraper operation.
Mr. Rudolph testified that he did not consider weather to be a prominent factor. He expected that there would be some rain so that the operation would be shut down “the odd time” but, because of his expectations regarding the material to be moved, weather was not a major consideration in his productivity calculations. I am satisfied that Mr. Rudolph made no inquiries about what was the “usual” weather to be expected at the Site between June and October.
After calculating his ballpark dollar figure for the Project and selecting his equipment, Mr. Rudolph calculated
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the number of spreads of equipment he needed to perform the Work by dividing the total amount of the material that needed to be moved by the total time allotted for the Project. He testified that this calculation allowed him to ascertain the amount of material that needed to be moved in a shift and he then adjusted this amount downward to account for delays, breakdowns and other down time.
QUANTITIES TO BE HANDLED
In order to calculate his production rates, to select his equipment and to calculate his prices, Mr. Rudolph utilized the estimates of quantities provided to him by Mr. Quaile.
Mr. Quaile had used the Soils Data to estimate the quantities of soils that needed to be moved. Mr. Quaile stated that he located the testholes and compared them to the depth of the corresponding cut or fill areas shown on the Drawings. Mr. Quaile testified that he anticipated that there would be wet weather and assumed that Golden Hill would not have to move silty material in the wet weather but would be in a position to switch operations to areas that were expected to contain more sand and gravel such as the concentrator site and the service complex within the Millsite.
For certain areas within the Site, Mr. Quaile did not expect any significant quantities so he inserted the
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quantity of 1,000 cubic metres in some areas of the bid simply so that a price could be entered and would exist if material falling into those categories was encountered during operations. Because there was no soils information available for the Airstrip, Mr. Quaile assumed roughly the same average type of material for the Airstrip as for the Millsite and Mancamp. Mr. Rudolph reviewed Mr. Quaile’s estimated quantities in a general fashion but did not review his detailed calculations.
Regarding the Over/Under clause, Mr. Rudolph set a figure of plus 10% for increases or decreases over the quantities estimated of between 50% and 100% and an increase of 50% for increases over 100% over the quantities estimated by Golden Hill.
PRODUCTIVITY EXPECTATIONS OF GOLDEN HILL
Based on the quantities estimated by Mr. Quaile, Mr.
Rudolph planned for the bulk excavation of 678,000 cubic metres (including cut to fill and cut to unsuitable) at the Millsite and Mancamp combined. He determined that an equipment spread should consist of a D10 bulldozer, 3 scrapers, 1 grader, 2 packers, a D9N bulldozer, and an excavator and that 1 spread of equipment could produce 330 loads per shift based on what Golden Hill had been able to
produce in the past on similar jobs having similar anticipated soil conditions.
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The estimated number of loads per shift was multiplied by 15 cubic metres per load to calculate that 1 spread could move 4,950 cubic metres of material each shift (or 9,900 cubic metres of material per day using two shifts).
Using those calculations, Mr. Rudolph calculated that it would take 68 days of double shift production to move the 686,000 cubic metres of material at the Millsite and the Mancamp and 39 days of double shift production to move the 385,200 cubic metres of material at the Airstrip and the Airstrip Access Road.
For the cleaning and grubbing operation which would take place prior to the earthworks operation, Mr. Rudolph planned to use a bulldozer spread consisting of a D7, a D8K, a D8N as well as the EX 400 excavator. He calculated that it would take this spread 35 days of double shift production to complete the required clearing.
EQUIPMENT
Golden Hill was required to submit an equipment list with its bid. In addition to the equipment outlined above, Mr. Rudolph selected “vibratory” packers for the Project
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because he felt they were the most suitable and versatile for granular fill and granular materials. He testified that it was his experience that a “pad foot” packer was inappropriate for granular materials.
BID ESTIMATE SHEET
After selecting the equipment for a Project, Mr.
Rudolph stated that he filled out a “bid estimate sheet”. His first step was to list all the equipment he expected to use on the Project. His next step was to insert the number of weeks that the particular piece of equipment would be in use. In the next column, he inserted his weekly “internal equipment rental rate”. He would then identify the amount of fuel needed by that piece of equipment over the relevant number of weeks. He arrived at this estimate by taking into account his past experience and the expected job conditions.
He next inserted his mobilization and demobilization costs for the equipment. The following items were then included in the bid estimate sheet: (a) materials at quoted prices; (b) fuel at quoted prices as well as an allowance for oils and filters of 10%-12%; (c) labour costs including superintendent’s salary, mechanical staff and equipment operators; (d) a 12-15% payroll burden and associated overhead allowance (designed to cover holiday pay, UIC, CPP, WCB); (e)
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estimates of mechanical costs, bonding and insurance; (f) subcontractors’ prices; (g) crew transport (i.e. weekly flights), freight for consumables, and room and board; (h) interest; (i) a lump sum number to cover head office expense –including salaries, telephone, hydro, taxes, rent, computers; and (j) an amount for profit (usually 5% to 15%).
After he completed this bid estimate sheet, Mr.
Rudolph stated that he would compare the final figure on the sheet to his original ballpark calculation based on historical unit prices and then make adjustments to historical prices to ensure that the total figure on the ballpark sheet matched the total figure on his bid estimate sheet.
UNIT PRICES SET
Mr. Rudolph’s final prices for the bulk excavation items were $2.00 per cubic metre at the Millsite and Campsite and $2.10 per cubic metre at the Airstrip and the Millsite Access Road. The unit price for the Airstrip and the Millsite Access Road was higher as Mr. Rudolph testified that he believed that those latter two items involved longer hauls of materials.
Mr. Rudolph testified that it was his practice to use “blended unit prices” for the different types of bulk excavations so that the $2.00 and $2.10 figures were the same
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prices for “cut to fill” and for “cut to unsuitable/waste”. It was the opinion of Mr. Rudolph that the cost of moving those two different materials averaged about the same.
Mr. Rudolph stated that the amount of waste that he anticipated at a project could be a factor in the unit prices selected as matters such as the amount of waste, the type of material, the moisture content, the location of the waste dumps and the operation for removing waste would all affect his unit prices. As Mr. Rudolph did not anticipate a large volume of waste, he planned on handling the waste predominantly by scrapers.
SCHEDULE
Golden Hill committed to work a schedule of shifts of 21 days on Site followed by seven days of “turn around”. Shifts would be 11 hours consisting of a 30 minute unpaid lunch break and two 15 minute paid coffee breaks. Mr. Rudolph planned on 2 shifts per day. A bar chart schedule indicating the time periods during which he planned to perform certain work was set out in Statement K to the Golden Hill Tender (“Schedule”). Mr. Rudolph testified that the bars on the Schedule did not necessarily mean that the activity would be continuous during that time frame but merely that it would occur during that time frame.
The Schedule showed that Golden Hill planned to:
mobilize its equipment during a period of about 4 weeks;
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perform initial clearing and grubbing over the Site during a period of 5 weeks; (c) start the earthworks at the Airstrip first and perform that work during a period of 7 to 8 weeks;
(d) start the earthworks at the Millsite next and perform that work during a 10 week period; (e) perform the nearby Mancamp earthworks for a 2 week period within that 10 week period; (f) construct the Millsite Access Road during a 5 week period after the Airstrip earthworks were completed; and (g) place all granular material during a period of just over 4 weeks at the end of the Project.
The total timeframe covered by the Schedule was a 4 1/2 month construction schedule. The plan was to have two earthworks equipment spreads so that it was possible to perform earthworks at two locations on the Site at the same time.
COMPARING THE GOLDEN HILL BID TO THE OTHER BIDS
The estimated quantities of Mr. Quaile and Golden Hill were in line with the quantities estimated by the 3 other bidders. It is important to note that Kilborn performed a detailed analysis and comparison of the C101 bids but made no comments to Golden Hill other than comments relating to the
estimates for Granular A and Granular B which Golden Hill later admitted were underestimated.
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The Bids submitted by Ledcor, Tercon, and North American were in evidence. After the 4 bids were received, Kilborn prepared a bid tabulation which compared not only the actual bids of the four bidders but the “rationalized total” for each bidder. This rationalized total raised the quantities of each pay item to the maximum amount estimated by any of the 4 bidders for any part of the Project. A comparison of the face amount of the four bids shows bids of
$5,793,985.00 (Tercon), $5,924,019.00 (Golden Hill),
$8,250,000.75 (Ledcor), and $8,125,324.70 (North American). The “rationalized” totals were $8,879,583.20 (Golden Hill),
$9,359,747.33 (Tercon), $14,416,526.88 (Ledcor), and
$10,848.382.85 (North American).
The equipment list for Golden Hill and North American were virtually identical except that North American included one more bulldozer and one more grader. The equipment list for Ledcor was also similar to Golden Hill. The equipment list of Tercon included 4 Cat rock trucks and three Cat D300 articulated rock trucks.
A comparison of the 4 bids confirms that Golden Hill’s estimates for waste material at the Airstrip and the
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Millsite was the most conservative of all of the bidders at 20,000 and 40,000 cubic metres respectively. North American predicted no waste whereas the other two bidders predicted smaller amounts of waste than had Golden Hill.
POST TENDER MEETING
In mid-June, 1996, Mr. Clegg of Kilborn telephoned Mr. Rudolph to ask him to attend a meeting at the Kilborn offices in Vancouver to discuss aspects of the Golden Hill bid (“Post Tender Meeting”). Mr. Rudolph was advised that Kilborn was also talking to a second contractor. Mr. Rudolph was not advised that Golden Hill had submitted the low “rationalized” bid.
The meeting was scheduled for June 18. In advance of the meeting, Mr. Rudolph drafted a revised schedule to address the concern of Kilborn that the original schedule set out by Golden Hill had the potential to run past the proposed completion date for the Project (“Amended Schedule”). Unlike the original schedule, the Amended Schedule attached dates to the various stages of the Contract based on an assumed contract award date of June 21. Mobilization of equipment was to start on June 22 and the project was to be completed by
mid-October.
Initially in attendance at the meeting were Mr.
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Rudolph and Messrs. Collins and Clegg of Kilborn. Mr. Koski of Kemess arrived late for the meeting. Messrs. Collins and Clegg did not testify about the meeting and Mr. Koski admitted that he could not recall from memory anything that was discussed at the meeting. Mr. Rudolph was able to recall a number of the discussions at the meeting.
Mr. Rudolph was told by Mr. Collins that it was a tender review meeting, Golden Hill was not necessarily the lowest bidder and Kilborn was in discussions with another contractor which Mr. Rudolph later learned was Tercon. I accept the evidence of Mr. Rudolph as to what was discussed at the Post Tender Meeting. First, Mr. Koski had no independent recollection of what was discussed. Second, Messrs. Collins and Clegg did not testify about the meeting. Third, I am satisfied that the minutes which were subsequently produced reflect the recollections of Mr. Rudolph. The most important things discussed at the Post Tender Meeting are set out as follows.
CONCESSIONS ON UNIT PRICES
Mr. Rudolph was asked to make a series of concessions relating to the unit prices for additional work under the Contract. The concessions included a request that
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Golden Hill reduce its price for standby charges from 40% to 25% of its equipment rates, reduce its percentage fees on materials from 15% to 10% and reduce its price for additional equipment not specified in the tender list from 120% of the Canadian Construction Association price to 110% of the B.C. Hydro “Rate Book Price”. Mr. Rudolph made those concessions and subsequent billings by Golden Hill reflected those concessions.
EQUIPMENT
Mr. Rudolph was asked whether he was comfortable with his equipment selection and, in response to a particular concern about whether the scrapers of Golden Hill could get down into the bottom of the deep cut area at the crusher site to finish that excavation, Mr. Rudolph states that he told Mr. Collins of Kilborn that, if Golden Hill could not excavate the material out of the crusher site using scrapers, Golden Hill would mobilize other equipment to finish the excavation.
Other than this commitment, Golden Hill submits that there was no general commitment to mobilize equipment to the Site in addition to what was already listed.
BOND
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The question of a bond for the Project was discussed. Mr. Rudolph was advised that Kemess would get back to Golden Hill if a bond was to be required.
ROLES OF KEMESS
Mr. Rudolph was advised that Kilborn was not going to have a presence at the Site and that Kemess representatives would be in charge of administering the Project including the C101 Contract. Mr. Rudolph testified that this came as a complete surprise to him as he had assumed that Kilborn would have a presence on the Site and would administer the Project as Kilborn had authored the Tender Documents and was an experienced construction supervisor. Mr. Rudolph testified that he expressed serious concerns about the intention of Kemess to play the roles of owner, engineer, and contract administrator as he was aware that this Project was the first attempt by Royal Oak at mine construction.
DEWATERING
Mr. Rudolph confirmed at the meeting that, so long as normal water was encountered, the cost of dewatering would be for the account of Golden Hill but that, if “major springs” were encountered, that would not be included in the unit prices.
SOILS DATA
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Mr. Rudolph confirmed that he reviewed the Soils Data. Mr. Rudolph was advised that there was another Knight Piésold report. Kilborn representatives indicated that they had not received a copy of the report as it was still in draft form and was incomplete. Mr. Rudolph was advised by Kilborn that they would send this report to Golden Hill once it was received and Mr. Rudolph testified that he was advised that Kilborn did not anticipate that the information would be any different than the Soils Data already received. The notes of the meeting indicate “geotechnical report coming”. I find that this report was not received by Golden Hill at any time during the Project. Similarly, I find that none of the Site M Reports were received by Golden Hill at any time during the Project.
THE “OVER/UNDER CLAUSE”
Mr. Rudolph testified that there was a lengthy discussion regarding the Over/Under Clause and the potential for a contractor to deliberately estimate low quantities with the expectation of earning a higher rate from the Over/Under Clause when the actual quantities inevitably exceeded the estimated quantities. Mr. Rudolph testified that the
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discussion about the clause focused on the fact that Kilborn and Kemess had not done sufficient engineering to allow them to include quantities in the Tender Documents.
Mr. Collins of Kilborn asked Mr. Rudolph to make a significant concession by eliminating the Over/Under Clause altogether. Mr. Rudolph testified that he told Mr. Collins he was not prepared to drop the Over/Under Clause. Mr. Rudolph testified that he told Kilborn that he was concerned that, if the scope of the Work changed or the soil conditions were different, he did not want to waive his rights to call for the percentage increases set out in the Over/Under Clause.
Mr. Rudolph testified that he said that he might be prepared to agree to drop the percentage increases if the material to be moved was as expected and they were comparing “apples to apples” but that, if the quantities greatly increased from what Golden Hill anticipated and if Kemess still wanted the Project finished in the same period of time, it would make a considerable difference so he was not prepared to drop the Over/Under Clause completely.
Mr. Rudolph testified that he agreed that, if everything was the same as what was anticipated and the scope of the Work remained the same, then he would agree to a 0% change in price provided that Golden Hill was not asked to
compress more volumes into the same or a shorter time period. At Trial, Mr. Rudolph stated:
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And I wasn’t prepared to do that, and we had discussions about well, they said fair enough, but if the materials are the same than what you’ve anticipated, and what’s there, what we think is there, and the scope doesn’t change, that everything remains the same, then are you prepared to give us a zero percent change? Well, I said, if you know if that’s the way it is, if that’s what we are talking about, that if everything’s the same in what’s anticipated and the scope’s the same, yes, I will be prepared to give a zero percent change providing, you know, that I’m not now asked to compress more volumes into a shorter time period or the time period that’s been allotted in the contract.
I mean there was a general discussion about, you know, how this whole clause could be interpreted, misrepresented in a bidding process. I mean, I acknowledged that, and it was – I mean, I made it very clear that I wasn’t prepared to do that unless everything was the same as what I anticipated.
The position taken by Golden Hill at Trial is that the Over/Under Clause did not survive the Post Tender Meeting. I do not accept that proposition. It is clear from the minutes of the Post Tender Meeting that the Over/Under Clause would not survive only if the scope of the Work remained the same as was contemplated, if the soil conditions remained as was contemplated and if it was not necessary to do the Work in less time than what was contemplated by the Amended Schedule.
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I find that the Over/Under Clause survived the Post Tender Meeting. If anticipated soils and the scope of the Work remained the same, there would be a 0% change in price if the Amended Schedule remained in effect and was not accelerated but volumes increased. If the scope of the Work changed and the soils were not as anticipated then there would be a 10% increase in the unit rates if the actual quantities increased between 50% and 100% over the quantities originally estimated and a 15% increase in the unit rates over the unit rates if the quantities encountered increased over 100% over the quantities originally estimated.
MOBILIZATION/DEMOBILIZATION COSTS
Mr. Rudolph was asked for fixed mobilization rates for additional equipment that Golden Hill might have to mobilize to the site for “cost-plus” work or for “changes in scope”. A list of transportation costs from Whitehorse and from Prince George to the Site was later provided.
PERMITS
Kemess did not have all of the required permits in place. Although there is some dispute between the parties as to Mr. Rudolph’s understanding, I find that Mr. Rudolph was aware that a number of permits had not been obtained and that
the Work could not start until the appropriate permits were obtained.
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QUANTITIES OF GRANULAR MATERIALS
Mr. Rudolph was asked to check his quantities for Granular A and Granular B as Kilborn was of the belief that the estimates were low. The quantities were later checked and Golden Hill found that the quantities had been miscalculated. They were later adjusted.
(I) THE POST TENDER MEETING MINUTES
About June 21, Kilborn prepared Minutes from the meeting (“Minutes”). The Minutes set out the discussion and took on a question and answer format.
THE OVER/UNDER CLAUSE
Section 8 of the Minutes states the following regarding the Over/Under Clause:
The % variations in unit prices (Statement A, Page 6) were discussed [the Over Under Clause].
The % increase submitted in the tender was based on the anticipation that the scope may be expanded significantly or the work accelerated and more equipment would need to be mobilized. GHV offered a 0% change in the unit rates for variations in quantity if the scope remains the same and the soils remain consistent with what is anticipated.
MOBILIZATION/DEMOBILIZATION OF EQUIPMENT
Section 8 of the Minutes also stated:
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Any additional equipment required will be mobilized and demobilized at GHV’s own cost for reasons such as lack of production or underestimating.
Additional equipment required as a result of acceleration orders by the Owner or changes in scope will be negotiated. GHV will submit a rate for mobilizing each item of equipment.
There has been considerable disagreement at Trial regarding this section of the Minutes. On the basis of what was set out in the Minutes and on the basis of the subsequent dealings between the parties, I find that, if there was a need for additional equipment merely because Golden Hill was experiencing lack of production relating to the materials that were anticipated, then the cost of mobilizing and demobilizing additional equipment would be borne by Golden Hill. I am satisfied that the reference to “lack of production or under estimating” does not refer to lack of production caused by changed soil conditions resulting in “under-estimating” the amount of material that would have to be moved. Rather, it refers only to Golden Hill having made an error in what production rates it anticipated when it put together its bid based on the soil conditions anticipated by both parties and the anticipated volume of material that would have to be moved in order to meet the Specifications.
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If there was a need for additional equipment because the soils did not remain consistent with what was anticipated, then additional equipment would be mobilized at the cost of Kemess after negotiation between the parties regarding the rates for the equipment and the cost of mobilizing and demobilizing the equipment. The parties subsequently negotiated the cost of mobilizing and demobilizing the equipment not shown on the amended equipment list.
I find that Kemess paid for all mobilization and demobilization of equipment which was not set out in the original equipment list provided by Golden Hill prior to arriving at the Site. The fact that the mobilization and demobilization costs of additional equipment was borne by Kemess allows me to conclude that the additional equipment was required either because of changed soil conditions, acceleration orders from Kemess or changes in the scope of the Work to be done.
CHANGE IN UNIT RATES
Golden Hill submits that it was anticipated that there would also be a change in the unit rates if there was a decision by Kemess to accelerate the work or if the actual soil conditions were different than what was anticipated. I am satisfied that there was no such discussion at the Post
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Tender Meeting. Such a discussion is not reflected in the Minutes which Mr. Rudolph agreed were generally accurate and reflective of what had occurred at the meeting. The Minutes speak only of “a rate for mobilizing each item of equipment”. There is no mention of the unit rates being adjusted for the new equipment. There is no mention of an adjustment of equipment rates in any of the correspondence which follows or in any of the dealings between the parties. I find that there was no agreement reached between the parties that the unit rates would be adjusted if there was acceleration, if the soil conditions were different than what was anticipated, or if there was a need for new equipment to be brought onto the Site.
However, the fact that the parties were not obligated to negotiate new unit rates does not preclude Golden Hill from advancing a claim for damages relating to any breaches of contract of tortious acts of Kemess.
OTHER DISCUSSIONS
Section 22 of the Minutes asked the question whether Golden Hill satisfied itself as to “the site conditions, including evaluating soil conditions, rock, water, topography, access, etc.” and the answer stated in the Minutes was “yes”. The question was also asked whether Golden Hill had reviewed
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the Soils Data provided with the bid “but not K&P reports”. “A final report has not yet been done.” The answer stated in the Minutes was again “yes”.
Section 25 of the Minutes asked the question of whether Golden Hill had examined the Site and the answer set out in the Minutes is “yes”. The question of “oral agreements” was dealt with under Section 32 of the Minutes which asked the question “Is it understood that oral agreements are non-binding?” with the answer “Yes” given for that question.
Section 35 of the Minutes states in part: “These and subsequent Minutes become part of the contract.” In the course of giving his evidence, Mr. Rudolph could not recall any discussion about this minute other than his recollection that the statement came from Mr. Collins. I am satisfied that the parties did not act on the assumption that “subsequent Minutes” would become part of the Contract between the parties. First, the reference is confusing as minutes were produced at a number of meetings where Golden Hill was present but there was no indication that those minutes became a binding agreement between the parties. Second, there were no further meetings of this nature between Golden Hill, Kilborn
and Kemess. In the circumstances, I give no meaning to s. 35 of the Minutes.
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Section 45 of the Minutes confirms the advice of Mr.
Rudolph to Kilborn that the Project would take 4 and ½ months to complete. Section 49 of the Minutes states: “Has the contractor allowed for working in inclement weather? The answer to that question was: “Yes, GHV has allowed for this”. Mr. Rudolph could not recall any discussion about this issue and stated at Trial that Kilborn had simply asked him the question during the meeting and he replied that his bid included an allowance for working in inclement weather.
Section 51 of the Minutes states: “Has the Contractor reviewed the geotechnical information available?” and the answer given was “in part”. Under cross-examination, Mr. Rudolph indicated that he answered this question this way because he had only reviewed what had been sent to him and had not reviewed the Knight Piésold report because it was not yet complete. He did confirm that he did not pursue Knight Piésold for the information because Kilborn told him they would provide him with a copy of the report when it was ready.
JUNE 19 LETTER FROM GOLDEN HILL TO KILBORN
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In a June 19 facsimile transmission letter to Kilborn, Mr. Rudolph set out mobilization and demobilization prices for additional equipment, provided new quantities for surfacing and resurfacing (Granular A and Granular B) and confirmed that three belly dump tractor trailers should have been included in the original equipment list of Golden Hill.
JUNE 20 LETTERS FROM GOLDEN HILL TO KILBORN
By facsimile transmission, Golden Hill forwarded a June 20 letter to Mr. Clegg of Kilborn confirming that Golden Hill would not charge mobilization and demobilization costs of any additional equipment that was required by Golden Hill “to complete the contract by the completion date and within the scope of the contract”. The letter also noted: “We have an extremely large fleet of heavy equipment from which to draw from, if additional equipment is required.” While Mr. Rudolph did not sign the letter personally, the letter was clearly sent on behalf of Golden Hill. While it was the submission of Kemess that this letter should be interpreted as meaning that no further mobilization and demobilization costs would be charged by Golden Hill no matter why the further equipment was needed, I reject that submission.
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First, Golden Hill charged and Kemess paid for further mobilization and demobilization. Second, I am satisfied that this letter must be read in the context of the agreement that was reached between the parties that Kemess would pay for the mobilization and demobilization of additional equipment if that equipment was needed because the soil conditions were other than what was anticipated, if there was an acceleration of the Work by Kemess, or if the scope of the Work changed.
In a second letter that was also signed on behalf of Mr. Rudolph, Golden Hill stated: “We would like to propose a one percent reduction to our overall contract price, and in return for this reduction we would like a two week billing period with payment to be made in fourteen days.” That proposal was never accepted by Kemess and the subsequent requests for Progress Draws were never made in accordance with this proposal.
THE LETTER OF INTENT
Golden Hill started to mobilize equipment to the Site prior to receiving the formal advice from Kemess that they had been awarded the C101 Contract. On July 3, Mr. Koski forwarded a signed copy of a Letter of Intent to Kilborn which Kilborn then forwarded to Golden Hill on July 4. In that
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letter, Golden Hill was advised that their bid had been accepted. Golden Hill states that this was the first notice that Golden Hill had received that it had been awarded the C101 Contract.
Mr. Rudolph was not believable in stating that Golden Hill started to mobilize a number of days ahead of July
4 even though Golden Hill was not aware that it was the successful bidder. I find that Golden Hill must have been virtually certain or actually certain that, on the basis of discussions that Mr. Rudolph had with Kilborn or Kemess, Golden Hill was the successful bidder. There is no other economically sound explanation of why labour and equipment arrived at the Project prior to the receipt of the Letter of Intent.
Mr. Rudolph signed the Letter of Intent on July 4 and sent it back to Kilborn on July 5. The Letter of Intent was subject to two conditions: (a) “necessary government approvals are received”; and (b) that an agreement was reached on the credit available to Kemess for use of Kemess equipment by Golden Hill.
The Letter of Intent contained the following further provisions:
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The Contract will be a unit rates type contract based on the Tender Documents including Addendum No. 1, the discussions held in the Post-Tender Meeting of June 21, 1996, the minutes of which are attached to, and form part of, this letter, modifications to the Contract wording which were handed to you at the meeting and also transmitted to you by facsimile, dated June 21 and 26, 1996, your facsimile letters of June 24 and 26, 1996, Kilborn facsimile letter of June 27, 1996 and your forthcoming response, and your letter facsimile of June 28, 1996 to Royal Oak Mines.
The award value of the Contract will be
$5,924,019.80, this being based on the Golden Hill Ventures Ltd. estimated quantities of work to be performed and the unit rates in your proposal. The determination of the final Contract Price will be in accordance with the terms of measurement and payment set out in the Tender Documents.
The schedule for this work in the Tender Documents,
i.e. work to commence immediately upon notice to proceed and all work to be completed by mid-October, 1996. As per the Tender Documents you will be required to co-ordinate your work with the work of others, the details of this will be resolved between yourself and Kemess’s Construction Manager, Mr. Jim Koski.
Please contact Mr. Koski prior to mobilization…
This Contract is contingent upon Kemess receiving confirmation that the required bonds and insurance are in place and that WCB dues are fully paid.
Kemess will advise shortly on the bonds that they require.
A further document will be prepared for your signature shortly. In the meantime, kindly acknowledge your acceptance of this letter of intent and the conditions set out herein, by signing this letter below and returning a copy to this office.
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It is clear that the parties ignored the two “conditions” contained in the Letter of Intent as well as the stipulation that the Work was to commence only “upon notice to proceed”. This is indicative of how the parties would treat the notice and other provisions set out in the Tender Documents over the course of the Work on the Site.
GOVERNMENT APPROVALS
Regarding the first condition, not all permits were in place although Kemess had been advised by the B.C. Government and advised Golden Hill that approval had been granted in principle and that would be a matter of a few days or a week before the actual document was received.
Despite the anticipated delay in obtaining permits and in awarding the Contract, there was no extension of the contemplated mid-October completion date for the Project. At this stage of the Project, Golden Hill did not request an extension of the contemplated completion date and Kemess did not offer an extension. It should be noted that the Amended Schedule had been prepared prior to the advice received at the Post Tender Meeting that Kemess had not received its mine development permit and that the C101 Contract would not be awarded until the permits were in place.
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The Letter of Intent was issued two weeks after the date originally contemplated and as set out in the Amended Schedule provided by Golden Hill. The Amended Schedule provided by Golden Hill assumed that Kemess would award the contract on June 21 and that Golden Hill would start mobilizing equipment on June 22.
USE OF KEMESS EQUIPMENT
Regarding the second condition, an agreement was not reached on these rates. However, Golden Hill did not use much Kemess equipment during the performance of the Work so this has not been an issue between the parties.
NOTICE TO PROCEED
The “notice to proceed” referred to in the Letter of Intent was never sent by Kemess to Golden Hill. Kemess may well have concluded that a “notice to proceed” was not needed as mobilization had already commenced prior to the Letter of Intent being forwarded.
WHAT WAS THE CONTRACT BETWEEN THE PARTIES?
A formal contract was subsequently prepared and was forwarded to Golden Hill around August 27. The contract was not signed by Golden Hill as it was the evidence of Mr. Rudolph that:
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... at the time I received these, I didn’t feel very comfortable in signing that contract. I felt the, with the changes that were, were happening on the site, that basically the contract was substantially changed from what was in the bound documents.
There was no follow-up by either Kemess or Kilborn to request a signed copy of the formal contract. In cross-examination, Mr. Rudolph agreed that the contract documents he received were consistent with the contract in the Tender Documents as amended by the amendments made at the Post Tender Meeting.
I am satisfied that the June 20 letter dealing with equipment does form part of the Contract. Despite the fact that the two June 20 letters are not listed as “attachments” to the Letter of Intent, these letters are from Golden Hill and must be taken to have set out the position taken by Golden Hill regarding the matters that were set out in the letters. As well, they are listed as being attached to the Minutes and the Letter of Intent clearly states that the Minutes are to be part of the Contract.
Kemess prepared the Letter of Intent and thereby expressed its intention of what would be included as part of the Contract between the parties. However, I am satisfied that the June 20 letter which dealt with the mobilization and
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demobilization of equipment became incorporated into the Contract between the parties. As well, I am satisfied that the parties acted consistently with what was set out in that letter in due course.
I reject the submission of Golden Hill that the Letter of Intent did not form part of the Contract as the Letter of Intent itself does not list the Letter of Intent as one of the documents upon which the contract will be based. However, the Further Amended Statement of Claim of Golden Hill states that:
The Contract expressly or impliedly contained as terms the Tender Representations, the Site Visit Representations, the Post Tender Meeting Terms, the discussions at the Post Tender Meeting, and the terms of the Letter of Intent.
As well, the Agreed Statement of Facts states: “Golden Hill accepted the Letter of Intent, and therefore entered into a contract with Kemess for the Work.” On the bases of this admission and the Further Amended Statement of Claim, I find that the Letter of Intent did form part of the Contract.
Golden Hill submits that the discussions between the parties form part of the Contract but that the Minutes do not. The phrase used in the Letter of Intent is that the Contract
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will be based on a number of things including “...the discussions held at the Post Tender Meeting on June 21, 1996, the Minutes of which are attached to, and form part of, this letter ...” It could not be that it is the “discussions” which are “attached” and which form part of the Letter of Intent. Accordingly, the only interpretation that can be given to the phrase used is that it is the Minutes which are attached and which “form part of” the Letter of Intent.
As well, paragraphs 30 and 31 of the Agreed Statement of Facts between the parties makes it clear that the Minutes form part of the Contract. The agreement set out in the April 13, 2000 Agreed Statement of Facts states that both “the discussions at the post tender meetings” and the “Minutes of the Post Tender Meeting” were incorporated “into the contract for the Work”.
I am satisfied that Golden Hill should not be allowed to resile from that formal admission. Even if I ordered that the admission could be withdrawn, I find that the Minutes accurately reflect the “discussions held”. That being the case, even if Golden Hill is correct that only the discussions form part of the Contract, the discussions are as recorded in the Minutes. Accordingly, I hold that the
discussions as well as the Minutes form part of the Contract between the parties.
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I find that the Contract between the parties consists of the Tender Documents, the two June 20, 1996 letters, the Letter of Intent and the documents referred to in the Letter of Intent, the discussions at the Post Tender Meeting, the Minutes, the amendments which were made from time to time by the parties when what was found at the Site required the parties to undertake “on-site” amendments, certain representations made by Kemess to induce Golden Hill to enter into the Contract, terms which must be implied into the Contract, and implied representations.
Before dealing with the conditions encountered by the parties at the Site, it is necessary to review the weather that was experienced as it had very negative effects on the progress of the completion of the C101 Contract.
WEATHER
There was no information or data in the Tender Documents relating to anticipated or previous weather conditions. The following statement under the “examination of site” provision within the Instructions to Tenderers, sets out one of the primary purposes of the Site Visit:
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The Contractor will be considered as having taken into account possible site working conditions, abnormal conditions, such as effects on labour productivity, weather, access, soil conditions, lay down areas, congestion, permits, environmental needs etc., that may arise during the course of construction. No additional reimbursements will be considered by the Owner to cover extra costs arising from these or similar conditions, other than those specifically provided for. (Emphasis added).
There is no evidence before me which would allow me to conclude that Mr. Rudolph made any inquiries about anticipated weather conditions. Mr. Rudolph thought that the weather would not be a factor if there was good granular material throughout the Site.
All of the witnesses who had any experience with the Project agreed that the summer and early fall of 1996 was extremely wet including frequent heavy rainfall. The following table is a comparison between the actual amount of rainfall at the Project in 1996 and the average amount of precipitation for the eight Environment Canada weather stations that were identified by Mr. Butler, an expert called on behalf of Kemess, as relevant to the Kemess Project:
Precipitation | Kemess Records (mm) | Environment Canada (mm) | % Over Average |
July | 206.5 | 54.7 | 277.5% |
August | 201.168 | 54.8 | 267.2% |
September | 158.496 | 52.2 | 203.6% |
October | 102.87 | 50.0 | 105.8% |
November | 112.776* | 50.7 | 122.5% |
*November Project Record is incomplete (ends at November 23)
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If Kemess had the ability to produce comparable figures for the years 1997 through 2001, it chose not to produce those figures. It would have been of assistance to the Court if those figures had been produced as they would have shed some light on the question of whether the precipitation experienced during the summer and early fall of 1996 was extraordinary or not.
The C105 Contract dealt with the creation of the Tailings Dam for the Project. Golden Hill also bid on that contract. In the C105 tender documents, Knight Piésold included a spreadsheet entitled “Monthly Distribution of Rainfall, Snowmelt and Evaporation”. The notes to this spreadsheet indicated that the rainfall data in the spreadsheet was the average of 1991 through 1993 data from the “Kemess Meteorological Station”.
The precipitation that was experienced in July and August, 1996 was dramatically higher than what had been experienced by what was described in the C105 Tender Package as the “Kemess Meteorological Station”. The following table summarizes the comparison:
Recorded by Kemess During 1996 | Kemess Station Data (1991-93 Average) | ||
Month | Precipitation (mm) | Historical Volume (mm) | % Over Average From Historical |
July | 206.5 | 47.2 | 337.5% |
August | 201.2 | 46.6 | 331.8% |
September | 158.5 | 88.3 | 79.5% |
October | 102.9 | 89.7 | 14.7% |
November | 112.8 | 90.6 | 24.5% |
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Kemess did not disclose this weather data to the bidders on the C101 Contract although there was no evidence as to whether this weather data was available when the Tender Documents were issued or when the data became available.
From all of the information available about the weather at the Site, I find that the actual precipitation during July and August was approximately 3 to 4 times what had been previously experienced and what should have been expected and that the precipitation in September through November was higher than normal but not appreciably so.
If Golden Hill or Kemess had inquired into the question of what weather to expect it could not have been contemplated that the rain during July and August would have been approximately 3 to 4 times what had previously been experienced.
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I am also satisfied that the “examination of site” provision within the Instruction to Tenders does not have the effect of excluding a claim by Golden Hill for productivity problems arising as a result of weather. First, I find the provision to be virtually incomprehensible. It is not clear that it relates to “abnormal [weather] conditions” or whether the contractor must take into account “site working conditions” as a result of weather. Second, it cannot be that a contractor would be required to take into account anything other than anticipated “weather ...that may arise during the course of construction”. It is an impossibility for any contractor to take into account “abnormal [weather] conditions”. Third, the prohibition against “additional reimbursements” relates to “extra costs arising from these [presumably abnormal weather conditions] or similar conditions”. In the context of the anticipated weather, it is impossible to know what the phrase “these or similar conditions” refers to.
Accordingly, I find that the “examination of site” provision within the Instruction to Tenderers is so vague that it cannot be interpreted as requiring Golden Hill to take into account abnormal weather conditions or excluding the ability of Golden Hill to look for compensation to Kemess if abnormal
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weather conditions produced or contributed to lesser productivity than what was originally contemplated by Golden Hill when it prepared its bid.
(I) THE WEATHER ENCOUNTERED
Despite the Letter of Intent and the discussion of Post Tender Meeting, Golden Hill commenced its Work at the Project. Golden Hill submits that its plans for the Work were thwarted by a combination of the acceleration of the Work by Kemess, the soil and weather conditions encountered, the directions received from Kemess to change the way Golden Hill intended to undertake the Work, the delays relating to permits and to the designs for various areas of the Work, and the failure of Kemess to designate adequate Topsoil and Waste dumps. Before outlining the effect that the unprecedented weather had on the Amended Schedule, I will outline in more detail the weather that was experienced.
JULY WEATHER: There were 14 days of rain and 17 cloudy and sunny days. The report for the week of July 14 from Golden Hill to Kemess stated in part: “extremely wet weather 5 days of rain & snow prevent access and grading.” The monthly report for July noted in part: “Winter snow is still encountered in shaded wooded areas of the plant site.” During July, Golden Hill estimated that it lost between 7 to
10 days off its Amended Schedule due to the weather and due to the delay in obtaining permits.
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AUGUST WEATHER: The Kemess records indicate 25 days of precipitation with 8 days with slight amounts, 12 days with scattered showers and 4 days as heavy rain. Kemess records indicate that 7.92 inches of rain fell in August. On August 30, Golden Hill wrote to Kemess providing notice that 13.5 shifts were cancelled due to rain. Accordingly, by the end of August, the total delays estimated by Golden Hill (including weather and permit delays) was somewhere between 13.5 and 16.5 days.
SEPTEMBER WEATHER: Kemess records indicate 22 days of precipitation totalling 6.24 inches with 14 of those days described as “scattered showers”.
OCTOBER WEATHER: Kemess records indicate 22 days of precipitation (including 14 days of snow) and 4.05 inches of rain. The entire month was described as “overcast”, “scattered clouds”, or “clear”. There were no rainouts until October 9. The October 31 Kemess monthly report stated in part: “During the milder temperatures earthworks virtually came to a halt.” There appears to have been only two days when Golden Hill was shut down as a result of rain or snow.
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NOVEMBER WEATHER: Kemess records indicate 15 days and 4.44 inches of precipitation. The November 30 Kemess monthly report stated in part: “The extreme cold weather caused mechanical breakdown(s) in all areas and directly impacted daily production.” DECEMBER WEATHER: December began clear and cold (minus 26 degrees).
EFFECT OF WEATHER CONDITIONS, UNANTICIPATED SOIL CONDITIONS, PROJECT CHANGES, AND PROJECT DELAYS
There were three main work areas involved in the C101 Contract-the Mancamp, the Millsite, and the Airstrip. My findings regarding the progress that was made at these three main work areas between July and December and some of the reasons for the lack of progress are set out as follows.
THE MANCAMP
The Mancamp was the smallest area (roughly four hectares). In July, Golden Hill commenced clearing and stripping the Airstrip and the Mancamp areas. It was first necessary to burn the slash which was left after the logging operations at the Mancamp. The burning of slash was delayed due to wet conditions. The 14 days of rain caused the Topsoil and the soils underneath to become saturated when exposed to the rain. This created greater Waste at both the Airstrip and the Mancamp.
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The wet weather also caused Golden Hill to strip more material because the machines running back and forth over the stripped areas caused ruts and puddles and further saturated the underlying soils. Mr. Lyons testified that, if there had been good granular material underneath the Topsoil, there would be little or no Waste and that stripping could continue even in bad weather but that, if there was not good granular material underneath, stripping should not continue as it would cause deep ruts and you would just be “making more of a mess”. I accept his evidence in that regard.
On July 23, Golden Hill notified Kemess that there would be delays to the Mancamp earthworks as no design for that area had been received. This failure of Kemess to produce designs for the Mancamp caused Golden Hill delay and productivity. In late July, burning of the slash was further delayed because of the weather conditions. However, stripping and stockpiling of Topsoil was in progress with the material being stockpiled near the north and south edges of the Mancamp.
In early August, earthworks were continuing at the Mancamp although a change in grade requiring the surveyors to restake the area resulted in the material that had already been placed having to be moved. This created additional costs
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and lost productivity for Golden Hill. As well, Kemess added a services pad at the west side of the Mancamp which also caused extra cost as a stripping pile had to be moved to make way for the new services pad. I find that this was a change in the Scope of Work.
By the beginning of August, the shortage of good granular material at the Mancamp area was having an effect on the operations of Golden Hill. Kemess lowered the total site design grade by 1 metre to minimize Fill requirements when it became apparent that there was a shortage of good granular material in the Mancamp area.
The minutes of an August 14 site meeting indicate that Kemess told Golden Hill that they wanted Golden Hill to install the Granular A material at the Mancamp after Western Versatile finished installing underground services pursuant to a different contract that had been awarded to Western Versatile. This was contrary to the Amended Schedule which showed the work of other contractors not starting until early September, 1996.
After finishing its work, Western Versatile left the Mancamp area without compacting the material that it had excavated when it installed the underground services. This
resulted in Golden Hill having to dry the disturbed material before it was able to place Granular A at the Mancamp.
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Golden Hill experienced a problem with the location of the tank pad at the Mancamp. The problem was caused by ground water which had perculated underneath the tank pad from an adjacent ditch. Golden Hill solved the problem when it deepened the design ditch at the east end of the tank pad. I find that this was also a change in the Scope of the Work. Surfacing was ongoing at the Mancamp during early to mid-September. There was some improvement in the weather with the September 11 meeting minutes indicating some improvement in production as a result.
The Granular B material necessary for the Mancamp was found at a borrow pit near the Omineca Access Road as no source for Granular B material could be found at the Millsite or around the Mancamp. The work of Golden Hill was further delayed on two of the pads at the Mancamp area as Kemess had camp buildings installed prior to the Golden Hill Mancamp work being completed. All work at the Mancamp appears to have been completed in early October.
THE MILLSITE
Duz Cho Logging (“Duz Cho”) was hired to log the merchantable timber at the Millsite and remove it at no cost
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to either Golden Hill or Kemess. That work was not completed until the first week of August. This resulted in a delay to Golden Hill as Golden Hill was unable to perform any significant work at the Millsite apart from some ditching to drain surface water.
Grubbing and stripping at the Millsite began in August which was behind the Amended Schedule. On August 7, Mr. Quaile wrote to Mr. Rempel to propose a method to speed up the work at the Millsite by conducting a survey of the original ground before starting Topsoil removal. Golden Hill would then deduct the Topsoil volume (based on a 150 millimetre depth) from the total volume of cut material from the end cut volume, so that delays associated with surveying between Topsoil removal and earthworks could be avoided. That recommendation was subsequently accepted.
By August 9, an access road had been constructed to the centre of the Millsite, perimeter ditches had been established and grubbing and stripping had commenced. Duz Cho had built its haul road on the Millsite on top of a series of small gravel ridges and it was necessary for Golden Hill to upgrade and extensively rebuild that road for its own use during its earthworks operations.
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Golden Hill could not conduct its ground survey until after Duz Cho had completed its work. Golden Hill had to do some additional clearing to remove some trees left by Duz Cho. By August 13, Golden Hill had constructed a main drainage ditch across the top of the Millsite and a second drainage ditch above the service complex at the Millsite. The plan of Golden Hill was to clear the whole of the Millsite area before moving into the earthworks stage of the Project.
The stripping and grubbing operation of the Millsite continued during the rain. Golden Hill subsequently used excavators to top-load the Topsoil into scrapers and 6-Wheel drive rock trucks to haul the material to the Topsoil storage areas. Golden Hill used scrapers, graders and packers to place Fill at the Millsite and used bulldozers to push-load the scrapers.
On August 14, Kemess communicated to Golden Hill that the “excavation priorities” were ditching in the settlement pond and then the concentrator building area of the Millsite. Witnesses on behalf of Golden Hill testified that it was their plan to work on the settlement pond last because it was in the lowest and wettest area of the Millsite. I am satisfied that this change in priorities directed by Kemess
resulted in Golden Hill not being able to undertake their work in accordance with their original plan.
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Kemess submits that, once the stripping of the Topsoil and the removal of overburden as Waste had been completed in September in areas of Millsite, the Golden Hill productivity improved greatly. In cross-examination, Mr. Lyons stated that productivity had improved because they had completed the removal of the overburden of Topsoil and Waste and were now starting to do earthworks.
On August 25, Kemess hired Golden Hill on an “extra work basis” to dig test holes to search for granular material to be used for road surfacing. On August 31, Golden Hill was hired on the same basis to dig test holes to search for granular material at the Millsite. The test holes did not allow Golden Hill to locate any aggregate source areas. The fact that Kemess hired Golden Hill to search for granular material at the Millsite allows me to conclude that both parties felt as late as the end of August that there should be granular material at the Millsite as that is what was anticipated. Unfortunately, their expectations proved not to be accurate.
On September 7, Kemess directed Golden Hill to discontinue Airstrip operations so that it could concentrate
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on the earthworks operations at the Millsite. This was other than in accordance with the original plan of Golden Hill. At the September 11 meeting of all contractors, Mr. Rempel stated that Golden Hill operators “...are doing an excellent job, having good weather and into better grade material. Have a good plan of action.” By September 15, portions of the concentrator area at the Millsite were turned over to Western Versatile.
The Golden Hill operations at the Millsite were ongoing with all of the Topsoil at the Millsite stockpiled, the settlement pond completed, the concentrator bins completed and all Granular A material crushed for the Millsite. The settlement pond was operational by October 18.
The service area was turned over to Western Versatile in early November and, at the same time, Golden Hill started the crusher area excavation. Mr. Miller of Golden Hill testified that the first four to five metres of soil at the crusher site consisted of very wet silty, sandy gravel material that was “basically waste”, that a layer of “blue gumbo” was encountered under that layer and that, one or two metres below the blue gumbo, Golden Hill encountered a dry hard pan material that was easier to excavate. The dry hard pan material was hauled to an unsuitable dump north west of
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the crusher site. The Kemess month end report indicated that the excavation of the crusher area had proceeded and had been handed over to Western Versatile, and that the sediment control pond was in place.
In freezing conditions in December, 1996, Golden Hill encountered a groundwater spring in the crusher excavation and attempted to deal with that by diverting the groundwater using washed gravel and perforated pipe. By mid-December, 1996, the unfinished work at the Millsite consisted of placing Granular A material in areas that were occupied by other contractors and general clean up work. By that time, Golden Hill had not finished the Millsite Access Road from the Omenica Road.
THE AIRSTRIP
Ditching of the Airstrip started on July 14 and grubbing started on July 19 even though it was snowing. Golden Hill commenced clearing and stripping the Airstrip but
14 days of rain caused the Topsoil and the soils underneath to become saturated when exposed to the rain and, like the Mancamp, this created greater Waste. There was also the problem of starting and maintaining the fires to burn the trees and branches that resulted from the clearing operation. Operations apart from ditching were shut down due to rain in
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the third week of July. Other than the last 500 metres which were held up due to an ongoing Archaeological Survey, the Airstrip was cleared by July 20.
Clearing of the Airstrip was proceeding on the basis of instructions received from Mr. Rempel as no design for the Airstrip was available. On July 23, Golden Hill notified Kemess of the impact of three design changes on the operations of Golden Hill at the Airstrip. Mr. Rempel was also advised that the Archaeological Survey had impeded the progress of the clearing operations at the Airstrip.
By August 1, grubbing and staking had been completed at the north end of the Airstrip, no design had been received and clearing was ongoing in the south one third of the Airstrip. Stripping at the Airstrip was 45% complete and Golden Hill embarked upon digging out and removing unsuitable soils at the first swamp at the north end of the Airstrip.
As good granular material could not be found to back fill the three swamps at the Airstrip, Golden Hill used wet silty material. On August 14, Golden Hill began placing Fill into the swamp at the north end of the Airstrip but was shut down until later that month because of rain. Stripping started again between August 24 and 29 when there was a window of good weather but stripping was shut down after that as
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well. The presence of the three swamps was not anticipated by either Golden Hill or Kemess. The lack of good granular material was also not anticipated by Golden Hill and Kemess.
The Fill operation started at the Airstrip in mid-August. The operations which were usual and which were contemplated by Golden Hill could not be undertaken as it was necessary to open up smaller areas because of the rainy weather, ground water and the materials encountered. As well, when Golden Hill placed cut material into fill areas, the Fill often became saturated so that it was necessary to remove material from the fill surfaces before it could resume operations. Golden Hill was not paid for material that it removed from a saturated Fill area.
Mr. Rempel testified that granular material can be suitable fill material in rainy weather and that, if Golden Hill had been working in relatively clean granular material, the rain experienced in the summer of 1996 would have been much less of a problem. He also stated that “haul roads were deteriorating rapidly” as a result of the heavy rains. He also stated that the conditions wouldn’t allow Golden Hill to haul material so that they were limited to clearing and stripping.
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Mr. Miller of Golden Hill testified that, under his plan to operate in good granular material at the Airstrip, Golden Hill could have worked 75% to 80% of the time during the month of August, and that the movement of the required 300,000 cubic metres of material at the Airstrip could be done “quite comfortably within the month”.
Because of the wet, silty soil conditions at the Airstrip, Golden Hill had to top load rather than to push load its fleet of scrapers during earthwork operations and, whereas it usually took less than one minute to push load a scraper, it took three to four minutes for an excavator to top load wet, silty material into a scraper.
As well, Golden Hill had difficulty obtaining full loads when top loading wet material as some of the load would run out the sides of the vehicles. Golden Hill found it necessary to take material out of fill areas in order to create a road to the source of cut material. Golden Hill was not paid for the movement of this material because the material was cut out of an area that was below the design grade for the Airstrip.
A number of drainage ditches were built during August in an attempt to drain the swamp areas and to lower the ground water table. Mr. Miller testified that Golden Hill hit
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the water table when it excavated its cut areas down to approximately one or two metres above the design grade of the Airstrip.
Mr. Stuart was the resident engineer on Site and an employee of Knight Piésold. In early September, he suggested that Golden Hill retain a geotechnical engineer to provide advice on how to proceed.
Golden Hill did not do much work at the Airstrip after September 7. Golden Hill received instructions from Kemess to move its equipment and to concentrate its efforts at the Millsite. I am satisfied that this interference in the plan of Work of Golden Hill added costs and reduced productivity. On September 13, Golden Hill was provided with a hand-drawn design for a 2,000 foot temporary runway at the Airstrip. On Setember 24, a gravel source approximately 4 kilometres south east of the Airstrip was identified by Messrs. Rempel, Lyons and Miller.
Golden Hill returned its earthworks operations to the Airstrip on October 17. The production of Golden Hill began to improve as the ground had started to solidify in the freezing weather that was then encountered.
The temporary runway was completed on October 31.
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On November 1, Kemess instructed Golden Hill to lengthen the temporary runway through one of the three swamps. This had the effect of dividing the swamp into two separate sections and this resulted in considerable delay and lack of production relating to the addition sought by Kemess. As well, Golden Hill could not haul material over the temporary runway once it was completed. It was necessary to haul the material around the outside of the temporary runway which caused further lack of productivity.
The direction to change the work to a temporary runway from the Airstrip originally planned resulted in decreased productivity for Golden Hill. The instructions to Golden Hill to lengthen the temporary Airstrip also reduced the productivity of Golden Hill. I find that these directions received from Kemess had an adverse effect on Golden Hill and were other than in accordance with the plan for the Project which had been put in place by Golden Hill. As well, planes started to land on the temporary Airstrip so that it was necessary to shut down production for approximately 15 minutes for each landing or take-off.
I find that Mr. Rempel told Golden Hill on November
22 that its earthworks equipment was to be moved to the
crusher site at the Millsite so that the crusher area could be completed. That was done under protest by Golden Hill. Mr.
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Miller testified that, when the scrapers were moved, 3 or 4 unfinished cut areas “froze quite solid” so that, when Golden Hill returned to the Airstrip, it was necessary for it to perform extensive ripping operations to break up the frozen material. Mr. Miller testified that this also slowed down production. I find that this was the case and I also find that the direction to move the earthworks equipment to the Millsite crusher site resulted in further costs and reduced production.
On November 27, Kemess advised Golden Hill that it did not want it to finish placing Granular A material at the Airstrip in December. Mr. Miller of Golden Hill testified that they wanted to complete all of the granular surfacing in December as they had already mobilized all of the necessary equipment to do so and had performed an extensive amount of work to survey and stake the final grade of the Airstrip. He testified that Golden Hill “basically didn’t put [the Airstrip] to grade because they wouldn’t let us, so we just –all the surveying we done actually was useless....” I find that this direction from Kemess also resulted in reduced productivity to Golden Hill.
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When Golden Hill temporarily left the Site in December, it had not finished placing the Granular A material on the runway and did not finish the clean up of its waste piles on the west side of the Airstrip and the unsuitable dumps on the east side of the Airstrip. Further work on the Airstrip was undertaken in the Spring of 1997.
GENERAL ASSESSMENT BY KEMESS OF THE WORK OF GOLDEN HILL
The assessment of Mr. Rempel was that Messrs. Lyons and Miller did an “excellent job” as supervisory personnel and that, given the difficult conditions, he was generally happy with the quality of the construction and the efforts that Golden Hill made to cooperate with Kemess. Mr. Koski testified that, as far as he could recall, Kemess did not have a problem with the quality of the work of Golden Hill.
The problems were most severe at the Airstrip and Millsite because of the weather during July and August. However, the material that was found, the directions received from Kemess and the problems associated with working in the rain on material that was not good granular material was experienced by Golden Hill on all portions of the Project.
Instead of moving 613,000 cubic metres of material at the Millsite and the Millsite Access Road, Golden Hill moved 956,900 cubic metres. Instead of the anticipated 40,000
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cubic metres of “cut to stockpile unsuitable” at the Millsite, Golden Hill encountered 445,085 cubic metres of cut to stockpile unsuitable. Instead of moving 322,000 cubic metres at the Airstrip, the total amount moved was 455,526 cubic metres.
Kemess submits that the conditions beyond the control of Golden Hill required it to grant extensions of the time to complete the Work and that those extensions of time were granted. While agreeing that some but not all extensions of the Amended Schedule were granted, Golden Hill submits that Kemess then accelerated the extended Amended Schedule thereby requiring Golden Hill to complete some of the Work prior to the Amended Schedule as extended. Golden Hill also submits that various other tortious acts or breaches of the actual or implied terms of the Contract resulted in damages to Golden Hill for which Golden Hill should receive compensation.
Before reviewing those matters, I will first review the question of whether any of the terms of the Form of Agreement contained in the Tender Documents or in the Contract between the parties excluded the claims made by Golden Hill.
ARE THE CLAIMS OF GOLDEN HILL BARRED?
The doctrine of concurrent liability provides that, where a given wrong supports an action in contract and in
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tort, a party may sue in either or both. The questions whether there can be concurrent liability in contract and in tort was restated in Central Trust Co. v. Rafuse (1986), 31
D.L.R. (4th) 481 (S.C.C.) where Le Dain, J. stated:
What is undertaken by the contract will indicate the nature of the relationship that gives rise to the common law duty of care, but the nature and scope of the duty of care that is asserted as the foundation of the tortious liability must not depend on specific obligations or duties created by the express terms of the contract. It is in that sense that the common law duty of care must be independent of the contract. The distinction, in so far as the terms of the contract are concerned, between what is to be done and how it is to be done. A claim cannot be said to be in tort if it depends for the nature and scope of the asserted duty of care on the manner in which an obligation or duty has been expressly and specifically defined by a contract. Where the common law duty of care is co-extensive with that which arises as an implied term of the contract it does not depend on the terms of the contract, and there is nothing flowing from contractual intention which should preclude reliance on a concurrent or alternative liability in tort. The same is also true on a common law duty of care that falls short of a specific obligation or duty imposed by the express terms of a contract.
A concurrent or alternative liability in tort will not be admitted if its effect would be to permit the plaintiff to circumvent or escape a contractual exclusion or limitation of liability for the act or omission that would constitute the tort. Subject to this qualification, where concurrent liability in tort and contract exists that plaintiff has the right to assert the cause of action that appears to be most advantageous to him in respect of any particular legal consequence. (at p. 482)
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The right to sue in either contract or tort or both can be limited where the contract indicates that the parties intended to waive, limit or negate the right to sue. This waiver, limitation, or negation may be express or implied: Central Trust Co. v. Rafuse (1986), 31 D.L.R. (4th) 481 (S.C.C.) and B.G. Checo International Limited v. British Columbia Hydro and Power Authority (1993), 75 B.C.L.R. (2d) 145 (S.C.C.).
Kemess submits that various parts of the Contract between the parties expressly waived, limited or negated Golden Hill’s right to sue. It is therefore necessary to review the “exclusion”, the “full investigation”, the “non-reliance”, the “entire agreement”, the “extension of time instead of damages”, and the Over/Under provisions which were incorporated into the Contract.
THE EXCLUSION CLAUSE (ARTICLE VI)
Article VI of the Form of Agreement in the Tender Documents states that:
No implied obligations of any kind on, or on behalf of, the Owner shall arise or be implied from anything contained in the Contract Documents, nor from any position or situation of the parties at any time. The express covenants and agreements contained herein made by the Owner shall be the only covenants and agreements upon which any rights against the Owner may be founded.
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Golden Hill relies on specific representations as well as implied representations to sustain its claims for damages for alleged negligent misrepresentations. Golden Hill also relies on a number of specific or implied contractual terms.
Exclusion clauses must be drafted with complete clarity and the principle of contra proferentum should be applied. In Bauer v. Bank of Montreal (1990), 110 D.L.R. (3d)
424 (S.C.C.) McIntyre, J. on behalf of the Court stated:
In construing such a clause, the Court will see that the clause is expressed clearly and that it is limited in its effect to the narrow meaning of the words employed and it must clearly cover the exact circumstances which have arisen in order to afford protection to the party claiming benefit. It is generally construed against the party benefiting from the exemption and this is particularly true where the clause is found in a standard printed form of contract, frequently termed a contract of adhesion, which is presented by one party to the other as the basis of their transaction. (at p.
428).
When interpreting a contract with ambiguous terms, the Court should consider that the more reasonable construction of the terms represents the true intent of the parties. In Consolidated-Bathhurst Export Ltd. v. Mutual Boiler & Machinery Insurance Co. (1979), 112 D.L.R. (3d) 49 (S.C.C.), Estey, J. on behalf of the majority stated:
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...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..... 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. (at p. 58).
In reviewing Article VI, it must be first be noted that it is only “implied obligations” arising out of or to be implied from “anything contained in the Contract Documents” or “from any position or situation of the parties at any time” which are excluded. The term “Contract Documents” contained in the “Form of Agreement” lists a number of documents but does not include a number of documents which form part of the Contract. Not included are the Post Tender Meeting Minutes, the Letter of Intent, the June 20, 1996 correspondence, and the other documents that the parties agreed would form part of the Contract. Accordingly, I am satisfied that Article VI does not exclude an action against Kemess which may be founded on express or implied covenants and agreements which are not contained within the Form of Agreement but are contained within the other documents which comprise the Contract.
While it may have been the intent of Article VI to exclude implied obligations, there is nothing in Article VI which excludes representations. I am satisfied that the
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ambiguity in this regard should be resolved against Kemess and in favour of a reasonable and fair interpretation. For instance, I am satisfied that representations made to induce Golden Hill to enter into the Contract are actionable as they are not contained in the “Contract Documents”. I am also satisfied that representations contained within the Contract but not within the “Contract Documents” are actionable.
If an oral representation or a promise induced Golden Hill to enter into the Contract, the oral promise will prevail over a contradictory written term if to do otherwise would render the promise illusory. In Curtis v. Chemical Cleaning and Dyeing Co., [1951] 1 All E.R. 631 (C.A.) Denning,
L.J. stated:
If the false impression is created knowingly, it is a fraudulent misrepresentation; if it is created unwittingly, it is an innocent misrepresentation.
But either is sufficient to disentitle the creator of it to the benefit of the exemption. (at p. 634).
This principle has been extended to situations where words or conduct are inconsistent with the extent of the exclusion clause: Vaughan Masonry v. Toronto Aged Men’s and Women’s Homes, [1994] O.J. (Q.L.) No. 2430 (Ont.Gen.Div.). In Sperry Rand Canada Ltd. v. Thomas Equipment Ltd. (1982), 135
D.L.R. (3d) 197 (N.B.C.A.), the Court held that oral promises
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made between parties to a written contract can supersede the written terms despite the existence of an exclusion clause and despite the fact that the oral promises are contrary to the written terms where the terms of the written contract are “repugnant to” the oral promise and would cause the promise to be “illusory” (at pp. 215-6). This is especially so when the oral promise induced the relying party to enter into the final agreement: J. Evans & Son (Portsmouth) Ltd. v. Andrea Merzario Ltd., [1976] 2 All E.R. 930 (C.A.) at p. 933.
This reasoning has been adopted by the British Columbia Court of Appeal. In Zippy Print Enterprises Ltd. v. Pawliuk (1994), 100 B.C.L.R. (2d) 55 (B.C.C.A.), Lambert, J.A., on behalf of the court, stated:
A general exclusion clause will not override a specific representation on a point of substance which was intended to induce the making of the agreement unless the intended effect of the exclusion clause can be shown to have been brought home to the party to whom the representation was made by being specifically drawn to the attention of that party, or by being specifically acknowledged by that party, or in some other way. (at p. 71).
Regarding the alleged representations made by Kemess, I cannot make the finding that the intended effect of Article VI was specifically drawn to the attention of Golden Hill or specifically acknowledged by Golden Hill.
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As well, I cannot find that the phrase “nor from any position or situation of the parties at any time” is clear enough to exclude representations made to induce Golden Hill to enter into the Contract or to exclude contract terms which must be implied. These words do not affect terms that are incidental or fundamental to all construction contracts because such implied terms have nothing to do with the intention of the parties as expressed in the words “of the contract”: D.W. Matheson & Sons Contracting Ltd. v. Canada (A.G.) (1999), 175 N.S.R. (2d) 201 (N.S.S.C.) affirmed (2000),
3 C.L.R. (3d) 22 (N.S.C.A.) and Walter Cabbott Construction Ltd. v. Canada (1975), 69 D.L.R. (3d) 542 (F.C.A.).
Similarly, Article VI does not exclude mutually implied terms as it purports only to exclude “implied obligations...on behalf of, the Owner....” In this regard, the court in D.W. Matheson, supra, stated:
... [the clause] works only one way, excluding implied promises by Her Majesty by permitting implied promises to Her Majesty. What about mutual implied terms, such as the promise to cooperate in the performance of some express terms? Did the parties mean to exclude all such promises, to make them enforceable only against one mutual promisee or to accept mutual implied terms from the exclusion? (at p. 247 in the N.S.S.C. decision).
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I am not satisfied that the words used in Article VI are so clear and susceptible to only one meaning that Article VI precludes the imposition of implied terms. A term can be implied into a contract based on any of the following grounds:
(a) because of custom or usage in the industry; (b) because it is a legal incident of a particular class or kind of contract; or (c) because of the presumed intention of the parties where the implied term is necessary to give business efficacy to a contract or as otherwise meeting the “officious bystander” test as a term which the parties would say, if questioned, that they had obviously assumed: Canadian Pacific Hotels Ltd.
v. Bank of Montreal (1987), 40 D.L.R. (4th) 385 (S.C.C.) (at pp. 429-31) and M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd. (1999), 170 D.L.R. (4th) 577 (S.C.C.). (at pp. 587-9).
As to the first category, terms grounded in custom or usage in the industry can be implied on the basis that the usage is notorious, certain and reasonable so that the parties to the contract would have understood that the custom being relied upon was applicable: Guest, Chitty on Contracts, 27th ed., (London: Sweet & Maxwell), (1994), at p. 628 and Machtinger v. HOJ Industries Ltd. (1992), 91 D.L.R. (4th) 491 (S.C.C.) at p. 495.
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As to the second category, terms can be implied as a legal incident to a particular class or kind of contract as “necessary” for the very existence of the contract. This category is distinguishable from the third category because it disregards the intention of the parties. Terms implied on the second ground are those that would necessarily be implied in all such contracts of a particular category or class. Terms being implied at law under this second category are not dependent on the actual or presumed intentions of the particular parties. Accordingly, it is irrelevant that Golden Hill was aware of particular clauses in the Contract when it prepared its bid.
Despite the fact that the contract could continue if the term was not implied and the fact that the Contract does not expressly set out this requirement, if it is necessary, in a practical sense, to the fair functioning of a contract, it will be implied term.
On the question of whether it will be implied, regard must be had to the “inherent nature of a contract and of the relationship thereby established” to determine whether in the world in which we live today, it is a necessary condition to the contractual relationship: Liverpool City
supra, at pp. 495-7.
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It is necessary to distinguish between implied terms which must be implied by fact as opposed to implied terms which must be implied by law. In Canadian Pacific Hotels, supra, the Court clarified the requirements of the implied terms which must be implied by law:
There remains the question whether the duty contended for can and should be implied under the...category of implication, which does not depend on presumed intention – - the implication of terms as legal incidents of a particular class or kind of contract, the nature and content of which have to be largely determined by implication...Although what was said there was said with reference to implication on the basis of presumed intention under the business efficacy or “officious bystander” tests, I think it applies equally to implication under what I have referred to as the third category [the legal incident of a particular class or kind of contract]. I am, therefore, with great respect, in agreement with the view expressed by the majority in the House of Lords in Liverpool City Council that the test in such a case of implication should also be one of necessity. (at p. 431).
A term should also be implied if it is fundamental to the contract despite a clause precluding the implication of terms: Walter Cabott Construction, supra. In that decision, the contractor successfully sought to imply a term into a construction contract that it was entitled to have access to the site. The Court was called upon to deal with an exclusion
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clause very similar to Article VI. Pratte, J. expressed the view that access to the site was an obvious term and Urie, J. stated that the exclusion clause: “...has no application in the case at bar because it is fundamental to a building contract that work space can be provided unimpeded by others” (at p. 553).
Interpreting a similar clause, the Court in D.W. Matheson, supra, found an implied term that the engineer, even though employed by the owner, would act impartially:
Firstly, terms are implied only out of necessity to give business efficacy to a contract...Did the parties really mean to exclude this whole branch of contract law, which is so fundamental to the efficous [sic] functioning of contracts throughout the common law world?... Thirdly, [the clause] also speaks of implied terms arising “from anything in the contract”. While it cannot be set up in contradiction of an express term, an implied term that arises upon all contracts of a type has little to do with the intention of the parties expressed by their words of contract. That kind of implied term results from “more general considerations”, and is more truly “a general rule of law”...[The contract] is to be construed contra proferentum...I would conclude that [this clause] does not exclude terms generally implied in contracts of a type, but only terms implied ad hoc for this particular contract, and I would also conclude that [this clause] is inapplicable to implied promises that are mutual. (at p. 247 in the N.S.S.C. decision).
A term may also be implied where the actions of a party seeking to rely on an exclusion clause are inconsistent
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with the clause. A party will not be entitled to rely on an exclusion clause if, either through words or conduct, something is done by that party before or at the time of entering into the contract which is contrary to, and therefore negates, the clause.
Accordingly, I am satisfied that representations made to induce Golden Hill to enter into the Contract as well as implied obligations to give business efficacy to the Contract between the parties will not be excluded by Article
VI. I am also satisfied that Article VI must be strictly construed and its literal meaning not applied where such an interpretation avoids commercial reality. Nor will it exclude mutual obligations.
THE ENTIRE AGREEMENT CLAUSE (ARTICLE V)
Article V of the Form of Agreement in the Tender Documents states that:
This Contract constitutes the exclusive and entire agreement between the parties hereto relating to the subject matter hereof, and supersedes any previous agreements or understandings relating hereto.
No oral agreements or conversations between any of the officers, agents or employees of either of the parties to the Contract, shall affect or modify any of the terms or obligations contained in the Contract.
Any amendments, additions or deletions of this Contract shall be in writing, executed with the same
formality as this Contract. No amendments or modifications of this Contract shall be effective until reduced to writing and executed by Contractor and Owner, or a person designated by him in writing.
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Again, the reference to “This Contract” means that a number of documents which the parties have agreed form part of the Contract between the parties, including the Post Tender Meeting Minutes, the Letter of Intent and the June 20 correspondence are not affected by this Article. Accordingly, it is clear that Article V was not meant to limit the “entire agreement” between the parties to the “Contract Documents”.
Similarly, I am satisfied that it was also not intended that representations made prior to Golden Hill entering into the Contract, agreements set out in the other documents comprising the Contract and amendments, additions or deletions not subsequently made in writing would not be binding on the parties generally and on Kemess specifically.
The wording of Article V is insufficient to preclude a cause of action for negligent misrepresentation or for other torts because Article V does not limit any duty of care or waive the right to sue in tort: Foundation Co. of Canada v. United Grain Growers Ltd. (1995), 25 C.L.R. (2d) 1 (B.C.S.C.) and (1997), 34 B.C.L.R. (3d) 92 (B.C.C.A.).
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As well, I am satisfied that implied terms that do not fall within the strict language of the clause survive its application. Terms that are fundamental and terms that are based on conduct inconsistent with or repugnant to Article V may still be implied notwithstanding its operation.
A strict reading of Article V does not expressly preclude oral agreements or conversations adding to or subtracting from the terms or obligations under the Contract. In Gallen v. Butterley, Nunweiler and Allstate Grain Company Ltd. (1984), 53 B.C.L.R. 38 (B.C.C.A.), the Court stated that the presumption that the agreement in question constitutes the entire agreement is weaker when an oral representation or term merely adds to, or subtracts from the contract, as opposed to when the oral term actually contradicts a special express term on that point:
...if it is correct to consider the principle only as a strong presumption, then the presumption would be less strong where the contradiction was between a specific oral representation, on the one hand, and a general exemption or exclusion clause that excludes liability for any oral representation, whatsoever, on the other hand, than it would be in a case where the specific oral representation was contradictory to an equally specific clause in the document. (at p. 55).
“Entire Agreement” clauses do not prevent claims in tort unless they use specific, clear language to that effect:
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I cannot find that “oral agreements or conversations” can include representations made on behalf of Kemess. It is clear that Article V does not have the specific and clear language required to exclude representations made to induce Golden Hill to enter into the Contract, negligent misrepresentations or other tortious acts.
The portion of Article V dealing with “amendments, additions or deletions” was ignored by the parties. Much of what Kemess seeks to have binding against Golden Hill and changes which are sought to be binding against Kemess were not put in writing. As well, no amendments to, additions to or deletions from the Form of Agreement were ever sought and that is all that was ever intended to be included within Article V. Accordingly, amendments to the Contract and additions, deletions and acceleration of the Work did not have to be in
writing and were effective even though they were not reduced to writing and signed by Golden Hill and Kemess.
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FULL INVESTIGATION CLAUSE (GC 12.1 and GC 12.2)
General Condition 12 of the Form of Agreement deals with “Site Conditions” and purports to impose these responsibilities on Golden Hill:
It is understood and agreed that the Contractor has, by careful examination of the Site and the Contract Documents and by other means before the tendering on this Contract, satisfied himself as to the nature and location of the Work, the confirmation of the ground, the soil conditions, the character, quality and quantity of the materials to be encountered, the character, quality and quantity of equipment and facilities needed preliminary to and during the performance of the Work, the general and local conditions, and all other matters which can in any way affect the Work.
Where the Owner or the Engineer has made investigations of the soils or other conditions in areas where Work is to be performed under the Contract, such investigations are made only for the purpose of study and design. The records of such investigations are not a part of the Contract and are furnished solely for the convenience of the Contractor. It is expressly understood and agreed that neither the Owner nor the Engineer assumes any responsibility whatsoever in respect to the sufficiency or accuracy of the investigations made by the Owner or the Engineer in their use thereof, and the same shall not relieve the Contractor from his obligations under this Article.
Claims of misrepresentation in relation to soil conditions are not precluded where such an article is found in
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a construction contract. The principle of contra proferentum should be applied and the words used in such a disclaimer clause must be carefully examined to determine if they are sufficiently precise to exclude a claim in tort.
In Morrison-Knudsen International Company v.
In my opinion it is impossible to hold that the statement set out in sub-par.(4) necessarily amounted to a disclaimer by the Commonwealth of responsibility for the accuracy of the information which it supplied. The question whether there was such a disclaimer must be considered in the light of all the circumstances and cannot be answered by regarding the statement set out in sub-par.(4) as if it had been made in vacuo. However, even if the statement is considered alone, it purports to disclaim responsibility for any interpretation or conclusion drawn by the tenderer in regard to site conditions based on the information supplied, but does not by itself amount to a disclaimer of responsibility for the information itself. (at pp.
270-1).
While the Court in Morrison-Knudsen, was dealing with a more limited disclaimer (“It shall be clearly understood by Tenderers that the Commonwealth will not be responsible for any interpretation or conclusion drawn by the Tenderer in relation to site conditions based on the
information contained herein”), I am satisfied that the principle set out in that decision applies here.
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As well, in order for a party issuing a tender in a construction context to rely on a full investigation clause, the party must give practical reality to the requirement of independent investigation and allow the time necessary for bidders to properly complete their investigations. As was pointed out in Cardinal Construction Ltd. v. Brockville (City), (1984) 4 C.L.R. 149 (Ont.H.C.J.), if it was otherwise this would mean that a tenderer could not rely on any information furnished by the engineer who prepared the documents for tender so that the tenderer would have to duplicate all the pre-engineering work even though there was usually insufficient time to do so. The court in Cardinal found that this was unrealistic.
In Begro Construction Ltd. v. St. Mary River Irrigation District (1994), 15 C.L.R. (2d) 150 (Alta.Q.B.), the Court stated:
In the typically short period allowed for the filing of tenders, in this case 10 days, the contractor would be obliged at the very least to conduct a thorough professional review of the accuracy of the information provided in the tender documents. This would be an impossible task imposed on the contractor. (at p. 193).
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The owner’s engineer typically has months and sometimes years to conduct geotechnical investigations while bidders have a matter of days or weeks. In this regard, it took Knight Piésold two months to conduct the investigations that they did for only the Millsite and the Mancamp.
Golden Hill and the other tenderers had no practical or economically feasible means of independently investigating or otherwise satisfying themselves about the soil conditions or the character, quality and quantity of the materials to be encountered on the Site. It was the view of Mr. Rudolph that bidders “have to rely on something”. This view was supported by Mr. Naas who appeared as a witness for Golden Hill. Mr. Naas had approximately 30 years of estimating and doing tender site visits. He was of the view that it was not common practice in the industry for a competent contractor to conduct his own soils investigation during the tender period. I accept his evidence about the common practice in the industry.
As well, PCL had removed its equipment from the Site so that it would not be available to conduct soil tests. It would have been necessary for Golden Hill to bring in equipment to undertake the necessary testing to verify what was provided by Knight Piésold and to undertake the necessary investigations in those areas not covered by the Soils Data.
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From the evidence, I cannot be satisfied that the road to the Site was open so that the equipment necessary to undertake the investigation of the soil conditions could have been moved on the Site. Even assuming that the necessary equipment could have been brought to the Site and that a qualified person was available, I am satisfied that the cost of an independent site investigation would have been in the neighbourhood of $25,000.00 to $30,000.00. In addition to the costs already incurred in preparing a bid over an 18 day period and the cost of conducting the Site Visit, for a contractor like Golden Hill which prepares 20 to 30 bids per year, this level of investigation would require an expenditure of about $900,000.00 per year over and above all other tendering costs. This is a complete explanation as to why it is not a common practice for independent site investigations to be undertaken.
Numerous American cases have found that full investigation clauses in construction contracts do not have the effect of prohibiting claims for misrepresentation in tender documents or of negating the duty of care that an owner owes a contractor: Hollerbach v. United States (1914), 233
U.S. 165 (U.S.S.C.) and Public Constructors, Inc. v. New York (State), 390 N.Y.S. (2d) 481.
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These American decisions were adopted in Opron Construction Co. v. Alberta (1994), 14 C.L.R. (2d) 97 (Alta.Q.B.), where the Court stated:
I observe the following general principles...If the owner has not verified information in the tender documents, it has a legal duty to inform tenderers in clear terms that they should not rely on this information, putting the tenderers on notice to undertake their own investigations and inquiries: Carman Construction. For this to be practical, adequate time for independent investigations is required. (at pp. 241-2).
Courts should be reluctant to allow these types of clauses to protect owners from the consequences of actual misrepresentations: Dilcon Constructors Ltd. v. British Columbia Hydro & Power Authority (1992), 7 C.L.R. (2d) 22 (B.C.S.C.). The same approach was adopted in Edgeworth Construction Ltd. v. N.D. Lea & Associates (1993), 83 B.C.L.R. (2d) 145 (S.C.C.) where the Court stated that to require each bidder to incur the time and expense of completing the same investigations is both impractical and inefficient:
From an economic point of view, it makes more sense for one engineering firm to do the engineering work, which the contractors in turn are entitled to rely on, absent disclaimers or limitations on the part of the firm. In fact, the short tender period suggests that in reality this is the way the process works; contractors who wish to bid have no choice but to rely on the design documents prepared by the engineering firm. It is on this basis that they submit their bids and on this basis that the
successful bidder enters into the contract. (at p.153).
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From Foundation Co. of Canada v. United Grain Growers Ltd. (1995), 25 C.L.R. (2d) 1 (B.C.S.C.) and (1997),
34 B.C.L.R. (3d) 92 (B.C.C.A.), it is clear that, where tender documents are incorporated into a contract, “the parties must be taken to have attached considerable importance to the accuracy of the tender documents” such that the owner “must reasonably have expected the contractor to rely on the accuracy of the statements contained in the tender documents” (at p. 103).
General Condition 12.2 only relates to information from the “Contract Documents” relating to materials “in areas where the Work is to be performed”. Because that is the case, GC 12.2 cannot relate to the Airstrip, the Millsite Access Road or the Airstrip Access Road as none of the information in the Soils Data related to those areas of the Work.
General Condition 12.0 only relates to information or investigation and not to “misrepresentations” so that information given or statements made about matters outside GC
12.0 are not excluded by it. As this is the case, GC 12.0 does not apply to any misrepresentations that Mr. Rempel may have made regarding the nature of the soils or to the
statement in the Contract that the “currently available soils data” had been provided to tenderers.
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As well, I cannot conclude that GC 12.0 was meant to apply where Kemess withheld relevant information. I am satisfied that Kemess must be found liable to Golden Hill regardless of the existence of the site investigation clause if there was information known to Kemess or which later came to the attention of Kemess that constituted a “hidden risk” but which was not disclosed to Golden Hill: Dilcon Constructors Ltd., supra, at p. 94.
I also find that the attempt by Kemess to rely on GC
12 is inconsistent with another express term of the Contract.
Clause 4 (“Examination of Site”) of the “Instructions to Tenderers” sets out the purpose of the Site Visit:
In any event, the Contractors are motivated to make themselves fully familiar with access to the site, and the physical conditions of the site. The purpose of the meeting is to clarify any questions regarding the Scope of Work and to examine the site. All tenderers are encouraged to attend this meeting....
By arranging for and attending at the Site Visit, Golden Hill was following the instructions set out in Clause
4. First, it familiarized itself with access to the Site.
Second, it familiarized itself with the “physical conditions”
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of the Site. However, that general phrase cannot be interpreted to also mean all of what might be expected to be found at the Site once the earthworks started. Rather, that phrase must be limited to the general topography of the Site. Third, the Site Visit met one of the purposes of the meeting as Golden Hill was able to clarify any questions that it had regarding the Scope of Work. Fourth, Golden Hill was able to “examine the site”. However, this general phrase cannot be extended to an instruction to tenderers to fully explore the “character, quality and quantity of the materials to be encountered”. Such an assessment was clearly unrealistic.
The only realistic assessment of the character, quality and quantity of the materials that could be undertaken by Golden Hill was its examination of information provided in the Tender Documents.
As well, because Golden Hill was denied access to the Airstrip and the Mancamp during the Site Visit, Kemess waived its ability to rely on Article 12.0 since Golden Hill was denied the ability to “make itself fully familiar with the physical conditions of the site” or to “satisfy itself, by careful examination of the site”. This conclusion flows from a reading of the exclusion clauses and from the principle of contra proferentum as the parts of the clauses placing the
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risk on the contractor are tied to and are contingent upon the parts of the clauses obligating and entitling the contractor to examine the entire site: Opron Construction Co. v. Alberta (1994), 14 C.L.R. (2d) 97 (Alta.Q.B.), and Alden Contracting Ltd. v. Newman Bros. Ltd. (1997), 38 C.L.R. (2d) 1 (Ont.G.D.).
Golden Hill was entitled to rely on the information set out in the Soils Data. General Conditions 12.1 and 12.2 do not protect Kemess from the consequences of any misrepresentations made and do not exclude a warranty regarding the accuracy of the information supplied in the Soils Data. This full site investigation clause does not relate to the Airstrip, the Millsite Access Road or to the Airstrip Access Road. As well, any hidden risks known at the time of the Tender or taken to be within the knowledge of Kemess subsequently are not excluded by GC 12.0.
NON-RELIANCE CLAUSE (GC 12.3)
General Condition 12.3 provides:
The Contractor acknowledges that he has not relied upon any information given or statements made to him by the Owner or the Engineer in connection with, and shall not claim at any time after tendering that there was any misunderstanding in regard to, the matters referred to in this Article.
It must first be observed that the “matters referred to in this Article” refer only to information contained in the
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“Contract Documents” as defined in the Form of Agreement and do not include all of the documents which I have found were part of the Contract. Second, GC 12.2 makes it clear that the Soils Data: “... are not part of the Contract and are furnished solely for the convenience of the Contractor.
Accordingly, when GC 12.3 refers to the “matters referred to in this Article”, GC 12.3 does not exclude any “information given or statements made” by Kemess or Kilborn in connection with matters that are not referred to in GC 12.0 like the information contained in the Soils Data. Third, I am satisfied that GC 12.3 does not prohibit Golden Hill from making a claim of negligent misrepresentation as Golden Hill is not alleging that there was any “misunderstanding” as to the matters dealt with by GC 12.0.
In Hudson’s Building and Engineering Contracts (London Sweet & Maxwell, 1995, 11th edition), the learned author states:
In many construction contracts words will be used...to the effect that the contractor “is deemed to have inspected the site”, or to have “satisfied himself as to the state of the site and sub-soil and all physical conditions affecting the work” or that he “acknowledges and agrees” various matters [sic]. Such wording may be of considerable importance in helping to indicate the comprehensive extent of the work and the various obligations in respect of which the contractor’s prices are to be inclusive, but in the context of misrepresentation, or of the owner’s
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obligations in relation to the site, may at best amount to an estoppel of perhaps quite limited effect, and without more explicit wording may not be interpreted as imposing obligations on the owner on one hand or as excluding liability for owner misrepresentations on the other. [at pp. 88-89].
I am not satisfied that GC 12.3 is so clearly and unambiguously stated that it precludes the existence of the duty of care of Kemess.
In reviewing the testimony of Mr. Rudolph, it is apparent that, while Mr. Rudolph acknowledged that he probably read GC 12.3 before the tender was submitted and perhaps before the Site Visit, he did not agree that, before the bid was submitted, it was his understanding that he was not entitled to rely upon what was being represented by the owner or the engineer. Under cross-examination he merely confirmed: “... that’s what this article says, yes.”
General Condition 12.3 refers to “information given or statements made” by Kemess. As there appears to be nothing in GC 12.1 which would fall under the phrase “information given or made”, the scope of GC 12.3 is restricted to matters referred to in GC 12.2, i.e., “investigations of the soils or other conditions in areas where Work is to be performed under the Contract...”.
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Despite GC 12.3, I am satisfied that there can be reliance on what was stated. There are numerous decisions where the court has found reliance despite the presence of a “full investigation” clause and a “non-reliance” clause. For instance, see: Cardinal Construction Ltd. v. Brockville (City) (1984), 4 C.L.R. 149 (Ont.H.C.J.), Begro Construction Ltd. v. St. Mary River Irrigation District (1994), 15 C.L.R. (2d) 150 (Alta.Q.B.), Alden Contracting Ltd. v. Newman Bros. Ltd. (1997), 38 C.L.R. (2d) 1 (Ont.G.D.), Advice Pipelines Ltd. v. Mississauga Golf & Country Club Ltd. (1989), 33 C.L.R. 280 (Ont.H.C.J.), Public Constructors, Inc. v. New York (State),
390 N.Y.S. (2d) 481, Dilcon Constructors Ltd. v. British Columbia Hydro & Power Authority (1992), 7 C.L.R. (2d) 22 (B.C.S.C.), and Warden Construction Co. v. Grimsby (Town) (1983), 2 C.L.R. 69 (Ont.C.A.).
Where it is reasonably foreseeable that a tenderer would rely on information and there is no practical alternative source for that information, I am satisfied that reliance is not excluded by provisions such as GC 12.3. I am satisfied that the following passage from Micron Construction Ltd. v. Hongkong Bank of Canada (2000), 75 B.C.L.R. (3d) 186 (B.C.C.A.) [leave to appeal dismissed [2000] S.C.C.A. 193], applies:
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In my view, it was reasonable in these circumstances, even with knowledge of the disclaimer, for the Plaintiff to rely on the Bank's assurance and it was reasonably foreseeable to the Bank that the Plaintiff would rely. The fact that the Plaintiff, to the knowledge of the Bank, had no alternative source of information available to it is critical to its conclusion. (at para. 99).
Accordingly, I find that this non-reliance clause does not exclude the ability of Golden Hill to rely on the information contained in the Soils Data or in any of the other Tender Documents. As well, GC 12.3 does not exclude the ability of Golden Hill to obtain damages for any negligent misrepresentations regarding the information provided or for any tortious acts of not providing information which was available and which would have impacted on the bid prepared by Golden Hill. There can be no “misunderstanding” regarding that which was not provided or representations that induced Golden Hill to enter into the Contract.
REPRESENTATIONS OF FUTURE BEHAVIOUR
Kemess also submits that the following representations are not actionable as they “refer to a future fact”: the ability of Golden Hill to mobilize in accordance with the Contract Schedule; the timely designation of adequate Topsoil and Waste Dumps and Borrow Pits; the timely provision of permits; the timely provision of design information; the
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ability of Golden Hill to control the Work, the obligation of Kemess to administer the Contract and to negotiate disputes in good faith; and the ability of Golden Hill to suspend the Work if unsuitable conditions arise. Kemess relies on the decision in Datile Financial Corp. v. Royal Trust Corp. of Canada (1991), 5 O.R. (3d) 358 (Ont.G.D.) in support of its submission.
In Datile, Hollingworth, J. cites with approval the following statement of law in Halsbury’s Laws of England, (4th) Volume 33 (London: Butterworths, (1980), to support the proposition that representations about the future are not actionable:
A statement of intention is not a representation as to the matter said to be intended, because that belongs to the future and is not a matter of present or past fact. On the other hand, a statement of intention involves a representation as to the existence of the intention which is itself a present fact. However, the difficulty of proving the non-existence of the intention diminishes the value of such representations. The mere circumstance of the expressed intention is not fulfilled does not by itself establish the non-existence of the intention at the time when it was expressed, although the non-fulfilment of the intention may be some evidence, strong or weak according to the circumstances of the individual case, that the intention never existed at all.
A promise that something will or will not be done or occur in the future is in itself not a statement of a matter of present or past fact and therefore not a representation. However, it may happen that
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language which contains promissory expressions can be shown, nevertheless, to have been intended as a statement of an existing intention. Conversely, although a party used words expressive of intention, it may be apparent from other expressions or the surrounding circumstances, that what he really meant, and the other party understood to be conveyed, was a promise to offer and nothing else. (footnotes omitted) (at p. 379).
Hollingworth, J. then states:
... it is clear that no action will lie for misrepresentation unless it is a statement of an existing fact. Put another way, only representations of fact can give rise to actionable negligence. On the other hand, representations as to future occurrences do not form a ground for legal relief as negligent misrepresentation unless they import by implication a misstatement of an existing fact. (at p. 379).
Hollingworth, J. concluded that various statements made could be actionable if the plaintiffs could show that (a) the defendants were not ready to process the documentation when they had already confirmed that they had all of the material together to process the anticipated documentation from investors; or (b) Royal Trust would finance investor financing if, on a particular date, it could be shown that Royal Trust did not have a commitment to finance investor financing. On the basis that the two statements might well be actionable as negligent misrepresentations if they represented statements of present fact, Hollingworth, J. concluded that
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Datile Financial Corp. should be allowed to amend its Statement of Claim to show the potential mis-statements of existing facts.
The decision in Datile does not address and Kemess has cited no cases involving a tendering situation where an owner holds out a particular contractual scheme as the basis on which the owner seeks bids and then endeavours to take advantage of the prices contained in those bids while asserting that parts or all of the scheme on which the prices were based are not binding on it. The principle in Datile, has not been relied on in any construction cases and therefore its direct applicability to this kind of commercial contract is questionable.
First, the Form of Agreement set out in the Tender Documents becomes part of the Contract between the parties.
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Accordingly, representations contained within the Form of Agreement are not only representations of what will happen in the future but are also representations made as to how the contract between the parties will operate. Second, I am satisfied that the representations complained of constitute continuing representations rather than merely representations about future events.
When determining whether or not a representation about the future is actionable, both the nature of the contractual obligation and that of the negligent misrepresentation must be analyzed. I am satisfied that Canadian Courts have found negligent misrepresentation when future statements can be characterized as misstatements relating to existing facts or where the duty of care between the parties has been considered paramount.
The Court in Foundation Co. of Canada v. United Grain Growers Ltd. (1995), 25 C.L.R. (2d) 1 (B.C.S.C.) and (1997), 34 B.C.L.R. (3d) 92 (B.C.C.A.) found liability on the basis of misrepresentations about the dates that particular equipment would be delivered and about the status of the completion of the drawings where the defendants were found to have known or were found ought to have known that the representations were not true. The owner had stated in a
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Letter of Intent that equipment and drawings would be delivered by a certain date. They were not and that resulted in financial loss to the general contractor. The judgment on appeal was delivered by McEachern, C.J.B.C. who stated:
...the Letters of Intent issued by [the firm of engineers representing the owner]... to the pre-selected equipment manufacturers were incorporated into the contract and constituted a continuing representation that these critical pieces of equipment would be available in a timely way. I see no answer to the conclusion of the trial judge regarding reliance which is, after all, a question of fact. (at para. 27 of Court of Appeal Judgment).
In Queen v. Cognos Inc. (1993), 99 D.L.R. (4th) 626 (S.C.C.), the court dealt with an employer who did not tell a prospective employee that the new position was subject to budget approval. The employee took the job relying on promises of job security but was soon after terminated because of lack of funding. Negligent misrepresentation was found. The representations in question were found to relate not solely to future events or expectations but to an “existing fact” that related to the “very existence of the job for which he had applied”. (at p. 657).
In Moin v. Blue Mountain (Town) (2000), 135 O.A.C.
278 (Ont.C.A.), the plaintiff contracted with the municipality to build a road to service five lots. This could not be done
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unless the municipality upgraded the road leading to the area which it assured the plaintiff it would undertake. The statements about the future were held to be implied representations. The court recognized the difficulty in distinguishing between a promise of future conduct and a representation of existing fact but held that the future statements were not those of “intention” or of “future occurrences” but were of “existing facts” because the municipality had made an “existing commitment” to the plaintiff:
The statements made by the Reeve that, “there is going to be a road this summer [1989]” and that there would be a builder’s road by the end of 1990 implicitly represented that there was an existing commitment and ability to upgrade the Blind Line at those times. (at para. 20).
In the context of a tendering scenario, many of the representations made by an owner in a tender document or in the documents which later constitute the contract between the parties amount to representations of future behaviour or intent. It would be inappropriate for an owner to invite tenderers to submit their tenders on certain assumptions and representations of future happenings, to obtain the benefit of the tender and the work flowing from the contract and then claim that the representations of future behaviour are not
binding because they were merely representations of future facts.
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In the context of this construction contract, it would be ludicrous to suggest that these representations relating to “future facts” would not be actionable:
that Golden Hill would be permitted to mobilize its equipment as the ability to mobilize equipment is the very essence of the work to be done;
that adequate Topsoil and Waste Dumps and Borrow Pits would be designated in a timely manner when the Tender Documents contemplated that Topsoil for reclamation purposes would have to be stored, material not suitable for Fill would have to be wasted, and material suitable for Fill might have to be borrowed from pits off of the work area for the Project;
that permits would be provided in a timely manner when all work was predicated on obtaining the appropriate permits;
that design information would be provided in a timely manner when what needed to be accomplished by
Golden Hill could only be known once the design information was available;
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that Golden Hill would have control over the Work when the ability of Golden Hill to control the Work is the very essence of the calculation of the productivity upon which the bid was made;
that Kemess would administer the Contract and negotiate disputes in good faith when that obligation is imposed at law as well as under the Contract;
that Golden Hill would have the ability to suspend work if unsuitable conditions arose when the very productivity upon which the unit price bid was made by Golden Hill assumed that ability.
In the case at bar, I have no hesitation in finding that there was a reasonable reliance by Golden Hill on these representations relating to future events. There was reliance not only on the existing commitments that were being made by Kemess to Golden Hill but also on the continuing representations made by Kemess that they would continue to honour those commitments.
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Accordingly, even if I am incorrect in concluding that representations made about future happenings are actionable in the context of the tendering of and the undertaking of construction contracts, I am satisfied that there were existing and continuing representations made which preclude Kemess from relying on the principles set out in Datile.
EFFECT OF GENERAL CONDITION 36.0
Kemess relies on GC 36.0 to submit that Golden Hill is not entitled to damages under the Contract because any “delays or failure of performance” by Kemess merely resulted in Golden Hill having more time to perform the Work and because Kemess always granted more time. General Condition
36.0 states:
DELAYS AND EXTENSION OF TIME
Delays or failure of performance by either party to the Contract shall not constitute default hereunder and shall not give rise to any claim for loss, damage or expenses if and to the extent caused by occurrences beyond the control of the party.
The Contractor shall, within three (3) calendar days of the commencement of any delay beyond the control of the Contractor, give to the Owner written notice of the delay together with details of its cause and the anticipated results of the delay. Within fourteen (14) calendar days of the termination of the delay, the Contractor shall give to the Owner written
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notice setting out the actual duration of the delay and its effect upon the Contract Schedule and the various items of the Work shown on the Contract Schedule. The Contractor shall also include a request to the Owner for an extension of time within which to complete the Work or any portions of it. If the Owner determines that the delay was beyond the control and without the fault or negligence of the Contractor or his subcontractors and not foreseeable by the Contractor at the time the Contract was entered into, the Owner shall determine the duration of the delay and shall extend the time for Completion of the affected portion of the Work accordingly. Such notices and request shall not prejudice the Owner’s rights or in any manner affect the validity of the Contract. No extension of time shall be considered unless the written notices and request for extension have been given within the time periods set out herein.
The Contractor shall not have any further recourse or claim against the Owner nor shall the Contractor have the right to action against the Owner for loss, damage or expenses suffered by reason of such delay.
Both the Owner and the Contractor shall be prompt and diligent to remove all causes of interruption or delay in the Work, insofar as each is able so to do.
If pursuant to Article 36.2 hereof the Owner extends the time for completion, the Owner will be entitled nevertheless to require the Contractor to reduce or eliminate, as far as possible, such time by accelerating progress on the Work by all means acceptable to the Owner and available to the Contractor. The Contractor shall accelerate progress accordingly and the Contract price will be increased by the difference, as proved in detail by the Contractor to the Owner, between the costs properly and necessarily incurred by the Contractor for the accelerated parts of
the Work and the costs which the Contractor would have incurred for those same parts to complete them by the extended time had the acceleration not been required.
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I am satisfied that the primary purpose of GC 36.1 was to attempt to preclude Golden Hill from claiming that there had been a fundamental breach of the Contract so that Golden Hill was in a position to treat the Contract as being at an end so that Golden Hill could look to Kemess for damages. It must also be noted that the reference to “Contract” in GC 36 is a reference to the Form of Agreement in the Tender Documents and is not a reference to what I have found to be the Contract between the parties. Accordingly, I am satisfied that the attempt by GC 36.1 to limit claims for loss, damage or expenses relates only to delays or failures of performance under matters which are dealt with under the Form of Agreement.
It must also be noted that GC 36.1 refers to claims for “loss, damage or expenses” for delays or failure of performance: “... if and to the extent caused by occurrences beyond the control of the party.” To the extent that Kemess relies upon GC 36.1 to exclude the possibility of damages being claimed by Golden Hill, I am satisfied that it is not specific enough to do so and that GC 36.1 contemplates that
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claims for loss, damage or expenses can be claimed by Golden Hill for delays or failures of Kemess to perform its obligations under the Contract where such were within the control of Kemess.
I am satisfied that Golden Hill retains a claim for loss, damage or expenses for delays or failures of performance which are within the control of Kemess. While problems caused by the weather or the unanticipated soil conditions may be beyond the control of Kemess, it is clear that any failure to allow Golden Hill to control the Work, any delay in allowing Golden Hill to mobilize by July 8, any failure to obtain permits in a timely manner, any failure to provide appropriate, timely and sufficiently complete information to Golden Hill, any failure to disclose all material soils information, any failure to provide subsequently ascertained information, any failure to designate adequate Topsoil, Waste Dumps and Borrow sources in a timely manner, any failure to allow Golden Hill to suspend the Work, and any breach of duty of good faith and fair treatment are matters which are within the control of Kemess so that “loss, damage or expenses” would be available to Golden Hill.
General Condition 36.2 is not worded specifically enough to exclude the possibility of damages being claimed for
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delays which are within the control of Kemess even though those delays are beyond the control of Golden Hill. The first part of that General Condition does not read that written notice must be given within three calendar days of: “... the commencement of any delay beyond the control of either the Owner or the Contractor...”. Such words may well have produced the intended effect but such words were not used.
I am satisfied that it is appropriate to interpret this attempt to exclude the right to sue for damages by limiting its effect to the narrow meaning of the words employed and I am satisfied that the words employed do not: “... clearly cover the exact circumstances which have arisen in order to afford protection to the party claiming benefit”: Bauer v. Bank of Montreal (1990), 110 D.L.R. (3d) 424 (S.C.C.) at p. 428.
I am not prepared to find that Golden Hill would have entered into the Contract if it had been advised that, no matter what Kemess did or did not do, Golden Hill would only be granted more time to perform the Work and would not be in a position to look to Kemess for damages for breaches of specific or implied terms in the Contract or for tortious acts.
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As well, I cannot make the finding that the intended effect of GC 36.0 was specifically drawn to the attention of Golden Hill or specifically acknowledged by Golden Hill. In accordance with the finding that I have made regarding the effect of Article VI, I cannot find that the words used in GC
36.0 are so clear and susceptible of only one meaning that GC
36.0 precludes the imposition of the implied terms or the specific terms of the Contract.
The terms which I imply into this Contract because they are legal incidents of construction contracts and because of the presumed intention of the parties to give business efficacy or to otherwise meet the “officious bystander” test are implied despite GC 36.0.
EFFECT OF THE OVER/UNDER CLAUSE
It is submitted on behalf of Kemess that the Over/Under Clause applies so that any claim by Golden Hill for moving additional material on the Site is restricted to a claim of $416,543.06 as this amount is the balance which would be owing to Golden Hill if the provisions of the Over/Under Clause applied and no other damages were available. I am satisfied that Golden Hill is entitled to compensation other than in accordance with the Over/Under Clause.
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First, the rationale for non-compensation of Golden Hill would only apply if Golden Hill had been allowed by Kemess to retain control over the Work, if Golden Hill had been allowed to suspend the Work when unanticipated soil conditions were encountered so that it could deal with those anticipated conditions at a time that was most suitable, if Kemess had disclosed all material soils information in its possession, if there had been adequate Topsoil and Waste Dumps and Borrow sources, and if all subsequently produced engineering and design had been made available in a timely manner. Kemess assumed control over the sequencing and timing of the Work of Golden Hill and Golden Hill was not allowed to suspend its operations when satisfactory results could not be obtained as a result of the effects of weather on the unanticipated soil conditions. In those circumstances, the Over/Under Clause would not limit the amount available to Golden Hill to the additional compensation contemplated by that Clause.
Second, the Schedule was subject to the terms of the Post Tender Meeting which were conditional upon the soil conditions being as Golden Hill anticipated. When Kemess later accelerated the extended Schedule, it was required to pay Golden Hill in accordance with GC 36.
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Third, it would be unreasonable to suggest that Golden Hill agreed to be compensated for unanticipated changes to the Work through mobilization costs alone as mobilization costs bear no relation to the costs of actually performing the Work. While the Over/Under Clause pays for additional quantities, it in no way protects Golden Hill from the damages flowing from the breaches of contract and tortious acts of Kemess.
I am satisfied that it could not have been contemplated by the parties that the Over/Under Clause would prevail to limit the claim for damages to that which would be available under the Clause relating only to quantities. The Clause does not compensate Golden Hill for an unexpected change in the nature of the operations not purely related to a change in quantities. Those changes included: (a) a change in the location of the expected source of material and the expected Dumps which would result in greater haul distances such that it would be more efficient for Golden Hill to employ a different configuration of hauling equipment and which would result in different haul gradients thereby impacting on the speed and appropriate equipment for the operations; (b) a change in the nature of the soils within a particular pay unit such as where the Cut to Fill material is damp and silty
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rather than moist and granular or where the Waste has a higher silt and clay component and is wetter than expected; or (c) a change in design which had a significant impact on the relative quantities of Cut and Fill such as occurred at the Millsite.
Under GC 36.5, the unit price should be increased by the difference between the cost properly and necessarily incurred by Golden Hill and the price that Golden Hill would have received if there had not been a change. This cost is in addition to the Over/Under Clause. General Condition 28 deals with the valuation of changes and, where the changes are on a cost plus basis, provides that the price would include the cost of labour and foremen based on the rates in the Contract, the cost of materials plus the percentage set out in the Contract, rentals of construction equipment at the rates set out in the Contract, cost of transportation of equipment to the Site, and the amount of payments to sub-contractors plus the percentage set out in the Contract. If the entire work under the C101 Contract was valued on the basis of GC 28, then the price of the Work would be in the neighbourhood of
$12,300,000.00. The cost under GC 28 is also in addition to the Over/Under Clause. I am satisfied that it was not intended between the parties that only the Over/Under Clause
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would apply, that damages would not be available for breaches of contract or tortious acts or that compensation would not be available if there was acceleration or changes.
The price for the Work was to be negotiated if there were acceleration orders or changes in scope. I am satisfied that the changes in the soil conditions in the circumstances of this Project amounted to a change in the Scope of Work of the Project. In reliance on this term of the Contract, Golden Hill performed work in furtherance of acceleration orders and in view of changed soils conditions. I am satisfied that Golden Hill expected and should have expected that it would be compensated for the acceleration orders and the changes in soil conditions which amounted to the change in the Scope of the Work.
The parties never did negotiate a price for this changed Work and, accordingly, the Court must make a finding of what price likely would have been negotiated or, alternatively, that a term should be implied that a reasonable price would be paid: Constable Hart & Co. Ltd. v. Peter Lind & Co. Ltd. (1978), 9 Build. L.R. 4 (Eng.C.A.) and Tercon Contractors Ltd. v. British Columbia (Ministry of Transportation & Highways), [1994] B.C.J. (Q.L.) No. 1636 (B.C.S.C.).
ALLEGED BREACHES OF CONTRACT AND TORTIOUS ACTS
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Golden Hill claims damages as a result of breaches of the actual and implied terms of the Contract as well as for misrepresentations and other tortious acts relating to: (a) the nature of the Work; (b) the suitability and adequacy of the soils sources; (c) the negligent misrepresentations of Mr. Rempel regarding the soil conditions; (d) the ability to mobilize by July 8; (e) the direction and control of the Work;
the failure to obtain permits in a timely manner; (g) the provision of appropriate, timely and sufficiently complete information both pre tender and post tender; (h) the timely designation of adequate Topsoil stockpiles, borrow pits and waste dumps; (i) the ability to suspend Work By Golden Hill; and (j) the duty of good faith and fair treatment.
NATURE OF THE WORK
WHAT DUTY IS OWED?
There was an implied duty on Kemess to ensure that the Tender Documents accurately reflected the nature of the Work and a duty of care imposed upon Kemess to see that the Tender Documents accomplished that: JJM Construction Ltd. v. Sandspit Harbour Society (1999), 71 B.C.L.R. (3d) 166 (B.C.C.A.). In that decision, Southin, J.A. stated on behalf of the Court:
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Generally, the duty owed to bidders in the preparation of tender documents is to exercise reasonable care that the information presented reflects with reasonable accuracy the nature of the work and its factual components so as to enable the contractor to prepare a proper bid: Cardinal Construction Ltd. v. Brockville (City) (1984), 4
C.L.R. 149 at 162 (Ont.H.C.J.). (at para. 58).
I find that Kemess was negligent in failing to ensure that the nature of the Work was accurately described in the Tender Documents and that it was a negligent misrepresentation that the nature of the Work was accurately described in the Tender Documents. The Tender Documents did not accurately reflect the nature of the Work. Golden Hill relied on the information regarding the nature of the Work when determining its bid prices as there was no independent means of verifying the information.
Golden Hill had to accommodate completely unexpected soil conditions by changing its plan for the Work, the equipment required to handle the soils, and the order of the Work. As a result, the Work was substantially different than what was expected at the time of the Tender.
As evidence of a failure of Kemess to meet its duty of care to Golden Hill, I note that Mr. Koski of Kemess reviewed neither the Tender Documents before Kilborn issued them to bidders nor the Soils Data within the Tender
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Documents. Kemess must be taken to have had possession of the Site M Reports but did not take steps to make them available to bidders including Golden Hill. Kemess would also be vicariously liable for the negligence of Kilborn as Mr.
Collins was aware of the Site M Reports but did not include those Reports in the Tender Documents when Kilborn prepared them. Kemess did not exercise reasonable care to assure itself that the information contained in the Tender Documents reflected with reasonable accuracy the nature of the Work as it failed to review the Tender Documents and it failed to require the inclusion of all information that would be required by a reasonable contractor in the preparation of a proper bid.
As well, I am satisfied that the Tender Documents taken as a whole described a project which was primarily a Cut/Fill operation. The expectation of the quality of the materials in the design areas of the Site was such that a reasonably competent contractor would conclude that the material would be comprised of sufficiently granular material to build grade and to produce an excess of granular material to be stockpiled for other purposes. There was no indication that it would be a large Waste removal operation followed by
an extensive “borrow to fill” or “borrow to stockpile granular” operation.
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The provisions in the Tender Documents which define the scope of Work (including clause 2.2.4 which provides that cut to stockpile granular material was to be “from cut portions of the work”) are inconsistent with anything other than a relatively balanced Cut/Fill operation. For instance, there is no pay item for “borrow to stockpile granular material”.
Kemess had to accept full responsibility for the cost of mobilizing Nuway personnel to the Site when Golden Hill could not locate a suitable source of aggregate for the Airstrip and the cost of searching for granular material both inside and outside the design limits. It paid Golden Hill for this cost without reservation. Mr. Rempel testified that work paid for on a “force account basis” was agreed to be outside the scope of the Contract.
Mr. Lyons testified that Kemess paid Golden Hill to dig test pits at the Millsite because: “they were supposed to know where the gravel sources were and they weren’t where they were supposed to be.” That evidence was accepted without cross-examination and without calling contradictory evidence from Messrs. Rempel or Koski.
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I reject the argument of Kemess that Article VI excludes the implication of any representation that the Tender Documents would reasonably accurately reflect the nature of the Work. First, it cannot be said that the implied obligation to exercise reasonable care is something that arises from or can be implied from “...anything contained in the Contract Documents”. Rather, the implied duty arises outside of the “Contract Documents”. Second, Article VI purports to exclude the implied duty by the following phrase: “The express covenants and agreements contained herein made by the Owner shall be the only covenants and agreements upon which any rights against the Owner may be founded.” I am satisfied that the use of the phrase “covenants and agreements” cannot be taken to include implied duties such as the implied duty to see that the Tender Documents accurately reflect the nature of the Work.
The implied representation that the Tender Documents accurately reflect the nature of the Work is so fundamental to any bid that I am satisfied that Article VI does not contain the very specific language which would be required to exclude the duty of care which must by the very nature of the bid process be implied.
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The implied representation that the Tender Documents accurately reflected the nature of the Work was untrue and I find that Golden Hill reasonably relied on the representation to its detriment when it submitted its bid on the assumption that the Work would involve a relatively balanced Cut/Fill operation and that the Work was accurately described in the Tender Documents.
SUITABILITY AND ADEQUACY OF THE SOILS SOURCES
There was an implied term in the Contract that Kemess had taken the necessary steps to ensure that there were adequate sources of appropriate soils materials on the Site in appropriate locations to allow the Work to be completed generally in accordance with the terms of the Tender Documents. It was a further implied term that there would be suitable sources of appropriate soils materials to complete a balanced Cut/Fill design. There was also an implied representation that, unless specified otherwise, there would be adequate sources of soils that would be suitable for earthworks on the Site so that the Project would be based on a balanced Cut/Fill Design.
If the soils in the work areas were not suitable for earthworks and it was necessary to borrow alternative soils from other locations, the nature of the Work was changed
fundamentally and Golden Hill was denied an unimpeded run at the Work.
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There are a number of terms of the Contract which implied that the C 101 Work would be a balanced Cut/Fill operation:
General Requirements, 2.2.4
Selectively excavate suitable material from the cut portions of the work and stockpile for granular fill and aggregate production.
General Requirements, 2.1.2
The Contractor shall supply all material, equipment, supervision and labour for the production of crushed, screened and washed (as appropriate) granular materials for his own use and the use of others, and concrete aggregate for use by the concrete contractor, using materials selectively borrowed from on-site excavations.
Clause 2.1.2 indicated to Mr. Rudolph that Golden Hill would be excavating appropriate granular material from the Site out of a Cut area and would be able to produce the necessary Granular A, Granular B and concrete aggregate materials from these excavations. Clause 2.2.4 indicated that Golden Hill would be able to take the suitable materials out of the excavation so that the material would be available to cut, stockpile and process into Granular A, Granular B or concrete aggregate and fill. The Kilborn and Vilholth
Jensen’s designs for the Millsite, the Mancamp, and Airstrip also show that a balanced Cut/Fill operation was expected.
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Mr. Rempel emphasized in his Examination for Discovery that the Project was designed to be a Cut/Fill operation as is shown in the following questions and answers:
Q. And when the project was designed or when the construction started, as part of the design was there a designation as to where all the various materials would come from for the earthworks?
A. Yes.
Q. And where does that show up in the contract documents or the design? Is it on drawings?
A. Where the material – it was a cut and fill situation.
Q. Okay.
A. So naturally you would put your fill in the lower areas and –
Q. Take it from the cut area?
A. -- take it from the cut area.
Q. Were there particular borrow sources identified on the drawings?
A. It was designed at the Millsite that they were supposed to equal out.
Q. Okay.
A. You would cut and fill.
Q. And similarly for the airport?
A. Yes. As you see on those drawings.
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Mr. Quaile testified that it is customary in the industry to balance the cuts and fills in a project and this testimony was confirmed by the testimony of Messrs. Bilan, Nakai and Miller. As well, the “mass-haul” diagram prepared by PCL for the Airstrip included in the Tender Documents contained an express term that the operation would be very close to a balanced Cut/Fill operation.
The Vilholth Jensen design for the Airstrip was clearly a balanced design. The July 31 letter from Vilholth Jensen to Kemess (Mr. Koski) makes this clear:
In our cut/fill estimate, only topsoil removal in the paved area is included in the equation with about 15,000 m3. If 40 cm of topsoil is to be removed and stroraged [sic] from the entire area, the volume would be substantially bigger, 60,000 to 70,000 m3, and the final elevation of the landing strip would have to be lowered to avoid requirements for imported fill.
I find that it is fundamental to earthwork contracts that, in the absence of a project being designed as a borrow operation with designated borrow pits, a Cut/Fill operation will be used because it is customary in the industry for an owner to seek to use the most cost-effective method of building and a balanced cut/fill operation is that most cost-
effective method. This method should be implied in the absence of provisions to the contrary.
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A balanced design does not require that there be exact balances of quantities, merely that the quantities of Fill and Cut be similar enough that the earthworks can be carried out in any particular area without the need of extensive importation from or exportation to locations of the particular project area.
The obligation of a contractor to inform itself regarding site conditions does not preclude a claim in relation to un-anticipated conditions where the owner failed to provide the contractor with a true and practical opportunity to satisfy this obligation or where the owner failed to make full disclosure of all available information.
Kemess submits that, where a contract places responsibility for ascertaining soil conditions on a contractor and even where it does not stipulate the quantities of material to be removed and replaced, the contractor assumes the risk that the amounts are more or less than forecast: Bruce Butler (1974) Ltd. v. Bonavista Peninsula Interfaith Senior Citizens’ Foundation (1989), 37 C.L.R. 205 (Nfld.S.C.) In that case, the court held that, in light of the contract terms placing the risk of adverse soil conditions on the
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contractor, the contractor took the risk even though “it was virtually impossible to accurately forecast the quantity of materials to be removed or placed” and that any forecast “was likely to be too high or too low” (at p. 208).
I am satisfied that the Bruce Butler decision must be distinguished. The claim of Golden Hill does not relate merely to the fact that the quantities varied from what it had estimated but primarily to the fact that, as a result of misrepresentations, breaches of contract, and other tortious acts, the quantities were significantly different than what was anticipated by Golden Hill and those quantities had to be moved under much more difficult and costly conditions. As well, a site familiarization clause such as GC 12.0 does not protect an owner where it fails to give a true and practical opportunity to fulfill the clause or where it withholds information from the contractor.
Kemess also relies on the decision in Dexter Construction Co. v. Canada (Minister of Public Works) (1987),
29 C.L.R. 124 (F.C.T.D.), where the tender for a unit price contract for the reconstruction of road contained estimates of overall quantities. There was a provision that the contractor would be entitled to a new unit price after a certain excess quantity had been achieved. The estimated quantity for borrow
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also noted that the quantity estimated depended on the suitability of what was cut. The court refused the claim of the plaintiff that it relied upon the quantity set out in the tender when it prepared its tender prices with the court concluding;
On the one hand the Defendant specified that if the excavated materials were suitable they would have to be used as fill and thus hold from the front end to the back end of the project. On the other hand, the Defendant warned that if the excavation materials were not suitable for road building purposes they would have to be wasted and replaced by borrow and furthermore that borrow replacement might involve significant amounts.
In this case there was no representation in the documents which the Plaintiff was given by the Defendant, prior to tendering on the contract, that all or any specified percentage of the excavated material could be used as fill.
True, the estimated quantities of borrow contained in the document which the Plaintiff did have indicated only 77,000 cubic metres were required when in fact 177,000 cubic metres were required for the project, but the Plaintiff had been specifically warned that significant quantities of excavated material might have to be replaced by a borrow if the excavated material proved to be unsatisfactory for fill. (p. 136).
It must be noted that there could be no implied term with respect to the suitability of materials in that case because there was an express warning in the contract that, depending on the suitability of excavated material at the time
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of construction, “it may be necessary to replace a significant amount of unsuitable excavation material with a borrow”. As well, Borrow sources had been identified and were available for viewing on the site visit. Neither was present in this tender.
Kemess also relies on the decision in JJM Construction Ltd. v. Sandspit Harbour Society (1998), 38
C.L.R. (2d) 179 (B.C.S.C.), which dealt with the construction of a breakwater. The tender package referred to two potential rock sources close to the construction site although there was also a clause requiring potential bidders to inform themselves with respect to the materials they would be required to supply. After commencing the project, the plaintiff discovered that the local quarry was not able to provide most of the required stone so it was necessary to use replacement stone from Alaska at a significant premium.
The trial judge rejected the plaintiff’s claim that, by inviting bids on tender documents, the defendant represented that the rock required to build the breakwater was available:
The supply of materials, like labour and equipment, must, as a general proposition, be the exclusive purview of the contractor...In the normal course, the contractor makes a determination of the source or sources from
which, if any, the material for a project, in this case the rock, can be obtained to meet the specifications, and what it will cost. (p. 195)
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On appeal, Southin, J.A. declined to comment on the conclusions of the trial judge that, in inviting bids, an owner does not assume responsibility for the availability of the materials required for the projects.
I am satisfied that this decision is also distinguishable. First, the materials to be used in the breakwater were available for viewing at the quarry. Second, the construction of a breakwater is clearly not a Cut/Fill operation but is strictly a borrow operation. Third, it was not intended by any of the bidders or by Kemess that this Project would be a waste and borrow operation as the expected large deposits of granular material indicated otherwise. It should also be noted that the court did recognize a duty by the owner to ensure that the information presented in the Tender Documents reflected with reasonable accuracy the nature of the work and its factual components so as to enable the contractor to prepare a proper bid.
I find that there were implied terms that there would be adequate sources of soils on the Site that would be suitable for earthworks and that there would be a balanced
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Cut/Fill design. One of the reasons that these terms must be implied is that the Mancamp and Airstrip were inaccessible and Golden Hill was not provided with adequate time to complete a full soils investigation on the Site generally. Golden Hill had to rely on the express representation in the mass-haul diagram in the Tender Documents that Kemess would use a balanced Cut/Fill plan.
In fact, the Work did not proceed as a balanced Cut/Fill design as it was necessary to do extensive borrowing from areas that were a significant distance from the areas being worked upon because the soils at the Airstrip and parts of the Millsite were completely inappropriate for earthworks.
If it had known that the Project would not be a balanced Cut/Fill operation, I find that Golden Hill would have bid the Project differently so that it has suffered damages as a result of relying on the implied representation and because of the breach of the implied term. A similar situation was faced in Opron Construction Co. v. Alberta (1994), 14 C.L.R. (2d) 97 (Alta.Q.B.) where the soil conditions were also not suitable for the contractor’s operation. The soils materials encountered were such that the method of construction had to be altered from a conventional scraper operation to a more expensive and slower
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backhoe/scraper/truck operation so that production was substantially disrupted and delayed. In that case, it was also necessary for backup equipment to be brought onto the site to deal with the poorer materials. In those circumstances, damages were available to the plaintiff.
The Airstrip changed from the more or less balanced Cut/Fill operation set out in the PCL design quantities in the mass-haul diagram to an importation of material job. Golden Hill was paid on a “force account basis” for many days in September to search the Site for a source of good granular material from which the Airstrip could be built. Ultimately a source for that material was found several kilometres away from the Airstrip.
At the Millsite, a large amount of Waste had to be hauled away to dumps. As a result, the Work became unbalanced which required more unsuitable soils to be disposed of in very small dumps causing productivity problems and also required a large source of suitable materials.
Kemess breached the implied term that there would be adequate sources of appropriate soils for a relatively balanced Cut/Fill operation. I am satisfied that the term must be implied as it is a necessary condition to the contractual relationship between an owner and a contractor
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where the operation is clearly not described as a large Waste or a large Borrow operation. I am satisfied that such an implied representation could not be excluded by the provisions of Article VI or by GC 12.0.
Golden Hill was entitled to rely and did rely on the implied representation that the soils would be appropriate for earthworks and that there would be adequate sources of appropriate soils despite any exclusion clauses as they were not provided access to the Mancamp, large areas of the Millsite, and the Airstrip nor were they provided with adequate time to complete a full soils investigation.
THE NEGLIGENT MISREPRESENTATIONS OF MR. REMPEL REGARDING THE SOIL CONDITIONS
A number of issues are raised regarding the representation made by Mr. Rempel regarding the anticipated soil at the Millsite, the Mancamp, and the Airstrip.
AN OPINION CANNOT PRODUCE LIABILITY
Kemess submits that the statements of Mr. Rempel that there were good granular soils at the Millsite, the Mancamp and the Airstrip cannot found liability for misrepresentation as what was said was merely a statement of opinion. In this regard, Kemess relies on the following statements of law:
where what is expressed is simply an opinion, the words expressed must be incorporated into a contract before it can be actionable: Andronyk v. Williams (1985), 21 D.L.R. (4th) 557 (Man.C.A.) at p. 567;
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it is not negligent merely to hold one reasonable opinion simply because that opinion proves to be wrong: Power Contracting Inc. v. Falby (1995), 20
C.L.R. (2d) 101 (Ont.C.J.) at p. 108.
a representation which is vague and indefinite in its nature and terms was merely a conjectural or exaggerated statement and cannot be relied on: Hinchey v. Gonda, [1955] O.W.N. 125 (Ont.H.C.J.) at p. 128;
where a person makes a statement of opinion or belief it is simply a representation that he has such an opinion or belief. In order for such a statement to be actionable, it is necessary to prove the non-existence of the opinion or belief rather than merely its incorrectness: Halsbury’s Laws of England (4th) Vol. 31 “Misrepresentations” at para. 709”;
where facts were equally known to both parties, false opinion, expressed by the representator does not give a cause for complaint to the other as the parties are assumed to be competent to draw their own conclusions: Fleming, The Law of Torts, 7th ed. (The Law Book Company Limited, 1987) at p. 600.
Kemess submits that Mr. Rempel did not present himself as having any special knowledge or skill and, in particular, he did not tell Golden Hill that he was privy to any information other than what Golden Hill had been given.
He did not present himself as a geotechnical engineer or as having any special training in soils. Kemess submits that Mr. Rempel made it known that he did not have any special
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knowledge or skill as he told Mr. Rudolph that he had only been recently hired and, as to the Airstrip, he indicated that as far as he was aware there was no soils information relating to the Airstrip.
I cannot accede to this submission of Kemess. If the facts are not equally known to both sides, a statement of opinion by a person who is in a better position to know the facts or has a greater means of knowledge can constitute a misrepresentation: Rasch v. Horne, [1930] 1 W.W.R. 816 (Man.C.A.) as approved in Miller v. Edelweiss International Franchise Corp., [1996] B.C.J. (Q.L.) No. 1224 (B.C.S.C.). In Rasch, the court stated:
An element to be considered in ascertaining whether any unfounded representation is open to redress in any form is the means of knowledge of the parties involved. If it is on a subject peculiarly within the knowledge of the party making the representation and be relied on by the other party, it may well be held to be legally cognizable, but where the facts are available to the other party and not only so but he applies or might apply unrestricted means of inquiry, and is not induced to withhold inquiry, the alleged representation is probably no more than dealers’ talk in which each party from his own standpoint of buyer or seller usually indulges.(at. p. 820)
Similarly, in Smith v. Land and House Property Corporation (1884), 28 Ch.D.7 (C.A.) a statement of opinion that the tenant of a property to be sold was “a most desirable
tenant” was found to be a misrepresentation of fact even though it was clearly a statement of opinion:
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It is material to observe that it is often fallaciously assumed that a statement of opinion cannot involve the statement of a fact. In a case where the facts are equally well known to both parties, what one of them say to the other is frequently nothing but an expression of opinion.
The statement of such opinion is in a sense a statement of a fact, about the condition of the man’s own mind, but only of an irrelevant fact, for it is of no consequence what the opinion is. But if the facts are not equally known to both sides, then a statement of opinion by the one who knows the facts best involves very often a statement of a material fact, for he impliedly states that he knows facts which justify his opinion. (at p. 15).
Similarly, Lord Denning in Esso Petroleum Co. Ltd.
They know the facts. They knew the traffic in the town. They knew of the throughput of comparable stations. They had must experience and expertise at their disposal. They were in a much better position than Mr. Mardon to make a forecast. It seems to me that if such a person makes a forecast – intending that the other should act on it and he does act on it – it can well be interpreted as a warranty that the forecast is sound and reliable in this sense that they made it with reasonable care and skill. (at p. 14).
The Site Visit was suggested, bidders were directed to ask questions of the representative of Kemess, Mr. Rempel
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was at the Site for that purpose and, even if Mr. Rempel’s statements were meant to be only an opinion, he was much more familiar with the Site and what would be found at the Site than were any of the Golden Hill visitors
The following matters allow me to conclude that Mr.
Rempel was privy to further or specific information that Golden Hill did not have. First, Mr. Rempel was aware that he would be on Site as the senior site representative of Kemess for the purpose of answering questions. Second, in preparation for the visits, Mr. Rempel reviewed the Soils Data Package and/or the Knight Piésold geotechnical report during his visit with Kilborn in May of 1996 and spent approximately 4-5 days reviewing documents about the Project. Third, Mr. Rempel reviewed documents at the Knight Piésold office and flew over the Site several times in order to get a superior knowledge of the Site. Fourth, Mr. Rempel had discussions with engineers at Kilborn regarding the soils conditions and what could be expected at the Site.
Even if the statements made by Mr. Rempel can be characterized as opinions, they constitute actionable misrepresentations.
The principles set out in the decision in Andronyk, supra, have been qualified in a number of subsequent decisions
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on the bases that either the representor had a factual foundation for making the statement or the representor possessed some level of skill which put the representor in a position of authority such that the representation could be characterized as representations of fact. As well, the passage from Andronyk, cited by Kemess acknowledges that, if an opinion contains an implied statement of fact, it is actionable. I am satisfied that the true basis for the decision in Andronyk was that the term sought to be relied upon was too vague such that the parties did not understand it to mean the same thing. This is consistent with the decision in Hinchey, supra.
The decision in Moojelsky v. Rexnord Canada Ltd., [1989] 96 A.R. 91 (Alta.Q.B.) is to the same effect:
In these cases [including Andronyk], the statements of opinion made were found not to form the basis of liability for negligent misrepresentation.
However, in all these cases, Esso v. Mardon, supra,
E.R. 5 (C.A.)], is referred to and not disapproved of. In this case, Esso inaccurately forecasted the future annual consumption of gas at a station they sought to lease to the Defendants. Esso was found liable for negligent misrepresentation as they had special knowledge and skill about that which they forecasted and knew the facts on which they based their forecast. It appears the statements of opinion based on existing facts about which the representor has or professes to have special skill or knowledge can form the basis of an action for
negligent misrepresentation. An explanation of the difference between mere statements of opinion and actionable representations is provided in 31 Hals. (4th) 621, para. 1012:
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If a person who has only an opinion or information as to a matter chooses to state it as a fact, the statement is a representation of the matter stated and the falsity of the representation is established by proof that the matter is not as stated, even though the representator may have genuinely held the opinion or believed the information.
Sometimes a statement which is apparently in the form of an opinion, or uses words tending to suggest that it is only an opinion, may be held to contain or imply a statement of fact, and even from an expression of opinion there may be an implication that the speaker knows facts which justify the opinion or at least knows no facts showing it to be unjustified. (at pp. 97-8 in Moojelsky).
I am satisfied that the decision in Power Contracting Inc., supra, is distinguishable as the allegation in that case was that an engineer was negligent in putting forward a design that turned out to be unbuildable whereas I find that the statements of Mr. Rempel were not reasonable in the circumstances.
The fact that Mr. Rempel had only recently been hired did not negate his duty to properly inform himself as to the site conditions if he was going to make statements of fact about them. Mr. Rempel was on Site specifically to answer
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bidder’s questions with respect to the C101 Contract. If he had insufficient knowledge about the soils, he should have declined to comment about them.
The representations of Mr. Rempel fell squarely within his expertise and job function and he was fully qualified to comment on the conditions of the Site as he was a very experienced earthworks supervisor. As well, it cannot be said that Mr. Rempel “did his best to acquaint himself with all relevant information”.
Golden Hill was not given unrestricted access and means of inquiry. In fact, the short tender period and the inability to go into the areas that would be the Mancamp and the Airstrip and into much of the area that would be the Millsite acted as inducements to Golden Hill to withhold inquiry. I find that it was clearly the case that Mr. Rempel did and could be expected to know the facts best and, in the circumstances, he was representing facts even though it might be said that he was expressing an opinion.
WAS THE REPRESENTATION MADE NEGLIGENTLY?
It is not enough for a representation to be wrong, it must have been made negligently: Inland Feeders v. Virdi et al. (1981), 129 D.L.R. (3d) 685 (B.C.C.A.). The duty of a
representor is to exercise reasonable care: Fleming, The Law of Torts, supra, at p. 614.
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The standard of care to be exercised by a representator is the same standard as is applied in other negligence cases, that of a reasonable person. In Queen v. Cognos Inc. (1993), 99 D.L.R. (4th) 626 (S.C.C.), the Court stated:
An advisor does not guarantee the accuracy of the statements made, but is only required to exercise reasonable care with respect to it. As with the issue of standard of care in negligence in general, this is a question of fact which must be determined in the circumstances of the case. Taking into account the nature of the occasion, the purpose for which the statement was made, the foreseeable use of the statement, the probable damage which will result from an inaccurate statement, the status of the advisor and the level of competence generally observed by others similarly placed, the trier of fact will determine whether the advisor was negligent. (p. 160).
I find that the representation made by Mr. Rempel was made negligently. He was there to answer the questions of Golden Hill and there could be no other purpose of the statement than to provide assurances to Golden Hill that it would find good granular material throughout the Site. I find that Mr. Rempel did not exercise the standard of care imposed upon the site representative of an owner who is representing the owner at a site visit.
WERE THE REPRESENTATIONS MADE BY MR. REMPEL TRUE?
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Kemess submits that Mr. Rempel was only discussing the granular material below the organics in certain areas of the Millsite. Kemess submits that Golden Hill did encounter good granular material at lower elevations in certain areas of the Millsite and the Mancamp, in particular at the service complex area and at some parts of the concentrator building area. Kemess submits that the main problem that Golden Hill had at the Millsite was the removal of the Topsoil and overburden and Kemess says that Mr. Rempel’s representations did not relate to these soils.
I cannot conclude that the representations made by Mr. Rempel were true. First, he was not referring to “certain areas” of the Millsite. He was referring to all of the Millsite, the Mancamp and the Airstrip when he made the statements that good granular material would be found throughout the Site. Second, I am not satisfied that it can be said that Mr. Rempel was only referring to the area below the Topsoil/Organics when he made the broad statements regarding the good granular material that would be found throughout the Site. At that point, it was anticipated that the Topsoil level would only be 150 mm. Even if Mr. Rempel was only referring to the top 150 mm, it was clear that all of
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the material below 150 mm was not good granular material. Third, it could not be said that Golden Hill encountered granular material at lower elevations throughout the Millsite and the Mancamp. Fourth, I am satisfied that it is not the case that the problems that Golden Hill had at the Millsite were related only to the removal of Topsoil. In the circumstances, I have no hesitation in holding that the representations that Mr. Rempel made were not true.
WAS THERE RELIANCE?
I find that there was reliance. Mr. Rudolph testified that the representation made by Mr. Rempel was a “very major component in his decision” about what soils to expect at the Site. Mr. Rudolph testified that Mr. Rempel’s comments that the Millsite, Mancamp and Airstrip contained good granular material helped determine his equipment and production rates which, in turn, had an impact on his unit prices.
I find that Mr. Rudolph relied on the statements made by Mr. Rempel and did not rely solely on his own observations to draw his conclusions about the soil conditions that would be encountered. While Kemess submits that Mr. Rudolph would have come to the same conclusions about the soil materials that would be encountered if Mr. Rempel had not made
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the statement that he did, this theory was not put to Mr. Rudolph on cross-examination. I find that this would not have been the case. Mr. Rudolph testified that his unit prices would have been impacted if he had known the common materials on the Site were going to be wet silty materials: “presumably your production would be less, so consequently you would move less per hour than if it was, you know, good hard surface to run on or good gravel.”
Kemess also submits that there is no evidence that Mr. Rudolph discussed the representations made by Mr. Rempel with Mr. Quaile prior to Mr. Quaile undertaking his calculations of quantities. In this regard, it was never suggested in cross-examination to either Mr. Quaile or Mr. Rudolph that they had not discussed these representations. As well, Mr. Rudolph had the knowledge of the representations made by Mr. Rempel when he reviewed the estimates of Mr. Quaile regarding the quantities to be moved. The fact that he accepted the low estimates of Waste that were included within the quantity estimates of Mr. Quaile allows me to conclude that he relied on the statements made by Mr. Rempel that good granular material would be found throughout the Site.
I am also satisfied that specific evidence of reliance is unnecessary and that negligent misrepresentation
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is proven if it can be shown that the misrepresentation was at least one factor which induced Golden Hill to act to its detriment. In J.P. Metal Masters Inc. v. David Mitchell Co. (1998), 49 B.C.L.R. (3d) 88 (B.C.C.A.), Hollinrake, J.A. on
behalf of the Court concluded:
Once a Plaintiff establishes a material misrepresentation that was acted upon to the detriment of the Plaintiff, the element of reliance may be inferred. The onus shifts to the Defendant to rebut the inference. (at para. 43).
Hollinrake, J.A. referred to the decisions in Sidhu Estate v. Bains (1996), 25 B.C.L.R. (3d) 41 (B.C.C.A.) and Kripps v. Touche Ross Co. (1997), 33 B.C.L.R. (3d) 254 (B.C.C.A.) before concluding:
The Court held that even if the misrepresentation was only one of several factors contributing to the plaintiff’s decision to act, it was a material inducement. (at para. 40).
Hollinrake, J.A. also cited with approval the statement of Finch, J.A., as he then was, in Kripps, supra:
It is sufficient, therefore, for the plaintiff in an action for negligent misrepresentation to prove that the misrepresentation was at least one factor which induced the plaintiff to act to his or her detriment. I am also of the view that where the misrepresentation in question is one which was calculated or which would naturally tend to induce the plaintiff to act upon it, the plaintiff’s reliance may be inferred. The inference of reliance
is one which may be rebutted but the onus of doing so rests on the representator. (at para. 103)
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While Mr. Rudolph did make observations during the Site Visit, I find that these observations were secondary to the information provided by Kemess and to the representations made by Mr. Rempel. Vast areas of the Millsite were not accessible so that the observations of Mr. Rudolph related only to the area surrounding the centre line of the Millsite and only approximately 50% of the centre line. Access to the Mancamp and the Airstrip was not available. While Mr. Rudolph might have preferred to have other information, Mr. Rudolph could only rely and I find that he did rely on the information provided by Kemess and the statement made by Mr. Rempel. I also find that this was a material misrepresentation and that Kemess has not rebutted the inference that there was reliance.
WAS RELIANCE REASONABLE?
Kemess argues in the alternative that it was not reasonable for Mr. Rudolph to have relied on the statements of Mr. Rempel in light of the following clauses included in the C101 Tender: (a) Instructions to Tenderers: “Oral interpretation shall not be effective to modify the provisions of the Documents or any part or parts thereof”; (b) Articles V
and VI of the Form of Agreement; and (c) General Condition 12 (Site Conditions).
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I am satisfied that Articles V and VI do not have the effect of excluding the negligent misrepresentations that induced Golden Hill to enter into the Contract and induced Golden Hill to submit the unit prices that it did. As well, I am satisfied that GC 12 did not exclude the warranty provided by Kemess that the information supplied was accurate. Nor did GC 12 in any way deal with the Airstrip, the Millsite Access Road or the Airstrip Access Road as no information about those areas was included in the Soils Data. As well, GC 12 only referred to what was contained within the “Contract Documents” so that it was not intended to exclude the negligent misrepresentation made by Mr. Rempel.
DID DAMAGES FLOW FROM THE MISREPRESENTATION?
A plaintiff who seeks damages for negligent misrepresentation is entitled to be put in the position in which he or she would have been had the statement not been made not in the position he or she would have been had the statement been true: Rainbow Industrial Caterers v. Canadian National Railway Co. (1991), 84 D.L.R. (4th) 291 (S.C.C.) at pp. 296-7.
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Accordingly, Kemess submits that Golden Hill must establish the difference between the effect of its reliance on the misrepresentation and what Golden Hill would have done had the misrepresentation not been made in order to determine its damages. Kemess submits that Mr. Rudolph did not give any evidence on how he would have bid had Mr. Rempel not made this representation. Rather, Mr. Rudolph only testified about how he would have bid had he been told to expect “wet silty conditions”.
The damages which are available to Golden Hill flow not only from the misrepresentation made by Mr. Rempel but also from the breaches of contract relating to the sufficiency of investigation and engineering, the provision of all material soils information, the failure to provide the Site M Reports, and to the suitability and adequacy of the soils sources as well as from the misrepresentations relating to the nature of the work, and the suitability and adequacy of soils sources, as well as from the negligence relating to whether the Tender Documents accurately reflected the Work and the failure to disclose all material soils information.
On the basis of all of that, I find that Mr. Rudolph would have expected the common materials would be good granular materials. I also find that, but for the breaches of
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contract, negligent misrepresentation by Mr. Rempel, and the other tortious acts, Mr. Rudolph would have expected the common materials were going to be wet, silty materials. As a result, I find that the unit prices would have reflected decreased productivity caused by a difference in the materials, longer hauling distances, and inadequate storage and dump areas. This is the case even though the price of Golden Hill for dealing with Waste material was the same as the price for dealing with common material.
Accordingly, I hold that the representations made by Mr. Rempel were untrue, inaccurate and misleading, that Mr. Mr. Rempel on behalf of Kemess acted negligently in making the misrepresentations, and that Golden Hill reasonably relied on the negligent misrepresentations to its detriment.
THE ABILITY TO COMMENCE EARTHWORKS BY JULY 8
Clause 4.0 of the General Requirements in the Tender Documents stated that the successful tenderer would be permitted to commence earthworks on the Site by July 8. However, GC 4.0 states that no Work was to be done until official notice of the acceptance of the tender and instructions to commence work had been given by Kemess or Kilborn. General Condition 4.4 made it clear that the substantial completion date under the Contract could be
changed by variations of time allowed under the terms of the Contract.
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At the Post Tender Meeting in response to a request by Kemess, Golden Hill provided the Amended Schedule that contemplated the formal award of the Contract on June 21 with equipment mobilization beginning the following day. Golden Hill did not mobilize until July 5.
Golden Hill was already faced with a short time line for the Project. Golden Hill submits that it was induced to enter into the Contract based on the dates on which it was represented that they could begin the Work. Golden Hill submits that the representation was not true because it was prevented from beginning earthworks on July 8.
I am satisfied that Kemess did not breach the Contract when equipment mobilization began on July 5 rather than June 21 and earthworks started in mid-July rather than on July 8.
Golden Hill accepted the Letter of Intent by signing and returning it. It is bound by the provision that Work could not commence until all permits were in place. While Golden Hill may well be entitled to damages for other breaches
of the Contract, it is not entitled to damages for the breach of any obligation to allow earthworks to start by July 8.
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In any event, there is nothing in evidence dealing with the weather for July 1 through 4 and there is evidence indicating that it was raining between July 5 and 9. Accordingly, it cannot be said that Golden Hill missed an opportunity to work in “good weather” in early July as a result of the breach of this term.
DIRECTION AND CONTROL OF THE WORK
CONTRACT TERMS
Golden Hill claims damages as a result of breach of an actual term of the contract as well as for negligent misrepresentation. Under the general heading “Time and Order of Construction”, GC 5.0 of the Tender Documents expressly provided Golden Hill with the right to control the Work:
It is the intent and meaning of the Contract that the Contractor shall have complete responsibility for the Work and shall be allowed to perform the Work at such times, in such order of procedure and in such manner as shall be most conducive to economy of construction, provided that:
the Work is constructed in accordance with the requirements of the Contract Documents;
the Work progresses efficiently, safely and in conformity with the Contract Schedule; and
the Work is completed by the required Substantial Completion date.
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Under the general heading “Supervision by Contractor”, GC 14.1 and GC 14.2 provided:
Supervision of the Work shall be the responsibility of the Contractor.
Subject to the specific provisions otherwise in the Contract Documents, the Contractor shall have complete control of his organization and shall exercise his control to ensure compliance with the Contract.
I find that Golden Hill was induced into entering into the Contract based on the representation that it would be entitled to control the Work and its own schedule and would be allowed to perform the Work at such times, in such order, and in such manner as was most conducive to economy of construction. In breach of the Contract and despite the representation, Kemess repeatedly interfered with the right to control the Work in the name of meeting the overall schedule for the development of the mine. As a result of the actions of Kemess, the bid price of Golden Hill did not reflect the cost of not being able to work in a manner that was conducive to the economy of construction so that damages resulted from this breach and misrepresentation.
INDICIA OF CONTROL BEING TAKEN AWAY FROM GOLDEN HILL
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Kemess took control of the order of the Work indirectly by failing to provide the entire Site and the design for the Work in a timely manner and did so directly by issuing directions backed up by threats and inducements. As a cost saving mechanism and so as to not lose control, Kemess adopted a “construction management” approach to the Project. Mr. Koski admitted at Trial that Royal Oak decided to do the construction management themselves to save costs and as part of a “control consideration”.
I find that each of these events constitutes Kemess taking control of the order of the Work: (a) at the first construction meeting on July 7, Kemess identified three priority areas that had to be worked on simultaneously and this was other than in accordance with the plan of Golden Hill. Mr. Koski admitted that this was “unusual” and that an owner normally defines only one priority at the beginning of the job but that Kemess needed to start on different areas simultaneously so that “the overall project schedule” was not compromised; (b) the priorities of Kemess representatives were often contradictory and were constantly changing. As a result, Golden Hill had to change its plan for the Work to take into account the changing priorities of Kemess rather
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than implementing its own priorities for the Work; (c) at the July 18 construction meeting, the direction was given about the location where granular material would be crushed; (d) at the July 30 construction meeting, Golden Hill was directed to restrict its grading work to the Mancamp even though the previous directed priority was the Airstrip first and the Mancamp second; (e) at a site review meeting on August 3, the following directives were received: mobilize all of your equipment on site, place additional equipment at the Millsite and immediately establish work at the Airstrip, Mancamp and Millsite, and submit a schedule and plan to bring in “the work back to an acceptable level”. At Trial, Mr. Rempel admitted that the tone of this August 3 directive was “more in the nature of an order”. I reject the submission of Kemess that Golden Hill was obliged to mobilize its tender fleet on Site and had not done so by that date. There was no obligation to mobilize all of the fleet at the beginning and the order and timing of mobilization was up to Golden Hill; (f) Golden Hill was required to work in the three main areas of the Project at the same time and to mobilize more equipment although this was not consistent with Mr. Rudolph’s plan for the Work which was to work only in two areas at once; and (g) various directives were received almost on a daily basis after the August 3 site review meeting.
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I also find that the following are indicative of the directions (not suggestions) given by Kemess: (a) clean up activities at the Mancamp approximately two months earlier than anticipated (August 4); (b) building a haul road using “unsuitable material” causing additional time and expense to maintain the road (mid-August); (c) providing a new order for the work to be undertaken (in the September 5 Weekly Progress Report of Kemess); (d) movement of the scrapers from the Airstrip to the Millsite (September 8); (e) as a result of “pressure from corporate” to get it done, the setting of a new priority for a 2,000 foot temporary Airstrip (September 8 Daily Progress Meeting Minutes); (f) an indication that Mr. Rempel would control the movement of equipment to the Airstrip once he returned from turnaround (September 14 Kemess internal memo from Mr. Rempel); and (g) confirmation that the Head Office of Kemess wanted the Airstrip done as a priority (September 29 Daily Progress Report).
As well, Kemess insisted that Golden Hill come up with the plan to work through inclement weather; directed Golden Hill to move equipment from the Millsite to the Airstrip in late August; directed Golden Hill to move its equipment from the Airstrip back to the Millsite; determined that the work of Western Versatile would take priority over
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the Work of Golden Hill so that work at the Mancamp was interrupted and made less efficient; determined that the settlement pond should be the new priority at the Millsite even though Golden Hill had intended to do this last; and required Golden Hill to focus on the crusher area at the Millsite in the late fall.
I reject the submission of Kemess that Golden Hill did not follow the directions received from Kemess when it took control of the Work away from Golden Hill. While it was sometimes not possible to follow the directions received, it is clear that Golden Hill was attempting to follow those directions and felt that it was bound to attempt to do so.
COMMON LAW RIGHT OF CONTROL
It is crucial and fundamental to a unit price contract that the contractor be given complete control of the Work as it is the plan for the Work upon which the bid is based. As contractors establish their unit rates on the basis of their own work plan, it is essential that they be given complete control of the work during a project to implement their plan. At common law, a contractor is prima facie entitled to carry out his work without interference from the owner, whether or not the contract has that express provision: Smith and Montgomery v. Johnson Bros. Co., [1954] 1 D.L.R. 392
(Ont.H.C.). General Conditions 5.1 and 14.2 merely embody the common law position.
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Interference by the owner constitutes a breach of contract by the owner if the interference affects the contractor’s method of carrying out the work plan contemplated:
A contractor is not a servant of the owner, and although the latter is entitled to tell him what to do, he is not entitled to tell him how to do it. Accordingly, an interference with the contractor’s method of carrying out his work which is not authorized by the contract constitutes a breach of contract by the owner. (Monett et al v. All Seasons Siding & Carpentry Ltd. (1991), 43 C.L.R. 185 (N.S. Co.Ct.) at p.
190 quoting Goldsmith on Canadian Building Contracts, 4th ed, (Toronto: Carswell 1989) at pp. 5-4).
In Smith and Montgomery v. Johnson Bros. Co., [1954]
1 D.L.R. 392 (Ont.H.C.), there was no express term in the contract binding the owner to permit the plaintiffs to execute the work to be performed by them in accordance with their own plan. However, the Court found an implied term and stated: “If such an implication were not made, the contract would not have that efficacy which the parties must have intended it to have and there would be such a failure of consideration as cannot have been the contemplation of the contracting parties.” (at p. 398).
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At common law, an owner assumes control where the owner exercises supervision of, or directs, the contractor such that the contractor is not entirely free to do the work in his own way. Golden Hill points out that Mr. Rempel agreed that, at least as of July 23, Golden Hill did not have “full access to the site” and that restrictions had been placed on the order in which Golden Hill could do the Work because of the lack of permits and the lack of design availability. I find that this was the case.
Under cross-examination, Mr. Koski agreed that, under a unit price contract, the contractor determines the order of the work providing the contractor respects the priorities of the owner as set out in the Contract or as established in the pre-award meeting. In this regard, Kemess never gave any indication that the Schedule or the Amended Schedule were not consistent with the priorities of Kemess. The problem was that the priorities of Kemess changed.
In addition to the directions being contrary to the right of Golden Hill to control the Work, some of the directions of Kemess were contrary to Article 1.5 of Technical Specification 02220 which provided that the contractor was entitled and required to: “suspend construction operation at times when satisfactory results cannot be obtained on account
of rain, snow, freezing weather or other unsatisfactory conditions”.
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EFFECT OF GC 5.2 AND GC 5.3 AND S. 1500 OF THE GENERAL REQUIREMENTS
Kemess submits that the effect of GC 5.1 is expressly limited by other provisions in the Contract:
GC 5.2 Provided also that when the Owner is having other Work done under separate contractor by his own forces, the Owner may direct the time and manner of performing the Work to the extent the conflict will be minimized, the various Works harmonized and the overall project or affected contracts are expeditiously brought to completion.
GC 5.3 If, in the opinion of the Owner there is undue delay in commencing Work or any phases of the Work are not progressing in accordance with the Contract Schedule or any scheduled Completion Dates are jeopardized in any other way, then the Owner may order the Contractor to employ additional personnel and construction plant or to work additional hours or by other means speed up the Work, as the Owner deems necessary, without additional payment to the Contractor. The provisions of this paragraph shall in no way relieve the Contractor of his responsibility for completing the Work in accordance with the Contract Schedule and by the required substantial Completion Date.
s. 1500 of the General Requirements:
4.1 Work Areas
Work areas within the site will be assigned by the owner. Such assignments may be for specific periods.
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The owner may, at his discretion, assign other areas for work during specific periods.
Work areas may be restricted or work rescheduled to avoid interference with other work on the project.
General Condition 5.3 only applies if, in the opinion of Kemess, any phases of the Work were not progressing in accordance with the Contract Schedule. In giving directions, Kemess never invoked GC 5.3. From this, I can conclude that Kemess was not of the view that Golden Hill was responsible for the delays that it encountered or that the Work was not progressing in accordance with the Amended Schedule as extended from time to time.
I find that Kemess was not in a position to invoke GC 5.3 as it could not be said that there was an undue delay in commencing the Work or that any phases of the Work were not progressing in accordance with the Amended Schedule as it was extended by agreement between the parties. General Conditions
5.1 and 5.3 provide that Golden Hill is entitled to control of the Work “provided that... the work progresses... in conformity with the Contract Schedule” and this should be taken to mean as actually extended or where it should have been extended.
Regarding GC 5.2, it should be noted that, unlike GC
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5.3 and GC 36.3, GC 5.2 does not prohibit extra payment for compliance with the owner’s directions. From that, I can conclude that it was contemplated that any directions from Kemess regarding the coordination of the work of Golden Hill with other contractors would result in Kemess having to compensate Golden Hill for any additional costs flowing from such directions being provided.
As well, none of the directions that Golden Hill received in relation to the Airstrip related to the minimization of conflict with other contractors and the directions in relation to the work at the Millsite and the Mancamp did not fall within the limited wording of GC 5.2. The directions by Kemess were only required because the Work of Golden Hill was delayed through no fault of its own or because the schedules of other contractors were changed so that the work of those contractors on particular areas within
the Site came into conflict with the work that Golden Hill was performing.
Regarding Article 4.1 of Section 1500 of the General Requirements in the Tender Documents, this provision does not prohibit compensation in the event of the occurrences listed in that Article. As well, there is no evidence to indicate
that Kemess invoked Article 4.1 in order to “avoid interference with other work”.
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In construing GC 5.2 and Article 4.1, it is critical to remember that they are not only inconsistent with the fundamental nature of a unit price contract and the common law rights of Golden Hill but also purport to limit the express rights of Golden Hill to control the Work which are provided by GC 5.1 and GC 14.2.
I am satisfied that the fundamental right to control the Work must prevail over the right to issue directions in relation to the Work in order to minimize conflict with other contractors. I am satisfied that the concept of control over the Work is so fundamental to the unit price contract that any effect of GC 5.2, GC 5.3 and Article 4.1 of s. 1500 of the General Requirements must be severely limited.
An owner who employs several contractors in connection with a particular construction project is obliged to schedule the work such that one contractor does not interfere with the work of another. Any interference on the part of anyone acting either as an employee or agent of the owner constitutes a breach of contract: Foundation Co. of Canada v. United Grain Growers Ltd. (1995), 25 C.L.R. (2d) 1 (B.C.S.C.) and (1997), 34 B.C.L.R. (3d) 92 (B.C.C.A.) at p.
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109; Penvidic Contracting Co. v. International Nickel Co. of Canada (1975), 53 D.L.R. (3d) 748 (S.C.C.); and Conmac Western Industries v. Budd Bros. Ltd. (1990), 41 C.L.R. 161 (Alta.Q.B.).
The courts in Conmac and Penvidic, both adopted the following passage from Hudson’s Building & Engineering Contracts, 10th ed. (London: Sweet & Maxwell, 1970) at pp. 317-8:
The degree of possession or access which must be afforded by an employer must obviously vary with the nature of the work (which might, for instance, in an extreme case be for repairs or reinstatement of existing premises while still occupied) or other circumstances (as in subcontracts, when the work often must take place alongside and subject to interference by other trades or the main contractor’s own work). But in the case of a new project the main contractor will normally be entitled to exclusive possession of the entire site in the absence of express stipulation to the contrary.
Since a sufficient degree of possession of the site is clearly a necessary pre-condition of the contractor’s performance of his obligations, there must be an implied term that the site will be handed over to the contractor within a reasonable time of signing the contract, (See, e.g. Roberts v. Bury Commissioners (1870) L.R. 5 C.P. 310 at pp. 320 and 325) and, in most case, it is submitted, a sufficient degree of uninterrupted and exclusive possession to permit the contractor to carry out his work unimpeded and in the manner of his choice. This must particularly be so when a date for completion is specified in the contract documents.
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A clause notifying the contractor that other contractors may be on site and that it is obligated to cooperate with them and to allow harmonious continuation of the work is not sufficient notice that the contractor would not have uninterrupted possession of the site: W.A. Stevenson Construction (Western) Limited v. Metro Canada Limited (1987),
27 C.L.R. 113 (B.C.S.C.) at p. 132 and Walter Cabott Construction Ltd. v. Canada (1975), 69 D.L.R. (3d) 542 (F.C.A.) at pp. 551-3.
Even if Kemess is in a position to invoke GC 5.2 in defence of its directions relating to some parts of the work at the Millsite and the Mancamp, it is certainly not entitled to do so where the delays leading to the conflict between the needs of the two contractors were of its own making. The decision of Kemess to require Golden Hill to focus on the Airstrip resulted in Golden Hill being unable to concentrate on the Millsite as it had planned so that, when it was finally allowed to concentrate on the Millsite, it was forced to work around Western Versatile.
As well, Kemess was not entitled to assume complete control where there existed a potential conflict with another contractor under GC 5.2. It was only entitled to issue
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directions to minimize conflict. Any broader interpretation of the rights of Kemess under GC 5.2 would render meaningless the fundamental right of Golden Hill to control the Work. In this case, the directions to Golden Hill were to enable Western Versatile to work unimpeded by the work of Golden Hill not to allow a co-ordination of the work of the two contractors.
I find that Golden Hill is entitled to extra payment for having to comply with the directions of Kemess that Golden Hill work in the same areas that Western Versatile was working when that coordination was originally not contemplated under the Amended Schedule. I also find that Kemess was not in a position to provide the directions contemplated by GC 5.3. I find that the fundamental right to control the Work which is granted at common law and which was provided under General Conditions 5.0, 14.1 and 14.2 was violated by Kemess so as to constitute a breach of contract, a breach of an implied term and a negligent misrepresentation.
I am satisfied that Article VI did not exclude the implied obligation on Kemess. In addition to the contractual provisions, it must be implied at law that Golden Hill would have control over the Work as this is a necessary condition to
the contractual relationship between the parties in order to give business efficacy to the Contract.
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Whether or not Golden Hill was given control over the Work was entirely within the control of Kemess. The refusal to give complete control resulted in damages and, despite the provisions of GC 36.0, Golden Hill is in a position to claim those damages against Kemess.
I find that Kemess breached the specific term in the Contract so that Golden Hill is entitled to damages for that breach. I also find that there was an implied representation that Golden Hill would be granted complete control over the Work subject only to the ability of Kemess to give directions in order that there could be a co-ordination of work between contractors. I am satisfied that this representation was untrue, inaccurate and misleading, that Kemess acted negligently in making the representation, and that Golden Hill reasonably relied on the misrepresentation to its detriment as damages resulted to Golden Hill as a result of its reliance.
THE MEASURE OF DAMAGES
If an owner fails to provide or continue to provide the contractor control of the work and if this failure deprives the contractor of the ability to achieve its expected production rates, the appropriate measure of damages would
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include: (a) the additional cost the contractor incurred as a result of the owner’s failure to give it control of the work; and (b) the profit the contractor would have made had it controlled the work.
If GC 5.0 had not been breached, Golden Hill would have been paid for its costs of the Work and would have made a profit of approximately 5%. However, Golden Hill was required to perform the Work in a different sequence than it planned and so incurred the cost of doing the Work in a less than productive order and manner, including losses associated with poor productivity and the double handling of soils.
Kemess relies on the decision in Award Industries (Mechanical) Ltd. v. Canada, [1983] F.C.J. (Q.L.) No. 133 (T.D.) for the proposition that, if a plaintiff can adduce evidence to establish losses arising from loss of control of the Work, then it must do so if it wishes to recover damages:
... Award was, at times required to execute work out of sequence. This undoubtedly added to the cost. The amount, however, cannot be determined as there is a lack of evidence as to the precise nature, extent or number of all these occurrences. Evidence could have been adduced to establish this element of the claim. (at p. 15).
I am satisfied that the decision in Award can be distinguished on the basis that it involved an interpretation
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of a contractual provision which imposed on the contractor the obligation to “maintain full records of his estimates and actual costs”. With respect to such a term, the Court stated:
Where there exists a contractual obligation to maintain proper records, that obligation is not absolute nor of the essence of the contract in the sense that any default whatsoever in complying with it will constitute an absolute bar to all recovery under the contract. Effect, however, must be given to such a contractual obligation and where it has not been complied with, the party in default would normally be barred by reason of his breach from establishing by means of others’ evidence matters regarding which he was contractually obliged to maintain proper records. (at p. 15).
I am satisfied that it is not necessary for Golden Hill to prove those damages which were attributable only to this breach of contract and this tortious act when Kemess took control of the Work away from Golden Hill. As developed in more detail in the sections of this judgment dealing with the “total cost” approach of Golden Hill and “loss of productivity”, I reject this submission by Kemess.
FAILURE TO OBTAIN PERMITS IN A TIMELY MANNER
OBLIGATION TO OBTAIN PERMITS
There was an implied representation in the Tender Documents that Kemess undertook to obtain any of the required approvals or permits in a timely manner and that Kemess would not allow the permitting to delay the commencement or the
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continuation of the Work. Golden Hill reasonably relied on that representation as this would be in accordance with the right of Golden Hill to conduct the Work in a manner conducive with the economy of construction. The Work was delayed as the approvals and permits were not obtained on a timely basis and that it has suffered damages as a result.
The failure to obtain all permits, licences and certificates in a timely manner was also a breach of contract as GC 25.2 provides:
The Contractor shall obtain all permits, licences and certificates required in the performance of the Work, and pay all fees in connection therewith, excepting only...approvals of Departments or Ministries of Government in connection with the use and occupancy of the permanent Work....
PERMITS TO CONSTRUCT AND LOG
Provincial legislation required Kemess to obtain two basic land use permits before work could start on the Project. Kemess was required to apply under the Mines Act, R.S.B.C. 1996, c.293 for a permit approving a mine plan and reclamation program and to apply under the Forest Act, R.S.B.C. 1996,
c.157 for a “licence to cut” before it could start clearing the Site of timber.
Kemess did not apply for a Licence to Cut until some time after May 17. By June 29, Royal Oak was not expecting to
receive a permit approving the Mine Plan and Reclamation Program for the pre-production phase of the Project until July
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12 or 15, approximately 6 weeks later than the original expected construction start-up date of June 1.
I find that Kemess did not tell Golden Hill that it did not expect to be able to disturb the ground at the Site until mid-July despite the fact that Golden Hill had delivered the Amended Schedule indicating construction start-up in the third week of June. In fact, at the Post Tender Meeting, Mr. Rudolph was advised that all permits would be available within days.
While Golden Hill was in a position to start line clearing on the Millsite for survey purposes without a clearing permit, other work at the Millsite was considerably delayed when the Mine Plan and Licence to Cut was not available until July 12. In the Site Review Minutes of August 3, Messrs. Koski and Rempel acknowledged that Kemess accepted responsibility for delays caused by not getting the appropriate permits in a timely fashion.
ARCHAEOLOGICAL ASSESSMENT AND WORK AT THE AIRSTRIP
While Mr. Koski knew as early as February, 1996 that an archaeological assessment was required at the Airstrip, Kemess did not immediately advise Golden Hill that it was not
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in a position to disturb the 500 metre long archaeological area at the south end of the Airstrip until such a survey was complete. Kemess did not receive a permit for conducting that archaeological assessment until July 11 and the assessment did not start until the week of July 29.
In a July 12 letter from Kemess, Golden Hill was advised that it could not disturb any of the soil on the Airstrip until Kemess obtained an excavation permit and, although it would be allowed to clear and pile the trees on the north end of the Airstrip, Golden Hill would not be allowed to grub the roots and stumps. On that date, Golden Hill had one Cat D7 and two Cat D8 bulldozers on Site available to start clearing operations. The order of the Work contemplated by Golden Hill was significantly disrupted as a result of the failure to complete the archaeological assessment and obtain the necessary excavation permit.
DELAYS ALLEGED AND INCONVENIENCE CAUSED
On July 23, Golden Hill notified Kemess in writing that delays relating to permits and archaeological studies had impeded the progress of the clearing operations at the Airstrip and had delayed the Amended Schedule. While clearing operations were ongoing at the Millsite, while clearing, grubbing, and stripping operations were ongoing at the
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Airstrip, and while grubbing operations were ongoing at the Mancamp, Golden Hill had not started earthworks on any part of the Site by July 30 even though earthworks was originally scheduled to start at the Airstrip on July 21 and at the Millsite and Mancamp on July 23 and rough grading was originally scheduled to start at the Mancamp on July 28.
The schedule for the Work as specified in the Tender Documents indicated that Kemess wanted the successful bidder to start earthworks on the Site no longer than July 8 and to complete rough grading for the Mancamp no later than July 15.
IS IT AN IMPLIED TERM THAT PERMITS WILL BE AVAILABLE IN A TIMELY MANNER?
I find that it was an implied term of the Contract that Kemess would obtain all approvals from Departments or Ministries of Government. The question which then arises is whether it is an implied term that Kemess would complete all steps including permits and approvals so that Golden Hill could complete its tasks in the most cost-efficient and time-efficient manner possible. I am satisfied that such an obligation must be an implied term in the Contract between the parties. Just as with the provision of design information, it is a legal incident to construction contracts that all necessary permits be in place in a timely manner so
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contractors who are subject to fixed schedules and fixed completion dates will have the ability to control the Work. If some permits are not available, then the order of the Work must be changed and this leads to inefficiencies in the operation. If permits are not in place so that the Work cannot start, then the requirement that a contractor work within the fixed schedule and work towards a fixed completion date amounts to an acceleration of the Work and an inability of the contractor to control the Work in accordance with the originally contemplated plan for the Work.
The Court in Ellis-Don Ltd. v. Parking Authority of Toronto (1978), 7 C.L.R. 82 (Ont.H.C.) confirmed that it was an implied term that a permit would be provided prior to the date of the work beginning:
It is also my view that it is implicit in the wording of the contract that the Parking Authority was to have obtained the excavation permit and any other needed building permits at least as soon after the signing of the contract as the plaintiff could be ready to commence work....
I say that the Parking Authority was obligated to have obtained the excavation permit and any other required building permits by April 9, 1973 at the latest for several reasons which I list as follows:
1. The contract imposed on the plaintiff the obligation to have the project completed within 52 weeks from the date the contract was signed. If the plaintiff was aware the excavation permit would not be available for eight weeks then it would have
agreed to complete the work in 60 weeks rather than
52 weeks, knowing no work would be done in the first eight weeks after the contract was signed. (at paras. 14-15).
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Kemess breached the implied term that it would obtain the required approvals and permits in a timely manner. Kemess also breached the Contract provision in GC 25.2. The archaeological assessment, the mine plan permit and the licence to cut were received many days after Golden Hill arrived on Site and was expected to start the Work.
Kemess relies on Article VI to exclude the implication of this representation and submits that Golden Hill did not rely on the representations as it chose to mobilize before the Contract was awarded and chose to mobilize and arrive on the Site before receiving notice to proceed knowing that the permits were not in place. Kemess submits that it is at the risk of Golden Hill if it decided to start the Work before receiving a Notice to Proceed and with the knowledge that Kemess did not have all of its permits in hand.
Both Kemess and Golden Hill ignored the stipulation that Work should not commence until a Notice to Proceed was received. In fact, such a Notice was never given. As well, Kemess took no steps to stop the Work even though the permits were not in place. Accordingly, Kemess also placed no
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reliance on the term and implied term that the Work could only start after a Notice to Proceed had been forwarded and after all the permits were in place.
Kemess relies on GC 36.0 to submit that Golden Hill is only entitled to an extension of the time to undertake the Work and is not entitled to damages. However, the question of when and whether Kemess applied for the necessary permits was completely within the control of Kemess. Accordingly, I am satisfied that the failure of Kemess to arrange for the permits in a timely manner, to have all necessary permits in place before mobilization to the Site occurred and to have all necessary permits in place so that the Work in any particular area was not impeded was a failure of performance which was within the control of Kemess so that GC 36.0 does not prohibit a claim by Golden Hill for damages arising out of these failures by Kemess.
Golden Hill is in a position to look to Kemess for any damages associated with its inability to start the clearing at the Millsite as planned, to grub the roots and stumps over all of the Airstrip, and to start earthworks on any part of the Site as planned. I find that Kemess breached the specific term in the Contract as well as the implied representation that it would obtain permits in a timely
manner. As to the implied representation, Golden Hill reasonably relied on the representation to its detriment.
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I am satisfied that Article VI did not exclude the implied term that all permits would be in place prior to the Work commencing or that the necessary permits would be in place prior to when it was contemplated that particular work on the Site would be commenced as this implied term is a necessary condition to the contractual relationship in order to give business efficacy to the Contract.
PROVISION OF APPROPRIATE, TIMELY AND SUFFICIENTLY COMPLETE INFORMATION PRE TENDER AND POST TENDER
OBLIGATIONS OF KEMESS
An owner in a tender situation is obliged to disclose the best information that it can provide regarding a project: Opron Construction Co. v. Alberta (1994), 14 C.L.R. (2d) 97 (Alta.Q.B.) at pp. 122-5 and 208-12; Foundation Co. of Canada v. United Grain Growers Ltd. (1995), 25 C.L.R. (2d) 1 (B.C.S.C.) and (1997), 34 B.C.L.R. (3d) 92 (B.C.C.A.) at pp. 27-8, 103, and 105-7; JJM Construction Ltd. v. Sandspit Harbour Society (1999), 71 B.C.L.R. (3d) 166 (B.C.C.A.) at pp. 172-3 and Begro Construction Ltd. v. St. Mary River Irrigation District (1994), 15 C.L.R. (2d) 150 (Alta.Q.B.) at pp. 153, 185-192.
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I find that it is an implied term of the Contract and an implied representation that Kemess would provide sufficient investigation as well as consistent, completed and/or sufficiently completed design information, drawings and instructions in order to allow bidders to prepare reasonable unit prices in their bids.
Those who prepare tender documents have a duty to exercise reasonable care to ensure that the information presented in tender documents reflects with reasonable accuracy the nature of the work and its factual components so that bidders can prepare a proper bid: Cardinal Construction Ltd. v. Brockville (City) (1984), 4 C.L.R. 149 (Ont.H.C.J.) at p. 162.
This fundamental term was emphasized in JJM Construction Ltd., supra, where the Court stated:
... an owner owes a duty to a builder to take reasonable care in the preparation of bid documents. The bidder is entitled to an accurate and full description of the nature of the work and its factual components. (at p. 173).
While it is not fundamental that the design or investigation be complete where the tenders are sought on a “design/build” or a “cost/plus/hourly” contract basis, it is fundamental that this information be available on unit price
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contracts as the tenderer is relying on the best information possible in setting its unit prices. As stated in Cardinal Construction, supra:
Given the general principle that a bidder is entitled and expected to rely on the tender documents as conveying the best information the engineer can give, it is not good enough in my opinion to provide information that is misleading, incomplete or inaccurate, with the intention that the more experienced or knowledgeable bidder will ferret out the problems from ‘clues’. The information should be clear and intelligible to all bidders... (at p. 170).
Regarding the implied representation, the duty is not a duty of full disclosure but rather a duty to take such reasonable care as the circumstances require: Queen v. Cognos Inc. (1993), 99 D.L.R. (4th) 626 (S.C.C.). In the circumstances, it was reasonable for Golden Hill to rely on this implied representation because Kemess had asked for unit prices and, in order to provide such prices, Golden Hill was required to make some basic assumptions about the feasibility of the construction of the Work and about the accuracy and completeness of the available engineering and design information in order to provide its unit prices.
As well, the owner’s duty to make full and complete disclosure is ongoing and continues throughout the course of construction: Foundation Co. of Canada, supra, at p. 106.
IS THERE AN IMPLIED TERM THAT THERE HAS BEEN SUFFICIENT ENGINEERING DONE?
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It is fundamental to a unit price construction contract that sufficient investigation and engineering analysis of the project be completed prior to the issuance of tender documents to ensure that the scope of the work described is sufficiently defined, is capable of being built and is based on sufficient investigation and engineering such that bidders are able to prepare reasonable unit prices based on an examination of the documents. As stated by Brenner, J., as he then was, in Foundation Co. of Canada, supra:
...it must be borne in mind that this was a complex refit project, that all parties understood this at the outset and that a certain number of drawing revisions were to be expected as work proceeded.
However, that being said, the owner still had an obligation to ensure that the state of design was sufficiently finalized prior to tender on this lump sum project so that the progress of the contractors work would not be unreasonably impacted. A
contractor on a lump sum project is entitled to expect that the project design has been substantially completed at the time of tender. (at pp. 51 and 59).
I also find that there is an implied representation in construction contracts that the project which is out for tender is buildable. In J. P. Metal Masters Inc. v. David Mitchell Co. (1997), 34 C.L.R. (2d) 251 (B.C.S.C.) affirmed (1998), 49 B.C.L.R. (3d) 88 (B.C.C.A.), Smith, J. stated:
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Even in the absence of finding an express representation that a structural engineer reviewed the drawings before they were put out for bid, I accept the submission that Mitchell Co. and J.P. Metal did rely on the implied representation that the design drawings were buildable for the purpose for which they were tendered. It is improbable that any contractor or sub-contractor would bid on a job if they thought that they design could not be built as represented. (at para. 61)
Of similar effect are the comments of Southin, J.A. in JJM Construction Ltd., supra:
That an owner owes a duty to a builder to take reasonable care in the preparation of bid documents. The bidder is entitled to an accurate and full description of the nature of the work and its factual components. Failure by the owner to disclose that which it knows may be a breach of that duty.
The owner and the engineer both impliedly, if not expressly, warrant in the case of the former and represent in the case of the latter that the proposed works are “buildable”.
So far as the owner is concerned, these propositions are subject to whatever disclaimer clauses are in the contract. (at paras. 16-17).
As there was no other reasonable option available to Golden Hill to ascertain whether or not all portions of the Project were “buildable”, Golden Hill reasonably relied upon the implied representation that the Work was buildable. As there was no disclaimer that the Project was not buildable,
Golden Hill could and reasonably did rely upon the implied representation that the Work was buildable.
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I find that there was an implied term that the work tendered would be buildable. Even if I could not make such a finding, I find that a claim for negligent misrepresentation relating to the tender is available.
This is also the case if Kemess became aware of information that would be of concern to Golden Hill but did not reveal it. These propositions are confirmed in Opron Construction Co. v. Alberta (1994), 14 C.L.R. (2d) 97 (Alta.Q.B.), where the court found two implied terms of the contract: (a) that there were no facts within the knowledge of the defendant or its agent which had not been disclosed to the plaintiff which were inconsistent with or contradicted the contractual warranties and representations of fact made by the defendant and (b) in accordance with a covenant of good faith and fair dealing implied by law, the information provided by the defendants or its agents in the tender documents forming part of the contract had been furnished in good faith, in the honest and reasonable belief that the information was complete and accurate and that all material information bearing upon the performance of the contract within the possession of the
defendant had been provided to the plaintiff. In this regard, the court concluded:
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The plaintiff argues that these implied terms are also necessary legal incident of this class of contract. To permit an owner such as the Government to disclose information which it knows is contradicted by other information in its possession is to subvert the contract itself. (at para. 585).
In considering this argument, I note that these implied terms do not place upon the owner a general legal obligation to provide site information to prospective tenderers. Rather, they require an owner who has already embarked upon the exercise of supplying information to disclose all relevant information in its possession. (at para. 586).
Rather, the wording in these clauses in the contract in issue demonstrates that the defendant expected and intended bidders to rely upon the soil information it furnished for the purpose of preparing a tender. They are not inconsistent with the implied term that the owner did not possess any information which would assist the bidder in evaluating the operation. (at para. 588).
In Opron, the Court adopted the finding in Walter Cabbott Construction Ltd. v. Canada (1975), 69 D.L.R. (3d) 542 (F.C.A.), and further held that a duty of care lies concurrently on an owner and its engineers in respect of representations included in a tender package: at pp. 212-3. In the case at bar, the information presented in the Tender Documents and the representations made by Mr. Rempel meet the criteria set out in Hercules Management Ltd., supra, as the Tender Documents contained information provided by Kilborn
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which was hired for the sole purpose of seeking bids, the information was provided by Kilborn and Mr. Rempel in a business context, and both met the specific enquiries of potential bidders.
As was stated in Foundation Co. of Canada, supra, even though a bidder knows that the design and investigation are not complete, it is entitled to assume that they will be ongoing and that, by the time of construction, it will be sufficiently complete so as to allow the contractor a “clear and unimpeded run at the work.”
I imply an obligation to provide the best information that is available, I imply a term and representation that sufficient information is contained within the Tender Documents to allow an accurate bid to be submitted, I imply an obligation on behalf of Kemess to use reasonable care to ensure that the information contained in the Tender Documents reflects with reasonable accuracy the Work that needs to be undertaken in order that an accurate bid can be prepared, I imply a term that sufficient engineering has been done or will be done in order that the Project can be built, and I imply a representation that the Project is buildable as I am satisfied that such understandings are fundamental to the creation of the bid on a unit price contract.
THE EFFECT OF ARTICLE VI
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I am satisfied that Article VI does not insulate Kemess from liability in this case. In Warden Construction Co. v. Grimsby (Town) (1983), 2 C.L.R. 69 (Ont.C.A.), the Court dealt with a unit price contract. There was a finding that the work tendered was impossible but that the owner would be liable to the contractor for extra costs despite the existence of the clauses in the contract requiring the contractor to satisfy itself as to site conditions, to bear the costs of implementing the design methodology and/or to not rely on information furnished by the owner or its agents. A similar finding was made in Power Contracting Inc. v. Falby (1995), 20 C.L.R. (2d) 100 (Ont.C.J.) at paras. 64-65.
As a result, Golden Hill had to make assumptions that Kemess had performed sufficient investigations to ascertain that it was possible to build the Airstrip and Millsite Access Road in accordance with usual earthworks practice at the designated locations. As a result of the breach by Kemess of this term of the Contract, Golden Hill suffered damages as the Tender was based on incomplete and inaccurate information so that it was unable to determine realistic unit prices for the Work.
DID KEMESS MEET ITS OBLIGATIONS REGARDING SOILS INFORMATION
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Kemess submits that it was an express term of the contract that Kemess did not assume any responsibility whatsoever in respect of the sufficiency of the Soils Data (General Conditions 12.1, 12.2 and 12.3). Despite GC 12.1,
12.2 and 12.3, there remains an obligation on Kemess to provide the information that it has in its possession. As well, Golden Hill is in a position to rely on the information provided as there was insufficient time to allow any other information to be obtained.
Article 1.5 of Specifications 02220 states:
Existing Conditions
A soils investigation has been carried out by a series of bore holes and test pits in selected locations. It is the responsibility of the contractor to review the geotechnical report and any subsequent revisions or addendums, located at the offices of the owner and geotechnical engineer. (Emphasis added).
The owner does not offer or imply any warranty as to fact other than that:
the borings and test pits were located approximately as shown on the plan accompanying the soils report...
Use of above information is entirely at the risk of the contractor.
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In his May 22, 1996 letter to tenders, Mr. Collins of Kilborn on behalf of Kemess advised that the Tender Documents included the “currently available soils data”. This statement was not true as Kemess had failed to include the Site M Reports.
I find that it was an express representation and term of the Contract that Kemess had provided all bidders with all material soils information in its possession and control in relation to the Work. I find that Article 1.5 of Specification 02220 and the May 22 letter from Kilborn constitute express representations.
Article 1.5 of Specifications 02220 relates only to “a” soils investigation and not to “all” soils investigations. The reference in that article to “the geotechnical report” is clearly not a reference to all soils data including the Site M Report as it is clear that the geotechnical report referred to is that which was included in the Tender Package.
As well, the plans provided in the Tender Documents did not show any test pits had been dug in the area where the Airstrip was to be constructed. In fact, the Site M Reports showed otherwise. Accordingly, Kemess must be taken to have breached its warranty that the “borings and test pits were
located approximately as shown on the plan accompanying the soils report”.
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At the Post Tender Meeting, Mr. Rudolph was advised that the Knight Piésold draft report was not ready and that he would be provided with a copy once it was finalized. That was never done. I reject the submission made by Kemess that there was an obligation on Golden Hill to seek out the report as I am satisfied that the obligation was on Kemess to provide it.
Similarly, I reject the submission of Kemess that the Site M Reports would have been provided by Knight Piésold if Golden Hill had only asked for them. There was nothing in the information that was provided to Golden Hill which would have allowed it to conclude that the Site M Reports existed.
UNAVAILABILITY OF THE SITE M REPORTS
Kemess submits that there was no duty to provide the Site M Reports as the Contract made it clear that the responsibility for ascertaining soil conditions rested solely upon Golden Hill. Accordingly, Kemess submits that no duty of care can arise.
Kemess relies on the decision in Canadian National Railway Co. v. Volker Stevin Contracting Ltd. (1991), 48
C.L.R. 134 (Alta.C.A.) where the Court dealt with a provision
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that the builder was to make its own assessment of conditions, not rely on any information provided to it, and to bear all risks of difficulties or cost overruns for unforeseen conditions on the site. The Court held that it was contrary to common sense that the law of tort should impose upon contracting parties a duty the very opposite of that which had been imposed upon themselves by the contracts. In the circumstances, the owner was not liable.
I am satisfied that the decision in Canadian National Railway can be distinguished as the Court found there that the owner did not have any unusual or peculiar knowledge which “cried out to be revealed”. I cannot reach the same conclusion here. As stated by Wilkinson, J. in Northern Rock Products Ltd. v. British Columbia (1994), 16 C.L.R. (2d) 44 (B.C.S.C.): “If an owner becomes aware of information which would be of concern to a contractor he ought to reveal the information and may not hide it.” (at para. 68). The Site M Reports cried out to be revealed. They were not.
I am satisfied that the Site M Reports constitute a “hidden risk”. If there is a hidden risk known to the owner and unknown to the contractor, the hidden risk must be revealed despite the existence of a site inspection clause or any other contractual provisions: Northern Rock, supra, and
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The information contained in the Site M Reports was relevant and it should have been provided by Kemess. It is not enough for Kemess to say that Golden Hill ought to have discovered the existence of the Site M Reports by going to Knight Piésold. Even if an indication had been given somewhere in the Tender Documents that the Site M Reports existed, owners do not comply with their duty of full and complete disclosure by providing incomplete information on the assumption that the bidders should “ferret out” the information “from clues”: Cardinal Construction Ltd. v. Brockville (City) (1984), 4 C.L.R. 149 (Ont.H.C.J.) at p.170.
As well, Golden Hill was told by Kilborn that no geotechnical information on the Airstrip was available. Kilborn was the agent of Kemess to administer the tendering process and Kemess is bound by what its agent told Golden Hill.
It is a fair summary of the evidence of the witnesses who appeared on behalf of both Golden Hill and Kemess that everyone who gave evidence about the Site M Reports agreed that the Site M Reports contain material information to an earthworks contractor and would therefore be
relevant to tenderers on C101 and ought to have been disclosed.
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After reviewing the reports, I am satisfied that the Terrain Analysis Report would have provided a reasonably competent contractor with some information about the makeup of the soil, the Embankment Report would have indicated to a reasonably competent contractor that the anticipated soils near or within the Airstrip area would likely drain slowly and be moisture sensitive, that the Surficial Investigations Report would have provided a reasonably competent contractor with confirmation of the identity of the existence of swamps, the depth of swamps, the presence of “silty materials” not “good gravels” as well as laboratory results and sieve analysis for samples taken from the test pits in the area of the Airstrip, and that the Comparative Assessment Report would have notified a reasonably competent contractor that a geotechnical site investigation of the surficial geology had been undertaken by Knight Piésold in March, 1993.
In the Amended Statement of Defence, Kemess denies that it had in its possession or control any material soils information on the Airstrip which it failed to disclose. However, there was a subsequent admission during the course of the Trial that Kemess had control of the Site M Reports by at
least April 11, 1996 which was prior to the issuance of the C101 Tender Documents.
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Even if there had not been an admission during the course of the Trial, I am satisfied that Kemess must be taken to have had direct knowledge and possession of the Site M Reports and their contents. From his discussions with Mr. Collins of Kilborn in April, Mr. Koski knew that one of the potential locations which had been reviewed as a possible location for the Tailings Dams was Site M, that Site M was in the location where the Airstrip was ultimately built, and that there was documentation that reflected the analysis that resulted in the decision to reject Site M as the location of the Tailings Dams.
While Mr. Koski gave evidence at Trial that he did not have actual knowledge of the Site M Reports prior to the issuance of the Tender Documents for Contract C101, I find that he must be deemed to have had knowledge as he had knowledge of facts which ought to have put them on inquiry so that, if he had acted with reasonable business prudence, he would have learned of the fact of which he must now be deemed to have knowledge: Lawlor v. Day (1899), 29 S.C.R. 441 at p.
442 and St. John & Quebec Railway v. Bank of British North America (1921), 67 D.L.R. 650 (S.C.C.) at pp. 653-4.
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The fact that Mr. Koski failed to make any inquiries with respect to whether there was any soils information in the Site M Reports relevant to the C101 Contract or whether that information was being provided to tenderers on the C101 Contract cannot shield Kemess from responsibility.
I also find that Kemess must be found to have deemed knowledge of the Site M Reports through the imputation of the knowledge of Royal Oak and Kilborn. The documents were available in the El Condor office and Royal Oak was given access to them in order to complete its due diligence in relation to the acquisition of El Condor and St. Phillips. As well, El Condor instructed Knight Piésold to allow Royal Oak to review any documents that Knight Piésold had prepared for El Condor including the Site M Reports.
Mr. Collins of Kilborn went to the offices of El Condor and reviewed all of the Site M Reports, he later wrote to Royal Oak referring to “soft spots” and “swampy areas” in the centre of Site M, the need for additional geotechnical work, and the fact that 20 test pits had been dug at Site M in October, 1992.
Mr. Wilson Adams was the previous Project Manager for the Project and, while he was Project Manager, Mr. Adams reviewed the Embankment Report. Knowledge acquired by an
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employee or subordinate officer in the course of performing the duty of investigating and ascertaining particular facts is deemed to be knowledge of the employer company even if the information is not actually communicated to the employer or to the subordinate employee’s superiors: Evans v. Employers Mutual Insurance Association, Ltd. (1936), 1 K.B. 505 (C.A.) at pp. 513,515-6 and Chemicals Inc. and Overseas Commodities Ltd. v. Shanahan’s Ltd., [1950] 2 D.L.R. 427 (B.C.S.C.) at p. 439.
Once the knowledge of Mr. Adams is treated as knowledge of Royal Oak, the knowledge is deemed to continue throughout the entire transaction even though the person is no longer an employee: El Ajou v. Dollar Holdings plc et al, [1994] 2 All E.R. 685 (C.A.) at pp. 697-8.
Royal Oak also had knowledge of the Site M Reports through Mr. Patel who later became the Project Manager for the Project. Mr. Patel received an October 19, 1995 letter enclosing a summary of the findings of Kilborn with respect to alternative locations for the Millsite and Tailings Dams.
With respect to the possibility of constructing the Tailings Dam at Site M, the letter indicated that “soft spots in center of pond will make liner placement difficult” and that there were swampy “areas in center of pond area”.
Kemess was a wholly-owned subsidiary of Royal Oak.
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The knowledge of the Site M Reports of Royal Oak is imputed to Kemess. Because of the parent-subsidiary corporate relationship, I should be even more willing to lift the corporate veil as it is just and equitable to do so. There can be no question that the activities of Kemess and the direction and control that Royal Oak exercised over the Kemess Project was extensive.
I am satisfied that Royal Oak continued to be the directing mind of the Project throughout the construction phase and, while the Tender Package and the Letter of Intent may have been issued in the name of Kemess, there is no distinction to be made between Royal Oak and Kemess in this regard. I am satisfied that justice requires that Kemess not be allowed to invoke its separate corporate personality in order to disclaim knowledge of the Site M Reports.
As well, I find that Royal Oak acted as agent for Kemess when it received the Site M Reports. Royal Oak coordinated all of the steps required to proceed with the investigation, design, construction and development of the mines such as obtaining the Mine Development Permit. Royal Oak retained Kilborn as the design engineers for the earthworks, structures and buildings for the Project. Reports
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prepared by outside consultants were provided to Royal Oak including reports prepared as late as May, 1997. As the knowledge of an agent is the knowledge of the agent’s principal, I am satisfied that the knowledge of Royal Oak of the Site M Reports should be imputed to Kemess.
In their Amended Statement of Defence, the Defendants deny that Kilborn was the agent of Kemess. However, in admitting that Kilborn acted on behalf of Kemess in issuing the Tender Documents, the Defendants must also be taken as admitting that Kilborn was acting as the agent of Kemess.
In the context of construction contracts, it is a generally accepted principle that an engineer acts as the agent of the owner in preparing and issuing tender documents and supervising the tender process: Brown & Huston Ltd. v. York (1985), 17 C.L.R. 192 (Ont.C.A.) at p. 196; Begro Construction Ltd. v. St. Mary River Irrigation District (1994), 15 C.L.R. (2d) 150 (Alta.Q.B.) at p. 197.
There are two circumstances in which knowledge of an agent which predates the agency relationship will be imputed to the principal. First, where the agent is authorized to enter into a transaction on behalf of the principal in which the knowledge it possesses is material. In this regard, I
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find that Mr. Collins knew or ought to have known that his statement to bidders in the Invitation to Tender that the “currently available soils data” was being provided to the bidders was false.
Second, where the principal is under a duty to make disclosure, it is necessary for that disclosure to be not only of facts of which the principal knows but also of material facts of which he could expect to have been told by his agent: El Ajou v. Dollarland Holdings plc et al, [1994] 2 All E.R. 685 (C.A.) at pp. 702-3.
Kemess had a duty to provide complete and accurate information to the C101 bidders. Once it undertook to provide any information, Kemess was under a duty to provide all of the information in its possession including information which should have been provided to it by Kilborn.
Finally, Mr. Patel of Royal Oak and Kemess ought to have been “put on inquiry” as a result of the information that Mr. Patel received from Kilborn. In the context of a construction contract, where a tender package is being prepared by an engineer on behalf of an owner, if the circumstances are such that the owner ought to have been put on inquiry, the owner will have a duty to make inquiries of its agent and, failing such inquiries, will be held
responsible for the negligence of its agent: Brown & Huston Ltd. v. York (1985), 17 C.L.R. 192 (Ont.C.A.).
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I find that Kemess failed to meet its obligation to provide all information in its possession which was relevant to the question of the soils that would be encountered at the Site. As this information was completely within the control of Kemess, the failure of Kemess to provide this information results in damages available to Golden Hill rather than merely an extension of time as is provided under GC 36.2.
WHAT RESULTS FROM THE FAILURE TO DISCLOSE THE SITE M REPORTS?
Mr. Quaile testified that, if he had received the Site M Reports, he would have reviewed the test pit logs that appeared to be at or near the Airstrip location, would have paid particular attention to test pits 7 through 11 as they were at the south end of the Airstrip where most of the cut areas were located, would have noted the high silt content contained in some of the test pits in the high water table areas and the high moisture contents and would have notified Mr. Rudolph that the Airstrip soils were not good granular but contained large silt content. In this regard, I find that Mr. Quaile would have at least estimated that there would be a
greater amount of “cut to unsuitable” and more “borrow to fill” if he had been provided with the Site M Reports.
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When asked how the information contained in the Site M Reports would have affected the bid of Golden Hill, Mr. Rudolph testified that he would have seriously questioned why anybody would have built the Airstrip at that particular location. However, Mr. Rudolph did not testify that he would not have submitted a bid.
As to the impact on his bid, Mr. Rudolph stated at Trial:
...my bid would have been substantially higher in this area to be able to, and I don’t even know if you could build it with this information, I would be very sceptical but in any event, my price certainly wouldn’t be the same as it would be for building a structure with granular material.
In Interrogatories sworn April 19, 2000, Mr. Rudolph stated that the information contained in the Site M Reports:
...could have influenced Golden Hill’s tender. The soil texture symbols and the description of the soil at Site M could have alerted Golden Hill to the potential for silty and unsuitable conditions. The information would have highlighted a discrepancy from the advice given on site that the airstrip contained good granular material. This discrepancy could have caused Golden Hill to make inquiries of Kilborn Engineering, could have influenced Golden Hill’s material and price estimates, and could have caused Golden Hill to qualify its bid for the contract.
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It is clear that Mr. Rudolph was unable to say with any specificity how the Site M Reports would have affected his bid. However, I am satisfied Golden Hill would have increased its prices for bulk excavation. While Mr. Rudolph testified that the maximum price of $3.00 per cubic metre had been used by him in the past and that this higher number was usually associated with haul distances, grade of the haul (uphill or downhill), the type of material being handled, and whether trucks or scrapers were being used, the question of whether he would have used a unit price of $3.00 per cubic metre if he had known about the information contained in the Site M Reports was never put to Mr. Rudolph during his cross-examination. As well, Mr. Rudolph also testified that the range of $2.00 to $3.00 did not include projects on which he thought construction would be near impossible and where he did not know if the project could be bid on a unit price basis at all.
Rather, the specific estimate that Mr. Rudolph provided at Trial was that he would have bid somewhere in the neighbourhood of $4.00 to $8.00 per cubic metre if he had known the contents of the Site M Reports. I accept the evidence of Mr. Rudolph in this regard.
MAY 22, 1996 LETTER FROM KILBORN
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In the May 22 letter from Kilborn to Golden Hill enclosing the Tender Documents, Mr. Collins, Project Manager of Kilborn, stated: “a copy of the currently available soils data is included with this letter for the information of tenderers.” As discussed, that was not correct.
However, I find that Golden Hill did not rely on this representation. While Mr. Rudolph testified that he received the May 22 letter, he was not asked nor did he testify that he relied on the statement it contained when preparing his bid. Reliance cannot be assumed: JJM Construction Ltd. v. Sandspit Harbour Society (1999), 71
B.C.L.R. (3d) 166 (B.C.C.A.). Reliance is a required element of the tort of misrepresentation and its absence is fatal to the claim of Golden Hill: Wigmar Construction (B.C.) Ltd. v. Canada (1997), 34 C.L.R. (2d) 185 (B.C.S.C.) at p. 191 and Hercules Managements Ltd. v. Ernst & Young (1997), 146 D.L.R. (4th) 577 (S.C.C.) at pp. 585-6.
OBLIGATION TO PROVIDE COMPLETED DESIGNS AND INVESTIGATIONS ON A TIMELY BASIS – CONTRACT TERMS AND IMPLIED TERMS
It is also an implied term of the Contract that, to the extent that investigations and designs were not complete at the time of the Tender, an owner will provide designs and
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investigations on a timely basis prior to the beginning of, or at least in advance of, the Work: Foundation Co. of Canada v. United Grain Growers Ltd. (1995), 25 C.L.R. (2d) 1 (B.C.S.C.), at p. 109.
General Condition 2.1 provides that:
The Owner or Engineer shall furnish, as may be necessary to supplement the Contract Documents, additional instructions by means of Drawings or otherwise. All such additional instructions shall be consistent with the Contract Documents. In giving such additional instructions, the Owner or the Engineer shall have authority to make changes in the Work which are consistent with the Contract.
Article I of the Form of Agreement provides that: “Time shall be deemed to be material and of the essence of this Contract”. Although there is no specific time requirements set out in GC 2.1, the duty imposed on Kemess was to supply drawings and information in a reasonable time.
What constitutes a “reasonable time” is a question of fact with the following criteria suggested by the learned authors of Hudson’s Building and Engineering Contracts, 11th edition, Vol. 1 (London Sweet & Maxwell 1995): “(a) by far the most important, the contractor’s actual progress, if slower than that shown by or to be inferred from any programme or the stipulated contract period ...; (b) the stipulated contract period or intermediate dates ...; (c) the need of a contractor
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for reasonable advance knowledge of the work for pre-planning purposes on his part, which obviously will vary considerably according to the subject-matter of the information in question; (d) whether the information relates to a variation;
any agreed or indicated programmes showing the intended order of working or dates of completion of parts of the work; and (f) requests or notice by the contractor indicating his need for the information in question” (at pp. 310-11).
The Court in Fischbach and Moore of Canada Ltd. v.
The phrase in GC 2.1 (“as may be necessary”) should be similarly interpreted as requiring the necessary designs and drawings to be delivered prior to the time that Golden Hill needed them in order to be able to progress with its Work pursuant to the Amended Schedule.
The obligation of Kemess under GC 2.1 must be considered in light of the fact that it is a fundamental right of Golden Hill to have complete control of the Work and: “... to perform the work at such times, in such order of procedure and in such manner shall be most conducive to economy of construction” (GC 5.1). The failure to supply sufficient and
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timely information restricts this right. If Kemess wanted to impose and enforce a strict schedule then they necessarily had to provide the proper designs which were sufficiently complete: Dilcon Constructors Ltd. v ANC Developments Inc. (1996), 28 C.L.R. (2d) 209 (Alta.Q.B.) at pp. 272-3 and 274.
In Dilcon, the Court stated:
Because Dilcon was agreeing to a fixed completion date and a fixed price, all without complete design drawings, it was essential for the planning and management of their work that Dilcon be able to rely upon the receipt of drawings from NLK, certified for construction, in an orderly and timely sequence in accord with the schedule provided to Dilcon at the time of the contract. NLK failed repeatedly to meet that commitment. If one makes the rather obvious inference that the drawings should arrive certified for construction prior to the dates for which work was scheduled on the construction schedule, then the drawings were very late. (at p. 252).
In any event, failure to provide instruction to the contractor in the form of drawings certified for construction and in an orderly and timely sequence was a breach of the owner’s obligation to the contractor implicit in each of these contracts. (at p. 273).
When materials or drawings, or both, are not supplied by the owner as scheduled, the contractor is deprived of the agreed period of time in which to do his work. (at p. 274).
The Alberta Court of Appeal did not interfere with the decision that, in not providing materials on a timely basis, the defendant breached its implied agreement with the plaintiff: (2000), 6 C.L.R. (3d) 34.
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While that case dealt with a fixed price contract and not a unit price contract, the C101 Contract did provide a fixed schedule and a fixed completion date. If Golden Hill was to have control of the Work to comply with the Amended Schedule, then it should be a “rather obvious inference” that it would receive the designs and investigations required to comply in a timely and complete manner.
Kemess seeks to justify their delays in providing sufficient designs and instructions by claiming that there is more flexibility and less stringent obligations on an owner working with a fast-track contract. I am satisfied that the decisions do not support that proposition. While a fast-track project demands flexibility, compromise, good faith and good will all around, it does not negate the implied or contractual obligations of either the owner or the contractor: Evergreen Building Ltd. v. H. Haebler Co. (1983), 5 C.L.R. 70 (B.C.S.C.) at p. 74 and Sandbar Construction Ltd. v. Pacific Parkland Properties Inc. (1994), 17 C.L.R. (2d) 40 (B.C.S.C.) at p. 55.
It was an implied term of the Contract as well as a representation made at the Post Tender Meeting that, if subsequent investigation or engineering were performed and the results of which would affect the ability of Golden Hill to complete its Work, the information would be passed along to
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Golden Hill in a timely manner. It is also an implied term in the Contract that, if subsequent investigations or engineering was performed and the results of which would cast doubts on what had previously been produced, the information should be passed along to Golden Hill in an urgent manner. The failure to do so, amounts to misrepresentation:
... when a statement of representation has been made in the bona fide belief that it is true, and the party who has made it afterwards comes to find out that it is untrue, and discovers what he should have said, he can no longer honestly keep up that silence on the subject after that has come to his knowledge, thereby allowing the other party to go on, and still more, inducing him to go on, upon a statement which was honestly made at the time when it was made, but which he has not now retracted when he has become aware that it can be no longer honestly persevered in. (Brownlie v. Campbell, [1880] 5 A.C. 925 (H.L.)
at p. 950).
The principle in Brownlie v. Campbell, [1880] 5 A.C.
925 (H.L.) was applied in the context of construction law in
C.L.R. 149 (Ont.H.C.J.) where an owner and engineer were held liable for negligent misrepresentation for not disclosing information that was contrary to the information in the tender documents and which was received before the tenders were submitted. It was held that they had a duty to convey that information to bidders because the information provided in the
tender document was intended by the owner to induce bidders to act upon it.
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At the Post Tender Meeting, Mr. Clegg of Kilborn confirmed that, as the information relevant to the Contract was available, it would be passed on to Golden Hill. Mr. Rudolph was also told at the Post Tender Meeting that he would receive a copy of the final Knight Piésold report once it had been completed.
The representation that later material would be provided must be implied as a term in the Contract because, if Kemess is not required to provide subsequent information to Golden Hill, the promise to do so would be rendered illusory. Accordingly, I am satisfied that Article VI does not apply to this representation.
FAILURE TO PROVIDE CONSTRUCTION DRAWINGS
The failure to provide construction drawings on a timely basis does not constitute “changes” as contemplated within the changes provision of GC 27.0, but rather constitutes a breach of contract. Whether as a result of GC
2.1 or as a result of an implied term of the Contract:
It is self-evident that in order to complete construction as scheduled it was necessary that the plaintiff receive the “approved for construction drawings” for any phase of the work in sufficient
time to order material to complete the portion of the work covered by that drawing, and to have materials arrive on site before construction scheduled to start
(Nordic Construction Ltd v. Hope Brook Gold Inc.
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(1991), 47 C.L.R. 8 (Nfld.S.C.) at p. 14).
I am satisfied that the provision of construction drawings on a timely basis must be an implied term based on usage in the construction industry and because it is a legal incident to construction contracts. In order for a contractor to be able to perform its work in a manner conducive with the economy of construction, it is a fundamental and necessary term to every construction contract that appropriate, timely and sufficiently complete design information and instructions be provided to the contractor throughout the Project: Walter Cabott Construction Ltd. v. Canada (1975), 69 D.L.R. (3d) 542 (F.C.A.).
General Condition 2.1 should be interpreted as meaning a drawing should be delivered prior to the time Golden Hill needed it to meet its deadline. The question is whether Kemess delivered the designs to allow Golden Hill a reasonable amount of time to pre-plan its Work to meet the deadlines imposed.
Kemess and Kilborn did not provide Golden Hill with a set of construction drawings when it awarded the C101
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Contract. When Golden Hill arrived on Site, it only had a set of the Tender Drawings. Mr. Quaile testified that construction drawings would have helped Golden Hill’s efforts to lay out the clearing limits on the Site and to prepare for the initial survey of the original ground and lay out of the Project. Construction drawings for the Millsite and the Mancamp were issued on July 10. Mr. Quaile testified that they could not use them as the Mancamp and Tile field areas were marked with the word “Hold” which meant that Golden Hill could not do anything in those areas. Furthermore, the construction drawings were marked with the notation “Do Not Scale Reduce Print”.
Mr. Quaile testified that he could not accurately interpret the reduced-print construction drawings for the purposes of starting the layout of the Work. During cross-examination, Mr. Rempel admitted that he shared the view of Golden Hill that it could not scale from the construction drawings unless they were in “scalable drawings”.
At a July 18 construction meeting, Golden Hill advised Kemess that the lack of scalable drawings was holding up its layout work. A letter of the same date to Kemess reiterated that Golden Hill required scalable grading plans for the Millsite, the Mancamp, and the Airstrip to continue
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with the lay out and design of the Project. On July 23, Golden Hill sent a letter to Kemess to advise that its schedule had been delayed by lack of a design for the Mancamp.
When Golden Hill received the non-scalable drawings for the Millsite and Mancamp and the actual construction drawings for the Millsite and Mancamp, Golden Hill was fully occupied clearing, grubbing and stripping the various areas using the rough co-ordinates to lay out the clearing perimeters. However, I am satisfied that Golden Hill did more preparatory work than was necessary because it wanted to keep its personnel occupied.
I find that the delay in providing the final construction drawings caused less efficient production and delay. Furthermore, Golden Hill had not mobilized its full forces in July because the Site was not ready. I am satisfied that the delay of the start of the earthworks operations was partially caused because of the lack of sufficient drawings and designs. The delay in providing the designs denied Golden Hill an unimpeded run of Work and caused reduced productivity.
The effect of the delay in providing final construction drawings and the lack of sufficient drawings and designs on the Mancamp, the Millsite, and the Airstrip are outlined as follows.
MANCAMP
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In cross-examination, Mr. Rempel testified that he could not recall when Golden Hill started earthworks on the Mancamp or how many days Golden Hill was delayed by the lack of construction drawings. He admitted that, by the third week of July, some restrictions had been placed on Golden Hill relating to the order in which they could do the Work because of the lack of permits and the lack of design specifications.
This impacted on the ability of Golden Hill to have full access to the Site and to allow them to organize their equipment to select an order of construction that was most economical.
On July 25, Kilborn transmitted a set of eight construction drawings to Kemess. Those drawings were received on July 27, but the Mancamp was still listed as a “Hold”. Revised construction drawings were received on July 30 and the hold status on the Mancamp design was removed but was maintained on the tile field area immediately south of the Mancamp.
The revised Contract Schedule indicated that Golden Hill planned to finish rough grading on the Mancamp on July 28 which was two days before Golden Hill actually received the Mancamp design. The schedule in the Tender Documents
indicated that Golden Hill was to start earthworks on the Site no later than July 8.
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When Golden Hill tried to overlay the co-ordinates of the Mancamp design on to the results of the survey, it found that the Mancamp did not fit into the existing clearing and that the design called for the Mancamp to be located over a creek that separated the Mancamp from the Millsite. As a result, it was necessary for the location of the Mancamp to be shifted approximately 60 metres so that it would fit in the cleared area between the grubbing piles of Golden Hill.
Mr. Lyons testified that, before Golden Hill could start earthworks at the Mancamp, it had to survey the new location, stake the cut and fill lines, and move one of the existing stripping piles.
In August, Kemess made a further design change to the Mancamp when Golden Hill ran out of suitable granular material to construct the benches at the bottom end of the Mancamp. The problem was resolved by lowering the design grades of the bottom benches to reduce the amount of cut material necessary to bring the bottom bench up to grade. The lack of suitable material caused Golden Hill to suffer a delay when it had to shut down its operations to re-survey and stake the area to the new design grade. When Golden Hill restarted
its operations, it had to cut down some of the existing lower benches to keep the grades consistent at the new elevation.
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MILLSITE
The construction drawings were received on July 25.
When compared with the tender drawings depicting the crusher area of the Millsite, the construction drawings showed that Kemess had deleted a significant access road from the lower Millsite to the crusher area. Because that road had been designed to be a fill area in the Millsite in the original design, its deletion resulted in an excess of cut material in the design. This material became waste.
AIRSTRIP
The design for the Airstrip was hopelessly behind before Golden Hill arrived on Site. The Airstrip had been deleted from the Project in the March 27 Budget. By the end of April, that decision was reversed. PCL sent the designs of the Airstrip to Royal Oak on May 1 and, at the same time, told Royal Oak that the Airstrip still required field investigation. While Kilborn included extracts from the PCL design in the Tender Documents, the Tender Documents did not include the plan view of the Airstrip that had been prepared by PCL.
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On June 9, Vilholth Jensen gave Royal Oak an engineering proposal for the Airstrip that included a cost allowance for reviewing test pit data but Kemess rejected the cost allowance for those test pits on June 19. On June 25, Kemess relented and agreed to pay Vilholth Jensen to perform the assessment “in light of the absence of geotechnical data on the proposed site”. Kemess then excavated five test pits on the Airstrip and sent the test pit data to Kilborn on June 28.
When Golden Hill arrived on Site, the centre line for the Airstrip was not completely cleared and the precise location of the Airstrip was not determined. The cross-sections, mass haul diagram, and the profile that were included in the Tender Documents were different from the ultimate design received from Vilholth Jensen.
Around June 13, Royal Oak had a set of preliminary designs from Vilholth Jensen and these preliminary designs depicted the Airstrip in more detail than the site plan that had been provided to tenderers. Focus Surveys began its work to survey and establish control monuments at the Airstrip on June 13 and it provided final coordinates for its work to Kemess on June 20 which was the same day that Kemess started clearing the Airstrip centre line.
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Vilholth Jensen received a final set of survey coordinates for the Airstrip on July 10, 1996. On July 8 (three days after Golden Hill’s arrival), Vilholth Jensen wrote to Kemess to advise that it had reviewed the test pit information for the Airstrip and had developed a design for the surface course of the runway. At the same time, Vilholth Jensen suggested that Kemess have the immediate area of the landing strip: “... inspected by your geotechnical engineer to see if borrow pits can be developed to produce suitable materials in the necessary volume”.
Despite that suggestion, Mr. Koski could not explain why the geotechnical engineer for Kemess was not asked to identify borrow pits at the Airstrip before August or September.
Golden Hill started clearing the Airstrip shortly after Kemess received its clearing permit on July 12. Golden Hill sent a letter to Kemess on July 18 to request a grading plan and profile for the Airstrip as they had expressed a concern that an alternative design profile was required before Golden Hill could start to lay out its work at the Airstrip.
Full size drawings of the Airstrip had not been received from Vilholth Jensen by July 19 even though Kemess had received a centre line profile, cross-sections, and 31
pages of site work specifications for the Airstrip on letter-size paper by that date.
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There is no record of Kemess ever transmitting full-sized Vilholth Jensen design drawings to Golden Hill. The new design was not included in the formal Contract document prepared by Kilborn and forwarded to Mr. Rudolph in late August and no steps were taken to formally substitute the new design for the PCL design that was included in the formal document.
Kemess originally instructed Golden Hill to clear the Airstrip to a width of 65 metres from the centre line, subsequently changed the alignment of the north end of the Airstrip and extended the clearing limits to a width of 70 metres from the centre line. While counsel for Kemess suggested to Messrs. Quaile and Lyons that Golden Hill had made a mistake, Mr. Rempel subsequently admitted that Kemess had made a survey error when it laid out the clearing limits at the Airstrip at 70 metres from the centre line rather than
75 metres from the centre line. Mr. Rempel admitted in his testimony and I find that it was necessary for Golden Hill to do extra clearing outside of their existing grubbing piles and it was necessary to move its grubbing piles out of the way so that additional clearing work could take place.
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On July 23, Mr. Lyons wrote to Kemess to advise that the work of Golden Hill had been delayed as a result of the “many design changes on the airstrip and no design on the Mancamp” and that extra clearing would be required outside of “our existing grubbing piles”. Golden Hill advised Kemess that it intended to charge Kemess for the extra work on an hourly basis. Although Kemess eventually hired another company to do the extra clearing at the Airstrip, Golden Hill still incurred extra work and expense to move its grubbing piles out of the way so that this additional clearing work could take place. In an August 4 letter from Kemess, Golden Hill was permitted to use a clearing limit of 70 metres from the centre line at the Airstrip.
Golden Hill followed the Vilholth Jensen technical specification for its excavation and placement of common fill material, but later switched to the specification in the Tender Documents for road and parking sub-grade material because of some confusion about the structure at the Airstrip, the location where Golden Hill would find granular material, and the specification that Golden Hill was to use.
The Tender Documents called for a maximum lift thickness of 300 millimetres and a minimum compaction of 95 percent of maximum dry density determined by the Modified
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Proctor Test. The Vilholth Jensen specification called for a maximum lift thickness of 200 millimetres and a minimum compaction of 90 percent of corrected maximum dry density in non-pavement areas and 95 percent of corrected maximum dry density in pavement areas.
The original design of Vilholth Jensen for the surface structure of the Airstrip called for 490 millimetres of sub-base, 230 millimetres of base course, and 180 millimetres of surface course. Kemess changed the surface structure of the Airstrip several times over the duration of the Project in order to accommodate the type of material that was found on the site:
On August 31, 1996, Mr. Rempel and Mr. Stuart instructed Golden Hill to change the design for the surface structure of the Airstrip to 300 millimetres of granular B followed by a surface layer of 150 millimetres of granular A;
On September 13, 1996, Golden Hill wrote to Mr. Stuart to confirm the change in the surface structure of the Airstrip and to confirm that Kemess would accept full responsibility for the change in design;
On October 6, 1996, Kemess instructed Golden Hill to change the design for the surface structure of the Airstrip to 1000 millimetres of “hauled gravel” from a borrow pit at the north end of the Airstrip Access Road;
On November 23, 1996, Kemess settled on a design of 720 millimetres of sub-base material from the gravel pit at the north end of the
Airstrip Access Road, followed by 180 millimetres of surface course material;
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On November 29, 1996, Kemess instructed Golden Hill to reduce the thickness of surface course (i.e. granular A) from 180 millimetres to 100 millimetres.
The failure to provide scalable drawings so that Golden Hill could lay out and design its Work on the Project, the placement of restrictions on what was eventually provided when the Revised construction drawings were listed as a “Hold”, the fact that the co-ordinates of the Mancamp design did not co-ordinate with the results of the survey for the area, the late provision of all construction drawings, the constant changes to the designs of the Airstrip, the confusion regarding the width of the Airstrip from the centre line of the Airstrip, the changes in the thickness and the maximum dry density of the material to be placed at the Airstrip, and the change of the Airstrip from a permanent airstrip to a temporary airstrip were all in violation of the express and implied terms of the Contract that Golden Hill would be provided with consistent, completed and/or sufficiently completed design information, drawings and instructions in a timely manner, that Golden Hill would be immediately advised of any material changes to the information known by Kemess, and that Golden Hill would be given complete control over the
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Work in order to implement the plan for the Work as originally formulated. All of these breaches disrupted the ability of Golden Hill to organize its equipment and its plan in an order of construction that was most economical to it. All of these matters were within the control of Kemess so that GC 36 does not apply and Golden Hill is entitled to any damages flowing from the breaches of contract and the misrepresentations.
THE “SOILS REPORT” OF MR. REMPEL
In late June, Mr. Rempel dug five test pits along the centre line of the intended location of the Airstrip. He did not observe any gravels or granular material in the test pits. What he observed was silt. Mr. Rempel admitted that his soils report would have been helpful to the C101 Contract bidders and that the results were inconsistent with his earlier expectation for good granular material at the Airstrip. He was of the view that Mr. Koski should have passed the information on to bidders. Mr. Koski also admitted that the soils report contained information that would be useful to a contractor about to start an earthworks operation. He expected that it would have been provided to Golden Hill as the successful bidder.
The report of Mr. Rempel was created prior to the date of the Letter of Intent and prior to the acceptance of
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the Letter of Intent by Golden Hill. I find that the report of Mr. Rempel was never provided to Golden Hill nor was it ever disclosed by Kemess as part of this litigation. It only came to the attention of Golden Hill when one of its experts obtained a copy of it from Vilholth Jensen.
Golden Hill states that, if this information had been passed on to it, it might not have signed the Letter of Intent, might have negotiated a different contract with Kemess, or might have amended its plan for the Work at the Airstrip.
I am satisfied that Mr. Rempel could “no longer honestly keep up [his] silence on the subject” after he knew that his statement to Golden Hill that the Airstrip bench consisted of good granular materials was untrue: Brownlie v. Campbell, [1880] 5 A.C. 925 (H.L.) at p. 950.
The failure to provide the report of Mr. Rempel resulted in Kemess breaching its contractual duty to provide Golden Hill with material contrary information obtained subsequent to the preparation of the Tender Documents. Golden Hill suffered damages as a result of this breach in that it did not have the opportunity to negotiate alternative terms based on the subsequent information, to choose not to accept
the Letter of Intent, or to plan its work at the Airstrip in a more economical way.
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Golden Hill reasonably relied on the implied term that it would receive any subsequent material information. As a result of not receiving this information at any time, Golden Hill encountered unexpected conditions that made the work slower and more difficult and suffered damages as a result.
However, the damages that Golden Hill suffered related only to the Airstrip. As well, the report of Mr. Rempel does not relate to any damages in relation to the clearing, grubbing, stripping, and stock-piling of Topsoil aspects of the work at the Airstrip. As well, any damages relating to this breach of contract overlap any damages concerning the failure to provide the Site M Reports.
THE KNIGHT PIÉSOLD GEOTECHNICAL REPORTS FOR THE MILLSITE
At the Post Tender Meeting, Mr. Rudolph advised that Knight Piésold had prepared a report and that it would shortly be available. By a July 14 memo, Mr. Koski asked Mr. Wilkinson of Kemess to tell Golden Hill it should review the Knight Piésold “Draft Geotechnical Report” and to “advise of any potential concerns regarding materials and conditions. There is no evidence that anyone from Kemess told Golden Hill
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that this draft report was available for its review or that anyone ever provided a copy of the draft report to Golden Hill.
While there was vigorous cross-examination of Mr.
Lyons about whether he had received the report or not, Kemess failed to call Mr. Wilkinson as a witness to testify about whether he had followed up on the July 14 memo that he had received from Mr. Koski. After reviewing the evidence, I find that neither Mr. Wilkinson nor anyone else at Kemess provided the report to Golden Hill.
By a July 25 memoranda, Kilborn told Mr. Koski that Knight Piésold had issued its final report and reminded Mr. Koski that the contractors involved in any work associated with ground conditions for the Project should be made aware of the report and provided access to it:
I would strongly recommend that at least Golden Hill Ventures and Western Versatile be advised formally of the availability of the final report at the earliest possible time, and that they report back to you on the consequences of the contents, if there are any, on the work within their scope. I believe that their free access to this material will help to avert the potential for future problems - although there are never guarantees. Regardless, full disclosure can only serve to the Project’s advantage.
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The memoranda from Mr. Collins of Kilborn demonstrates that he knew that the report was material to the operations at the Millsite. The memoranda also confirms the standard practice in the construction industry to disclose information which would be of interest to a contractor.
Mr. Koski could offer no reason why he did not send the final report to Golden Hill. The failure of Kemess to provide Golden Hill with the draft and final Knight Piésold reports was a breach of the term of the Contract requiring the timely provision of material information.
A review of the report would have resulted in the identification of the issue of lack of good soils at the Millsite earlier so that Golden Hill could have avoided some of its losses incurred as it proceeded in particular areas of the Millsite with the expectation of finding good granular material only to find silty saturated materials. Furthermore, Golden Hill would have been in a position to ask for much larger Waste Dumps earlier in its operations and could have avoided some of the losses associated with waste disposal if it had been provided with this report.
SURVEY BENCH MARKS AND REFERENCE POINTS
Article 1.1 of the General Requirements provides:
1.1 SETTING OUT THE WORK
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The Owner will provide one (1) bench mark and two reference points on the overall Project of which the Work is part.
Accurately set out the Work from the bench mark and reference points provided. Establish additional bench marks, working points, install grade and location stakes, sight rails, screens, batter boards, etc., as required, and provide all necessary instruments, equipment, materials and skilled personnel for such Work.
Kemess had a specific obligation under the Contract to provide certain survey information to Golden Hill. This information was fundamental to the ability of Golden Hill to set out its Work. The failure of Kemess to provide the information in a timely manner resulted in delays to the Work and impaired the ability of Golden Hill to control the Work.
It is obvious that a contractor cannot begin work until the location of the work is determined. Without a bench mark and reference points, a contractor will not be able to lay out the work. This was an express obligation on the part of Kemess. Kemess was required to provide a bench mark and two reference points prior to the start of the Work in order to perform its obligations: Enterprises Blanchet Ltée v. Canada (1986), 22 C.L.R. 225 (F.C.T.D.) at pp.234-5.
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While it was the evidence of Mr. Quaile that the bench mark and reference points information was not available to Golden Hill until late July, I prefer the evidence of Mr. Bilan of Kemess in this regard. I am satisfied that the information provided in his diary should be preferred.
Accordingly, I find that Golden Hill received the bench mark and reference points no later than July 8. I am satisfied that there was no failure by Kemess to provide the bench mark and reference points but that, even if there was some delay, no damages flow to Golden Hill as a result.
DESIGN CHANGES
There were several design changes made during the course of construction: (a) a significant Fill area was deleted at the Millsite near the crusher area. This was noted when the construction drawings were received in mid-July, 1996; (b) the location of the Mancamp was shifted by 60 metres; (c) the design slopes at the Airstrip were inconsistently set at a 3:1 ratio; (d) the width of the Airstrip was changed from 70 to 75 metres from the centre line; and (e) the surfacing requirements for under the Airstrip structure were changed several times.
General Condition 27 sets out the contractual framework for changes to the Work:
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The Owner, without invalidating the Contract, may make changes by altering, adding to, or deducting from the Work, the Contract price being adjusted accordingly. Unless otherwise agreed to in writing, the provisions of the Contract shall apply to all changes in the Work, except that any claim for extension or reduction of time caused thereby shall be adjusted at the time of ordering such change. ...
no change shall be made unless in pursuance of a written order from the Owner and no claim for an addition to or reduction from the Contract price shall be valid unless so ordered and at the same time valued or agreed to be valued provided in Article 28, VALUATION OF CHANGES. However, an order in writing is not required for an increase or decrease in the quantity of work which is the result of a variation from an estimated or provisional quantity set out in the Contract Documents and which is covered by terms of payment set out in the Contract Documents and is not a change in the Work. The Contractor shall not claim for a loss of profits or anticipated profits or damages at any time due to any decision to reduce or delete any part of the Work, provided that the Contractor will be compensated for any materials brought to the Site and Work carried out prior to the order requesting the deduction or deletion.
Kemess submits that all of the design changes increased or decreased quantities of materials so that the changes were “not a change in the Work”, no order in writing was necessary and Golden Hill was compensated for the changes by the differences in the resulting quantities. I am satisfied that this submission by Kemess is without merit. I am satisfied that the changes required by Kemess go beyond mere increases or decreases in the “estimated or provisional”
quantities set out by Golden Hill in the documents which ultimately formed the Contract.
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Regarding the change to delete a fill area from the Crusher area, I am satisfied that the evidence establishes that the deletion changed the nature of the operations of Golden Hill at the Millsite. First, it eliminated the productivity advantages of a short haul Cut/Fill operation. Second, Golden Hill had to haul the excess Fill to dumps which were designated in inappropriately wet locations and which were too small to accommodate a highly productive operation. Third, the Overhaul price of Golden Hill was based on the assumption of the approximate amount of Overhaul anticipated.
I find that the significant increases in the quantities of Overhaul impacted the unit price and Golden Hill’s choice of configuration of hauling equipment. For instance, the Millsite Overhaul increased from 10,000 cubic metres/kilometres to 94,131 cubic metres/kilometres. This is an example of how changing the nature or character of the Work has a severe impact on the costs of Golden Hill which are not accommodated by only paying for additional quantities.
I am satisfied that the shift in the location of the Mancamp caused Golden Hill some inefficiency and some delay in the plan of the Work contemplated by Golden Hill.
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Regarding the Airstrip design slopes ratio of 3 to 1, earthworks at the Airstrip did not commence until August 14 which was 10 days later than Kemess confirmed to Golden Hill that Golden Hill could use the original design slope of 3:1. Accordingly, this change was received within a reasonable time so that Golden Hill could pre-plan its work.
The change of the width of the Airstrip from 70 metres to 75 metres caused considerable problems for Golden Hill including the requirement to move material that had previously been placed within the additional 5 metres. The change produced additional costs for which Golden Hill has not been compensated and also resulted in decreased productivity. I find that Golden Hill is entitled to the costs of moving the grubbing piles at the Airstrip after it was apparent that a wider airstrip would be required. I also find that Golden Hill is entitled to compensation for decreased productivity flowing from the change in design received.
Regarding the Airstrip surfacing, no granular was placed on the Airstrip until October 27 so that the first two changes (August 31 and October 6) were made well in advance of any surfacing done at the Airstrip. The two design changes made in November were done to accommodate the type of material that was found on the Site.
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The design changes were changes that had the effect of altering, adding to or deducting from the Work and, accordingly, the Contract price needs to be adjusted in accordance with those changes. As the parties had agreed to vary the notice provisions contained under numerous sections of the Contract, I am satisfied that it was also agreed that, when Kemess gave notice of the change, it was not necessary for the parties to agree on a valuation of the change as was provided in Article 28.
While the parties agreed that Golden Hill could not claim for a loss of profits as a result of a decision by Kemess to reduce or delete any part of the Work, I cannot be satisfied that GC 27 is specific enough to require Golden Hill to forgo damages which resulted from the decision to reduce or delete any part of the Work. I am not satisfied that the attempt to exclude damages was specific enough to have this effect. As well, the damages which are available to Golden Hill relate not to the deletion of work but rather to the effect that that deletion had on the productivity of Golden Hill as it related to surrounding work.
TIMELY DESIGNATION OF ADEQUATE TOPSOIL STOCKPILES, BORROW PITS AND WASTE DUMPS
CONTRACT PROVISIONS
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The Tender Documents required Kemess to designate areas for storage of Topsoil and unsuitable material on the Project. The technical specifications for “Excavation and Fill - General” stated in part:
Ensure the topsoil does not become mixed or contaminated with other material. Place the topsoil in stockpile at location acceptable to the Owner....
Dispose of unsuitable materials and surplus excavated materials in the designated disposal areas only. Rough grade those materials in the disposal areas to promote drainage and to give a tidy appearance to the satisfaction of the Owner....
Dispose of rejected materials in the designated disposal areas only. Rough grade those materials in the disposal areas to promote drainage and to give a tidy appearance to the satisfaction of the Owner.
The General Requirements stated in part:
Strip topsoil and stockpile in designated areas for later reuse, at the direction of the Owner. Areas of topsoil stockpiles do not require clearing and grubbing.
Bulk excavate and fill to the rough grade elevations (i.e. underside of granular base for the main site grading). Dispose of unsuitable material in locations designated by the Owner.
Specification 02220 (“Excavation and Fill -General”), Articles 3.3 and 3.5 provided:
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Remove all disturbed material and all material which has become unsuitable due to inadequate protection, inadequate dewatering or any other reason and replace with suitable fill. Perform removal and replacement without additional payment.
Article 3.3 contemplated that the removal and replacement of certain material would be without additional compensation so Golden Hill submits that these areas should not be located so far from the construction areas that it would make it unreasonable to move materials to perform this task. This clause could obviously not authorize Kemess to designate borrow pits and waste dumps far away from the work area.
I am satisfied that it should be an implied term as a legal incident to all construction contracts that, where waste dumps or borrow pit areas are to be specified by the owner for use on a regular basis by a contractor, those areas will be designated on a timely basis and will be placed reasonably close to the work area and be of a size that is sufficient to handle the anticipated volumes of material. It is necessary to imply these terms because to do otherwise would mean that a contractor’s right to choose work methods which are most conducive to the economy of construction would be effectively defeated. As Topsoil Stockpiles, Borrow Pits
and Waste Dumps were not designated in the Tender Documents, this obligation would be imposed upon Kemess.
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I am also satisfied that Kemess impliedly represented that it would designate the Topsoil Stockpiles, Waste Dumps and Borrow Pits on a timely basis and would place them in reasonable locations to enable Golden Hill to work in a manner that was conducive to the economy of construction.
Kemess did not designate these areas until Golden Hill had begun work and continued not to designate new areas ahead of the Work of Golden Hill. Further, they negligently designated areas which were too small and which were located in remote inefficient locations requiring materials to be handled in an inefficient manner and hauled over longer distances than contemplated. I find Golden Hill reasonably relied on this representation in preparing its bid and was induced into entering into the Contract with its proposed unit price bid as a result.
Golden Hill suffered damages when it was forced to implement a much slower more equipment intensive earthworks operation. The damages which flow from the breach of this term cannot be isolated from the other breaches of Kemess since losses suffered by Golden Hill in its waste operation resulted from the combined effect of the unexpected amounts of
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Waste, the shortage of granular material, the failure to provide adequately large and closely located Waste Dumps, the failure to allow Golden Hill to have complete control over the Work, and the breach of the implied term that Golden Hill would be undertaking a relatively balanced Cut/Fill operation. If Golden Hill had known the true situation with the soils, it might have demanded larger dumps at the beginning of its operations and therefore avoided some of the losses associated with the waste operation and the inadequate dump space.
However, it is important to note that the deficiencies alleged by Golden Hill only pertain to the stockpiles for Topsoil and the Waste Dumps relating to the Millsite and not to any other areas.
Regarding the distance from the Millsite, the Waste Dump area was 1.35 kilometres from the centre of the Millsite and Golden Hill was paid for Overhaul at the unit rate it chose to cover the additional costs of hauls greater than one kilometre. However, the Overhaul rate would not compensate Golden Hill for the loss of production caused by the longer haul and by the inappropriately placed and inadequate size of the Waste Dumps.
I am also satisfied that Article VI does not exclude the implied representation made by Kemess that the dump areas
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would be appropriately located and of an adequate size. I am satisfied that to exclude this representation would avoid commercial reality and would make the promise illusory as it was a necessary condition to the contractual relationship to give business efficacy to the Contract.
UNSUITABLE DUMPS FOR THE MILLSITE
The Tender Documents do not designate any disposal areas for either Topsoil or unsuitable material. In one of the tender drawings (Exhibit 4A), there is an area close to the open pit of the mine which is designated as “Waste Rock Area”. On another tender drawing (Exhibit 4E) the same area is shown as a “Waste Dump”. There is a dispute between the parties as to whether this was the designated area where either Waste or Topsoil could be placed.
No one from Kilborn was called to explain what they, as authors of the Tender Documents, meant by the designations on Exhibits 4A and 4E. As well, the balance of the Contract Documents speak of “disposal areas” for “unsuitable materials” and “topsoil” and none of these phrases are used in the Tender Documents and nowhere is the phrase “waste dump” used in the Specifications.
There is no evidence that Kemess or Kilborn told any of the tenderers during the tender period that the Rock Waste
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Dump was the designated disposal area for unsuitable material from the Millsite or the Mancamp. None of the Tender Drawings or Construction Drawings that were provided to Golden Hill before or during the Project depicted a road or right-of-way connecting the Millsite to this Waste Rock Area. The clearing permit obtained for the Project did not include such a right-of-way. Without a right-of-way connecting the Millsite with the Waste Rock Area, the only haul routes that would be available to move waste material would involve routes which were significantly longer than the one kilometre free-haul distance allowed for in the Tender Documents.
Mr. Rempel could not recall when Kemess applied for an amendment to its Clearing Permit to allow it to clear a right-of-way between the Millsite and the Waste Rock Area but, as late as September, Golden Hill was advised not to go into the Waste Rock Area. At that time, Golden Hill was placing unsuitable material along the right-of-way which was referred to by the parties as the “Organic Highway”. The internal correspondence of Kemess is consistent with the Waste Rock Area not being available until late September as Kemess put a hold on clearing the area pending a stumpage appeal to the Ministry of Forests.
At his discovery, Mr. Rudolph stated that the areas for waste material:
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... were designated in the plans originally. There were some designated on the site plans where the proposed waste was supposed to go. So, it was an area that was generally defined. [in the Tender Documents].
At Trial, Mr. Rudolph corrected himself and testified that he had not assumed that the Waste Rock Area was to be used as the dump for unsuitable/waste material. I accept the evidence of Mr. Rudolph at Trial in this regard.
First, he had the drawings in front of him at Trial. Second, it was clear from the documentation that was in evidence that the Waste Rock Dump was not available and was not treated by Kemess as being available until the first week in October. Accordingly, I find that the Waste Rock Area was not initially designated by Kemess as an area for unsuitable/waste material and that there were no designated disposal areas at the time the bid of Golden Hill was prepared.
The implied term of the Contract was breached by Kemess and the implied representation became a misrepresentation. I am satisfied that Golden Hill should be compensated for the failure of Kemess to designate waste and
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unsuitable dump areas of an adequate size and close to the Millsite. I am satisfied that the realistic production rates contemplated by Golden Hill did not come to fruition partially as a result of the failure of Kemess to designate disposal and storage areas at the time of the Tender. If the disposal areas eventually designated had been designated in the Tender Documents, Golden Hill could and would have planned different production rates which would have been reflected in the unit prices bid by Golden Hill. The designation of adequate space for the storage of Topsoil and the dumping of Waste was entirely within the control of Kemess so that Golden Hill should be entitled to its damages as a result of the breach of the implied term in the Contract and the misrepresentation.
THE “ORGANIC HIGHWAY” AS A WASTE DUMP
Golden Hill started construction of the Organic Highway on August 20 but there were numerous problems associated with the building and the maintenance of the Organic Highway. First, suitable material was not available to build the highway and the unsuitable material that had to be used had to be rebuilt constantly. Second, it was necessary to build through swampy areas and over creeks using culverts, foundations of leftover logs, and better soil materials found adjacent to the Exploration Road and to the
north end of the Mancamp. Accordingly, suitable material at the Millsite was not available.
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The Organic Highway was used by Golden Hill in three stages: (a) to haul unsuitable material into the dump area between the Millsite and the Exploration Road; (b) when Golden Hill had filled the first section of the right-of-way, Kemess instructed Golden Hill to place unsuitable material between the Exploration Road and the Waste Rock Area (the 400 metre long area that Mr. Miller described as a big hole and a big swamp); and (c) when it had filled the second section of the right-of-way, Kemess allowed Golden Hill to haul unsuitable material into the Waste Rock Area proper. From time to time, it was necessary for Golden Hill to use the material found close to the Waste Rock Area to rehabilitate the running surface of the Organic Highway. This material was also used as Granular B material on the Millsite.
Until Kemess gave Golden Hill permission to use the Waste Rock Area as an unsuitable dump in early October, the Organic Highway was the only significant dump that Kemess designated for Golden Hill for Millsite waste.
On August 21, Golden Hill wrote to Kemess to advise that it had serious concerns about the choice of designated disposal areas for Topsoil and unsuitable material:
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Some problems are anticipated with the locations of the appointed top soil salvage and unsuitable waste material sites at the millsite. The top soil salvage may be feasible if it can be stockpiled high enough to support equipment. Both the organic and the unsuitable waste sites are very wet and access to these sites will be difficult and expensive.
Both waste material types are very wet, and very difficult to haul and stockpile even if the waste is handled with backhoes and 6x6 trucks. We also feel that the waste site might not be large enough to contain most of the waste on site. If alternative waste sites are available, this might expedite progress.
I find that the decision of Kemess to designate the right-of-way between the Millsite and Waste Rock Area as the disposal site for unsuitable materials had a profoundly negative effect on the productivity of Golden Hill at the Millsite. First, Golden Hill had to keep a full-time bulldozer on the Organic Highway to handle the Waste that was dumped by the scrapers. Second, productivity in this unsuitable dump was very slow because it took too long for the trucks to travel on the poor road conditions of the Organic Highway. Golden Hill could only build the road out of unsuitable material because that was the only material that was available to it at the time and in view of the shortage of good material at the Site generally.
Third, poor road conditions had a dramatic effect on the speed of the equipment of Golden Hill. Mr. Miller
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testified that instead of going 30 miles an hour, scrapers could go only 4 to 5 miles an hour. Mr. Miller testified that this increased the fuel costs because “you’ve got your throttle held wide open and not going anywhere so your engine is working really hard to pull yourself through this soft material.” I accept the testimony of Mr. Miller regarding the additional time necessary to move material over the Organic Highway.
Fourth, Golden Hill had to use a “end-dump padding operation” to place unsuitable material in the dumps on the Organic Highway because the soft unsuitable material made it difficult for scrapers and bulldozers to dump the material over the edge of the very high fill surface.
Fifth, when access on the soft material became too difficult for the equipment, Golden Hill had to resurface the Organic Highway with its best fill material to keep the operation moving ahead.
Sixth, Golden Hill was eventually instructed not to further resurface the Organic Highway as it was not to be raised higher than the Exploration Road. As a result, Golden Hill had to use bulldozers to cut the core out of the Organic Highway and later had to switch to excavators when the highway was too long to sub-excavate with bulldozers. Golden Hill
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says that the resurfaced Organic Highway would typically support truck traffic for two or three days before it had to be sub-excavated and resurfaced again.
Seventh, the scrapers of Golden Hill had difficulty navigating the Organic Highway until late in the Project when frost permeated deep enough to freeze the road. Even then, Mr. Miller testified that Golden Hill’s scrapers were only able to reach less than 20 miles per hour.
Golden Hill built the Organic Highway into the Waste Rock Area on October 8. Mr. Miller testified that the availability of the Waste Rock Area for unsuitable material helped as there was “some room now to dump”.
Mr. Miller acknowledged that the material placed on the Organic Highway were all pay items as they came from excavations. Accordingly, all of the building and rebuilding was paid for although the reduced production of moving the waste material and the additional cost of building and rebuilding the Organic Highway was not covered. I find that Golden Hill is entitled to damages flowing from this reduced production caused by the failure of Kemess to designate adequate and appropriately located Waste Dumps.
TOPSOIL DUMPS FOR THE MILLSITE
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As part of the environmental requirements of the Provincial Government, it was necessary for Topsoil to be stockpiled so that it would be available when mining operations concluded. For the purposes of payment under the Contract, Topsoil was defined as including only the top 150 mm of material at the Millsite.
On August 14, Messrs. Froess and Miller attended at site meetings with Messrs. Rempel and Wilkinson and two environmental representatives of the Government. At that meeting, Golden Hill was instructed to separate all Topsoil from unsuitable material (based on the colour of the material) and to haul all of the Topsoil to the designated Topsoil Stockpiles. The environmental representatives defined Topsoil to include “root mass, grass and moss layers, and the underlying mineral-rich soils” and specifically instructed Golden Hill not to mix the Topsoil with unsuitable material because everything that Golden Hill could salvage would be needed for site reclamation.
The selection of the Topsoil dumps and the size of the dumps was based on the expected 150 mm depth of Topsoil set out in the Tender Documents. Decisions regarding the dumps were taken on or about August 7 before the environmental
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representatives gave their instructions that the definition of Topsoil for storage purposes was much thicker than 150 mm and much thicker than the 300 mm predicted in the Soils Data. It was a week after this designation that Golden Hill then gave Kemess written notice that the Topsoil Dumps were too small.
The haul distances would be greater for Topsoil stockpiling than they would have been for “cut to fill common” and, potentially, for “cut to waste”. As well, this excess Topsoil had an impact on the Topsoil storage operations because the already small Topsoil Dumps became full and excess Topsoil “had to be stacked in a highly unproductive operation”.
Kemess designated two primary Topsoil Dumps at the Millsite. Topsoil Dump No. 1 was located on a wet, swampy side hill east of the crusher site. Golden Hill eventually had to build a berm across the southern edge of that site to keep the Topsoil from sliding down the hill. Mr. Froess estimated that the final size of this site was 1.2 to 1.3 hectares. Topsoil Dump No. 2 was located in a swamp on the north side of the Organic Highway and Mr. Froess estimated that its final size was approximately .5 hectares.
On August 21, Golden Hill wrote to express its concern that the choice of the designated Topsoil storage
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areas made access to the sites difficult and expensive. Mr. Miller testified that he sent the memo to Kemess because he was concerned about how Golden Hill was going to place Topsoil into the designated Topsoil Dumps in areas that he described as “very wet, swampy, perched water lying everywhere.”
The wet ground conditions at Topsoil Dump No. 1 meant that Golden Hill had to build a road into the back of the dump before it could start to haul Topsoil into the area. During construction of this road, Golden Hill hauled Topsoil from the Millsite to Topsoil Dump No. 2. Golden Hill found it necessary to bring in a wide pad bulldozer to push the Topsoil from the edge of the Organic Highway where the material was dumped by six-wheel drive trucks as far as possible into the swamp which constituted Topsoil Dump No. 2. Once the material was in the swamp, Golden Hill used excavators to throw the material as far as possible into the back of Topsoil Dump No.
2 although it was its usual practice to use a single Cat bulldozer at a Topsoil Dump area.
When the road into Topsoil Dump No. 1 was finished, Golden Hill moved its operation from Topsoil Dump No. 2 to Topsoil Dump No. 1. Mr. Miller testified that, because Golden Hill had to pile the Topsoil as high as it could at the back of the dump and on either side of the dump access road because
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of the limited size of Topsoil Dump No. 1, six-wheel drive trucks could not turn around inside the dump so that they had to turn around at the front of the dump and back up towards the rear of the dump.
Mr. Miller testified that, as a result, it took Golden Hill at least six to eight times longer to dump the six-wheel drive rock trucks than it should have taken. As well, the limited size of the two dumps and the saturated nature of the material required Golden Hill to use excavators to pile the Topsoil as high as possible.
Mr. Miller testified that Golden Hill asked for more dump area when Golden Hill had between 10 days and 2 weeks of space left at Topsoil Dump No. 1 and, when Kemess did not provide it with extra room at that location, Golden Hill shifted its operations back to Topsoil Dump No. 2. He also testified that, after approximately 10 days of dumping into the swamp at Topsoil Dump No. 2, Kemess gave Golden Hill some additional area at the back of Topsoil Dump No. 1.
To access that additional area, Golden Hill had to build a haul road across the existing Topsoil stockpile from the berm on the south edge of the dump to the additional area on the east edge of the dump. Golden Hill had to build the road out of unsuitable material, but surfaced it with granular
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material to provide the haul or trucks with an improved running surface. Kemess did not pay Golden Hill for the Topsoil that Golden Hill had to move inside the dump to build the haul road from the berm to the dump extension.
Golden Hill built the berm in late September on instructions received from Mr. Rempel. Kemess paid Golden Hill for the unsuitable material that Golden Hill used to build the berm, but it did not pay for Golden Hill to excavate Topsoil from the footing for the berm.
When the additional room at Topsoil Dump No. 1 was full, Golden Hill moved back to Topsoil Dump No. 2. When that was filled, Golden Hill moved to Topsoil Dump No. 3 which was in an area on the side of the Organic Highway between Exploration Road and the edge of the Waste Rock Area.
In cross-examination, Mr. Rempel acknowledged that finding another Topsoil dump in close proximity to the Millsite was a problem because there were only limited areas available. He also admitted that the problems associated with identifying additional Topsoil dumps and the fact that both Topsoil Dump No. 1 and No. 2 had limited space required Golden Hill to stockpile the Topsoil “at higher elevations”.
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I find that Mr. Lyons asked Mr. Rempel many times for more Topsoil stockpile areas and that his requests became virtually a daily occurrence. I also find that Mr. Miller steadily pursued Kemess for additional Waste Dumps at the Millsite: “We were having a lot of trouble in the dumps. It was very expensive handling the material once we got it to the dumps.” I also find that Mr. Rudolph spoke to Mr. Rempel on more than one occasion about the problems at the Topsoil Dumps, the volume and condition of the Waste and the fact that the operation was impacting the job and was causing delays.
Apart from the August 21 letter, the documentary evidence of the requests of Golden Hill for more Topsoil Dump areas include the September 14 Daily Construction Report; the notes of Mr. Rudolph of his September 18 meeting with Mr.
Koski in Whitehorse (“address waste areas Millsite”); the Kemess Daily Progress Meeting Minutes of September 24 (“look at additional area for topsoil with Jordan Bilan”), the Kemess Weekly Contractors’ Meeting Minutes of September 25 (“waste dump areas are becoming congested”), and the Kemess Daily Progress Meeting Minutes of September 26 (“flagged area -limits for Waste Dump for GHV”. “GHV - work through rain -pulled out of waste & topsoil area - too muddy.”).
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As a result of the failure of Kemess to designate Topsoil stockpile areas of sufficient size and of convenient location to the Millsite, I find that the operations at the Topsoil Dumps were fundamentally different from what Mr.
Rudolph anticipated at tender time as he did not expect to have to pile the material into large stockpiles in extremely small Topsoil Dumps using a combination of bulldozers and excavators.
I am satisfied that Golden Hill should be entitled to its damages flowing from the late designation of Topsoil dumps, and the designation of Topsoil dumps of an insufficient size and convenient location, all of which matters were within the control of Kemess.
SUSPENSION OF THE WORK
Golden Hill had the following express right under Article 1.5 of Specification 02220 (“Excavation and Fill-General”) which provided that one of the “Environmental Requirements” of Golden Hill is to: “Suspend construction operation at times when satisfactory results cannot be obtained on account of rain, snow, freezing weather or other unsatisfactory conditions”.
That provision is included with other “Environmental Requirements” such as the requirement to: provide hording,
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heating, drying and all other actions necessary to produce satisfactory conditions to ensure continuation of Work during rain, snow, freezing weather or other unsatisfactory conditions, if such continuation of Work is necessary to suit the Contract schedule” as well as to “Protect exposed excavations when required to prevent adverse effects of rain, freezing weather and other weather conditions on sub-grade of subsequent work.”
Golden Hill had not only the right to suspend operations but also the obligation to suspend operations if the weather would produce unsatisfactory results. Despite that, when the weather conditions became such that Golden Hill could not operate efficiently or maintain satisfactory results, Kemess nevertheless pressed Golden Hill to come up with a plan to continue the work despite the unsatisfactory conditions. I find that this direction from Kemess made production more inefficient and more time consuming and created greater waste.
Mr. Miller testified that they were instructed to work in the rain:
It’s not standard construction procedure, but we were instructed to work during the rains. And by working in the rains in this type of material, you’re travelling on it and you’re bringing it out of the cut, it – it does eventually get to an over-
optimum where you cannot place it in the fill... so we’re basically building Waste.
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On August 16, Mr. Koski sent a memo providing in part: “...I offer the following comments....(4) Alternative activities must be indicated as “planned” in the event of inclement weather.” Mr. Koski admitted that his comment was intended to tell Golden Hill that he wanted them to have their schedules show that they had a plan to perform some work “whenever conditions become adverse” including during inclement weather.
In this regard, Mr. Miller wrote in his August 17, 1996 diary that: “got another memo from Kemess written by Jim Koski a lot to do with schedule also he wants to know our plans for working during wet weather??? (I don’t have any).”
I find that the ability of Golden Hill to undertake the contemplated Work was severely curtailed by a combination of the weather which was experienced and the lack of clean granular material which was contemplated by both Golden Hill and Kemess. The instructions received from Kemess that Golden Hill continue to work in the rain merely exacerbated already impossible conditions.
I find that Kemess breached this term of the Contract. I also find that there was an implied
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representation that Golden Hill would be allowed to suspend construction operations when satisfactory results could not be obtained as a result of rain, snow, freezing weather or other unsatisfactory conditions, that Golden Hill reasonably relied on the representation that it would be entitled to suspend operations if the weather conditions became unsatisfactory and that Golden Hill was induced into entering into the Contract as a result of that representation.
I am also satisfied that the right to suspend operation was part of its right to control its Work and, when it was forced into continuing the Work despite the poor conditions, the costs of Golden Hill increased thereby causing it to suffer damages. The decision of whether or not to require Golden Hill to work under unsuitable conditions lay entirely with Kemess. Accordingly, any damages flowing to Golden Hill are available to it despite the provisions of GC 36.0.
Although I am not satisfied that Golden Hill was in full control of the decision when and if to suspend operations due to weather or other unsatisfactory conditions, I cannot be satisfied that Kemess required Golden Hill to undertake the Work on many occasions when the Work should have been suspended.
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A review of the Daily Construction Reports shows that, when it rained, Golden Hill often shut down its operations. In August there was one shift of earthworks at the Airstrip on August 15, not one again until August 21, and then operations until it rained again on August 29. There was very little earthworks done on August 30 or 31 as a result of rain and there was very little earthworks done on September 4 and 5 as a result of rain.
Accordingly, I am not satisfied that extensive damages flow from the failure of Kemess to allow Golden Hill to suspend operations when it thought that suspension of operations was advisable. Although Golden Hill was urged to come up with plans which would allow them to work in bad weather, I am not satisfied that they were often required to work when they felt that they should have suspended operations.
Accordingly, while I am satisfied that Golden Hill did not suspend the Work as often as it should have or might have wanted and that Kemess ordered Golden Hill to proceed with the Work even though the Work should have been suspended from time to time, I am satisfied that only minimal damages were caused only by the directions received by Kemess that
operations continue even though the Work should have been suspended.
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BREACH OF DUTY OF GOOD FAITH AND FAIR TREATMENT AND THE TORT OF INTIMIDATION
THE IMPLIED DUTY OF GOOD FAITH
Where an owner has been expressly given power or discretion over a matter, there is an implied duty to act in good faith when exercising such power or discretion: West Coast Paving Co. v. British Columbia (1984), 4 C.L.R. 300 (B.C.S.C.) at p. 308 and Dilcon Constructors Ltd. v. British Columbia Hydro & Power Authority (1982), 7 C.L.R. (2d) 22 (B.C.S.C.) at p. 69.
In West Coast Paving, Spencer, J. described the concept of good faith in this type of construction contract as follows:
This contract expressly gives the defendant, through its engineer, the power to direct the manner and schedule of performance of the work. ...It says nothing about how the engineer shall go about making his decisions and giving directions. Since he is employed by the defendant, he is entitled to advance the defendant’s best interests in giving his directions but I am of the view that there must be some standard of judgment implied in this contract, otherwise the engineer could act in an entirely arbitrary manner and require a standard of performance from the plaintiff far beyond what is usual in the construction industry and beyond what is contemplated by the contract. I think it is necessary to judge performance under the contract that common sense should prevail and that necessity
requires the implication of a common sense term. It is that the engineer should direct the plaintiff in accordance with proper engineering in construction practice. (at p. 308)
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The duty of good faith required Kemess to exercise its discretion in accordance with proper engineering and construction practice and not to exercise its discretion arbitrarily without reasons. Any failure of Kemess to grant extensions of time which were properly due constitutes a breach of this duty: TNL Paving Ltd. v. British Columbia (Ministry of Transportation and Highways) (1999), 46 C.L.R. (2d) 165 (B.C.S.C.) at pp. 257-9.
This duty to act in good faith is fundamental to every construction contract. This duty is implied as a matter of law because the intentions of the party play no part in the duty to act in good faith. The duty is assumed.
CONTRACT PROVISIONS REGARDING GOOD FAITH
General Condition 13.1 also imposes a mutual duty of good faith relating to the Contract:
The Owner shall decide on questions arising under the Contract Documents, whether as to the performance of the Work or the interpretation of the Contract Documents. If the Contractor considers any such decisions are at variance with the Contract Documents or involve changes in Work already billed, fixed, ordered or in hand in excess of the Contract, or are given in error, the Contractor shall so notify the Owner in writing before proceeding to
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carry them out. In the event of the Owner and the Contractor failing to agree as to such excess or error and the Owner deciding to carry out such disputed Work, the Contractor shall act according to such decision. The Owner and the Contractor shall keep accurate records of the time and materials expended on such disputed Work, and the records shall be reported and checked daily in the same way as for cost plus work under the provisions of Article 28 VALUATION OF CHANGES of these General Conditions.
This mutual duty of good faith was not excluded by the provisions of Article VI which only attempted to exclude obligations of Kemess.
THE TORT OF INTIMIDATION
The tort of intimidation was first set out in the decision in Rookes v. Barnard, [1964] A.C. 1129 (H.L.) and was first recognized by the Supreme Court of Canada in Central Canada Potash Co. v. Saskatchewan (A.G.) (1979), 88 D.L.R. (3d) 609. In No. 1 Collision Repair & Painting (1982) Ltd. v.
The ingredients of this tort are that the plaintiff must show that the defendant threatened to commit an unlawful act; that the threat, if it had been carried out, would have caused damage to the plaintiff, either directly or through the conduct of others in their dealings with the plaintiff; that the object and effect of the threat was to cause damage to the plaintiff, directly or indirectly; that the threat was communicated to the plaintiff or others; and that in response to the threat the
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plaintiff altered its economic affairs to its detriment as a reasonable response to the threat to it or, alternatively, that in response to the threat to others, those others reasonably altered their dealings with the plaintiff, causing damage to the economic interests of the plaintiff. (at para.
193).
An award of damages for tortious intimidation is not limited to the pecuniary loss that can be specifically proved: Rookes v. Barnard, supra, at p. 1221; L.D. Rainaldi, Remedies
in Tort, looseleaf (Toronto: Carswell, 1987) Vol. 1 at 13-13; and in S.M. Waddams, The Law of Damages, looseleaf (Toronto: Canada Law Book Inc., 1991) where the statement is made that: “In a case where damages would be expected to ensue damage will be inferred even though it cannot be specifically proved” (at para. 5.300).
Kemess submits that a threat to breach a contract is not alone sufficient to constitute the threat of an unlawful act for the purposes of the tort of intimidation. In this regard, they rely on the following:
L.D. Rainaldi, Remedies in Tort, looseleaf (Toronto: Carswell, 1987) Vol. 1 at p. 13-10): “In a two-party intimidation, because the plaintiff has an adequate remedy in contract, no independent tort is committed...”
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Reid, J. in Rookes v. Barnard, supra, at p. 1168: “So long as the Defendant only threatens to do what he has a legal right to do he is on safe ground;
the following passage from Winfield and Jolowitz on Tort, 10th ed., at p. 458 quoted with approval by Martland, J. in Central Canada Potash Co., supra, at p. 640:
It is submitted, therefore, that the two-party situation is properly distinguishable from the three-party situation in that it does not necessarily follow from Rookes v. Barnard that whenever A threatens B with an unlawful act, including a breach of his contract with B, he thereby commits the tort of intimidation. In fact the balance of advantage seems to lie in holding that where A threatens B with a breach of his contact with B, B should be restricted to his contractual remedies. The law should not encourage B to yield to the threat but should seek to persuade him to resist it. If he suffers damage in consequence he will be adequately compensated by his remedy in damages for breach of contact, as his damage can scarcely be other than financial....The view is
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preferred, therefore, that although A commits the tort of intimidation against B where he threatens B with violence or perhaps with any other tort, no independent tort is committed when all that is threatened is a breach of contract.
Kemess submits that these are strong indications that our courts have determined that the tort of intimidation cannot be based on a threat to breach a contract. In addition to the authorities and text noted above, Kemess also relies on:
the per curiam judgment in Dusik v. Newton (1985), 62 B.C.L.R. 1 (B.C.C.A.) at para. 71 where the Court, after citing from Central Canada Potash, stated:
With reference to breach of contract (an unlawful act) the courts have suggested that in such a case the proper remedy is to sue for breach of contract and not to bring an action for tortious intimidation.
The decision in Roehl v. Houlahan (1991), 75
O.R. (2d) 482 (Ont.C.A.), where the majority commented as follows after reviewing the Central Canada Potash decision:
It is clear from the foregoing that the Supreme Court has no more than inferentially accepted the decision of the House of Lords in Rookes v. Bernard that the tort of intimidation should be
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extended to cover threats to commit breaches of contract. It is also clear that even if the tort were so extended, it would only exist where the threat involved is a threat to commit an illegal act. (at p. 486).
I am satisfied that it is not appropriate to accede to the submissions of Kemess. In Central Canada Potash Co., supra, it should be noted that Martland, J. specifically stated that he was not deciding the issue of whether a threatened breach of contract can constitute an unlawful act. The comments of Martland, J. related to a very specific situation with two important limiting circumstances: (a) the person making the threats must have reasonably believed that he was asserting his contractual right; and (b) the person to whom the threats were made must have assumed that the person making the threats had the contractual right that was being asserted.
I am satisfied that neither of these two elements are present in this case so that the obiter comments of Martland, J. have no application. I conclude that no person could reasonably consider that what was threatened was within the contractual rights of Kemess. I also conclude that Golden Hill did not assume that Kemess had the contractual right to make the threats that were being asserted.
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Regarding the judgment in Dusik v. Newton supra, there was no contract between the plaintiff and defendant so the issue of whether a threat to breach a contract can constitute an unlawful act for the purposes of the tort of intimidation was not before the court. Regarding the decision in Roehl, supra, the Court found that the defendant was entitled under the contract to do that which he threatened to do so that the act was not an unlawful act.
I am satisfied that a threat to breach a contract is sufficient to satisfy the necessary element in the tort of intimidation. However, I also find that Kemess threatened Golden Hill with an action which was not allowed under the Contract so the first element of the tort is made out. Kemess threatened to do three things which it had no right to do under the Contract.
First, at the end of August, 1996, Kemess threatened Golden Hill that, if it would not act in accordance with the instructions being given by Kemess, Kemess would seize the equipment of Golden Hill on the Site.
Second, on August 22 when it was raining heavily, Mr. Koski threatened Mr. Miller that, if Golden Hill did not start using larger lifts on the landing strip portion of the Airstrip, Mr. Koski would get someone else to do the job.
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When Mr. Miller asked Mr. Koski what would be the consequence of not complying with the threat, Mr. Koski replied that he would withhold all progress payments, go after Golden Hill’s performance bond or seize all of the equipment of Golden Hill on Site and use it to build the Airport. Mr. Miller testified that Mr. Koski said:
And what he told me was the first thing he would do is we’d get – he’d hold all progress payments. He would go after our bond and then he also – then he said you don’t have a bond, so we couldn’t do that. But we would hold all of your equipment on-site and use it to build the Airport and then we would charge you back for any extra costs that it took to do it.
Mr. Miller was not cross-examined about his evidence in this regard. Mr. Froess stated that he recalled a meeting at the Airstrip where Mr. Koski threatened Golden Hill and said that if Golden Hill would not handle the job, he would get someone else to finish the job. Mr. Froess was not cross-examined on his evidence in this regard. Mr. Koski stated that he could not recall the August 22 meeting.
On August 22, Mr. Rudolph made note of the fact that Mr. Miller told him that on that day: “Kemess saying they may get someone else to finish contract”. Mr. Rudolph also confirmed in his testimony a telephone conversation that day with Mr. Miller and that he and Mr. Miller discussed options
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including walking off the contract as: “... the conditions were getting horrendous to work under and Mickey [Miller] was getting very perturbed and was basically at his wits end as to how to deal with these people”. Mr. Rudolph testified that he considered that one option was:
... continuing down the path that we were and trying to be accommodating and trying to get the work done when we were able and with the conditions we were faced with. And we decided that if they wanted to throw us off the job, then that would be their choice and we would deal with that at the time. But it’s certainly something that we were concerned about and we obviously didn’t want to see happen.
On August 27, Mr. Koski again threatened Mr. Miller that unless things went “as expected”, Golden Hill “would be out of there”. Third, Kemess threatened to withhold the payment of a certified progress draw.
Kemess did have a contractual right to seize the equipment of Golden Hill but could only do so in very limited circumstances. General Condition 38.1 stated that Kemess would have the right:
... upon written notice to the Contractor and without process or action at law and without prejudice to any other right or remedy the Owner may have, to take all or any portion or portions of the Work out of the hands of the Contractor and complete such Work by whatever methods the Owner deems expedient, by reason of any of the following incidents of default, namely:
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if the Contractor has failed to commence Work within the time required in the Contract or to diligently execute the Work or any portion thereof to the satisfaction of the Owner, and the Owner has given instructions in writing to the Contractor requiring the Contractor to employ additional Labour and equipment or otherwise expedite the Work and the Contractor fails within (7) calendar days to follow such instructions; and
if the Contractor fails to complete the Work by the required Substantial Completion Date;
if the Contractor neglects or refuses to perform the Work in accordance with the requirements of the Contract Documents or the instructions of the Owner or to remove unsatisfactory personnel, materials or Work, or disregards laws, by-laws, regulations and requirements governing the Work.
The Work could also be taken out of the hands of Golden Hill if it was adjudged a bankrupt, became insolvent, abandoned the Work, or made an assignment of the Contract without the required consent of Kemess. Under GC 38.2, when the Work or any portion thereof was taken out of the hands of Golden Hill, Kemess was in a position to take possession of: “... the premises and all materials, plant, equipment, tools and supplies which the Contractor and his subcontractor(s) have on Site and may complete the Work.”
Golden Hill was proceeding diligently with the Work, Mr. Rempel on behalf of Kemess agreed that this was the case and Kemess therefore had no contractual grounds upon which it could have seized the equipment, etc. of Golden Hill on the
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Site. It cannot be shown that Golden Hill had neglected or refused to perform the work in accordance with the requirements of the Contract or the instructions of Kemess so the threat to expel Golden Hill from the Site was outside the perimeters of the Contract.
The ability to seize equipment under GC 38 was very limited. I am satisfied that none of those pre-conditions existed. Accordingly, the threats received by Golden Hill from Mr. Koski on behalf of Kemess were unlawful and not allowed under the Contract.
As well, Kemess had no legal justification to withhold payment of certified progress draws. By an August 28 letter from Mr. Rempel to Mr Rudolph, Golden Hill was advised that they were to “immediately comply with following directives” including the requirement that Golden Hill submit the “Performance Bond” that had been requested and that, until they do so, their “progress payment will be withheld”. Mr.
Rempel testified that he put that passage in the letter on the instructions of Mr. Koski. Under cross-examination, Mr.
Rempel agreed that this threat was not reasonable.
General Condition 32.0 deals with the withholding of payments:
The Owner shall have the right to withhold the whole or part of any payment, otherwise due, on account of:
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Defective work not completed;
If, at any time, there should be evidence of any lien or claim for which the Owner might become liable and which is chargeable to the Contractor, the Owner will have the right to retain out of any payment to the Contractor an amount sufficient to completely indemnify the Owner against such lien or claim. If the Contractor fails to pay or discharge such lien or claim within reasonable time, the Owner may pay and discharge such lien or claim and the amount so paid including costs and legal fees shall immediately become due and payable to the Owner by the Contractor and may be deducted from any monies which may be or may become due and payable to the Contractor;
Failure of the Contractor to make proper payments to Subcontractors or for materials, labour, equipment rentals, or insurance;
A reasonable doubt that the Contract can be completed by the required date for Substantial Completion for the balance then unpaid; or
Damage to the Owner or others.
When the above grounds are removed, payment shall be made for the amounts withheld because of them. The above list shall not limit the Owner’s right to withhold payment or deduct from payments where the Contractor is in default of any of the Contract Conditions.
General Condition 32.0 sets out a very limited set of circumstances whereby Kemess was in a position to withhold all or part of a payment that was owing. I am satisfied that none of the reasons advanced by Kemess related to the
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circumstances set out in GC 32.0. Specifically, there was no “defective work” that had not been remedied, no failure by Golden Hill to make proper payments to subcontractors, no “reasonable doubt that the Contract can be completed by the required date for Substantial Completion” and no “damage to the owner or others.”. As none of the reasons given for the progress payment being withheld relate to any of the grounds set out, the threat to withhold and then to actually withhold Golden Hill’s progress payment was unlawful.
I am satisfied that the threats made by Kemess breach the duty of good faith required of Kemess and also constitute the tort of intimidation. The threats constituted an exercise by Kemess of its discretion other than in accordance with proper engineering and construction practice and in a way which was arbitrary and other than in accordance with the Contract. The threats also constituted an unlawful act under the Contract and were made with the object and effect of causing damage to Golden Hill.
Kemess breached its implied duty to act in good faith by compelling Golden Hill to work based on promises and threats. What was done also constituted the tort of intimidation. As a result of the breach of duty, Golden Hill was compelled to work in unsatisfactory conditions and under
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the direction and priorities of Kemess based on its belief that this was necessary in order to be able to continue to work on the Site and to avoid having its equipment seized. As a result of the coercion, Golden Hill suffered increased costs and decreased productivity.
I am satisfied that Golden Hill reasonably relied on and was therefore induced into entering into the Contract based on the implied representation that Kemess would act in a manner consistent with its implied duty of good faith. Golden Hill suffered damages as a result of the reliance on that representation. Golden Hill also suffered damages as a result of the breach of duty of care owed to it resulting in the tort of intimidation.
INDUCEMENTS
A number of inducements were offered to keep Golden Hill on the job, to have Golden Hill work in accordance with the changing priorities of Kemess, and to have Golden Hill accept the directions being received from Kemess.
PROTECTION OF PROFIT MARGIN AND ASSURANCE OF FAIR TREATMENT
On August 4, Kemess wrote to Golden Hill to complain about equipment mobilization, correspondence and scheduling of Golden Hill and to direct Golden Hill to comply with his
interpretation of various provisions of the Contract. The letter also stated:
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Having been formally notified of your contractual requirements and being directed to comply with the same, we trust that you will focus your attention to these matters and ensure Kemess knows that you will fulfil your required obligation. Our primary goal is to ensure that this project is completed in a safe, efficient and expeditious manner and also that Golden Hill achieves its budgeted profit margin. As obstacles are meant to be overcome, schedules are meant to be kept. Your cooperative effort in achieving this goal would be greatly appreciated. (Emphasis added).
Mr. Rempel testified he had discussions with Messrs. Koski and Jackson of Kemess to the effect that it was the intention of Kemess to ensure that Golden Hill achieved its budgeted profit margin in this time frame. At his discovery, Mr. Rempel was asked about this “primary goal” and he testified:
I had so many discussions with them asking them whether they were meeting their budget or whether they were losing money, how their schedule was, what effect the elements had on them. It could have been one of many things that was discussed.
Mr. Miller testified that he did not have discussions with Mr. Rempel about the profit margin but on “previous occasions” he talked to Mr. Rempel about the problems that Golden Hill was experiencing:
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And some of the things [that] we were doing that we knew we weren’t getting paid for we discussed and I thought through this discussions Mr. Rempel was quite receptive and he – he noted what we were talking about and we thought there should be something additional that we should be able to sit down at the end of the job and go over all this stuff and we should be compensated for it.
Mr. Koski testified that he wanted to ensure Golden Hill made its profit margin as it would also benefit Kemess as a “contractor that is making money on a project is a happy contractor.... So if I have a happy contractor, its better for everyone.”
I am satisfied that the evidence does not support a finding that Kemess had promised or guaranteed that Golden Hill would make a profit. However, when the August 4 letter indicated that one of the primary goals was to see that Golden Hill “achieves its budgeted profit margin”, I am satisfied that this was an assurance which Golden Hill was entitled to rely upon in its further dealings with Kemess. That letter plus the testimony of Mr. Miller allows me to conclude that Golden Hill was led to believe that there would be discussions at the end of the job which would allow extra compensation to be available to Golden Hill despite any provisions in the Contract which might have allowed Kemess to refuse any further compensation. I am satisfied that Golden Hill relied on this
assurance and that part of its decision to stay on the Site was based on this assurance received.
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CONTRACT C105 MEETING
On August 7, Mr. Rudolph was asked to come to the Site to have further discussions about the C105 Contract which had not been awarded as yet. Mr. Rudolph testified that he was told by Mr. Koski that the ability of Golden Hill to be awarded the C105 Contract was contingent on their discussions about C101. Mr. Rudolph states that Mr. Rempel wanted more equipment on Site and that there was a heated discussion about a pad foot packer. Mr. Rudolph testified that Mr. Stuart took him aside at the meeting and asked Mr. Rudolph to calm Mr.
Rempel down by telling him what he wanted to hear and giving him some comfort that Golden Hill was going to be able to complete the C101 Contract. Mr. Stuart told Mr. Rudolph that they were in a position to award the C105 Contract to Golden Hill but that, unless Golden Hill satisfied Mr. Rempel and came to some sort of resolution on their work of the C101 Contract, would not award the C105 Contract to Golden Hill.
Mr. Stuart was not called to contradict this evidence. I accept the evidence of Mr. Rudolph regarding what was said to him by Mr. Stuart.
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Mr. Rudolph states that Mr. Koski said that he would consider awarding the C105 Contract to Golden Hill if they could demonstrate that they were complying with his wishes and showed improvement. Mr. Koski admitted that he could not recall the meeting and relied solely on his diary to testify as to what the discussions were.
Because I am satisfied that it is more likely that Mr. Rudolph would have a recollection of what was discussed and because Mr. Koski has no independent recollection of what was discussed, I am satisfied that I should accept the recollection of Mr. Rudolph of what was said by Mr. Koski.
In further response to the request of Mr. Koski for information to indicate what efforts Golden Hill was making to improve its performance on the Contract, Mr. Rudolph sent a letter on August 8 setting out the plans of Golden Hill to mobilize all of the equipment that was on the original equipment list, mobilize further equipment if they found “our equipment is unsuitable”, mobilize another excavator “due to the large volumes of waste being encountered on the airstrip”, (with the further notation that: “This waste was unexpected as there were no soils investigations done on the airstrip”), the advice that they would utilize Kemess equipment if required and providing the advice that if Golden Hill was awarded the
C105 Contract, they would “... mobilize some of that equipment early and utilize it to accelerate millsite works”.
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The August 8 letter also stated that Golden Hill:
... will strive to be flexible to accelerate the project but would like to emphasize that earth moving activities are contingent on weather conditions and that we may not be able to utilize all of our equipment during these times. ... I do not recall any specific target dates in contract C101 that we were required to adhere to. However we realize your urgency in completing all phases of our contract and will work with you to ensure your needs are met. The schedule attached represents a realistic plan to complete this work. With all the delays in permitting and weather we feel this schedule is well within the original schedule submitted with our tender. Because the millsite is so large we will endeavour to concentrate our efforts to areas of high priority.
Mr. Rudolph also advised that the General Superintendent of Golden Hill, Mickey Miller would be arriving on site on August 12 to assist Mr. Lyons. Mr. Rudolph also instructed Messrs. Froess and Miller to try to cooperate with Kemess in light of the difficult working conditions and that they were to do what they could do within the limits of the Contract.
Mr. Rudolph testified that he called Mr. Koski a few days after the meeting to inquire as to what was happening with the C105 Contract and that Mr. Koski replied he still had
concerns about the C101 Contract and would wait for a few days to see how things progressed.
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Despite all of this, Mr. Koski reported to Mr. Patel on August 9 that Golden Hill: “... having failed to address the soil and weather issues in the site preparation contract, are not considered to be in a position to accommodate the Tailings Dam Contract [C105].” The C105 Contract was eventually awarded to Tercon.
From the August 9 internal memorandum between Mr. Koski and Mr. Patel, it is clear that Mr. Koski had no intention of awarding the C105 Contract to Golden Hill.
Despite this, he continued to lead Golden Hill to believe that there was a possibility of that contract being awarded to Golden Hill if Golden Hill took the steps desired by Kemess regarding the C101 Contract.
I am satisfied that Golden Hill was led to believe that the further mobilization of equipment and the addition of a second Superintendent would be viewed favourably by Kemess when it decided which contractor would be awarded the C105 Contract. While I find that what was said and done by Mr.
Koski breached the duty of good faith and fair dealing owed to Golden Hill, I am satisfied that no additional damages flow to Golden Hill as a result of this particular breach.
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First, I am satisfied that the circumstances at the Site required all of the moves contemplated by Golden Hill anyway. Second, I am not satisfied that Golden Hill has proven on a balance of probabilities that the additional equipment and the second Superintendent were added solely because of the statements made by Mr. Koski regarding the possibility of Golden Hill being awarded the C105 Contract.
THE WHITEHORSE MEETING
Messrs. Koski and Rudolph met in the Whitehorse office of Golden Hill on September 18 to discuss issues that had arisen on the Project. Mr. Rudolph and Mr. Koski discussed most of the issues that were raised at their September 4 meeting as well as the need to “stop the paper war” that heated up over the past 2 to 3 weeks. Both Mr.
Koski and Mr. Rudolph took notes from the meeting. The meeting probably lasted about 90 minutes.
Mr. Rudolph stated that Mr. Koski told him that the memos from Golden Hill were causing Kemess to take offence and that he viewed it as Golden Hill only setting themselves up to make a claim. Mr. Rudolph said that he explained that he was only giving the notices of delay required under the Contract. Mr. Koski said that he appreciated that but there was a lot of animosity on the Site and they took it to mean something else.
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Mr. Rudolph reports Mr. Koski as saying that memos were not getting them anywhere but they had more important things to deal with than sending memos back and forth.
Mr. Koski admitted that he asked Golden Hill to “devote as much attention as to progressing the work as to the attention applying to the correspondence.” Under cross-examination, Mr. Koski also said that:
If he wants to issue memos all day, that’s his right. If his total effort is to generate correspondence to the detriment of the physical activity on the Site, then you will suggest to him that spend some of your time managing the Site, by all means keep up the memos, but address the physical activities.
Under cross-examination, Mr. Koski agreed that he told Mr. Rudolph that he “would like to be fair to Golden Hill”. Mr. Koski said that there was “no question” that he would have said to Mr. Rudolph words to the effect that he “would like to see Golden Hill maintain their expected profit margin on this Project.”
Mr. Rudolph testified that he relied on this expression to protect the profit margin of Golden Hill when he agreed at the Whitehorse meeting to go forward with the Work and to continue to cooperate with the representatives of
Kemess “for the common good of the mine” to get the Project built.
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At Trial, Mr. Rudolph was asked the following questions by his counsel and gave the following answers:
Q. And you also said, sir, you said we agreed to leave things as they were and basically see how things worked out. And just where anything ended up. Can you again being as precise as possible with who said what rather than saying we agreed, can you tell His Lordship about what you recall Mr. Koski said on that topic and what you said on that topic?
A. Well, from what I recall, the discussion was around all the problems that had been to date with the … with everything with the soils with the weather, with the delays. And Mr. Koski from what I recall, indicated that he realized that there had been these problems and – -and the need to go forward from this point on and the need to cooperate and he wanted to –- he wanted to leave things the way they were and to work together to go forward and to leave the issues – you know, other issues where they were as far as the contract went and see where – see where we ended up at the end once things were constructed, the amount of materials we moved, the type of thing.
Q. And do you recall what if anything you said on that topic?
A. I recall saying that it had been difficult for us you know, this was costing us money on these delays and the soils that we had been experiencing. He said he understood that. And basically we – we agreed to go forward, we seemed to resolve the outstanding issues and agreed to be non-confrontational with each other and try to cooperate with each other and he indicated he said that he would like to go
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forward from this point on and see where we ended up and then he would like to be fair to us and make sure that we maintained our profit margin. I said well that’s – from what I recall, I said that’s important to me too.
It is important to note that the Whitehorse meeting took place after Mr. Koski had threatened to seize the equipment of Golden Hill and to replace Golden Hill with another contractor. In that context, I find that Golden Hill was entitled to rely on the statements made by Mr. Koski that negotiations at the end of the Project would take place and that Kemess would treat Golden Hill fairly.
Subsequent actions by Kemess allow me to conclude that Kemess has not acted in good faith as it has not attempted to negotiate the dispute between the parties in good faith. I also find that the statement made by Mr. Koski served as an inducement to Golden Hill to stay on the Site.
WERE THERE NEGOTIATIONS IN GOOD FAITH?
Under GC 40.1, Golden Hill had an express right to rely on the fact that Kemess would negotiate in good faith. I am satisfied that Golden Hill was induced to enter into the Contract relying on the fact that any claims it had would be treated fairly. Golden Hill has been deprived of the opportunity to negotiate the value of its claim “... [which]
reasonably would have been expected to involve some give and take, thus avoiding difficulties of proof ...” of its damages:
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175 N.S.R. (2d) 201 (N.S.S.C.) at para. 160 and affirmed (2000), 3 C.L.R. (3d) 22 (N.S.C.A.).
In Empress Towers Ltd. v. Bank of Nova Scotia
(1990), 50 B.C.L.R. (2d) 126 (B.C.C.A.); leave to appeal
refused (1991), 79 D.L.R. (4th) vii, the Court stated that good faith requires both parties to use their best efforts to negotiate a settlement to the dispute:
In this case I have said that the requirements are to negotiate in good faith and not to withhold agreement unreasonably. Those requirements carry the same degree of diligence as “best efforts”. (at p. 130).
After the Contract was terminated by Golden Hill and the quantities and amounts were finalized and received, Golden Hill submitted its claim in its August 4, 1997 letter to Mr.
Patel stating in part:
Golden Hill is prepared to enter into “good faith” negotiations regarding this claim, however if this claim is not resolved through a timely negotiation process Golden Hill will pursue other legal remedies.
The response was that Kemess would look at the claim. Mr. Rudolph did not remember anyone from Kemess
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contacting him order to discuss the claim. Mr. Koski testified that he indicated to Mr. Collins of Kilborn that the claim needed to be addressed but that Mr. Collins advised him that he was too busy to deal with the claim at that time and that they would deal with it once the mine construction was completed. The evidence shows that Kemess did not have a large contingency fund to deal with claims in excess of its budget so I am satisfied that Kemess had no incentive to negotiate with Golden Hill as Kemess did not have the funds to settle the claim.
While I am satisfied that the failure of Kemess to negotiate after it received the August 4, 1997 letter is a breach of the duty of good faith that Kemess owed to Golden Hill, I am satisfied that no additional damages flow to Golden Hill as a result of that breach of duty. I am satisfied that Golden Hill can be compensated for any additional costs accruing to it as a result of the failure to negotiate when the question of the costs of this litigation is decided.
WAS THERE COMPLIANCE WITH THE NOTICE PROVISIONS UNDER THE CONTRACT?
Kemess submits that Golden Hill breached the duty it owed under GC 13.1 and GC 40.0 by failing to give any notice of disputes until well after Golden Hill had left the Site.
General Condition 13.1 is quoted above. General Condition
40.0 states:
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Disputes
In the event of a dispute between the parties arising out of or relating to this contract, the parties agree to attempt to dissolve the dispute by good faith negotiation, failing which each party may resort to such remedies as may be available to it at law or in equity.
Kemess submits that, because Golden Hill did not inform Kemess of the issues that it now raises, Kemess was unable to consider those claims and, if it considered them to be valid, whether there was anything that it could do to reduce the costs of Golden Hill. For instance, Kemess might have considered rescheduling Western Versatile’s work to another area if Golden Hill had disagreed with the order of work at the Millsite. Kemess submits that Golden Hill was “laying in the weeds” and waiting until the Work was performed before presenting any claims whatsoever to Kemess. Kemess submits that Golden Hill was advised early in the Project that disputes should be drawn to the attention of Kemess quickly in order that they could be resolved quickly. Kemess submits that the failure of Golden Hill to draw attention to their potential claims has been to the prejudice of Kemess and is
other than in accordance with General Conditions 13.1 and 40.0.
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SITE MEETINGS
The parties typically had two site meetings per week
– a contractor’s weekly meeting which included representatives from other contractors and a construction meeting including only representatives of Golden Hill and Kemess. Site meeting minutes were kept by a Kemess representative. On several occasions, Golden Hill raised the accuracy of the minutes but, by and large, there is an admission that the Minutes were accurately recorded.
The Minutes for the July 7 construction meeting stated in part: “Claims/Extra Work/Quantity Disagreements to be dealt with on a daily basis”. The Minutes for the July 30 construction meeting provide that: “Schedule delays (if any) will be addressed at every progress meeting complete with time frame and justifiable reason”. Mr. Lyons testified that he spoke with Messrs. Rempel and Wilkinson “pretty well every day”.
General Condition 36 deals with “Delays and Extension of Time” and GC 36.2 requires notice to be given of delays beyond the control of Golden Hill along with details of the cause of the delays and the anticipated results of the
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delay. Within 14 calendar days of the termination of the delay, Golden Hill was to give notice to Kemess setting out the actual duration of the delay and its effect upon the Amended Schedule. At the same time, Golden Hill was to request an extension of the time to complete the work.
On August 18, Golden Hill wrote to Kemess pursuant to GC 36.2 advising that, as a result of heavy rains, earthworks had ceased on August 15 and that Golden Hill did not expect to restart embankment operations until August 19. The letter outlined the work performed during the rain. The letter also noted that past rain out periods were outlined in the Daily Construction Reports which had previously been submitted to Kemess.
Mr. Miller stated that he questioned the need to submit rain delay memos to Kemess because the representatives of Kemess were experiencing the same weather as Golden Hill and Golden Hill was already submitting its Daily Construction Reports. From his testimony at Trial, it is clear that Mr.
Rempel was fully aware of the effect the weather was having on the Golden Hill work:
Like anybody knows that it’s a heavy rain fall here, shuts down. It’s a norm in the construction industry. If it rained on Golden Hill it rained on me also so I was well aware of the conditions.
On August 21, Golden Hill again wrote pursuant to GC
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36.2 regarding the delays from the rain and indicating that Golden Hill had ceased all embankment construction on August 18, 19 and 21. There was a further memo pursuant to GC 36.2 on August 30. Mr. Miller testified that this letter to Mr. Koski was intended to provide Kemess with the notice of delay required under GC 36.2. There were further memos on August 31 and September 1 citing GC 36.2. Mr. Miller testified that Mr. Koski did not talk to him about the letters that he had sent which made reference to GC 36.2 of the Contract.
On September 2, Mr. Rempel replied to the August 30, August 31 and September 1 memos:
In regards to your memo dated Aug. 30/96, Aug. 31/96 and Sept. 1/96 about losing time to rain, under specification #02220 Job Conditions – Environmental Requirements.
It states:
1. PROVIDE HOARDING, HEATING, DRYING AND ALL OTHER ACTIONS TO ENSURE CONTINUATION OF WORK DURING RAIN, SNOW, FREEZING, WEATHER OR OTHER UNSATISFACTORY CONDITIONS, IF SUCH CONTINUATION OF WORK IS NECESSARY TO SUIT THE CONTRACT SCHEDULE. [...]
When Mr. Miller received the memo, he stated that he called Mr. Rudolph and that they both agreed that they could not believe that Mr. Rempel had signed the memo in view of his years of experience. After Golden Hill received the memo from
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Mr. Rempel, it stopped sending memos to Kemess describing how the weather was affecting its progress. Mr. Froess stated that “it just seemed like there was no point” “any memos we had previously sent were now referred to this particular memo here which was pretty much impossible to hoard and heat and dry something so large that it seemed pointless to send memos”.
Mr. Koski made it clear at the Whitehorse meeting on September 18 that he did not want to receive any further memos or notices from Golden Hill. As a result of the reaction of Messrs. Miller and Rudolph to the September 2 memo from Mr.
Rempel and as a result of the discussions that Mr. Rudolph had with Mr. Koski in Whitehorse, no further notices were forwarded.
Kemess now complains that they were not advised that there would be claims made for changed soil conditions. By not providing notice, Kemess states that it was not in a position to document the soil conditions which were being encountered whereas Golden Hill instituted a policy of documenting its claims as early as the end of July.
Kemess submits that this has caused “some glaring problems with this case” as the photographic evidence and diary entries of Messrs. Miller, Froess and Quaile are “one
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sided”, the witnesses for Golden Hill have a much better recollection of the matters upon which its claims are based, and Kemess witnesses were never in a position to turn their minds to the issues in any more than a general way. Kemess submits that it is at a disadvantage as it must rely on the memories of witnesses many years after the fact and having no contemporaneous documents to verify or disagree with some of the claims advanced by Golden Hill.
Kemess submits that preserving the evidence contemporaneously is a key to construction contract claims and that, by conducting itself the way it did, Golden Hill has been able to adduce a very one-sided case which the Court should consider when weighing the totality of the evidence.
Courts have repeatedly recognized that the parties to construction contracts often modify and/or waive contractual provisions during construction, particularly where the contractual provisions are inconsistent with the practical circumstances of a construction project. As was noted in Colautti Construction Ltd. v. Ottawa (City) (1984), 9 D.L.R. (4th) 265 (Ont.C.A.): “The problem with contracts such as these is that they are so rigid and so restricting that the parties tend to amend them by their actions during the course of the contract” (at p. 271).
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The on-site modification in that case related to the requirement in the formal Contract that only written requests for extra work would be binding on the owner. Despite the fact that the requests of the City for changes in addition to the work were not made in writing, the Court rejected the defence based on the contractor’s failure to comply with the formal procedures in the contract and held that the parties had, by their contract, varied the terms of the contract so that the City was required to compensate the contractor for the changes and additions made.
It is clear that on-site modification of the notice provisions resulted in both Kemess and Golden Hill not following the notice provisions of the Contract. Kemess did not even adhere strictly to the notice provisions of the Contract as defined by the Letter of Intent. First, the Tender Documents indicated that Kilborn would be the representative of Kemess to receive notices. This Notice provision was modified and Mr. Patel of Kemess was then to receive notices. Second, when Golden Hill did provide notices under GC 36, Kemess did not respond as was required of it pursuant to GC 36.2.
Kemess submits that the claims of Golden Hill ought to be dismissed because Golden Hill failed to give proper
notice under the Contract. However, the only notice provision relevant to the claim of Golden Hill is the provisions in GC
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36.2 dealing with delays and no form of notice is specified in GC 36.2. There are no notice provisions relating to potential claims.
Article 7.1 of Section 01300 of the General Requirements contemplates that notices of delays may be given through the submission of daily reports by Golden Hill as well as in the schedules they provided from time to time. In fact, a sample of the daily report form was included as Appendix B to the Tender.
The purpose of notice clauses was set out in Doyle Construction Co. v. Carling O’Keefe Breweries of Canada Ltd. (1988), 27 B.C.L.R. (2d) 89 (B.C.C.A.):
to enable the employer to consider the position and its financial consequences, and by cancelling or authorizing a variation, for example, he may be in a position to reduce his possible financial commitment if the claim is justified... (at p. 96 quoting with approval that statement from Hudson’s Building and Engineering Contracts, 10th ed. (1970) at p. 313).
Canadian Courts commonly reject “notice” defences raised in construction cases based on a failure of the claiming party to comply with the technical requirements of the formal procedures in the contract recognizing that, on
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most construction projects, the parties adopt less formal procedures more consistent with the realities of the construction project. I find that this was the case here.
I am satisfied that I should not give effect to a “notice defence” where the notices given were sufficient to meet the purpose of the notice provisions or where the parties modify and/or waive the strict notice procedures during construction. For instance, oral notices are typically found to be sufficient so long as the owner is made aware of the potential claim: TNL Paving Ltd. v. British Columbia (Ministry of Transportation & Highways) (1999), 46 C.L.R. (2d) 165 (B.C.S.C.) at p. 260 and Foundation Co. of Canada v. United Grain Growers Ltd. (1997), 34 B.C.L.R. (3d) 92 (B.C.C.A.) at p. 113.
In TNL Paving Ltd., Beames, J. noted that one of the owner’s representatives admitted at trial that he had actual notice of the changed conditions notwithstanding the absence of formal notice. As well, the owner had knowledge from the project documentation including diaries kept by its onsite personnel and from oral discussions between the parties at one weekly meeting. Beames, J. held that the form of notice is not determinative, so long as the notice contained
enough information to satisfy the purpose for which it is required (at para. 334).
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In W.A. Stevenson Construction (Western) Limited v. Metro Canada Limited (1987), 27 C.L.R. 113 (B.C.S.C.), the contract required written notice of a claim within seven days after the contractor first became aware of the events or circumstances giving rise to the claim, full details of the claim were to be provided as soon as practicable thereafter and no waiver of any right or remedy of a party under the contract would be effective unless given in writing and executed by the party. The court noted that the minutes of the site meeting were sufficient notice that notice had been given to the owner through the discussions at the meeting:
...A reading of the minutes is very revealing: they were obviously regarded by everyone as a method of formally communicating their concerns to the other part.
If there are any claims which do not happen to be covered by the specific notices, I consider they have been covered by these minutes. I have had to read most of them. Apart from any verbal complaints, and those for which letters were written, it appears to me that the contractor carefully listed his concerns, asked for action and indicated his clear intention to claim or demand the appropriate remedy at one time or another in these minutes. I consider them to be notice. (at p. 182).
Under cross-examination, Mr. Rempel confirmed that Kemess was given notice of delays in a number of memos at its
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site meetings and he also agreed that the changing written schedules of Golden Hill indicated the impact of delays on the extended time for completion of the Project.
Kemess relies on the decisions in: Diamond Willow Ranch Ltd. v. Oliver (Village) et al (1988), 31 C.L.R. 287 (B.C.S.C.); Nelson River Construction (1984) v. Winnipeg (City) (1993), 11 C.L.R. (2d) 12 (Man.Q.B.); Nordic
and ANC Developments Inc. v. Dilcon Construction Ltd. (2000), 6 C.L.R. (3d) 34 (Alta.C.A.).
I am satisfied that those decisions must be distinguished on the basis that all of the contracts in those decisions required the contractor to provide written notice of a claim or change soil conditions and/or extra work. There is no requirement for written notice of claims by Golden Hill in this case.
Kemess made it clear that they were no longer enforcing their strict legal rights under the Contract regarding the notice provisions. I hold that Kemess cannot rely on any alleged failure by Golden Hill to comply with GC
36.2 because Kemess also asked Golden Hill to stop sending
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such notices. I also find that Kemess was well aware that the cost of the Work was far in excess of the amount being paid to Golden Hill.
A party to a building contract is to be deprived of a cause of action only by clear words: First City Development Corp. v. Stevenson Construction Co. (1985), 14 C.L.R. 250 (B.C.C.A.) at p. 253, leave to appeal to S.C.C. refused (1985), 14 C.L.R. 250n. General Condition 36.2 only deals with notices of delay not claims generally. Accordingly, I am satisfied that GC 36.2 does not require any notices of damages claimed.
Even if there was a requirement for Golden Hill to provide notices of claims, the failure to do so did not prejudice Kemess. I am satisfied that this is not a case where a claim was unexpected. As early as July, Kemess was aware of the problems Golden Hill was facing, of the impact of the problems on the operations of Golden Hill, of the general financial impact of those problems so that Golden Hill would likely be making a claim. Mr. Rempel stated that “on quite a few occasions”, Mr. Lyons told him that Golden Hill’s costs were increasing and Mr. Rempel also admitted that it was apparent that in a lot of areas it was costing Golden Hill more than its unit price of $2.10 to move material.
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Mr. Koski admitted that, as early as August, he recognized a risk for cost over-runs in the C101 Contract. Mr. Stuart of Knight Piésold accompanied by Mr. Rempel of
Kemess advised Mr. Miller in September that Golden Hill should seek professional help with respect to the problems Golden Hill was encountering at the Airstrip. In mid-October, Kemess paid for the mobilization of two additional scrapers and two additional bulldozers to work at the Airstrip and, while Kemess eventually paid for the mobilization, Kemess initially tried to have Golden Hill to sign a waiver stating that Golden Hill would not make claims in relation to the Airstrip. In this regard, Mr. Miller stated at Trial:
Mr. Rempel came and seen me and told me that they were going to pay the mob and demob on the two scrapers and two cats but they wanted to – they wanted us to sign a waiver stating that we would not make claims...for the Airstrip for the soils conditions or the extra work at the airport.
Accordingly, not only did Kemess have notice of the potential claims of Golden Hill in relation to the soil conditions at the Airstrip, they pressured Golden Hill to waive its claims as early as October.
While Mr. Rempel said that he would have kept very detailed records throughout the Project if he had known about the claim in the Fall of 1996, it was clear that Mr. Rempel
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did keep very detailed notes. However, those notes could not be produced by Kemess. Mr. Rempel stated that he “methodically” recorded the daily events, including meetings, he kept both a diary and a day book in which he recorded his observations and important discussions, and he kept files of correspondence. Those files were left on Site when Mr. Rempel left the Site in December, 1997 which was months after the filing of the lien and months after the commencement of this litigation.
I find that notices were no longer deemed necessary by the parties, that extensions of the Amended Schedule became a reality without the necessity of formal requests for extensions or a formal acceptance by Kemess of the requests, that Kemess was fully aware that claims would be forthcoming, that Kemess has in no way been prejudiced by the fact that formal notification of potential claims were not provided by Golden Hill until the lien was filed and the action was commenced, and that, by threats and inducements, Kemess kept Golden Hill on the Site by its promises that the claims of Golden Hill would be reviewed in good faith and the profit margin of Golden Hill protected.
NOTICE UNDER s. 62(2) OF THE LAW AND EQUITY ACT
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Kemess also submits that Golden Hill did not provide notice as set out in s. 62(2) of the Law and Equity Act,
R.S.B.C. 1996, c. 253, which states:
If a dispute arises between the parties to a contract respecting the obligations of a party under the contract, the party whose obligations are disputed may elect to perform the contract in accordance with the requirements of the other party, and the electing party is then entitled to compensation from the requiring party for any
service performed,
property supplied or transferred,
liability assumed, and
money paid
by the electing party in the course of that performance beyond that which the contract required the electing party to do.
An electing party is not entitled to compensation under subsection (2) unless, within a reasonable time after the electing party is informed that the performance is required, the electing party gives notice to the requiring party that the performance is under protest.
Kemess relies on the following decisions in which s.
62 or its predecessor (s. 58 of the Law and Equity Act,
R.S.B.C. 1996, c. 253) was referred to as having been invoked by a party: Mohr v. Skana Holdings Ltd., [1995] B.C.J. (Q.L.) No. 2447 (B.C.S.C.) at p. 6; Acamar Stoney Creek Development Inc. v. Surrey (City) (1997), M.P.L.R. (2d) 141 (B.C.S.C.) at para. 24; BCorp Financial Inc. v. Baseline Resort Developments
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I am satisfied that the advices that Golden Hill gave orally and in writing as well as the minutes maintained of the meetings where Golden Hill was in attendance are sufficient notices under s. 62(2) of the Law and Equity Act. I am satisfied that there is no form of notice required under that Act. At the same time, I am satisfied that it is not necessary to actually use the words “under protest” where it can be shown that a contractor is forced by an owner to
proceed other than in accordance with the right to do the Work in accordance with its original plan. I am satisfied that it was not necessary for Golden Hill to provide any notices under
s. 62(2) of the Law and Equity Act in view of the breaches of the Contract by Kemess and the tortious acts of Kemess.
(8) DID GOLDEN HILL ACT TO ITS DETRIMENT?
On the question of whether the threats, if they had been carried out, would have caused damage to Golden Hill, I find that direct or indirect damage would have resulted to Golden Hill if its equipment had been seized. The Site is extremely remote and Kemess had complete control over who was allowed to enter and leave the Site. Removal of such heavy
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equipment did not merely involve driving it off the site. Much of the equipment would have to be dissembled and then moved out on trucks. The heavy equipment having an estimated value of $5,000,000.00 was the primary asset of Golden Hill. Had Kemess carried through with the threat of Mr. Koski to seize the equipment, the ability of Golden Hill to carry out any other jobs would have been seriously impaired. In such
circumstances, it would have been unrealistic to expect Golden Hill to have resisted the threats on the basis that they were not permitted by the Contract, as it was virtually impossible for Golden Hill to adequately protect or prevent the unlawful seizure of its equipment.
Golden Hill was not in a position to ignore the threats and stand by its contractual rights. Golden Hill kept working, not because the threats of Mr. Koski were not taken seriously, but because they were. It is irrelevant that Kemess did not actually carry out the threats.
At the time the threats were made, Kemess knew that it was raining very heavily, that working in the poor soil conditions had caused problems for Golden Hill and that Golden Hill was losing money. Accordingly, the object and effect of the threats was to cause direct damage to Golden Hill, threats were communicated to Golden Hill, and Golden Hill, by
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complying with the directives, suffered damages as a result. Golden Hill was required to work under poor conditions so that there was a resulting significant additional cost over and above what was anticipated when Golden Hill submitted its bid. As a result of the threats, Golden Hill refrained from ignoring the directives received from Kemess and from proceeding to work in accordance with its original plan for the Work. Golden Hill also refrained from treating the Contract as being at an end because of the fundamental breaches of the Contract by Kemess.
Golden Hill is entitled to be put in the same position it would have been had the tortious intimidation not occurred and this loss includes loss of profits. As the impact of the intimidation was that Golden Hill remained on the Site, complied with the directions of Kemess and incurred losses on the Project, the loss of Golden Hill on the Project should be available to it, subject only to any losses caused by its own fault.
SUMMARY OF FINDINGS RELATING TO BREACHES OF CONTRACT AND TORTIOUS ACTS
I find that there is concurrent liability in contract and in tort for the failure of the soils sources to be adequate, the ability of Golden Hill to have the direction
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and control of the Work, the failure to provide permits in a timely manner, the failure to provide appropriate, timely and sufficiently complete pre tender and post tender information, the failure to designate adequate Topsoil Stockpiles, Borrow Pits and Waste Dumps, the failure to allow Golden Hill to suspend the Work when appropriate, and breach of duty of good faith and fair treatment. I find tort liability for the failure of Kemess to accurately describe the nature of the Work, the negligent misrepresentations of Mr. Rempel, and the intimidation inflicted on Golden Hill by Kemess.
WAS THERE CONTRIBUTORY NEGLIGENCE?
Kemess alleges that most if not all of the problems that Golden Hill experienced on the Project were caused by errors made by Golden Hill when it prepared its bid and that these errors either caused the losses or were a contributory cause to the losses claimed by Golden Hill. Kemess points to huge differences between many of the volumes found in the bid and the volumes actually handled. For instance, Golden Hill states that the amount of Waste at the Millsite increased by 1,112% and the amount of Waste at the Mancamp increased by 430%. Kemess submits that these differences have nothing to do with what it did or omitted to do.
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I am satisfied that the “bidding errors” that are attributed to Golden Hill are not errors but are valid “assumptions” that Golden Hill made at Tender time that did not materialize during construction. I find that the bidding assumptions of Golden Hill were reasonable in the circumstances and compared favourably to the assumptions made by the other bidders.
It should be noted that Kemess did not call evidence from the other bidders or any experts to suggest that the estimated quantities of Golden Hill were unreasonable. As well, many of the alleged bidding errors that are raised by Kemess were not put to Messrs. Rudolph or Quaile at Trial and are not supported by expert evidence.
I am satisfied that Kemess has adopted the approach of comparing the Tender quantities to the final quantities and, where there is a significant difference, to characterize the difference as a “bidding error”. A proper analysis would be to compare Golden Hill’s estimated quantities with what a reasonable contractor would have estimated based on the Tender Documents.
Kemess asked no expert to stand in the shoes of a reasonable contractor to review the Tender Documents and the information available to Golden Hill when it prepared the
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schedule of estimated quantities. The best evidence available are the bids submitted by the other bidders. With few expectations, the estimated quantities of Golden Hill are very similar to the estimates of the other bidders.
Kemess alleges 14 errors by Golden Hill which it says caused or contributed to causing the losses claimed by Golden Hill.
THE INVOLVEMENT OF MR. QUAILE IN THE BID
Prior to the Golden Hill bid on this Project, Mr. Quaile had never been involved in putting together actual bid numbers for prices or for quantities. Regarding his review of the Soils Data, Mr. Quaile was neither a geotechnical engineer nor a soils technician, he had never taken any courses to learn how to analyze test pit logs and he could only say that he had read “some documentation on test pit logs and how to analyze them”. There was no evidence before the Court that Mr. Quaile had any experience in evaluating soil conditions in terms of whether they would be suitable or unsuitable for use in construction. Most of his work with Golden Hill had been as a layout surveyor.
Mr. Rudolph could not remember any unit price contract tenders where he was required to estimate quantities. After consultation with Mr. Rudolph, Mr. Quaile was satisfied
that Kemess just wanted: “...an estimate – there is room for obviously increase and decrease in quantities here”.
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Mr. Quaile described the process that he went through. Mr. Quaile confirmed that the quantity estimates set out in the Tender were his. Counsel for Kemess submits that I should give little weight to the evidence of Mr. Quaile.
Having reviewed his testimony, I am satisfied that Mr. Quaile was not being evasive. He was attempting to recall what materials he had reviewed, the method that he had used to produce the estimates he provided to Mr. Rudolph, and the discussions that he had with Mr. Rudolph regarding these estimates. I found Mr. Quaile to be a credible witness.
I cannot find that what Mr. Quaile did or did not do in any way contributed to the losses of Golden Hill. I find that the bidding assumptions relating to the quantities of what would be found were reasonable in the circumstances.
First, they compared favourably to the assumptions made by the other bidders. Second, no evidence was led on behalf of Kemess that a reasonable contractor reviewing the Tender Documents would have provided sufficiently different estimates of the quantities that would be encountered.
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LACK OF COMMUNICATION BETWEEN MESSRS. QUAILE AND RUDOLPH [773] Mr. Rudolph only “reviewed the soils data briefly” before including the estimates of quantities of Mr. Quaile in his bid calculations.
Kemess submits that the Soils Data showed a clear pattern, Mr. Quaile was aware of that pattern, Mr. Quaile was aware that there was significant quantities of material with a high silt content but that Mr. Rudolph did not take this into account when production rates and prices were set.
Based on his review of the Soils Data, Mr. Quaile estimated that there would be an average of one metre of weather-sensitive material (silts and clays) across the entire Millsite. Mr. Quaile also determined that this material would be Waste if Golden Hill encountered that material in wet weather but that it could be used for limited applications if encountered in good weather. Mr. Quaile estimated that 20% of this material would become Waste.
Mr. Rudolph based his bid prices and production rates on the assumption that Golden Hill would be dealing with granular material at the Millsite and that this material would not be affected by weather. Mr. Rudolph was clear in his testimony that he did not expect to be moving weather-sensitive material. It was upon this assumption that the
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production level and prices were estimated by Mr. Rudolph and Kemess submits that this is a fundamental bidding error on the part of Golden Hill.
Based on the area of the Millsite assumed by Mr. Quaile at tender time, one metre of weather-sensitive silts and clays overlaying the entire Millsite would produce 220,000 cubic metres of material or 40% of the entire amount of cut expected in the area. In addition, Mr. Quaile understood the crusher excavation area and part of the concentrator excavation area contained significant quantities of silt.
Kemess submits that there is also an error with the “Cut to Stockpile Granular” estimates in the bid. Mr. Quaile assumed that the granular materials would come from either on Site or off Site and based his quantities on that assumption. On the other hand, Mr. Rudolph assumed that the materials were coming only from the Site. Therefore, Kemess submits that, when Mr. Rudolph reviewed the numbers provided by Mr. Quaile, he must have assumed that at least that much volume was available to be processed on Site and that would have affected his production estimates. Kemess submits that this would lead to the production levels assumed by Mr. Rudolph as being “overly optimistic”, particularly because of the difference in haul distances.
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I am satisfied that both Mr. Quaile and Mr. Rudolph expected to encounter some but relatively little unsuitable material at the Millsite and expected that Golden Hill would be able to work in good granular material any time there was inclement weather. I accept the evidence of Mr. Rudolph that he expected some unsuitable material, that the unsuitable material would be relatively inconsequential, that the unsuitable material would cause Golden Hill to shut down its operations “the odd time” but that overall he expected to find significant quantities of “generally gravels, granular material” that was forgiving in wet weather. This was a reasonable expectation based on what Mr. Rempel had stated at the Site Visit and on the information provided to Mr. Rudolph by Mr. Quaile.
In this regard, if Kemess thought that Golden Hill made fundamental errors through a lack of communication, they should have put that theory to Messrs. Quaile and Rudolph in cross-examination. Similarly, if Kemess thought that Golden Hill underestimated its productivity rates for “cut to stockpile granular”, Kemess should have put that proposition to Mr. Rudolph in cross-examination or called evidence on the point. They did neither. Instead, counsel for Kemess raised it as a theory after the evidence was complete.
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After a review of all of the evidence, I cannot be satisfied that any failure of Mr. Quaile to fully communicate with Mr. Rudolph in any way contributed to the losses incurred by Golden Hill. I cannot be satisfied that Kemess has shown that there was contributory negligence on this account.
BID ERRORS RELATED TO THE MILLSITE
Kemess submits that Mr. Quaile made three errors in relation to the Millsite and that these errors contributed to the losses of Golden Hill: (a) calculating the size of the Millsite; (b) the volume of material to be handled; and (c) the amount of surfacing material.
THE SIZE OF THE MILLSITE
Mr. Quaile used the estimate of 22 hectares (220,000 square metres) that would have to be cleared, grubbed and stripped, with the Topsoil then stockpiled. He also assumed that one metre of material would have to be cleaned and grubbed and that one metre of Topsoil would have to be stockpiled.
In fact, the area that had to be cleared and grubbed and the area that had to be stripped and Topsoil stockpiled was 33.3 hectares (333,000 square metres). Kemess submits that this creates a significant difference between bid and
actual quantities so that significant extra work would be required.
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The following table compares the degree of accuracy with which each of the contractors estimated the final areas of the Millsite and the Millsite Access Road (all numbers are expressed as a percentage of the difference between the estimated and final areas).
Golden Hill | Ledcor | North American | Tercon | |
Access Rd. | +16.3% | -52.7% | -41.9% | -34.9% |
Millsite | -44.9% | - 7.3% | +10.3% | +34.1% |
Total Area | -29.9% | -18.4% | - 2.5% | +17.2% |
The following table compares the estimates for the various bidders for the strip and stockpile Topsoil pay item at the Millsite and the Millsite Access Road:
Golden Hill | Ledcor | N. American | Tercon | Final | |
Access Rd. | 15.0 | 4.7 | 7.5 | 6.7 | 12.7 |
Millsite | 22.0 | 27.0 | 44.0 | 53.0 | 33.3 |
Total Area (In Hectares) | 37.0 | 31.7 | 51.5 | 59.7 | 46.0 |
The combined estimate of Golden Hill is not the lowest, its Millsite Access Road estimate is higher than the final figure, and its estimate of Topsoil stripping at the
Millsite was only five hectares lower than the estimate given by Ledcor.
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Kemess did not put the difference in the area of Topsoil stripping to Mr. Rudolph in cross-examination so that he was not in a position to testify about how this difference may have affected the Amended Schedule of Golden Hill or the equipment fleet of Golden Hill.
After reviewing the evidence, I cannot be satisfied that Kemess has shown that the error made by Mr. Quaile contributed to the losses which were incurred by Golden Hill. It is correct to say that Golden Hill has been paid for the additional volume of Topsoil that had to be stockpiled.
However, I am satisfied that any additional volume of Topsoil can be attributed to the fact that the Provincial Government environmental representatives required all Topsoil to be stockpiled rather than only to the depth of Topsoil contemplated in the Tender Documents. Accordingly, I am satisfied that the losses of Golden Hill relate to this change rather than to the error of Mr. Quaile. It is also apparent that the Tender Documents led four very experienced contractors to provide estimates which widely varied as to the hectares to be cleared and grubbed and the Topsoil to be stripped and stockpiled.
QUANTITY OF MATERIAL TO BE HANDLED
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The design grades were provided by Kemess so that the volume of material is calculated by comparing the original ground and the design grade. The amount of bulk excavation material expected to be handled by Golden Hill would be its totals for “cut to fill common”; “cut to stockpile unsuitable”; “cut to stockpile granular”; and “borrow to fill common”.
Kemess submits that there are only three possible ways in which the final quantities could have been different than the estimated volumes of material contained in the bid:
(a) a design change; (b) the soils were different than expected in which case there would be off-setting changes to each of the “cut to fill”, “cut to waste” and “borrow to fill” volumes; or (c) the estimates were in error.
Kemess submits that there was no significant design change but that if more Cut is added to the design and if the material is suitable to be used as Fill, then the borrow amount is reduced. If the material was suitable to use as Fill but no Fill was required, the material would be stockpiled or potentially available for processing into Granular A or Granular B. If the material was not suitable to be used as Fill or there was no need to stockpile it for
granular processing, the material would have been placed in a designated disposal area.
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Conversely, if a design change resulted in less Fill being required than expected, then the borrowed Fill volume would be decreased, the Cut to Fill volume would be decreased, and either the Cut to stockpile unsuitable volume or the Cut to stockpile granular volume or both would be increased as Golden Hill would have had to dispose of the excess material.
A design change affected the Millsite as a large Fill area above the crusher and the crusher road were deleted. This deletion from the Contract was made at the outset of the Project before any earthworks at the Millsite began. While Kemess had the right to make such a change, the deletion impacted negatively on the productivity of Golden Hill as the deletion resulted in Golden Hill having an excess of Cut material at the Millsite that it had to be stockpiled.
Messrs. Quaile and Lyons confirmed that the surplus material was disposed of in an unsuitable dump and that Golden Hill was paid for moving this material to that location.
The total volume of material that Golden Hill expected to encounter between the natural grade and the design grade at the Millsite and Millsite Access Road was 612,000
cubic metres. The total amount of material actually excavated was 956,900 cubic metres (an increase of more than 56%).
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The “extra” unsuitable that Mr. Quaile should have expected if he had estimated the total area at 52.8 hectares instead of 37.0 hectares would be approximately 31,600 cubic metres (the difference of 15.8 hectares multiplied by 10,000 square metres per hectare equals an area of 158,000 square metres multiplied by an average of .20 metres of waste). I am not satisfied that this small increase in the amount of Waste alone would have caused a significant loss and certainly does not account for the difference between the estimated (612,000 cubic metres) and the actual (956,900 cubic metres) Waste.
I find that any errors in the estimates of the quantity of material to be handled at the Millsite did not contribute to the losses of Golden Hill. Rather, the changes in the material actually handled came as a result of other factors. I find that Golden Hill and other bidders could expect at the Millsite: (a) an average of .3 metres of Topsoil (.15 metres of which Golden Hill expected would be removed during the grubbing operations); (b) a significant amount of good granular material that could be cut from excavation and placed in Fill; (c) a relatively small amount of silty wet material that would be taken to waste dumps; (d) a small
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amount of borrow to Fill placement (or none); and (e) a significant amount of good granular material that could be used to produce stockpiles for Granular A, Granular B, and concrete aggregate.
What was actually found at the Millsite turned out to be: (a) significantly more than .3 metres of Topsoil (as required by the environmental officials) that had to be piled in excessively small, wet Dumps; (b) a significant amount of Cut material which was less granular that expected that had to be placed as Fill; (c) very little granular material available for “cut for stockpile”; (d) a huge quantity of unsuitable and extra material that had to be taken to excessively small, unsuitable Dumps; and (e) a small amount of borrow.
The effect on productivity of these changes was a less productive Cut/Fill operation because the soils were less granular than expected and because of the replacement of an efficient Cut to stockpile granular operation with a highly inefficient Topsoil and unsuitable disposal operation.
I am satisfied that bidders could expect a roughly balanced Cut/Fill operation at the Millsite. What was experienced was very different. The following table illustrates the difference between what was expected and what was experienced. (All volumes are in cubic metres).
Excavation Category | Estimated Volume | Final Volume |
Cut to Fill Common | 470,000 | 476,813 |
Cut to Stockpile Unsuitable | 40,000 | 445,085 |
Borrow to Fill Common | 62,000 | 19,502 |
Cut to Stockpile Granular | 40,000 | 15,500 |
Total Volume of Bulk Excavation | 612,000 | 956,900 |
Excavation Deficit (i.e. CutBorrow) | (18,000) | (441,083) |
Deficit as a percentage of Total Volume | 2.94% | 46.1% |
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None of the other bidders anticipated large volumes of Cut to unsuitable material. The following table for bulk excavation at the Millsite shows those estimates in comparison to the actual volume of 956,900 cubic metres. (all volumes are expressed in cubic metres)
Excavation Category | Golden Hill | Ledcor | N. American | Tercon | Actual |
Cut to Fill Common | 470,000 | 491,900 | 480,000 | 390,000 | 476,813 |
Cut to Unsuitable | 40,000 | 17,150 | 1,000 | 40,000 | 445,085 |
Borrow to Fill | 62,000 | 1 | 0 | 0 | 19,502 |
Cut to Granular | 80,000 | 327,500 | 615,000 | 240,000 | 15,500 |
Total Volume | 652,000 | 836,551 | 1,096,000 | 670,000 | 956,900 |
Variation from Final | -31.9% | -12.6% | +14.5% | -30.0% |
I find that it was realistic for Golden Hill and all other bidders to expect a very low volume of “cut to unsuitable” as well as the presence of good granular material on the Site. I am satisfied that any inaccuracies in the bid of Golden Hill regarding the amount of material to be handled did not contribute to the losses occasioned by Golden Hill.
THE AMOUNT OF SURFACING MATERIAL
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Mr. Quaile testified that his methodology was to take the expected area that would require granular surfacing and multiply it by .45 metres. This was the depth of the Granular B material (300 mm) plus the Granular A capping of the Granular B material (150 mm).
At the Millsite, there was not enough granular material so that the specifications had to be relaxed and no Granular A was placed. Regarding the quantities to be placed at the Millsite, Kilborn had raised the problem that the surfacing area was significantly lower than other bidders. As a result, Mr. Quaile went back and changed his estimate from 20,000 square metres of surfacing to 179,000 square metres of surfacing.
While this increase was incorporated by Golden Hill into its plan for the Work, there was no corresponding increase in the amount of time Golden Hill would need to do the job by the same nine fold amount. As well, even though the surfacing and granular quantities greatly increased, Golden Hill did not ask for any extension of time to the Amended Schedule.
While Kemess suggests that, if Golden Hill had estimated a larger volume of Cut to granular material at the
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Millsite it would not have been able to meet its Amended Schedule and would have had to mobilize more equipment, this proposition was not put to Mr. Rudolph in cross-examination. As well, the equipment fleet of Golden Hill was almost the same as the fleet of North American although North American had planned on moving more than 600,000 cubic metres of granular material in roughly the same time frame that Golden Hill had planned.
I am satisfied that Kemess has not proven on a balance of probabilities that Golden Hill’s low estimate of the volume of Cut to stockpile granular material at the Millsite caused it to suffer any losses independent from the tortious acts and breaches of contract that Kemess committed during the course of the Work. I am satisfied that, because Golden Hill could not find any granular material at the Millsite in any event, its low estimate of the Cut to stockpile granular material at the Millsite did not cause or contribute to its losses.
QUALITY OF THE SOILS AND QUANTITY OF THE EXPECTED WASTE AT THE MILLSITE
EXPECTED SOIL CONDITIONS
In coming up with the quantities, Mr. Quaile concluded that there would be an average of 1 metre of silt
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overlaying the entire Millsite and that approximately 20% of that silt would be waste (.2 metres). Kemess submits that this was in “far too optimistic an assessment” in view of the cool, wet Summers, cold Falls and soil conditions at the site. Also, by underestimating the size of the Millsite area, Mr.
Quaile’s estimate should have produced a consequential increase in the Waste which would be expected.
Regarding the balance of the weather-sensitive material (.8 metres), Mr. Quaile assumed that it could be used in an embankment operation in the larger fills which would not be under the structures that would ultimately be built at the Millsite. Under cross-examination, Mr. Quaile admitted that the material would either have to be dry when Golden Hill started using it or it would have to be given sufficient time to dry out before it was handled. He also agreed that when a contractor is working in wet weather it generally expects to get a higher percentage of Waste than in dry weather. Mr.
Quaile could not recall how many rain days he expected between June and November, 1996 when he was putting together his quantities.
Kemess submits that this was “an aggressive approach” to the usability of the materials and was very much dependent on getting extended periods of dry weather. The
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level of risk that such an approach brings with it may only be acceptable to a contractor with an unlimited amount of time or where the contract was being carried out in dry climates.
As to the possibility of wet weather, Mr. Quaile said that he anticipated wet weather and that during the wet weather: “we would have to move our operations to an area that contained more sand and gravel in the soils. We did not expect to have to move the silt in wet weather.” In cross-examination, he confirmed that it was his view that there was good granular material below the layer of silt.
Given Mr. Quaile’s estimate of 1 metre of silt based on a 22 hectare Millsite area at Tender time, Kemess submits that Golden Hill should have known that it would have at least 220,000 cubic metres of weather-sensitive material to deal with and this is a “far cry” from Mr. Rudolph’s professed expectations of good granular throughout the Millsite. This difference between what Mr. Quaile anticipated and what Mr.
Rudolph assumed or anticipated is described by Kemess as being a “very significant” bidding error.
Despite the submissions of Kemess, I am satisfied that the best evidence of what Golden Hill should have expected to find at the Millsite is what Kilborn, Kemess,
Golden Hill, and other contractors expected to find at the Millsite, being large deposits of good granular material.
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Ledcor, North American, and Tercon as well as Golden Hill are all large and experienced earthworks contractors.
They estimated that they would encounter between 80,000 to 615,000 cubic metres of “cut to granular” material at the Millsite. Golden Hill encountered only 15,500 cubic metres of that material at the Millsite.
These four experienced earthworks contractors estimated that they would encounter between 1,000 cubic metres and 40,000 cubic metres of “Cut to unsuitable” whereas 445,085 cubic metres was the final figure. It is also instructive to note that the estimate of Tercon of 40,000 cubic metres of unsuitable was on the basis of 53 hectare estimate so, that while they estimated the same volume of unsuitable, Tercon estimated less unsuitable per hectare than Golden Hill. On a per hectare basis, Golden Hill had the largest estimate for Cut to unsuitable material but it was only 10% of what was eventually handled (40,000 vs. 445,085 cubic metres).
I am satisfied that the opinion of Kemess that Golden Hill was “too aggressive” when Mr. Quaile estimated that 80% of the weather-sensitive material would be useable was “too aggressive” does not withstand the test of comparing
the estimates of Golden Hill to the estimates of Ledcor, Tercon and North American.
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I also reject the submission that Golden Hill should have expected to deal with a much larger amount of weather-sensitive material. I am satisfied that this is incorrect for a number of reasons including the fact that the whole Millsite was not a cut area so that it was not necessary for Golden Hill to remove weather-sensitive material from areas designated as fill areas.
MISCALCULATION OF THE EFFECT OF MOISTURE ON SOILS AT THE MILLSITE
The moisture sensitivity of the material to be worked is a very significant component in determining whether it will be Waste or whether it is suitable and what production levels and costs will be realized by the contractor during the Work. Kemess submits that the expected conditions ought to have alerted Golden Hill that the stripping of Topsoil operation with the silt layer underneath would not be a high productivity operation particularly if there was rain that exposed the material and that Golden Hill ought to have planned to deal with the layer of silt being exposed to the weather despite this.
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While Kemess takes the position that Mr. Rudolph based his bid on the assumption that there would be non-weather-sensitive material at the Millsite, I find that this position is not in accord with the evidence: (a) both Messrs. Quaile and Rudolph expected to encounter relatively little unsuitable material at the Millsite and expected that Golden Hill would be able to work in good granular material during any inclement weather. Their estimate of 40,000 cubic metres of unsuitable material was consistent with what other bidders expected; and (b) Mr. Rudolph never suggested that his “entire bid” was based on the assumption that Golden Hill would be dealing with non-weather-sensitive material. Rather, he gave evidence in both direct and cross-examination that he expected to encounter unsuitable material at the Millsite but, in relation to the overall Project, he expected that the unsuitable material would be relatively minor and would only cause Golden Hill to shut down its operations “the odd time”.
I am satisfied that Golden Hill was well aware of the effect of moisture on weather-sensitive material at the Millsite and elsewhere. I find that the reasonable expectations of what unsuitable material would be in place was assessed by all four bidders as not being in excess of the estimate of Golden Hill, being 40,000 cubic metres of
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unsuitable material. If that amount had actually been encountered, I am satisfied that Golden Hill would have been in a position to work around that amount and would not have lost productivity as a result. Because unsuitable material amounted to almost 11 times what could be reasonably anticipated, the extraordinary weather which was experienced had a disastrous effect on the productivity of Golden Hill.
THE QUALITY AND QUANTITIES OF MATERIALS AT THE AIRSTRIP [821] Kemess submits that Mr. Quaile made a number of errors in attempting to quantify the quantities at the Airstrip. Mr. Quaile stated that he used “roughly the same” calculations for Waste at the Airstrip as he had used at the Millsite and that his estimate was based on the soil logs for the Millsite.
The graded area of the Airstrip was 129,600 square metres, being 90 metres wide and 1,440 metres long. However, the area of stripping and stockpiling Topsoil at the Airstrip was 16 hectares or 160,000 square metres of area. The estimate of unsuitable volume in the Golden Hill bid was 20,000 cubic metres based on 16 hectares and the assumption of Mr. Quaile was that 20% of what would be encountered would be Waste. If Mr. Quaile had been consistent when he concluded that the materials of the Airstrip would be the same as what
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would be encountered at the Millsite, he should have calculated that the Waste would be 32,000 cubic metres made up of 16 hectares (160,000 square metres) with 20% waste.
Kemess submits that Mr. Quaile should have been more conservative in his calculation of Waste than he had been at the Millsite. Instead, the calculations indicate that Mr.
Quaile based his quantities on the expectation that better material would be encountered at the Airstrip than would be encountered at the Millsite. Kemess submits that this was an unreasonable way to proceed and constitutes a bidding error.
I am satisfied that I do not have to decide whether the criticisms of Mr. Quaile’s calculations are valid or not as the differences between the expected and actual quantities at the Airstrip are explained by the difference between the PCL Design which was included in the Tender Documents and the final design of Vilholth Jensen. As well, the estimates of Golden Hill for bulk excavation volumes at the Airstrip was the largest of all of the bidders:
Excavation Category | Golden Hill | Ledcor | N. American | Tercon | Final |
Cut to Fill Common | 271,000 | 183,379 | 210,000 | 134,000 | 229,225 |
Cut to Unsuitable | 20,000 | 12,635 | 0 | 7,500 | 133,063 |
Borrow to Fill | 1,000 | 11,661 | 0 | 55,500 | 93,239 |
Cut to Granular | 30,000 | 1.0 | 0 | 34,400 | 0 |
Total Volume | 322,000 | 207,676 | 210,000 | 231,400 | 455,527 |
Variations from Final | -29.3% | -54.4% | -53.9% | -49.2% | 0% |
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I find that any bidding “error” in no way contributed to the lack of production experienced by Golden Hill when the materials at the Airstrip were found to be markedly different than what was anticipated and what was set out in the Site M Reports. The fact that the “Cut to unsuitable” was six times higher than what Golden Hill estimated, that the “borrow to fill” was 90 times higher than what Golden Hill estimated and 41% higher than the highest estimate made by a bidder (Tercon), and that the final volumes estimated by bidders ranged between 29.3% and 54.4% less than the final totals allows me to conclude that any error that Mr. Quaile may have made in his calculations in no way affected the losses of Golden Hill.
THE FAILURE OF GOLDEN HILL TO UNDERTAKE A SITE INVESTIGATION
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I am satisfied that Golden Hill fulfilled all of its obligations when it undertook the Site Visit and that Golden Hill did not contribute to its losses by failing to undertake a full Site investigation. That possibility was unrealistic and Golden Hill should not be criticized for doing that which was reasonable in the circumstances. None of the other bidders conducted an independent site investigation and no bidder including Golden Hill could have been expected to do so.
THE USE OF “BLENDED PRICES” BY GOLDEN HILL
Golden Hill was the only bidder who engaged in the practice of “blended prices” (i.e. the same price for all bulk excavation activities) when setting the unit prices in its bid. Mr. Rudolph explained that his reason for “blending prices” was to avoid problems with having surveys done for various areas when Golden Hill ran into different materials.
Kemess submits that there are only two reasons why the unit price is the same: (a) the costs for handling the material were the same or at least Mr. Rudolph believed them to be the same; or (b) Mr. Rudolph did not bother calculating the costs of dealing with the different types of materials in
coming up with his prices. Kemess submits that either reason results in a bidding error.
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Kemess submits that it is a illogical to assume that the Cut to Fill cost would be the same as the “borrow to Fill” cost as the borrow source might be a considerable distance away. In fairness to Mr. Rudolph, it should be noted it was reasonable for a bidder to assume that borrow sources would be fairly close.
If it was reasonable for Golden Hill to assume that there would be enormous amounts of Waste, then the argument advanced by Kemess has some merit. However, it was reasonable for Golden Hill and all other bidders to assume that the unsuitable would be dramatically less than the amounts eventually handled.
It was also the case that the unsuitable at the Millsite had to be moved to Dumps which were farther away than anticipated, smaller than required, and in areas which required special handling of the Waste.
As well, if prices are not blended, it is necessary for the materials being moved to be surveyed to ascertain what is being moved and what unit price applies. The effect of using blended prices was to eliminate the need for separate
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surveying. Rather, Golden Hill used load counts to calculate how much of the total cut volume at the Millsite went to “cut to stockpile unsuitable”, to “cut to stockpile granular” or to “common fill”. This eliminated the need to re-survey the Millsite each time the soil condition changed from suitable to unsuitable or vice versa.
While Kemess says that Golden Hill used blended prices because either its costs for each type of material were the same or Mr. Rudolph was careless in his bid preparation, neither proposition was put to Mr. Rudolph in cross-examination and no expert evidence was led to support this proposition. Similarly, Mr. Rudolph was not cross-examined nor was expert evidence called to support the proposition that the “real reason” for the blended prices was because Golden Hill expected that its costs for handling unsuitable material would be the same as its costs for handling common or borrow material.
After reviewing all of the evidence, I cannot be satisfied that the use of blended prices was a bidding error or that the use of blended prices in any way contributed to the losses suffered by Golden Hill as a result of the tortious acts of Kemess.
PRICES THAT MR. RUDOLPH DID NOT CALCULATE
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Kemess submits that I should draw an adverse inference because Golden Hill could not produce this bid work sheet so Kemess cannot review it for bid errors and “guesses” made by Mr. Rudolph. I reject the suggestion made by Kemess that I should draw an adverse inference. First, there is no suggestion that the document is available but was not produced. Second, a number of similar documents on other bids were produced and these support the evidence given by Mr.
Rudolph about his bid estimating practice. Third, I am satisfied that his evidence regarding what he did should be believed.
Kemess submits that there were a number of “guesses”: (a) clearing and grubbing was $3,000.00 per hectare which Mr. Rudolph said was “from historical cost”; (b) the price to “scarify and compact original ground” was determined by Mr. Rudolph who “just threw a number in there” without any detailed calculations as this was not a common item; (c) the item for mechanical overhead for running repairs was not based on any calculations but was rather a number that Mr. Rudolph hoped “covers the repairs”; (d) for the freight cost, Mr.
Rudolph “just threw in a number” “it’s the number that I hope and from experience, covers what those costs are going to be”;
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(e) the carrying charges on the cost of money were described as a “lump sum amount but may cover interest costs to cover a line of credit or things like that”; (f) the amount to cover head office expenses was not truly representative of the actual overhead cost but rather was a number to help pay for some of the overhead costs; and (g) the overhead was not calculated but rather was said to be between 5% and 15% of the total cost.
I reject the submission that these were bid “errors” and were unreasonable in the circumstances. If Kemess thought that Mr. Rudolph’s estimates were unreasonable, they should have called evidence to support those assertions. I find that the estimates of Golden Hill were reasonable and were based on the many years of experience that Golden Hill had in the construction industry.
Kemess also criticizes the claim by Golden Hill for losses relating to clearing and grubbing. Using the internal rates provided by Golden Hill, Kemess calculates the costs of clearing and grubbing two hectares each day as being
$7,758.20. Kemess submits that Golden Hill was incurring costs of $7,758.20 per day to do work for which it would be paid $6,000.00 per day. Kemess also points out that the anticipated two hectares per day of production was not
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reasonable, that Golden Hill did not obtain that level of production, and that this amount does not include the costs associated with getting the equipment in and out of the Site, fuel, oil, overhead, profits and flight costs for the employees.
While I am satisfied that the internal rates used by Golden Hill regarding cleaning and grubbing were too low to cover the cost of cleaning and grubbing, I also note that Golden Hill did not undertake the vast majority of the expected clearing and grubbing costs at the Millsite as this work was done by Duz Cho. Accordingly, Golden Hill saved considerable amount of money when it did not have to clear and grub the Millsite.
It should also be noted that the North American bid was $2,180.00 per hectare; the Tercon bid was $2,730.00 per hectare and the Golden Hill bid was $3,000.00 per hectare.
Accordingly, I cannot find that the estimate for cleaning and grubbing was in error and, even if I could, I find that the estimate of $3,000.00 per hectare was realistic in the circumstances.
The estimate for the stripping of Topsoil was
$1,500.00 per hectare. Mr. Rudolph could not say how he came up with that figure other than to state that it represented
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historical cost. Kemess points out that Mr. Rudolph expected to be able to obtain production levels of 9,900 cubic metres per shift. Based on a spread of 1 Push Cat and three scrapers working two 10 hour shifts, Kemess submits that Golden Hill would be earning $9,990.00 but that its costs would be
$10,259.66 before fuel, repairs, travel, etc. As well, this cost of $10,259.66 did not include a Waste Dump Cat even though Mr. Rudolph expected to have to use one.
None of these calculations were put to Messrs. Rudolph, Lyons and Miller. Taking into account the many years of experience of Golden Hill and Mr. Rudolph, I cannot be satisfied that Kemess has shown that this was a bid error or that any error in any way contributed to the damages which were incurred by Golden Hill as a result of the breaches of contract and tortious acts of Kemess.
As to the remaining “guesses”, I am satisfied that the estimates were appropriate or, as to some of the guesses, they were not appropriate but that they will be dealt with in the general context of the overall costs claimed by Golden Hill.
INCORRECT ASSUMPTIONS REGARDING PRODUCTION LEVELS
Kemess submits the problem with the Golden Hill bid was that it was based on dealing with material that was not
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weather-sensitive and that this assumption obviously ignored the layer of weather-sensitive material at the Millsite identified from the Soils Data by Mr. Quaile. When Golden Hill encountered the very material that Mr. Quaile expected this adversely affected every aspect of the Work resulting in lower production levels than expected and higher costs to Golden Hill.
While the amount of rain that was experienced had an adverse effect on the productivity of Golden Hill, I am satisfied that the original assumptions that Mr. Rudolph made regarding production rates were realistic. I am satisfied that they were within the range of what other bidders contemplated and I am also satisfied that they were appropriate in view of the Soils Data and the reasonable assumption that wet weather would only have a small impact on productivity as the amount of moisture sensitive material was relatively small and other activities could be found when the wet weather prohibited the movement of weather-sensitive materials.
My review of the unit prices submitted by other bidders allows me to conclude that the assumptions made by Golden Hill were somewhat similar if not identical to the assumptions made by the other very experienced bidders. In
this regard, I note: (a) the Golden Hill clearing price at the Airstrip and Millsite was $3,000/ha while North American was
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$2,180/ha and Tercon was $2,730/ha; (b) the Golden Hill price for stripping Topsoil at the Airstrip was $1,500/ha while Tercon was $1,200/ha; (c) the Golden Hill price for common at the Airstrip was $2.10 while Ledcor was $2.08; (d) the Golden Hill price for Cut to stockpile granular at the Airstrip was
$2.10 while Tercon was $1.70; (e) the Golden Hill prices to place granular surfacing at the Airstrip were $1.50 and $1.20 while Tercon prices were $1.05 and $0.70; (f) the Golden Hill price for common at the Millsite was $2.00 while Tercon was
$2.02; (g) the Golden Hill price for the common at the Mancamp was $2.00 while North American was $1.83 and Tercon was $1.81; and (h) the Golden Hill price for borrow at the Mancamp was
$2.00 while Ledcor was $0.33 and North American was $1.83.
Kemess also submits that a further reason why Golden Hill was overly aggressive on production rates was because Mr. Rudolph knew who his competitors were and, as a result, he knew that his bid would have to be very competitive if Golden Hill was to be the successful bidder. This proposition was never put to Mr. Rudolph and there was no evidence to support this submission. I am satisfied that Golden Hill had competed in a competitive marketplace for over 15 years and there is no
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suggestion that Golden Hill was any more aggressive in its bid on this Project than its bids on other projects. Likewise, there is no evidence to suggest that the other bidders were any more aggressive than usual.
I am satisfied that Kemess has not shown on a balance of probabilities that the production rates assumed by Mr. Rudolph were unrealistic or that any unrealistic production rates in any way contributed to the losses of Golden Hill caused by the breaches of contract and tortious acts of Kemess.
INACCURATE MOBILIZATION AND DEMOBILIZATION COSTS
Kemess submits that this is another area where Mr. Rudolph did not do a detailed calculation and where the number that is provided was “simply a guess”. The draft bid sheet showed $90,000.00 for mobilization and Mr. Rudolph stated: “... I don’t recall exactly how I got that number”. In the actual bid, the amount was increased to $110,000.00 but Mr.
Rudolph testified that he did not recall why the amount was increased. As it was not the practice of Golden Hill to include an element of profit within its mobilization and demobilization prices, the prices in the bid should equal the costs of Golden Hill.
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Kemess also notes that Golden Hill submits that an appropriate figure for mobilization costs is $15,000.00 per unit. As the bid estimate of Golden Hill had 20 pieces of heavy equipment listed, that would be a mobilization cost of
$300,000.00. Kemess submits that this should be compared to the $110,000.00 which was contained in the bid.
I am satisfied that the estimates of Mr. Rudolph were reasonable in the circumstances. I note in this regard that Kemess has failed to call any evidence from its expert witnesses to contradict the position that these costs were not reasonable.
However, for the equipment that Golden Hill contemplated it would be mobilizing, I am satisfied that it is appropriate for Golden Hill to be limited to mobilization and demobilization costs totalling $110,000.00. To the extent that Golden Hill is claiming mobilization and demobilization costs in excess of $110,000.00 for the equipment originally set out in its equipment list, Golden Hill will not be entitled to any additional amount.
Subsequently, the parties negotiated mobilization and demobilization costs for additional equipment. To the extent that those costs have not been paid, Golden Hill is entitled to reimbursed for the negotiated cost of mobilization
and demobilization. Any amount unpaid for that additional equipment, should be added to the $110,000.00 payable.
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UNDERESTIMATED MAN DAYS AND LABOUR COSTS
Kemess submits that Golden Hill underestimated its camp costs for the Project. The bid estimated 4,900 man days whereas Kemess calculates the personnel requirements set out in the Tender as totalling 5,810 man days. Kemess submits that, based on the evidence of Mr. Rudolph at Trial as to how long each activity was supposed to take, 830 man weeks or 5,810 man days at $50.00 per day as opposed to 4,900 man days should have been included in the bid. Kemess submits that this error amounts to $45,500.00. Kemess submits that, not only did Golden Hill underbid camp costs, but also it likely underbid all other employee-related costs such as wages, flights, etc. because it underestimated the number of days its personnel would be at the Site and the cost of getting away from the Site from time to time.
I am satisfied that the Tender Schedule was not intended to commit Golden Hill to a certain level of personnel days. Rather, the Instruction to Tenderers was to indicate “the approximate average manpower loading per month”. Mr.
Rudolph rejected the suggestion that, based on the manpower loading in the Tender Schedule, Golden Hill underestimated the
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camp charges as he stated that manpower loading had nothing to do with his estimate of the camp charges. He stated that he based those on the number of operators that were required to run the equipment for the times that he allotted in his estimate. As well, Kemess did not call any evidence to suggest that Golden Hill’s estimate of man days was not reasonable in the circumstances.
After reviewing the evidence, I cannot say that the bid estimate of 4,900 man days was inaccurate as I am satisfied that it was a realistic attempt to establish the “approximate average manpower”. I am also satisfied that there was no evidence before me to suggest that Golden Hill’s estimate was not reasonable in the circumstances.
Accordingly, I reject the submission that there was any underestimation of the manpower requirements or that any underestimation led to Golden Hill contributing to the damages which were suffered as a result of the tortious acts of Kemess.
INADEQUATE TEMPORARY FACILITIES AND INDIRECT COSTS [857] Kemess submits that Item 8.3 was in the Contract for the “protection” of the contractors as it allowed them to cover off all of their monthly indirect, non-production related costs or fixed costs. Kemess submits that the unit
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prices were to cover the direct costs of the unit of work but that costs such as supervisory salaries, overhead, interest cost, man camp charges, etc. were to have been included in item 8.3.
Kemess submits that it is critical to keep this in mind when looking at the unit prices of the other bidders as all of them set out significantly greater indirect amounts in their bid compared to Golden Hill: (a) Golden Hill ($25,000.00 per month); (b) Ledcor ($407,257.28 per month);(c) North American ($318,875.00 per month); and (d) Tercon ($153,200.00 per month).
Mr. Rudolph testified that he did no calculations to come up with the $25,000.00 per month figure: (“I don’t remember my thought process”). However, he did confirm that the $25,000.00 did not include the cost of supervisors, the cost of pick-ups, and the cost of support equipment such as the ambulance and the Hiab.
Anthony R. Barke, C.A. was tendered as an expert by Kemess regarding the calculation of costs associated with construction claims using cost accounting and auditing techniques and skills. In his report and at Trial, Mr. Barke was of the opinion that the following items should have been included in Item 8.3 as they were time rather than production
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related: camp charges, room and board, travel, surveying, traffic control, site office, pick-ups, supervision (both foreman and superintendents), engineering, and on-site workshop and maintenance facility costs. Kemess submits that the failure to include all of these items was a bidding error on the part of Golden Hill.
Kemess submits that the significance of this error is demonstrated by what it says is a comparison of what the other bidders would have been paid if they had encountered the same quantities on Site for the same length of time as Golden Hill and had charged the indirect monthly charges set out in their bids:
Contractor | Monthly Indirect Cost | Total Which Would Have Been Paid | Difference from Golden Hill |
Golden Hill | $175,000 | $6,123,484.35 | 0 |
North American | $2,232,125 | $9,446,562.14 | $3,323,077.79 |
Ledcor | $2,850,000 | $14,734,168.94 | $8,610,684.59 |
Tercon | $1,072,400 | $ 8,012,190.16 | $1,888,705.81 |
However, Mr. Rudolph testified that he included almost all of these fixed or indirect costs in his unit prices rather than as part of Item 8.3. I find that it was not unreasonable for Golden Hill to include some of its indirect costs in its unit rates particularly in light of the fact that
there was a chance that Golden Hill’s quantities would increase dramatically during the course of construction.
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Kemess submits that worker days and indirect costs are incurred whether or not there is production ongoing so that the appropriate place to have placed the camp costs would have been in Item 8.3 (Temporary Facilities Indirect Costs).
It is odd that an owner would submit that it was appropriate for it to levy camp charges but at the same time expect that a contractor would include those camp charges as expenses in the bid.
In any event, I cannot conclude that it was mandatory for Golden Hill or any other bidder to include camp costs under Item 8.3. First, this was for “monthly indirect, non-production related costs or fixed costs” and daily mancamp charges can hardly be included within that definition.
Second, on the Tender Form, the phrase “temporary facilities & indirect costs” is used whereas, in the accompanying explanatory notes, it is clear that each unit price shall be:
the full and only amount payable by the Owner for the unit and all things directly or indirectly required to complete it in accordance with the Contract, such as but not limited to...consumable items, temporary facilities, ...setting out,
...scheduling, administrating, supervising, ... overheads and profit, except to the extent, if any, to which the list separates items for painting, dewatering, etc.
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As well, it was not mandatory for indirect, non-production related costs or fixed costs to be included only within the unit prices that were included within the bid. In the circumstances, I cannot be satisfied that it was a bid error made by Golden Hill to include many costs under the unit prices in its bid. I find that the failure to include various charges under Item 8.3 was not an error and that the failure to include those items in no way contributed to the damages available to Golden Hill as a result of the tortious acts of Kemess.
LACK OF SUPERVISORY PERSONNEL
The submission of Kemess is that Golden Hill did not have enough supervisory staff in place as one supervisor could not be at two places at once. Kemess submits that Golden Hill recognized this when, after an August 8 letter to Golden Hill, a second supervisor was added and Mr. Miller joined Mr. Lyons.
I am satisfied that there was only one incident where the lack of supervision resulted in a mistake. On August 14, an unsupervised crew put in too big of a lift and did not squeeze out the mud so that the machine being used then got trapped.
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The underestimation of the number of supervisors needed was not put to Mr. Rudolph in cross-examination and he testified that it was only when instructions were received from Kemess to double up on the number of supervisors that a second supervisor was added.
I am satisfied that the need for extra supervisors arose out of changed soil conditions and the decision by Kemess to accelerate parts of the Work thereby resulting in a dramatic increase in the size of the Golden Hill equipment fleet and manpower. Kemess did not cite any evidence to support the proposition that working in two areas required two supervisors.
I find that the original estimate of Golden Hill for supervision was reasonable in the circumstances. First, there were a number of foremen on site and they could provide the supervision that was needed. Second, the addition of a second supervisor was a result of the direction received from Kemess not any inadequacy. Third, there is no evidence that the lack of supervision caused anything other than the smallest of additional costs.
EQUIPMENT INADEQUACIES
Kemess submits that Mr. Rudolph underbid his equipment list by not including the third spread necessary to
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do the Work in the time frame set out in the Amended Schedule. Kemess also submits that, even assuming only a three scraper spread in two areas was appropriate, the six scrapers required to achieve this production were not on the Site in a timely fashion: two scrapers arrived on July 12, two scrapers arrived on July 26, one scraper arrived on August 12 but did not work until August 24, and two scrapers (including one as a spare) did not arrive until somewhere around October 14.
Kemess submits that Golden Hill should have provided for more equipment including more excavators and trucks. I am satisfied that this submission is without merit. First, there is nothing to suggest that Golden Hill planned to devote the full forces of its earthworks or clearing operations in three areas of the Project at the same time. Second, the equipment list of Golden Hill was almost identical to the equipment list provided by at least two other bidders. In this regard, both North American and Tercon each bid the Project with only one excavator. Third, Mr. Collins of Kilborn expressed only one reservation about the equipment and that was the problem of using scrapers to finish the excavation of the bottom of the crusher area.
Fourth, no evidence was elicited from Messrs. Koski or Rempel to suggest that the equipment list was either
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inadequate, unsuitable, or unsatisfactory in view of the expectation of all parties that there would be good granular material at the Site. Mr. Rempel testified that, in good material, scrapers are an ideal piece of equipment for a Cut/Fill operation and that scrapers were generally more productive in such operations than 6-wheel drive rock trucks, that he never suggested to Golden Hill that they use 6-wheel drive trucks for the Cut/Fill operation and that he only suggested that 6-wheel drive rock trucks be used to remove wet Topsoil and saturated unsuitable material prior to a scraper operation.
I find that Kemess has not proven on a balance of probabilities that the equipment set out in the amended Equipment List was in any way insufficient to undertake the Work as originally planned. I also cannot conclude that any delay in mobilizing all of that equipment or any inadequacies of that equipment once the Work commenced has been shown or in any way contributed to the damages of Golden Hill as caused by the tortious acts of Kemess.
SUMMARY OF FINDINGS REGARDING CONTRIBUTORY NEGLIGENCE [875] I can make no finding that the matters raised by Kemess showed that Golden Hill contributed to its own damages so that it can be said that the damages claimed were caused by
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something other than the breaches of contract and tortious acts of Kemess. Any losses suffered by Golden Hill were caused solely by the acts or omissions of Kemess.
WAS THERE ACCELERATION?
CONTRACT PROVISIONS
In the section headed “Schedule” in the Tender Form, Golden Hill agreed to complete the Work in accordance with “the approved Contract Schedule” on or before the completion date stipulated in the Contract. The form also required Golden Hill to have the Work “complete and ready for use by the time specified.” Under the “Form of Agreement” Golden Hill agreed to: “... diligently carry out the Work and complete all of the Work, in a manner which shall be certified by the Owner as acceptable and complete on or before October 11, 1996.” The Form of Agreement also provided: “time shall be deemed to be material and of the essence of this Contract.”
General Condition 5.3 states:
5.3 If, in the opinion of the Owner there is undue delay in commencing Work or any phases of the Work are not progressing in accordance with the Contract Schedule or any schedule completion dates are jeopardized in any other way, then the Owner may order the Contractor to employ additional personnel and construction plant or work additional hours or by other means speed up the Work, as the Owner deems necessary, without additional payment to the Contractor. The provisions of this paragraph shall in no way relieve the contractor of his
responsibility for completing the Work in accordance with the Contract Schedule and by the required substantial completion date.
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Under GC 36.2, within three calendar days of the commencement of any delay beyond the control of Golden Hill, Golden Hill was to give Kemess written notice of the delay together with details of its cause and its anticipated results of the delay. Similarly, within 14 calendar days of the termination of the delay, Golden Hill was to give Kemess written notice setting out the actual duration of the delay and its effect upon the Contract Schedule ...” Golden Hill was also to include: “... a request to the Owner for an extension of time in which to complete the Work or any portions of it.” If Kemess determined that the delay was “beyond the control and without the fault or negligence” of Golden Hill and was not “foreseeable by the Contractor at the time the Contract was entered into”, Kemess was to determine the duration of the delay and then: “... shall extend the time for completion and the affected portion of the Work accordingly.” “No extension of time shall be considered unless written notice and request for extension have been given within the time period set out herein.”
General Condition 36.5 provided:
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36.5 If pursuant to Article 36.2 hereof the Owner extends the time for completion, the Owner will be entitled nevertheless to require the Contractor to reduce or eliminate as far as possible such time by accelerating progress on the Work by all means acceptable to the Owner and available to the Contractor. The Contractor shall accelerate progress accordingly and the Contract Price will be increased by the difference, as approved in detail by the Contractor to the Owner between the costs properly and necessarily occurred by the Contractor for the accelerated parts of the Work and the costs which the Contractor would have incurred for those same parts to complete them by the extended time had the acceleration not been required.
Accordingly, within the context of the Amended Schedule being extended, Kemess was still in a position to accelerate progress on the Work or part of the Work and, if there was an acceleration, the Contract Price was to be increased by the difference between costs “properly and necessarily incurred” for the accelerated parts of the Work and the cost which would have been incurred for the same parts if the acceleration had not been required.
There is no particular form of directive that is required to trigger the operation of GC 36.5 as there was in similar provisions in other construction contracts: for instance, in Emil Anderson Construction Co. v. British Columbia Railway Co. (1991), 45 C.L.R. 201 (B.C.C.A.) at p.
218 where the contractual provision required a written direction to accelerate by the owner.
THE CONTRACT SCHEDULE
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The original Schedule for the Project provided that all Work was to be completed by October 11, 1996. At that time, completion of the Airstrip was not mentioned. In the bid that Golden Hill submitted, demobilization was to be complete by November 15. The Amended Schedule provided that the contract would be awarded by June 21, clearing operations at the Airstrip would start on July 2, mobilization of equipment would be complete by July 15, rough grading at the Millsite would be complete by September 13, work at the Millsite would be complete by October 10 and there would be “final clean-up and completion for mid-October.”
General Condition 3.0 (“Contract Schedule”) provides that the schedule proposed in the Tender “shall, after review by the Owner or the Engineer and incorporating revisions required by the Owner or Engineer, become the Contract Schedule.” As no revisions were requested to the Amended Schedule, I find that the Amended Schedule became the “Contract Schedule”.
It was obviously the case that Kemess wanted the work done as quickly as possible. When first contacted, Mr. Rudolph was advised that Kilborn had been instructed to get the tenders out quickly so as to not lose the summer
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construction window of 1996. When he was first hired, Mr. Rempel was advised by Mr. Koski that the project was on a “fast-track” schedule. Mr. Rempel confirmed this at Trial: “Getting the project on line for production as quickly as possible” “it was an aggressive schedule.” On cross-examination, Mr. Rempel testified that the schedule that Golden Hill submitted with its Tender “shows a very aggressive schedule in a short period of time.” Even with the aggressive schedule, I am satisfied that Kemess constantly pressured and required Golden Hill to speed up the Work where possible.
This was other than in accordance with the Contract which granted Golden Hill complete control over the Work.
From time to time, Golden Hill requested extensions of time and, while the strict provisions of GC 36.2 were not followed in all circumstances, I am satisfied that the requests by Golden Hill for extensions of time were all accepted by Kemess and the Amended Schedule was extended.
Follow up “bar chart Contract Schedules” were requested and were submitted by Golden Hill on the following dates showing the following new completion dates: August 7 (October 20); September 24 (October 7); October 1 (October
14); October 8 (October 21); and October 15 (some work in December with the remainder of the work in February 1997 and
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late April 1997). I find that the bar chart schedules setting out the overall project schedules constitute requests for extensions by Golden Hill and accepted extensions by Kemess pursuant to GC 36.2. However, I also find that there were accelerations of the Work within the extended Contract Schedule.
ACCELERATIONS OF THE WORK
At the first on-site meeting with Kemess representatives (July 7), it was stated that the Airstrip “must be done before Aug 15/96”. At that meeting, the other priorities were described as the Mancamp because the Exploration Camp was not big enough to handle construction workers and the Millsite because the job was fast-tracked and the civil contractor needed a place to start its work.
The original plan of Golden Hill was to complete the Airstrip by late September or early October, to excavate and place common material at the Millsite from August 1 to the middle of October and to excavate and place common material at the Mancamp from the middle of September to late October. I find that the direction to complete the Airstrip by August 15 was an acceleration of the Work.
The Monthly Project Construction Report dated August
1 is evidence of work at the crusher and concentrator areas of
the Millsite being accelerated by one week and two days, respectively. This Report read in part:
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An accelerated site preparation schedule with suitable weather should enable advancement of the schedule by 1 or 2 weeks.” . . . “The immediate effort is being directed to accelerating the man camp and mill site grading to achieve scheduled mobilization for underground services, camp construction and concrete placement.
Even though that report was an internal Kemess report, I am satisfied that this acceleration was communicated to Golden Hill. On cross-examination, Mr. Koski admitted that he wanted Golden Hill to accelerate its Work and that the schedule contained in that Report proposed to accelerate the work notwithstanding all of the delays experienced due to the inability of Kemess to provide permits on time and to the effect of weather on soil encountered. Mr. Koski agreed that, by the beginning of August, he had seen the Amended Schedule and that he was asking Golden Hill to perform the work at the concentrator site within the Millsite and at the Mancamp earlier than what was set out in the Amended Schedule as had been extended by agreement.
As reflected in the August 3 site review meeting minutes, Golden Hill was instructed to “add/change their equipment list on site to suit the working conditions and
bring the schedule back on-line to a point of acceptance”.
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Mr. Lyons understood that the schedule was falling behind what Kemess wanted but that the extended Amended Schedule was not falling behind. Because Golden Hill was given control of the Work, it was up to Golden Hill to mobilize equipment when it thought necessary. I am satisfied that the direction received from Kemess to mobilize all equipment at that time and to change the equipment list if necessary constituted an acceleration of the Work.
I find that the following directives made by Kemess on August 3 constitute an acceleration of the Work by Kemess:
The contractor is to immediately mobilize all of the equipment onsite which was detailed in the equipment list as part of their tender submission.
Additional equipment is to be placed in the mill site and work is to be established immediately in all three areas: the air strip, the man camp, and the mill site.
The contractor is to firm up their schedule and submit a formal document work schedule clearly showing their progress to date and a plan to aggressively bring the work in all three (3) areas back to an acceptable level. This is to be submitted by Jon Rudolph, President of Golden Hill Ventures.
Golden Hill was ordered to start working on all three areas of the Site at once and this was also contrary to
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the original plan of Work. I find that the directive to work on all three areas of the Site constituted an acceleration of the Work.
In an August 4 letter, Mr. Rempel responded to the August 1 letter from Mr. Lyons dealing with weather delays and made it clear that Kemess wanted Golden Hill to make up for the delays:
Weather: It is apparent that the weather conditions are not going to disappear. Unfortunately, we have no control over these circumstances. However, what we can do is put our heads together, draw from our mutual experiences as [sic] arrive at a solution.
In the end as a contractor, you must come up with a plan and overcome this obstacle. You must complete the work. This problem is beginning to create a domino effect causing work set backs for other contractors awaiting the completion of your work.
We simply cannot allow this to carry on. A solution must be found.
In an August 8 letter, Mr. Rudolph indicated that Golden Hill was prepared to accelerate the project:
If we were awarded the tailings dam work, C105, we could mobilize some of that equipment early and use it to accelerate the Millsite works. Golden Hill will strive to be flexible to accelerate the project but would like to emphasize that earth moving activities are contingent on weather conditions and that we may not be able to utilize all of our equipment during these times....
I do not recall any specific target dates in contract C101 that we were required to adhere to, however, we realize your urgency in completing all phases of our contract and will work with you to
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ensure your needs are met. The schedule attached represents a realistic plan to complete this work. With all the delays in permitting and weather, we feel this schedule is well within the original schedule submitted without tender. Because the Millsite is so large, we will endeavour to concentrate our efforts to areas of high priority. We are striving to excel our original schedule to suit Kemess Mines’ requirements and would appreciate your cooperation and thereby response as to issues as they occur.
The schedule attached indicated the Work to be completed on October 20. Accordingly, despite the acknowledged delays relating to failure to obtain permits on time and because of the effect of the weather on the soil conditions encountered, this schedule only increased the time to complete the Work by several days. At Trial, Mr. Koski stated that he understood Mr. Rudolph was taking the position that Golden Hill was being asked to accelerate. While he denied that Kemess had ordered Golden Hill to accelerate, Mr. Koski did admit: “We had asked him to increase his rate of productivity to achieve the schedule completion date.” I am satisfied that the reference of Mr. Koski was to the Amended Schedule and not to the extended Amended Schedule. In the circumstances, I find that Mr. Rudolph was reacting to the order to accelerate.
Mr. Koski also admitted that he did not reply to the August 8 letter to disagree with Mr. Rudolph’s position
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regarding acceleration. In fact, Mr. Rudolph testified that no one at Kemess ever took issue with the statements in Golden Hill’s letters that suggested that the Work was being accelerated.
The Weekly Reports for the period August 1 through
31 indicate that Golden Hill did accelerate its work according to the express instructions given to it by Kemess: “Golden Hill efforts on permanent camp area and the millsite location were double shifted in order to meet schedule date of completion for preparation of concrete work.”
On August 27, Golden Hill wrote to Mr. Rempel stating in part:
Further to our discussion yesterday, August 26, the following is a cost list of mob / demob prices to attain additional equipment to the Kemess mine site. This additional equipment is required in order to accelerate production as per our discussions.
. . . . We would also need additional equipment (dozers, excavator, packer) which mob/demob costs are not available at this time because of availability and location.
Mr. Koski admitted that he included the word “accelerate” when he made handwritten notes on this August 27 letter. Mr. Rudolph stated that all of the equipment mentioned in the letter was mobilized at different price rates than what had been established at the Post Tender Meeting in
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order to reflect that the equipment was being retrieved from different locations in order to accommodate the acceleration of the Work.
Mr. Miller testified that his August 27 letter arose out of discussions that he had with Mr. Rempel on August 26 in which he was told that Kemess wanted more equipment on the site “mainly to get the Topsoil off of the Millsite”. Under cross-examination, Mr. Rempel admitted that the purpose of mobilizing the new equipment was to accelerate the progress of the Work of Golden Hill so as to meet the schedule and respond to the conditions that Golden Hill was facing at the time.
On August 28, Mr. Rempel sent a letter to Mr. Rudolph which included a series of written “directives”: (a) provide Kemess with a performance bond for the completion of the balance of Work; (b) order Mr. Miller to remain onsite as the project superintendent; (c) submit an updated work plan, which outlined an “aggressive plan of attack”; and (d) mobilize additional equipment to the Site to ensure that the rate of progress was stepped up and maintained to meet the scheduled completion date.
Under cross-examination, Mr. Rempel agreed that bringing in more equipment and manpower to speed up the Work was the same as acceleration and that the reason they were
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asked to bring in more equipment and more manpower was because the progress of the Work had been significantly delayed due to the type of soils that were being experienced and the weather. I find that the direction to mobilize new equipment was for the purpose of accelerating the progress of the Work of Golden Hill.
On October 8, Mr. Rempel sent a facsimile letter to Mr. Rudolph approving the price of $100,000.00 for the mobilization and de-mobilization of additional equipment. The Kemess Daily Meeting Minutes for October 16 indicate that Mr. Patel stated that Mr. Rudolph had been informed about the increased need to finish the work at the Airstrip: “John [sic] Rudolph of Golden Hill Ventures has been advised that air strip must be ready by the end of November.”
The critical issue is whether the Amended Schedule as extended was compressed. If so, then acceleration occurred. If the extended Amended Schedule was not compressed, then there is no acceleration. I am satisfied that there were not only extensions of the Amended Schedule but also compressions of some of the Work under the Amended Schedule as extended. In those circumstances, Golden Hill is entitled to the compensation contemplated by GC 36.5.
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Kemess never invoked the provisions of GC 5.3 which gives it the right to order acceleration at the cost of Golden Hill where the actions of Golden Hill have delayed the Project. The absence of such an order should be contrasted with the fact that Kemess had no hesitation in invoking other contractual clauses in its numerous memoranda to Golden Hill.
In addition to informally granting extensions of the Amended Schedule, Kemess became involved in the control of the Work by setting priorities in some areas, by insisting Golden Hill speed up its Work to meet certain “milestone” dates and by leaving other work in other areas for later. While extensions to the overall schedule may have been given de facto, parts of the Work were still accelerated because Golden Hill was required to speed up parts of the Work.
I find as well that Golden Hill worked longer shifts (11 hours was increased to 12 hours), arranged for additional equipment to be brought on site, and arranged for the necessary operators, labourers and supervisory staff for support. All of this amounted to acceleration.
I am satisfied that the unanticipated weather and soils conditions are “occurrences beyond the control” of Golden Hill. It is not possible to argue otherwise as it is clear that Golden Hill would have no control over the weather
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and would have no control over the soil conditions which were actually found on the Site. For what could not be anticipated and was therefore delays “beyond the control of” either party, Golden Hill was entitled to and did receive extensions to the Amended Schedule. However, there was then acceleration and Golden Hill is entitled to compensation for that acceleration. As well, Golden Hill is entitled to damages for delays or failure of performance by Kemess which were within the control of Kemess.
CASE AUTHORITIES DEALING WITH ACCELERATION
A number of decisions have considered the concept of acceleration. There can be “Actual Acceleration” as well “Constructive Acceleration”. For Actual Acceleration to be compensable, the owner must order the contractor to recover time lost as a result of excusable delay to complete before the extended completion date.
Constructive Acceleration can arise when time has been lost as a result of excusable delay which the owner does not accept or when the owner insists on the original completion date. Constructive Acceleration can also occur if the schedule is extended as a result of excusable delay but the owner only accepts part of the delay.
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Two decisions have dealt with the concept of Actual Acceleration. In Morrison-Knudsen Company v. British Columbia Hydro & Power Authority (December 6, 1974) S.C.B.C. Action No. 2572/67 (Vancouver Registry) (B.C.S.C.), Macdonald, J. defined “acceleration” in the construction context as follows:
By acceleration I mean speeding up the work –increasing the rate of performance of the work – in order to overcome delays and complete by the dates specified in the contract work which has fallen behind schedule. Acceleration may be undertaken in order to finish by the contract dates work which has fallen behind schedule due to: (1) delays for which the contractor is solely responsible; (2) delays attributable entirely to the owner; and (3) delays which are a combination of the two, that is, delays for which both contractor and owner are responsible.
... S.1.02.02, which requires completion of the work by specified dates, empowers the Engineer to allow extensions of time … He is not required to grant extensions no matter what the cause of the delay.
If he should decide against an extension of time, in a clear case of Owner caused delay, the result is that the Contractor remains legally bound to complete by the Contract dates. That may involve acceleration – at additional cost – to overcome the delay. In such circumstances fair treatment would require the Owner to pay that extra cost.
If extensions of time for Owner caused delays are refused, and a contractor accelerates to overcome those delays plus others which are solely his responsibility, he is entitled to be paid the portion of his acceleration costs attributable to the Owner’s default. . . .
Throughout, the plaintiffs were pressed to complete their work by the dates specified in the contract. The Chairman’s two letters . . . called on the Contractor to take all necessary steps to achieve
completion by the Contract date and made it plain that failure to do so was unacceptable to the Owner. (at Part 11, pp. 2-4)
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In W.A. Stevenson Construction (Western) Ltd. v. Metro Canada Ltd. (1987), 27 C.L.R. 113 (B.C.S.C.), Locke, J.,
as he then was, referred to the concept of acceleration as follows:
Throughout this job the contractor was told he had to meet the milestone dates in the contract.
Conditions of work which delayed the execution of the contract were forced on it by the owner (e.g. non-removal of buildings). Weather conditions plainly impaired the ability to perform. If the owner insisted on performance by the contract date, the slowed work had to be made up with extra resources of capital and labour. This compression in time is one definition of acceleration. Like the Red Queen, the contract had to run faster just to stay where it was in relation to the time frame of the contract.
...
In the case at bar, there were two concepts in relation to time: a mandatory contractual obligation to extend time for third party acts or acts of God, and a discretionary power to pay in the case of an owner-caused delay or failure to do an act together with a date adjustment. In my opinion, the owner failed to do its duty as to the first obligation and is in breach of contract, and having failed to make any proper financial adjustment for the second, must bear proven monetary consequences. (at pp. 178-9).
In Morrison-Knudsen and W.A. Stevenson Construction, both owners maintained a rigid completion date notwithstanding the fact that it was their delays which would ordinarily have
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entitled the contractor to extensions in time. In both, the owners required the contractors to meet the original contract schedule without expressly referring to acceleration and the owners were required to indemnify the contractors for the costs the contractors incurred in applying more equipment and personnel in order to speed up the completion of the contract. In W.A. Stevenson Construction, the Court found that the owner did not provide the clear work space called for in the contract, failed to provide time extensions the general contractor was entitled to, and found that the conditions of work delayed the execution of the contractor’s work including owner-caused delay and weather.
General Condition 36.5 refers to compensation “for the accelerated parts for the work” (Emphasis added).
Acceleration of parts of the Work is sufficient to trigger an obligation to compensate Golden Hill for the application of more resources in order to allow parts of the Work to be completed earlier than there otherwise would be under the extended Amended Schedule. Had Kemess not required Golden Hill to work despite unsatisfactory conditions and to apply additional resources to the Project, the Project would undoubtedly taken even longer to complete.
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I am satisfied that there has been both actual acceleration and constructive acceleration. Kemess ordered Golden Hill to recover time lost as a result of delays not caused by Golden Hill in order to complete parts of the Work before the contemplated extended date for the completion of that particular part of the Work. I am also satisfied that there has been constructive acceleration as Kemess did not accept that matters beyond the control of Golden Hill should result in more time being available to Golden Hill to complete that part of the Work.
Despite the attempts to exclude the possibility of compensation for delays that were caused by Kemess, GC 36.1 does give rise to claims for loss, damage or expenses incurred by Golden Hill as a result of delays and failure of performance that were caused by occurrences which were within the control of Kemess. I am satisfied that the principle of contra proferentum should be applied and that the attempt to exclude liability set out in GC 36.0 must be strictly construed and I am satisfied that the interpretation I have given to GC 36.0 must be implied at law as this interpretation is a necessary condition to the contractual relationship between owner and contractor.
CALCULATION OF DAMAGES FOR ACCELERATION
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Under GC 36.5, the cost must be “proven in detail by the contractor to the owner”. Kemess submits that no acceleration claim was made at the time the alleged acceleration occurred and no detailed claim for acceleration costs has been put forward by Golden Hill. Golden Hill acknowledges that it is not able to provide calculations of the costs of acceleration.
The failure to set out costs in detail is said by Kemess to be “fatal” to the acceleration claim of Golden Hill as Kemess submits that this is not a situation where the Court can “do its best” to calculate an award. Rather, this is a situation where Golden Hill is specifically responsible to account to Kemess for the costs of acceleration and it is not done so. In the circumstances, Golden Hill has failed to discharge its onus of proof: British Columbia Hydro & Power Authority v. Canada (Minister of Public Works and Government Services), [1996] B.C.J. (Q.L.) No. 2131 (B.C.S.C.).
There is nothing in GC 36.5 which requires an acceleration claim to be made immediately after acceleration has occurred. I am satisfied that the detailing of the costs can be done at a date which is convenient to Golden Hill.
Accordingly, the issue then raised is whether the lack of
detail is “fatal” to the acceleration claim of Golden Hill. I am satisfied that it is not.
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I am satisfied that Golden Hill has provided sufficient detail with respect to the costs it claims and has proved its losses due to acceleration with reasonable certainty. The types of additional costs necessarily incurred by Golden Hill as a result of the acceleration of the Work include: (a) the cost of additional overtime associated with the shifts which were longer than 10 hours after the end of August; (b) additional supervisory costs as a result of the direction to increase supervisory staff and to work in three areas of the Site at once; (c) extra survey crew mobilized in August; (d) the lost productivity and additional cost of applying an accelerated effort in wet silty conditions, with limited Waste and Topsoil Dumps, rather than allowing Golden Hill to wait until the poor soils materials had partially frozen as Mr. Miller testified he wanted to do once he became aware of the actual soils conditions; and (e) performing the Work at a slower rate using different procedures and special equipment as well as the creation of additional work because of the double-handling of material, more Waste being created, cutting out Waste materials from what had previously been filled and the reconstruction of haul roads.
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Because the breaches of the Contract by Kemess, the tortious acts of Kemess, and the acceleration of parts of the Work by Kemess are numerous, it would be impossible to segregate what costs are attributable to what breach, what act, or direction to accelerate. In those circumstances and taking into account what has been provided by Golden Hill, I am satisfied that Golden Hill has provided “in detail ... the costs properly and necessarily incurred... for the accelerated parts of the Work and the costs which [Golden Hill]... would have incurred for those same parts to complete them by the extended time had the acceleration not been required.
Some commercial reality must be given to GC 36.5. If nothing else changes, it may well be possible to contemporaneously provide the necessary detail so that the costs “properly and necessarily incurred” can be compared against the costs which the contractor “would have incurred” for those parts that were accelerated if the contractor had been able to complete those parts within the extended time given and acceleration had not been required. However, it will rarely be the case that it will be possible to isolate those costs in a way which would satisfy an owner that the difference had been “proved in detail” for each separate requirement of acceleration.
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The proof is made even more difficult when other breaches of contract or tortious acts are contributing to the increased costs of undertaking the accelerated parts of the Work. It would be impossible to compare the cost of acceleration against the cost to complete the same parts of the Work if there had not been acceleration as the original cost of doing that part of the Work has been increased by the expenses caused by the breaches of contract and the tortious acts.
I am not satisfied that the damages available to Golden Hill for the breaches of contract and tortious acts of Kemess must be calculated in accordance with the principles set out by the following passage relied upon by Kemess: I.N.D. Wallace, Construction Contracts: Principles and Policies in Tort and Contract (London: Sweet & Maxwell, 1986), where the learned author stated:
In fact, it will usually not be easy to establish an acceleration loss, since against his immediate additional expenditure, the contractor will require to give credit for the additional output achieved –in other words, a loss will only arise if he can, first, prove that as a fact he did increase plant and labour, and secondly, that the output so achieved was less, per unit of plant and labour, than would have been achieved without acceleration and using the originally planned labour or plant.
Consequently, whether the contractor finishes on time (or late but earlier than would otherwise have been the case) there is in reality little or no
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difference between this claim and an ordinary loss of productivity claim due to disturbance – but in each case, of course, it will be necessary to show that the loss follows from an event for which the owner is legally responsible, such as change or breach of contract. (at p. 144).
Rather, I am satisfied that the usual provisions dealing with damages relating from breaches of contract or tortious acts should apply. In the circumstances of this case, I am satisfied that it is appropriate to limit the scope of GC 36.5 to a situation where damages accruing from concurrent breaches of contract or tortious acts are not present and to a situation where only one part of the work is accelerated. To do otherwise, would launch Golden Hill or any other contractor into an impossible accounting exercise.
Accordingly, it will be necessary to review the damages which are available to Golden Hill as a result of the breaches by Kemess of the Contract, the tortious acts of Kemess, and the acceleration which took place of the Work.
DAMAGES
INTRODUCTION – CALCULATION OF DAMAGES
Golden Hill claims that it has suffered losses as a result of numerous wrongful acts of Kemess, some of which constituted failures to pay amounts owing under the Contract, some of which constituted breaches of Contract, some of which
constituted tortious acts, and some of which can be characterized as both a breach of contract and a tortious act.
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Where Golden Hill has made concurrent claims against Kemess in contract and tort, it is entitled to the greater of the contract measure and the tort measure of damages: Cassels, Remedies: The Law of Damages, (Toronto: Irwin Law, 2000) at pp. 60-62; Central Trust Co. v. Rafuse (1986), 31
D.L.R. (4th) 481 (S.C.C.) at p. 522; B.G. Checo International Limited v. British Columbia Hydro and Power Authority (1993),
75 B.C.L.R. (2d) 145 (S.C.C.) at para. 37; and B.G. Checo International Ltd. v. British Columbia Hydro & Power Authority (1994), 109 D.L.R. (4th) 1 (B.C.S.C.) at p. 16.
In view of my findings relating to the concurrent liability in contract and in tort for a number of the matters complained of by Golden Hill, I am satisfied that Golden Hill is entitled to the tort measure of damages. Virtually all of what caused damage to Golden Hill arose as a result of breaches of contract as well as tortious acts. In those circumstances, I have not attempted to distinguish between the damages which would be available by virtue of the breaches of the Contract and the damages which would be available by virtue of the tortious acts. As well, I have found no liability for damages where there was a breach of contract but
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where there was not a tortious act. To the contrary, I have found either both occurred concurrently or that there were tortious acts but not concurrent breaches of contract.
The complexity of the relationship among countless small events which occur on a large project renders it difficult if not impossible to calculate with mathematical precision the financial impact of one particular wrongful act. The task becomes virtually impossible when numerous wrongful acts combine in a complex matrix with other contributing factors to cause overlapping and interrelated losses.
It is a long standing principle of law that, where liability is established and a loss is proved, the fact that it may be difficult to accurately calculate the loss does not relieve the wrongdoer from having to pay damages: Chaplin v. Hicks, [1911] 2 K.B. 786 (C.A.) at pp. 792-795; and Penvidic Contracting Co. v. International Nickel Co. of Canada (1975), 53 D.L.R. (3d) 748 (S.C.C.) at p. 756.
Davies, J. on behalf of the Court in Wood v. Grand Valley Railway (1915), 22 D.L.R. 614 (S.C.C.) at p. 618 and McEachern, C.J.B.C. in Scarff v. Wilson (1988), 33 B.C.L.R. (2d) 290 (B.C.C.A.) at p. 294 both observed that a difficulty in approaching damages cannot relieve the wrongdoer of the necessity of paying damages and that the judge must do “the
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best that he or she can”. In Scarff, supra, McEachern, C.J. stated: “I call this the judge’s common sense jurisdiction” (at p. 294).
This principle is frequently applied in construction cases by British Columbia Courts: TNL Paving Ltd. v. British Columbia (Ministry of Transportion and Highways) (1999), 46
C.L.R. (2d) 165 (B.C.S.C.) at p. 284; British Columbia Hydro & Power Authority v. Canada (Minister of Public Works and Government Services), [1996] B.C.J. (Q.L.) No. 2131 (B.C.S.C.) at p. 7; and British Columbia Hydro & Power Authority v. Marathon Realty Co. (1992), 89 D.L.R. (4th) 419 (B.C.C.A.) at pp. 424-5.
It is common in construction cases for trial judges to be called upon to:
allocate responsibility for the cost overruns on a project between the plaintiff and the defendant in rough percentages based upon the totality of the evidence, without having been provided with a detailed breakdown of the overrun: TNL, supra, at pp. 283 and 287 (where the Court assessed damages at $1,250,000.00, based on a total cost overrun of $1,924,000.00 and a conclusion that the plaintiff had contributed to some unquantified extent to
its losses); Opron Construction Co. v. Alberta (1994), 14
C.L.R. (2d) 97 (Alta. Q.B.) at pp. 298-9.
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determine the approximate percentage of the total delays on a project which were caused by the defendant’s conduct: TNL, supra at p. 287 and Foundation Co. of Canada v. United Grain Growers Ltd. (1997), 34 B.C.L.R. (3d) 92 (B.C.C.A.) at p. 101;
allocate fault for a particular loss between the plaintiff and the defendant: B.G. Checo, supra, at p. 9-
10 (50% of a claim was held to be recoverable based on a witness’s evidence that “he would say half” of a particular delay was caused by the claimable event as opposed to other delays.)
In Opron, supra, Feehan, J. concluded that:
To put a figure on each of these causes of loss is impossible. Any attempt to calculate the plaintiff’s claimable loss is so fraught with pitfalls that I would be foolish to attempt it.
Small things and minor decisions become major elements. There are so many contingencies that no matter how often I attack the problem, the final figures vary. I cannot put an exact figure on how much the plaintiff harmed itself with bid errors, unbalancing the bid, errors in production, errors in supervision, errors in labour and equipment utilizations, errors in scheduling, errors in subcontracting, errors relating to the plaintiff’s misrepresentation of the weather conditions, as well as many other actions or lack thereof which caused the plaintiff to lose money. I know that Opron’s
claimable loss is under one million dollars ($1,000,000). I know that it is somewhere above
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$750,000. I know that I will have to use round figures and approximates. I set Opron’s claimable loss at $875,000.00. (at para. 923)
Kemess summarizes its submission with the following passage from Foundation Co. of Canada v. United Grain Growers Ltd. (1995), 25 C.L.R. (2d) 1 (B.C.S.C.):
Even if the party discharges its burden of proof and establishes liability, the quality of that proof may make it difficult or impossible for the Court to award the full measure of damages sought. The consequence of that is that damages will be awarded in an amount that can be supported by the evidence that has been adduced, rather than the damages that might have been recovered had evidence in appropriate detail been maintained by the parties and available to the Court. (at p. 15)
Kemess submits that there should be an expression of judicial disapproval of the method by which plaintiffs such as Golden Hill present damages claims. Kemess relies on the following extract from I.N.D. Wallace, Construction Contracts:
Principles and Policies in Tort & Contract (London: Sweet & Maxwell, 1986) in that regard:
Regrettably the Penvidic case appears to show a laxity in applying first principles and the rules of pleading, and a readiness to rescue contractors from the consequences of putting forward damages claims in a form widely known to be unacceptable. It must be a question whether such a judicial attitude does not amount to a continuing encouragement for the advancement of unjustified monetary claims in
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construction disputes behind the screen of an alleged total loss. This impedes the desirable process of sensible resolution and settlement of those claims, encourages unnecessary litigation, and places the defendants in any proceedings at a serious disadvantage. ... The Penvidic case is not, of course, a total loss case, since that approach was explicitly rejected. The objection to it is that a figure which was no more than an assertion unsupported by credible evidence was accepted as the correct figure for damage, when the failure to provide proper evidence lay solely at the plaintiff’s door. (at p. 140)
I am not prepared to make the expression of judicial approval sought by Kemess. First, I am satisfied that there is ample authority to support Golden Hill’s position that such a detailed calculation is not necessary to prove damages: Begro Construction Ltd. v. St. Mary River Irrigation District (1994), 15 C.L.R. (2d) 150 (Alta.Q.B.) at p. 200; and Opron,
supra. Second, the British Columbia Court of Appeal has recently referred to Penvidic and employed its approach to damages: Cadbury Schweppes Inc. v. FBI Foods Ltd. (1999), 167
D.L.R. (4th) 577 (S.C.C.) and Miller Dredging Ltd. v. The “Dorothy Mackenzie” (1994), 98 B.C.L.R. (2d) 71 (B.C.C.A.). Third, I am satisfied that it would be inappropriate to disentitle Golden Hill to the damages properly attributable to Kemess even though it may be impossible to specify the direct costs flowing from the specific breach of contract, the tortious act or particular acceleration. I am satisfied that
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the “common sense jurisdiction” should prevail. Fourth, the task is made easier as I have found that Golden Hill did not contribute to the losses incurred as a result of the tortious acts of Kemess.
In the circumstances, the interests of Kemess are protected by the approach which has been taken by it. Kemess has attacked many of the specific costs claimed by Golden Hill within its total costs approach and, where appropriate, deductions have been made where inappropriate costs have been included in the total costs approach taken by Golden Hill.
While the onus is on Golden Hill to prove its damages, the approach taken by Kemess specifically probes the weaknesses of all of the costs claimed so that Golden Hill has been required to specifically prove what has been claimed.
In the calculation of damages in cases where there are multiple inter-related breaches, I am satisfied that it is appropriate to use the total cost overrun for the Project as a “starting point” for the assessment of damages.
GENERAL MEASURE OF DAMAGES IN CONTRACT
The measure of damages in contract is that amount necessary to put a plaintiff in the position it would have been had the contract been performed as agreed. A plaintiff is entitled to recover all direct costs flowing from the
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specific breach, any consequential indirect costs incurred by the plaintiff if other aspects of the work were affected by the breach, and the loss of projected profits on the contract, if the breach related directly to the performance of work under the contract: B.G. Checo International Limited v.
If the only breach of contract had been the breach by Kemess of the contractual term to disclose all relevant soils information, the purpose of a damages award would be to put Golden Hill, not in the position it would have been had there been good granular soils material all over the Site, but rather in the position it would have been had it known at the bid time that the soils at the Site would be silty and wet.
GENERAL MEASURE OF DAMAGES IN TORT
The purpose of a tort damage award is to place the plaintiff in the position it would have been had the tortious act not occurred. The Court considers what out of pocket losses (including indirect losses) the plaintiff would have avoided had the plaintiff known the true facts. These indirect losses may include acceleration costs which flow from the misrepresentation: B.G. Checo International Limited v.
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Once a loss has been established by showing the plaintiff’s reliance on a misrepresentation resulted in damages, if a defendant wishes to allege that a plaintiff would have entered into a transaction on different terms (terms which are usually hypothetical or speculative), the defendant has the burden of proof and the evidence to rebut this presumption in favour of the “no transaction” scenario must be concrete and not merely speculative: Rainbow Industrial Caterers Ltd. v. Canadian National Railway Co., [1989] 1 W.W.R. 714 (B.C.S.C.) at pp. 721-2; Webster v. Ernst
Hodgkinson v. Simms (1994), 117 D.L.R. (4th) 161 (S.C.C.) at p. 200.
A plaintiff need not state in evidence that he or she would not have entered into the contract had they known the true facts. If a plaintiff shows negligent misstatement, reliance, inducement and detriment, the plaintiff is entitled to all damages suffered: Rainbow Industrial Caterers Ltd., supra, at pp. 721-2.
In B.G. Checo, supra, the damages include B.G. Checo’s direct losses (including overhead of 10 percent and
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profit of 5 percent) and indirect losses (acceleration costs). The difference between this measure of damages and the contract measure of damages in that case was the profit on the additional work.
If I was to find that Golden Hill would not have submitted a bid if the true facts were known, Golden Hill is entitled to all of its losses on the Project including overhead (even losses causes by its own poor performance if any) but not to lost profits: Rainbow Industrial Caterers Ltd., supra, at pp. 721-2. I cannot make that finding. I am satisfied that Golden Hill would have entered into the Contract.
I find that Golden Hill would have increased its bid on the Contract had it known the true state of affairs.
Therefore, Golden Hill is entitled to direct and indirect losses flowing from the tortious acts including overhead and profit. As I have concluded that none of its losses were caused by its own negligence, no reduction of damages is warranted. Indirect losses would include such items as impact on other work of the additional work necessitated by the true situation.
THE CLAIM FOR LOSS OF PRODUCTIVITY
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Loss of productivity can refer to a failure to meet the projected production rate but, in a more general sense, it can also refer to a loss of efficiency in the performance of the work due to “constant changes in the planned sequence of work, increased over time worked, overmanning and congestion”: Dilcon Constructors Ltd. v. ANC Developments Inc. (1996), 28
C.L.R. (2d) 209 (Alta.Q.B.) overturned in part on other grounds, (2000), 6 C.L.R. (3d) 34 (Alta.C.A.).
As well, loss of productivity encompasses a loss of opportunity to better the original plan: Dilcon, supra, at p. 300; W.A. Stevenson Construction (Western) Limited v. Metro Canada Limited (1987), 27 C.L.R. 113 (B.C.S.C.) at p. 202.
A loss of productivity is often estimated by a trial judge doing the best he or she can on a percentage basis based on the evidence in general regarding the impact of the wrongful acts of the defendants on productivity: W.A. Stevenson, supra, at p. 195 and Precision Industrial Contractors Corp. v. Solid Rock Steel Fabricating Co. (1992), 2 C.L.R. (2d) 239 (B.C.S.C.) at pp. 256-7.
In Dilcon, supra, McMahon, J. concluded:
Quantification of losses arising from inefficiency or lack of productivity is always difficult. Once a
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wrong and resulting damage is proven, however, the quantum of those damages need not be measured by too fine a standard. Neither absolute precision nor absolute certainty will be achievable in the measurement of such damages. Difficulty in assessment is not a reason for denial of damages. (at p. 303)
Kemess submits that there is a “judicial disinclination” to award damages for loss of productivity as evidenced by the following statement in Foundation Co. of Canada v. United Grain Growers Ltd. (1995), 25 C.L.R. (2d) 1 (B.C.S.C.):
Macdonald J’s language [in Emil Anderson Construction Co. v. British Columbia Railway Co. (1988), 28 C.L.R. 90] illustrates the difficult nature of this type of claim. As opposed to an extras or an acceleration claim, a productivity claim is a claim for the marginal cost increases suffered by a contractor because of the faults of others. It is a claim that must be calculated by comparing what might have been or what productivity might have been achieved with what in fact occurred. The judicial disinclination to award damages for lost productivity is no doubt founded on the inherent unreliability of this type of analysis.
(at para. 721).
Kemess submits that, to the extent that Golden Hill failed to keep the necessary contemporaneous evidence of the impact of the factors which it says caused it to lose productivity, Golden Hill must bear the consequences of such lack of proof. To the extent that there is evidence that establishes that the acts or omissions of Kemess were the
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proximate cause of loss of productivity, the Court must then assess that loss as best it is able on the evidence which is available.
Golden Hill submits that its loss of productivity can be ascertained by comparing its expected productivity to its actual productivity achieved if the Court makes a finding that Golden Hill’s productivity expectations were reasonable or achievable. At the time of the Tender, Mr. Rudolph used an average expected rate of 300 loads per shift for a one scraper spread for the Millsite Access Road and 330 loads per shift for each one scraper spread for the balance of the Project.
Those expected production rates took into account factors such as expected soils, expected hall lengths, and weather.
It was the evidence of Mr. Miller that, with good granular material and in good conditions, his scraper spreads can each load, haul and unload 450 to 500 loads of soil per shift. The process of planning, calculating and adjusting productivity rates is something Mr. Miller has done on a daily basis for almost 30 years and I am satisfied that his testimony in this regard should be accepted.
I find that the average productivity rates at bid time were conservative in relation to the capabilities of the resources of Golden Hill. In this regard, there was no
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evidence critical of Golden Hill’s expected production rates adduced from any persons who had been on the Site during the operations of Golden Hill.
Kemess sought to qualify Olav Naas as an expert in construction tendering practice, construction estimating and construction operations. I subsequently ruled that Mr. Naas was not qualified to give expert evidence about construction operations. With respect to construction estimating, Mr. Naas was qualified as an expert but with the caveat that I was less than satisfied that he had “... current familiarity or habitual familiarity in the 1990s with the component parts of putting together those bids and tenders ....” Mr. Naas was critical of the assumptions of Golden Hill and Mr. Rudolph. I do not share his criticisms.
I am satisfied that considerable weight must be given to the expected productivity of other bidders on the C101 Contract. Because of the expertise of those other bidders and because of the more extensive current knowledge of Mr. Miller, I have no hesitation in giving greater weight to the evidence that is presented from these sources in preference to the opinion of Mr. Naas. Attached as Appendix
10 to the submissions of Golden Hill was a calculation of the approximate expected productivity of all of the other bidders
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using the data summarized in the Kilborn “rationalization” sheets. These comparisons show that the expected productivity of Golden Hill was not “out of line with” the expectations of the other bidders.
That comparison shows the following:
Golden Hill | North American | Tercon | Ledcor | |
Total Cubic Metres of Material | 1,577,803 | 1,652,590 | 1,346,235 | 1,550,753 |
Total man days | 4,900 | 5,640 | 2,792 | 3,600 |
Productivity (cubic metres per day) | 316.2 | 293.0 | 482.2 | 430.8 |
While there is no evidence regarding the production rates assumed by the other bidders, whether some of the man days related to non-production versus production days, and while the comparison does not take into account the fact that the unit prices of the other bidders were significantly higher, this comparison does provide assistance. I am satisfied that it shows that the productivity contemplated by Golden Hill is at the low end of the productivity contemplated by the other bidders all of whom are experienced bidders and all of whom would be expected to have realistic productivity estimates.
While there was considerable variation between the bidders relating to the anticipated volume of material at the
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fives areas at the Project, the overall comparison of total anticipated volumes shows that Golden Hill’s expected productivity was the second lowest of the four bidders.
I am satisfied that Golden Hill was correct in describing the attempts of Mr. Naas to discredit the estimated productivity figures of Golden Hill as having “been based on outdated information and limited experience with modern scrapers”.
The actual production of Golden Hill varied from day to day but a summary of loads taken from Daily Construction Reports shows the following average number of loads per shift per spread of equipment was: 87.4 (August); 115.7 (September); 137.2 (October), 117.8 (November), and 110.9 (December).
Taking into account that Golden Hill usually had two spreads of equipment working at any particular time, these production rates are considerably less than 50% of the expected rates. The actual time spent to accomplish most of the Work was more than double the time Mr. Rudolph estimated and expected his personnel would spend on the Work. Since the vast majority of the costs of Golden Hill on this Project were time-related, the financial impact of the loss of productivity produced costs that were more than double than what was
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realistically expected. Coincidentally, Golden Hill is claiming approximately double what it originally bid and what it has been paid to date.
Another way of reviewing this matter is the anticipated man days to complete the Project. Golden Hill anticipated spending 4,900 man days. 8,490 man days were actually spent to perform the Work. Even after taking into account some deletions of Work, the failure of Golden Hill to complete all of the Work and the fact that man days include times when the personnel were not actually working, the number of man days is again roughly double what was originally estimated by Mr. Rudolph.
The cause of the loss of productivity is best illustrated by the amounts of Waste that were encountered as opposed to the Waste that was estimated taking into account that Golden Hill’s estimates of Waste were higher on average than what was contained in the other bids. The Waste comparison is as follows:
Airstrip | Expected Waste | 20,000 m |
Actual Waste | 133,063 m or 665% of expected waste | |
Millsite | Expected Waste | 40,000 m |
Actual Waste | 445,085 m or 1112.71% of expected waste | |
Campsite | Expected Waste | 3,000m |
Actual Waste | 12,900 m or 430% of expected waste |
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I am satisfied that the loss of productivity can be attributed to the actual soil conditions encountered, the weather, the breaches of contract by Kemess, the tortious acts of Kemess, the acceleration of part of the Work by Kemess and the need for Golden Hill to attempt to work with the material found on the Site because of the directions received from Kemess.
At the Airstrip, Mr. Miller estimated that the top-loading of scrapers was taking four to six times the time anticipated (3 to 4 minutes rather than 40 seconds). At the “unloading” stage, Waste could not be spread by scrapers but had to be dumped into piles by trucks or scrapers and then spread out in the Waste Dumps with a bulldozer. Because of the small size of the Topsoil and Waste Dumps, the Waste then had to be “stacked” in the Waste Dumps using one or sometimes even two excavators.
Because payment under the Contract was for material moved, the more equipment that was involved in handling the Waste after it had been taken out of the excavation and the slower the process to get it to its final location in the dump, the greater the cost to Golden Hill in dealing with the Waste. Golden Hill was not paid for this additional work. As well, Golden Hill was not paid to move material that had been
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placed as Fill but subsequently had to be removed as it had deteriorated due to its silty nature and the impact of the weather.
The loss of productivity caused by the acts of Kemess resulted in a significant portion of the Work being performed in winter conditions even though Golden Hill had been required to accelerate its efforts. While this allowed Golden Hill to work more efficiently with some of the silty wet soils that were now frozen, Golden Hill did not bid the Project on that basis.
Golden Hill could not take into account the additional time and costs associated with working in winter conditions including factors such as: (a) the need to constantly remove snow from work areas; (b) the need to “rip” frozen material; (c) the additional compaction effort required to achieve compaction densities; (d) the freezing of scraper bowls with damp material requiring removal of frozen material with bars and sledgehammers roughly twice a shift; and (e) the increased equipment starting and breakdown problems.
In D.W. Matheson & Sons Contracting Ltd. v. Canada (A.G.) (1999), 175 N.S.R. (2d) 201 (N.S.S.C.) [aff’d (2000), 3
C.L.R. (3d) 22 (N.S.C.A.)], Moir, J. concluded:
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The added cost of performing under winter conditions is well within the limits imposed by the rule respecting remoteness.... The expense of performance was increased to the extent that winter work was less efficient and more costly to Matheson. It’s expenditures for the additional labour and the additional cost of operating equipment are, therefore, recoverable as out-of-pocket expenses occasioned by the Government’s breach.
(at para. 150).
I am satisfied that the loss of productivity resulted in a loss of efficiency in the performance of the Work as well as the loss of the opportunity by Golden Hill to improve upon the original plan for the Work. Subject to the deductions that I make regarding the total costs approach taken by Golden Hill, I am satisfied that the total costs approach taken by Golden Hill is the only way that damages can be established given the complicated matrix of breaches, acts and acceleration orders which I have found.
Accordingly, I start with the propositions that the total costs of Golden Hill on this job were $14,429,481.61 as claimed by Golden Hill and that Golden Hill has been paid a total of $6,010,293.09 (excluding G.S.T.) to date. The damages to which Golden Hill is entitled will be the difference between the two figures less any reductions in the total costs claimed by Golden Hill which are not appropriately charged to this Project.
TOTAL COSTS CLAIMED
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The total cost approach is based on the premise that all of the costs of Golden Hill over and above payments received are costs which are properly claimed from Kemess.
However, from the total costs claimed, cost over-runs which were not caused by Kemess must be subtracted. Ordinarily, the first set of costs to be subtracted would be those costs associated with losses caused by Golden Hill. I find that those damages are nil so that no such subtraction should be made. The second type of damages which should also be subtracted are those which are properly not chargeable by Golden Hill against the Project. Kemess has raised a number of those expenses in that second category and so it will be necessary to review those proposed adjustments. Before doing so, I will first review the recordkeeping system of Golden Hill.
CONAC SYSTEM OF GOLDEN HILL
Golden Hill used the CONAC Accounting System. The system is an integrated computer software package commonly used as a management tool by construction companies to simultaneously perform multiple accounting functions such as payroll, accounts payable and tracking of project costs.
Under the CONAC System, when data entries for payroll or
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accounts payable were made, those entries were coded simultaneously to a project number so that the project cost could be tracked. The data entries were also coded to cost categories, activities and sub-activities. The cost categories employed by Golden Hill are: CA (Camp); CS (Casual Labour); FR (Freight); GA (Gas); IN (Insurance/Permits); LA (Labour); MA (Material); OF (Office); RB (Room and Board); RE (Rental); RM (Repair and Maintenance); SC (Subcontractors); SS (Supplies and Small Tools; TR (Travel).
There are two source documents for the data entry: invoices and employee time cards. Regarding the invoices, it was the practice of Mr. Rudolph to personally open all of the Golden Hill mail. He testified that he conducted an initial review of each invoice to determine whether it was appropriate for payment, he gave all payable invoices to the accounts payable clerk to be marked with a hand written code and to be entered into the CONAC System, cheques were then generated on a monthly basis based on the data entered into the CONAC System, a manual verification of the amounts was performed by the accounts payable clerk, and cheques and invoices were reviewed by Mr. Rudolph before the cheques were signed by him. To the extent that the invoice represents legitimate charges
from third parties to Golden Hill, I find that the data entered into the CONAC System was reliable.
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Regarding the time cards, the source of the data for the CONAC System is employee time cards which form the basis of payment of the wages and salaries of Golden Hill employees. Time cards are filled out by employees on a daily basis.
Employees write in their name, the date, the hours worked, some description of the work undertaken, and (sometimes) the project number. Those time cards were forwarded to the Whitehorse Office of Golden Hill on a weekly basis. The payroll clerk in Whitehorse received the time cards and entered some or all of the following information in the CONAC System: The project number, the equipment number, activity code and sub-activity code. If there is no project number on a time card when it arrived, the payroll clerk manually entered it on the time card after speaking to the superintendent to ensure that the correct project number was recorded. At the end of each pay period, a pay cheque was generated based on the data entered into the CONAC System and previously inputted information regarding wage or salary rate, percentage of holiday pay, basis of over-time pay and percentage of source deductions. Each cheque and the back up cards was then reviewed by Mr. Rudolph before he signed the
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pay cheques. To the extent of the names, the dates, the hours worked and some description of the work undertaken, I find that the data entered into the CONAC System was reliable.
Richard Purcell, CA is the former auditor for Golden Hill. Mr. Purcell was called as a witness for Golden Hill.
He had recommended the purchase of the CONAC Accounting system to Golden Hill. He stated that it was used by other contractors and that he considers it a good, reliable system. However, he confirmed that his ability to track costs and revenue was only as accurate as the data inputted.
TOTAL EQUIPMENT HOURS OF EQUIPMENT OWNED BY GOLDEN HILL
There are a number of inconsistencies between the figures produced by the CONAC System and the submissions made by Golden Hill regarding the total equipment hours claimed.
Golden Hill urges the Court to conclude that the total equipment costs recorded in the CONAC System ought not to be given any weight and that the court should prefer the summary of equipment costs prepared for the specific purpose of this litigation even though those costs are approximately
$660,000.00 higher than what is reflected in the CONAC System. Golden Hill submits that the higher figure should be preferred because the CONAC numbers are based on time cards which may
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not be reliable, the CONAC numbers include rental units resulting in double counting of costs, and there is a more reliable source for the hours namely the Daily Construction Reports which are completed by supervisory staff.
However, while all of the time cards in evidence have equipment numbers recorded on them, there are a number of errors on the Daily Construction Reports. Kemess submits that this should cast doubts on the submission of Golden Hill that the Daily Construction Reports are a more accurate reflection of hours than the information which is recorded in the CONAC System.
There was an agreement between the parties that “the hours recorded in the Equipment Summary Sheet reflect the hours recorded into the Daily Construction Reports and are the actual hours that Golden Hill’s equipment worked, subject to issues regarding coffee breaks and equipment maintenance breaks within the shift period.”
I ruled that Kemess could not resile from the portion of the agreement that the Equipment Summary Sheet reflected the hours recorded in the Daily Construction Reports but that it was open to Kemess to challenge the accuracy of the summary and to urge upon the Court that there was a
different, more reliable source for the equipment hours. That was not subsequently undertaken or accomplished by Kemess.
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Accordingly, pursuant to the agreement reached between the parties and to the evidence, I am satisfied that the hours recorded in the “Equipment Summary Sheet” reflecting the hours recorded in the Daily Construction Reports accurately sets out the actual hours that Golden Hill’s equipment worked on the Project.
The “Equipment Summary Sheet” itemizes each piece of equipment and sets out the total hours that the particular piece of equipment worked on the Project. The total equipment hours are 40,441 which, when multiplied by the internal rates used by Golden Hill, amounts to an operating cost of
$3,152,470.00. The total hours and operating costs for rented equipment are also shown. The total hours amounted to 16,301.5 hours for total operating costs for rented equipment of $1,922,352.74. The total hours and costs for all equipment are 56,742.5 hours and $5,074,822.74.
RENTAL EQUIPMENT HOURS
Regarding the rental equipment, Kemess points out that a comparison of the hours billed by third party rental companies for the time based charges with the Daily Construction Report Summary of hours prepared by Golden Hill
for litigation purposes shows that the summary is not an accurate reflection of the time spent by each rented machine.
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Kemess submits that I should prefer the Job Cost Report generated by the CONAC System as this Report would have used the actual equipment hours and internal rates in effect at the time Golden Hill was bidding and undertaking the Work, as the records were made and kept in the ordinary course of business, as there was no reason to inflate anything at the time the records were made, and as Golden Hill’s own internal accounting system ought to be preferred over the summary that was prepared for trial purposes.
Taking into account these differences, Kemess submits that the total equipment hours should be 51,923.9 hours rather than 56,742.5 and that the total equipment costs should be reduced accordingly.
The agreement reached between the parties dealt with the equipment owned by Golden Hill as well as equipment rented by Golden Hill. As no application was made by Kemess to withdraw the admission made, in view of the agreement reached between the parties, and after a review of the evidence, I hold that Golden Hill is entitled to proceed on the basis of the agreement reached.
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To do otherwise would be to allow Golden Hill to reopen its case in order to call evidence that was not called on the assumption that Kemess might later apply to withdraw its admission. Accordingly, I find that the total hours and operating costs for Golden Hill equipment as well as the total rental costs of rented equipment are 56,742.5 hours and
$5,074,822.74, which are the amounts claimed by Golden Hill.
ADJUSTMENTS WHICH SHOULD BE MADE
Golden Hill submits that certain adjustments should be made to the total costs claimed and Kemess submits that certain amounts should be subtracted. Over and above the direct costs owing, Golden Hill claims entitlement to profit of 5%. The adjustments requested are reviewed as follows.
G.S.T. IN THE CONAC SYSTEM
Golden Hill states that the costs captured in the CONAC System exclude G.S.T. but Kemess points to a number of examples where it submits that G.S.T. appears to have been included.
After reviewing the invoices said not to separate out G.S.T., I am satisfied that G.S.T. was separated as a matter of course. I am satisfied that an amount for G.S.T. was not included in the costs summarized in the CONAC System.
I am satisfied that only figures net of G.S.T. were added into the total cost claims advanced by Golden Hill.
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LABOUR COSTS ($213,345.40 CLAIMED BY GOLDEN HILL)
Golden Hill submits that the costs included in the labour codes in the CONAC accounting system are the gross wages but do not include the employer’s contributions for CPP, UI, and WCB which are 1 percent, 1.4 percent and 6.48 percent respectively. In addition to the total labour costs of
$2,402,538.30, Golden Hill claims a further employer’s payroll cost of $213,345.40. Golden Hill submits that this amount would have been included within the overhead allowance of 10% of direct costs claimed.
This payroll burden is a recognized component of wage costs in the construction industry. Golden Hill submits that it is appropriate to allow this mark up for actual wages before adding an overhead allowance: British Columbia Hydro & Power Authority v. Canada (Minister of Public Works and Government Services), [1996] B.C.J. (Q.L.) 2131 (B.C.S.C.) and
Kemess submits that Golden Hill has not led evidence as to how much it expected to pay for these items in its bid
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(either in a global sense or even as a percentage of wages) so that the Court is unable to determine how much of this was expected at bid time. Kemess also submits that Mr. Rudolph could only “guess” what the WCB rate was when he stated that he “believed” it was either 6.38% or 6.4%, that the papers of the auditor of Golden Hill reflect a WCB rate of 3.65% and that neither of the cases cited by Golden Hill involved a bid which provided for the “overhead” allowance to already include mark ups for payroll burdens.
There was an agreement between the parties that the narrative statements contained in the auditor’s report were not admissible as business records and, accordingly, I am satisfied that I should treat WCB rates as being 6.38%.
However, I am not satisfied that the sum of $213,345.40 should be added to the direct costs of Golden Hill while, at the same time, allowing 10% of that amount in any allowance for overhead. Golden Hill should be bound by the testimony of Mr. Rudolph that these labour costs were included within the overhead allowance in the bid. Golden Hill has not proven on a balance of probabilities that it intended that the 10% overhead allowance was to apply against this component of wage costs. Accordingly, the sum of $213,345.40 should be subtracted from the costs claimed by Golden Hill.
FREIGHT COSTS ($100,000.00 CLAIMED BY GOLDEN HILL)
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[1000] Golden Hill submits that the Job Cost Reports do not capture any equipment costs associated with the use of Golden Hill’s trucks and trailers to transport the construction equipment to be used on the Project to and from the Project (a distance of about 1,000 miles). The Job Cost Reports record the labour component which is paid by the hour for off-highway travel and by the mile for on-highway travel. However, the Job Cost Reports are said to include the off-highway but not the on-highway portion cost to mobilize and demobilize. As well, the Job Cost Reports do not include the cost of any fuel removed from the Golden Hill fuel tanks in Whitehorse or from other Golden Hill project sites on the way to the Project. In this regard, drivers were instructed to use this fuel as it would cost less than fuel purchased at commercial stations.
[1001] Golden Hill has no ability to track these two types of costs but they are estimated by Mr. Rudolph to have been about $100,000.00 (based on his knowledge of the Project).
Golden Hill points out that this amount was not challenged in cross-examination. Golden Hill claims that this amount should be included within the direct costs and that the 10% overhead claimed should then be based on the direct costs including this amount.
[1002] I am satisfied that Golden Hill has not proven the
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$100,000.00 amount on a balance of probabilities. First, I am satisfied that Golden Hill should be kept to its original bid costs and subsequently negotiated rates for mobilization and demobilization. Second, there was no evidence that this cost was not included within the original mobilization and demobilization cost within the bid or as subsequently paid by Kemess for the additional equipment which was mobilized.
Third, there was no real evidence before me to substantiate the claim of $100,000.00. As well, it was the evidence of Mr. Rudolph that this amount would be included within the overhead percentage claimed. Accordingly, it is not appropriate to include the $100,000.00 as a direct cost before applying the claimed 10% overhead.
EQUIPMENT COST ($1,455,292.00 REDUCTION CLAIMED BY KEMESS)
[1003] The agreement reached by the parties was that the equipment of Golden Hill (40,441 hours) and the rented equipment (16,301.5 hours) was an accurate reflection of the hours that the equipment worked but that agreement was “subject to issues regarding coffee breaks and equipment maintenance breaks within the shift period”. The question which arises is whether the equipment was being operated for the full 11 hours of the shift which included a 30 minute
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lunch break, for 10.5 hours which excluded the 30 minute lunch break but included two 15 minute coffee breaks, or for only 10 hours per shift.
EQUIPMENT RUNNING TIME EACH SHIFT
[1004] Golden Hill points out that the operators left their equipment running during the 2 coffee breaks and often during the lunch breaks and in colder weather even between shifts.
When the equipment was running, the meters on the equipment which were recording hours were also running. Golden Hill also submits that the equipment was serviced between shifts and that, prior to the start of each shift, operators spent approximately 5 minutes to perform a “walk-around” inspection of their equipment so that this equipment running time would not be recorded. Against this, any down time due to mechanical breakdowns was not recorded in the Daily Construction Reports.
[1005] Because the equipment of Golden Hill was running during the coffee breaks, Golden Hill submits that it is appropriate that the full 10.5 hours recorded in the Daily Construction Reports be employed to calculate the equipment hours for the Project. In fact, Golden Hill submits that its claimed hours are actually understated by at least 5% (the ½ hour lunch break for each 10 hour shift) resulting in an
understatement of Golden Hill’s equipment costs of
$160,000.00.
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[1006] I reject the submission of Kemess that Mr. Rudolph allocated his costs on the basis of when the machine was being employed in the Work as I am satisfied that he allocated his costs on the basis of when the machine was running. However, I am not satisfied that it is appropriate to reflect equipment running for the full 10.5 hours per shift. While I find that some of the equipment was running during coffee breaks and lunch breaks, that equipment was often left running between shifts in colder weather, and that there was some additional running time at the beginning of shifts, I cannot be satisfied that Golden Hill has proven on a balance of probabilities that this extra running time would be equal to 30 minutes for each piece of equipment for each shift.
[1007] I am satisfied that the Daily Construction Reports do not present sufficient precision to allow the daily inclusion of another half hour of equipment running time for each shift for each piece of equipment. I am also not satisfied that I received sufficient evidence from those who were actually supervising the workers on the Project regarding the average working hours per day.
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[1008] Accordingly, I am satisfied that the total number of hours should be adjusted to reflect 10.0 hours per shift rather than 10.5 hours per shift. The total number of hours for each piece of equipment was multiplied by the “internal rates” used by Golden Hill. Accordingly, the total number of equipment hours of 56,742.5 should be reduced to reflect 10.0 hours per shift rather than 10.5 hours per shift. The adjusted amount then should be multiplied by the internal rates which were in operation. I will do that calculation after dealing with the question of whether the internal rates used by Golden Hill are appropriate or not.
USE OF “INTERNAL RATES”
[1009] Much of the claim of Golden Hill is premised on the use of its “internal rates” as it is these rates which are multiplied by the hours that each of their pieces of equipment was in operation in order to produce the $3,152,470.00 which is claimed for Golden Hill equipment.
[1010] Kemess agrees that the internal rates of Golden Hill are a reasonable basis on which to determine its costs providing two conditions are met: (a) those were the rates used by Golden Hill in its bid; and (b) the rates are accurate, in the sense of being a “fair approximation of the actual cost of providing and operating equipment at a normal
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construction site.” (per the decision in D.W. Matheson & Sons Contracting Ltd. v. Canada (A.G.) (1999), 175 N.S.R. (2d) 201 (N.S.S.C.) affirmed (2000), 3 C.L.R. (3d) 22 (N.S.C.A.).
[1011] Golden Hill has been using hourly internal rates for bidding and cost tracking purposes since the late 1980s. The internal equipment rates set out in the CONAC System are established pursuant to instructions received from Mr. Rudolph who stated that he reviewed the rates periodically and changed them from time to time.
[1012] Mr. Rudolph testified that the purpose of the internal equipment rates was to internally record the cost of using Golden Hill owned equipment on a project. He stated that internal rates are intended to include costs during the life of the equipment such as ownership costs, depreciation, major component replacement and the ultimate replacement of the equipment. It was also the testimony of Mr. Rudolph that, on this bid, he also included within his unit rates many of the costs that the other bidders included within their estimates for monthly charges. He confirmed that his estimate of $25,000.00 per month for indirect costs was based on this premise.
[1013] Mr. Rudolph testified that he does not undertake a detailed calculation of components based on actual or expected
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costs in order to set his internal equipment rates because, until each piece of equipment is sold, Golden Hill would not know its actual costs. Rather, the rates are based on the past experience of Mr. Rudolph as well as reference to rental rates charged by equipment rental companies for equivalent equipment.
[1014] Mr. Rudolph stated that he usually tried to be “a little lower than” or “close to” rental rates charged by equipment rental companies. He referred to these external rental rates as a “double check of the industry standards”. While he recognized that outside rental rates would include profit, he also was of the belief that this profit was offset by the fact that rental companies could purchase equipment more inexpensively than could Golden Hill.
[1015] In my view, Kemess gave unnecessary attention to the fact that Golden Hill reviews its internal rates against what it would have to pay an outside agency to rent similar equipment. Kemess submitted that Mr. Rudolph confirmed that the internal rates are really “rental rates” designed to approximate what an outside rental agency would charge Golden Hill. However, that is not exactly what Mr. Rudolph stated at Trial. He was asked the following question and gave the following answers:
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A: Well, that’s not an exact science of what the costs are. I mean, that’s a number that I put in there that’s somewhat representative of a rental rate, which would include covering your costs of that machine. But it has some flexibility depending on the type of job and things like that, so it’s –- I don’t use an exact science of you know adding it up and being exactly precise.
Q: And when you say somewhat representative of a rental rate, what you’re indicating is that is the rate that you would have to pay if you went out and rented a piece of that machinery?
A: A similar rate, something close to an outside rental.
[1016] I am satisfied that Mr. Rudolph did not merely assign the cost of Golden Hill renting a piece of equipment from an outside agency when setting his internal rates.
Rather, I am satisfied that it was merely a means by which Mr. Rudolph attempted to verify that the internal rates that he was using were realistic.
SHOULD REPLACEMENT COSTS BE INCLUDED?
[1017] Mr. Rudolph created considerable confusion regarding what was and what was not included within the internal rates of Golden Hill. At one point in his testimony, he stated that it included “ownership costs, ownership depreciation, replacement, as well as major component replacement”. In another place, he stated that: “The ownership costs are the costs to go out and buy that piece of equipment and then the
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depreciation is part of that, and you have to have a reserve at the end of its useful life to be able to replace that piece of equipment. So there is an ownership cost associated with that, of the actual cost to replace that machine”. In another place, he stated that it was “not necessarily the purchase price that I paid for that machine. All I was saying was in generics that you include the price of the machine to be able to go out and purchase that machine”.
[1018] Later he indicated that the cost did not include a “reserve component”. Mr. Rudolph confirmed that, while it was intended to provide a reserve of funds available to replace the piece of machinery at the end of its useful life, Golden Hill has not replaced any of the machinery that it used on the Kemess job and had neither a financial nor an internal account set up to allocate or collect this reserve.
[1019] The former Golden Hill auditor, Mr. Purcell, testified that he had never had any discussions with Mr. Rudolph about setting aside money for replacing of equipment.
[1020] Mr. Rudolph stated that the cost of replacing major components was not generally coded to a particular project in the CONAC accounting system. Rather, it was coded to a particular equipment unit number. Major components include such items as engines, transmissions, differentials, scraper
hitches, and tractor under-carriages. Major component costs for heavy construction equipment are not insignificant.
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[1021] Mr. Rudolph agreed that some of the internal equipment rates used in its submissions were not accurate. For instance, unit 408 should have been $62.00 per hour not
$80.00 per hour and unit 709 should have been $35.00 per hour not $70.00 per hour. As a result, Golden Hill amended the amounts claimed for equipment costs set out in its Submissions.
[1022] There was considerable evidence led regarding the question of whether or not the unit rates should include the funds that must be set aside to eventually replace equipment. Golden Hill submits that the use of internal equipment rates to include a means to set aside funds out of revenue to replace equipment as required at the end of the useful life of equipment was approved by Brenner, J., as he then was, in Tercon Contractors Ltd. v. British Columbia (Ministry of Transportation & Highways), [1994] B.C.J. (Q.L.) No. 1636 (B.C.S.C.).
[1023] Kemess points out that the effect of including a “replacement reserve” is to allow a profit to the contractor over and above its cost for that machine with this profit allocated to buying the next machine but available in general
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revenue for distribution to the shareholders. Kemess submits that Golden Hill is asking Kemess not only to pay for the machines used on the job but also to pay for their replacements. Kemess submits that this is not a “cost” which should be born by Kemess.
[1024] Kemess distinguishes the decision in Tercon Contractors Ltd. v. British Columbia (Ministry of Transportation and Highways), [1994] B.C.J. (Q.L.) No. 1636 (B.C.S.C.) on the basis that the case involved a lost tender and therefore the issue was what revenue Tercon would have received compared to its costs. Kemess points out that the case at bar is not one of lost opportunities but it is one of alleged damages. Kemess submits that damages should not include any portion of the internal rental rate that constitutes the “replacement reserve” if the Court accepts Mr. Rudolph’s evidence that some portion of his internal rate was intended for that purpose.
[1025] Mr. Barke provided an opinion on behalf of Kemess as to the appropriate internal rates that should be used for the equipment of Golden Hill and was of the opinion that the internal rates should not include a replacement component in the rates because it was not a real cost because it was based on a future event which might not happen. Mr. Barke was of
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the opinion that a replacement cost only became an actual cost when the piece of equipment was replaced. However, he did agree that the depreciation component should be included even though it was not an actual cost but rather an accounting deduction.
[1026] Mr. Ostermann was called as a rebuttal witness on behalf of Golden Hill. The rates projected by Mr. Ostermann included a “technological advancement factor” which took into account that replacement equipment usually represented considerable technological improvement over the equipment that was being replaced. Under cross-examination, Mr. Ostermann admitted that he was not trying to calculate the actual costs of Golden Hill but was using an internal rate system that his former employer had adopted in order to review whether or not the internal rates used by Golden Hill were reasonable or not.
[1027] After reviewing the evidence of Mr. Rudolph, I am satisfied that he did include a replacement component within his internal rates. After reviewing the testimony of Messrs. Rudolph, Ostermann and Barke, I am satisfied that it was appropriate to do so. Mr. Ostermann was also called as an expert witness in the Tercon Contractors Ltd., supra, trial. In that decision, the Court accepted the evidence of Mr.
Ostermann that equipment costs include the following elements:
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(a) equipment replacement cost accrual; (b) cost of deferred disposal or interest on invested capital; (c) reduction in salvage value if the company was going out of business; and
fixed ownership costs. In the context of work that was lost to Tercon, the Court held that Tercon was entitled to be compensated for “rental” as well as “margin” revenue which Tercon would have received in respect of its equipment had it performed the work:
Tercon was deprived of the opportunity to recover those ‘costs’ and to set aside the appropriate portion of the revenues from this contract for the purposes identified by Ostermann. Internal rental is not an out of pocket cost of performing the work; rather, it is the amount out of revenue which Tercon would have received and which it would have been able to set aside for all of the purposes identified by Ostermann. (at para. 46).
[1028] In this case, Golden Hill was deprived of revenue not available for a number of corporate purposes including being earmarked for equipment replacement cost if the internal rates of Golden Hill reflected only the fixed ownership costs of running the equipment while it was on the Site. I am satisfied that it is appropriate for the internal rates of a contractor to reflect a component to be set aside for the ultimate replacement cost of the equipment being used. A reserve account for replacement cost is a legitimate expense or cost of doing business although it is not necessarily an
actual cash outflow in any particular year. It is an item like depreciation.
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WHAT RATES WERE USED?
[1029] In reviewing the claim of Golden Hill, Kemess notes that Mr. Rudolph admitted during cross-examination that the equipment rates he used in his bids “may not coincide” with Golden Hill’s internal rate and that the best he could say was that they were “similar”. Kemess submits that the direct examination of Mr. Rudolph when he was testifying how he prepared his bid for the job made it apparent that Mr. Rudolph did not use the internal rates now being claimed but that he used lower numbers. Kemess submits that, unless Golden Hill can prove to the Court on a balance of probabilities that it bid the job on the basis of the present internal rates, it would be “manifestly unfair to make an award based on them”.
[1030] Kemess points out that there were various versions of the internal rates depending on which documents are reviewed. Kemess points out that Mr. Rudolph could not say whether the rates in the computer now were the same as the rates that were in the computer in 1996. He could only say that “I don’t believe they were changed” However, it appears to have come out in cross-examination that these rates changed considerably since Golden Hill bid the project in 1996.
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[1031] As a result of document production orders made during the course of the Trial, various computer printouts and “equipment inquiry reports” were produced. Kemess submits that these documents show that Golden Hill had different equipment rates for units depending on what activity the units were undertaking and that the claimed internal rates were inflated for trial purposes as the rates which were actually in the CONAC System at the time of the Kemess job were lower than those now being claimed. The differences were summarized in Appendix 9 of the Submissions of Kemess and are said to total an overstatement of $414,872.00. It was the testimony of Mr. Rudolph that one of the rates (Unit number 515) was incorrect so that the overstatement submitted by Kemess should be reduced to $283,765.00. I cannot conclude that Mr. Rudolph is correct in that regard and, accordingly, I accept the calculations of Kemess.
[1032] There were considerable differences between the pre-C101 Contract internal rates and the materials that were presented on behalf of Golden Hill relating to the internal rates used to calculate the damages of Golden Hill. I am satisfied that the pre-C101 Contract internal rates should be used as there is no evidence before me that the rates changed between the time of the bid and the completion of the Work by
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Golden Hill or that the parties agreed that the equipment rates would change during the currency of the Contract. In the circumstances, I find that the equipment costs claimed by Golden Hill for its equipment used on the Project should be reduced by $414,872.00.
DID THE RATES INCLUDE PROFIT?
[1033] Kemess submits that the internal rates generate sufficient funds to purchase the equipment in the first instance, to pay all of the repair and maintenance costs throughout including major overhaul items as well as producing significant profit to Golden Hill.
[1034] Kemess submits that this latter fact is made even more significant by the fact that Golden Hill still has all of the equipment working. Kemess submits that the results summarized in Appendix 10 of their Submissions strongly suggest that the “internal rates” of Golden Hill include a very significant profit component in them.
[1035] Kemess also has compared the original purchase price and the recovery requested by Golden Hill to show that what Golden Hill wishes to recover is far in excess of the original purchase price plus all repair and maintenance costs:
EQ. # | Gross Cost Recovery | R & M Expenses (gross- net) | Net Cost Recovery | Agreed to Purchase Price | Excess Recovery | Total Recovery |
302 | $120,142 | -$73,264 | 46,878 | 235,000 | - | - |
188,121.52 | $188,122 | |||||
404 | $763,778 | -$126,000 | 637,778 | 235,000 | 402,778.00 | $402,778 |
408 | $345,280 | -$39,217 | 306,063 | 283,123 | 22,940.00 | $208,940 |
501 | $288,755 | -$73,529 | 215,226 | 58,315 | 156,910.71 | $156,911 |
504 | $418,277 | -$208,107 | 210,170 | 140,000 | 70,170.00 | $70,170 |
508 | $1,593,328 | -$597,354 | 995,974 | 130,840 | 865,134.00 | $865,134 |
511 | $939,778 | -$354,626 | 585,152 | 683,540 | -98,388.00 | $276,612 |
513 | $968,035 | -$304,191 | 663,844 | 447,200 | 216,644.00 | $216,644 |
514 | $405,552 | -$90,072 | 315,480 | 336,311 | -20,831.00 | -$20,831 |
515 | $932,430 | -$356,775 | 575,655 | 422,000 | 153,655.00 | $153,655 |
604 | $199,070 | -$87,763 | 111,307 | 107,000 | 4,307.16 | $4,307 |
606 | $300,975 | -$36,131 | 264,844 | 112,000 | 152,843.57 | $152,844 |
610 | $140,005 | -$49,259 | 90,746 | 171,766 | -81,019.60 | -$81,020 |
6905 | $346,425 | -$120,528 | 225,897 | 67,557 | 158,340.00 | $158,340 |
6906 | $368,690 | -$170,056 | 198,634 | 65,000 | 133,634.00 | $133,634 |
704 | $593,530 | -$134,363 | 459,167 | 209,379 | 249,788.10 | $249,788 |
706 | $839,410 | -$211,999 | 627,411 | 372,500 | 254,911.45 | $254,911 |
709 | $448,246 | -$30,321 | 417,924 | 146,500 | 271,424.44 | $271,424 |
713/707 | $452,270 | -$130,503 | 321,767 | 438,250 | - | - |
116,483.00 | $116,483 | |||||
807 | $996,428 | -$247,282 | 749,146 | 200,000 | 549,146.00 | $549,146 |
813 | $775,396 | -$156,178 | 619,218 | 155,000 | 464,218.00 | $464,218 |
814 | $859,688 | -$210,571 | 649,117 | 155,000 | 494,117.00 | $494,117 |
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[1036] Once a piece of equipment has been sold, its total cost can be calculated with precision. Unit 501 was sold for
$186,000.00 and unit 511 was sold for $375,000.00. Accordingly, the total recovery is $208,940.00 for unit 501 and $276,612.00 for unit 511. It is clear that the total recoveries noted above are far in excess of what would be produced for appropriate internal rates that include only internal costs of the equipment.
[1037] Mr. Barke provided his opinion about the appropriate internal rate that should have been used for Golden Hill’s
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equipment. For the two units that were sold, Mr. Barke derived an ownership cost of $16.85 per hour for unit 408 (instead of $62.00 per hour) and somewhere between $21.57 and
$24.48 per hour for unit 511 (as opposed to $125.00 per hour).
[1038] The submissions of Kemess and the opinion of Mr. Barke overlook the testimony of Mr. Rudolph that the internal rates used in the bid reflected amounts that other bidders included within Item 8.3 (Temporary Facilities and Indirect Costs). I accept his evidence in this regard.
[1039] His rate for Item 8.3 was $25,000.00 per month or
$100,000.00 for the four months that Golden Hill anticipated that they would be undertaking the Work. While I accept the evidence presented that the internal rates cover more than the internal cost of the equipment of Golden Hill, I also accept that the rates used by Mr. Rudolph were not intended to cover only the actual cost of the equipment.
[1040] While Mr. Barke came to the conclusion that the equipment cost claimed represented an overstatement of ownership costs of $1,455,292.00, I cannot come to that conclusion. First, Mr. Barke did not include a component for major overhaul as he assumed that those costs were accounted for in the Job Cost Reports. Second, Mr. Barke did not include any amount to account for the rising cost of
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replacement of equipment or for the replacement cost itself. Third, he was not asked to nor did he deal with the question of what the appropriate internal rates for this equipment should be if most of the “Temporary Facilities and Indirect Costs” were to be recovered by the equipment rates used.
[1041] In the circumstances, the equipment costs relating to the equipment owned by Golden Hill should be reduced from
$3,152,470.00 to $2,737,598.00 to reflect the deduction for the difference between the internal rates claimed at Trial and the actual internal rates which were in effect at the time of the bid and during the Work.
[1042] There should be a further reduction from that
$2,737,598.00 figure to reflect the fact that the equipment was in use 10 hours rather than 10.5 hours. Accordingly, I find that the equipment costs of Golden Hill equipment on the job should be allowed at $2,607,236.10 so that the amount claimed should be reduced by $545,233.90.
RENTAL EQUIPMENT COST REDUCTION ($930,314.80)
[1043] The total amount paid for rental of outside equipment was $1,922,352.74. It was common for Golden Hill to rent equipment on a lease to purchase basis. Any purchase price to Golden Hill was calculated by giving Golden Hill credit for the principal amount of the lease payments it made.
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The lease payments were included in the “LR-Rental” costs category in the “Job Cost Report”. In the list of Golden Hill equipment there is some equipment which was initially leased but ultimately purchased by Golden Hill. In order to eliminate duplication of total costs claimed, the principal portions of lease payments made during the Project for pieces of equipment which were subsequently purchased should be calculated and then deducted from the Project cost. The parties agree that it is appropriate for credit to be given to Kemess for $930,314.80 against the claimed cost of
$1,922,352.74.
[1044] While Kemess takes no issue with the $1,922,352.74 amount, it does take issue with whether any of this rental cost should be included. Kemess submits this amount relates to additional equipment brought to the Site by Golden Hill which was not specified in the Tender list.
[1045] I am satisfied that Golden Hill should be entitled to the sum of $992,037.94 being the difference between the cost of renting the equipment used on the Project and the rental costs later applied against the purchase price of equipment still owned by Golden Hill. This amount reflects the cost to Golden Hill of equipment used by it on the Project and for which it is entitled to receive the net cost to it of
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renting the equipment. While this equipment was not on the Expanded Tender List of equipment, the need for the equipment arose as a result of a combination of acceleration and the breaches of contract and tortious acts of Kemess.
[1046] Accordingly, I am satisfied that these costs are not only legitimate costs within the total cost calculations submitted by Golden Hill but also attributable to the specific breach of contract relating to the failure of Kemess to provide the Site M Reports.
REPAIR AND MAINTENANCE COSTS ($779,280.47 CLAIMED BY GOLDEN HILL)
[1047] When an invoice was received by Golden Hill for a repair maintenance item it was coded in a number of ways in the CONAC System: (a) to a project number which was what Golden Hill did if the expense could not be attributed to a particular unit of equipment; (b) to an equipment unit number and then to a project number which was generally what Golden Hill did if the expense could be attributed to a particular piece of equipment and was considered a running repair relating to a particular project; (c) to an equipment unit number and to a major component number like “spare engine” but not to a project number which was generally what Golden Hill did if it was a major component replacement cost and not
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attributable to a particular project; or (d) to a general shop code if the expense was not attributable to either a project or a particular equipment unit.
[1048] The data for the RM (Repair and Maintenance) costs category from the CONAC System that are coded to a particular piece of equipment do not show up on the Job Cost Report. The RM cost category for costs coded to the Project which were not coded to a particular equipment unit number amounts to
$223,318.59.
[1049] In order to ascertain the RM costs coded to particular equipment units, an “Equipment Inquiry” must be produced. This inquiry produced expenses totalling
$571,560.06 for RM costs which were coded to both specific equipment units and to the Kemess Project number. The sum of these two figures totals $794,888.65 which includes P.S.T.
The labour component for repair and maintenance is accounted for separately under the “LA” category in the Job Cost Report.
[1050] Some repair and maintenance costs were identified in the Equipment Inquiry as having been coded to the Kemess Project but also to two equipment unit numbers which were not employed at the Project. Deductions for those invoices totalling $9,587.42 have been made from what Golden Hill claims. An additional sum of $6,020.76 for tracks was also
miscoded and has been removed from the total costs of Golden Hill.
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[1051] Accordingly, the total amount claimed by Golden Hill for RM costs is $779,280.47 made up of $223,318.59 (Job Cost Report) plus $571,570.06 (Equipment Inquiry) less $9,587.42 and $6,020.76.
[1052] Kemess submits that the ability to advise the Court as to which portion of the approximately $779,280.47 of costs relates to major component overhaul lies solely with Golden Hill and that Golden Hill has not taken the time to break those expenses out and remove them from RM. Kemess suggests that all amounts coded to the “major component categories” in these reports should be removed but points out that this would still not address the problem that the other categories also containing major overhaul costs which should not be charged to this Project.
[1053] Kemess also submits that the labour component of the claim of Golden Hill also includes labour associated with major component overhaul but this has not been broken down either.
[1054] While it is clear that Repair and Maintenance Costs totalling $779,280.47 were incurred, it is impossible to
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ascertain with certainty what portion of that related to major component overhaul which should not be charged to the Project and what should be RM costs which should be charged to the Project. The “Equipment Inquiry” ($571,570.06) is 198 pages long and details expenditures of anywhere between several dollars and thousands of dollars.
[1055] My review of the Equipment Inquiry allows me to conclude that approximately two-thirds of the expenses are properly attributed to RM costs of equipment on the Project whereas approximately one-third of the costs are associated with major component overhauls which should not be charged to Kemess merely because the overhauls happened to have taken place when the particular piece of equipment was on the Site.
[1056] Doing the best that I can, I therefore find that, of the $779,280.47 claimed for RM, Golden Hill should only be entitled to $520,000.00.
[1057] I am also satisfied that a certain portion of the labour cost claimed related to work associated with major component overhauls which should not be charged to Kemess. As I have no way of calculating the percentage of the total labour component used for this purpose, I have arbitrarily reduced the labour component by $50,000.00. I therefore find
that the RM expense and the LA expense should be reduced by
$309,280.47.
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P.S.T. ($152,633.13 CLAIMED BY GOLDEN HILL)
[1058] Golden Hill claims recovery of a liability to the British Columbia Government for P.S.T. in connection with the use of its own equipment on the Project. Counsel for Golden Hill concedes that Mr. Rudolph did not contemplate the payment of any P.S.T. when he prepared the bid. The Contract clearly required that the prices of Golden Hill would include all applicable taxes except G.S.T. (pursuant to GC 31). As well, the Tender form specifically stated: “The prices include all applicable taxes, except the G.S.T.”)
[1059] The original assessment from the Government was
$200,000.00 but, after negotiations, the Government has effectively reduced the assessment to $152,633.13. Mr. Purcell met with Government officials and an agreement was reached that, upon receipt of a cheque for $152,633.13 from Golden Hill, the Provincial Government would reverse the
$200,000.00 assessment and recalculate the penalties and interest. In his opinion, Mr. Barke agreed that the P.S.T. charge was a “claimable event” but was of the opinion that it was not a cost of the Project because he did not believe that it would ever be paid.
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[1060] The $152,633.13 includes P.S.T. for equipment on the original Tender Equipment list as well as equipment which Golden Hill brought to the Site as a result of the conduct of Kemess.
[1061] Kemess submits that there is no causal connection between anything done or omitted to be done by Kemess which would give rise to this liability for this item. Kemess submits that Golden Hill did not expect to pay this P.S.T. and, because it was not built into the bid of Golden Hill, it ought not now to be recoverable from Kemess. Alternatively,
P.S.T. should be included within the “head office expenses” where Mr. Rudolph included expenses such as “general office overhead”, “taxes”, and “things like that”.
[1062] Mr. Purcell stated that he had been advised by the internal accountant for Golden Hill that Golden Hill had paid Forsyth Equipment Ltd. (“Forsyth”) P.S.T. totalling
$209,798.20 in respect of Units 515, 610 and 801 through 804. Mr. Purcell confirmed in his testimony that Golden Hill would be entitled to a refund of $209,798.20 after paying the total of $152,633.13 said to be owing.
[1063] In the circumstances, I am satisfied that no amounts should be recoverable for P.S.T. First, no amount for P.S.T. was included in the original bid and, accordingly, I am
satisfied that it should not now be recoverable. Second, Golden Hill should not have the possibility of recovering
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$152,633.13 and then be in a position to receive a rebate from the Provincial Government for $209,798.20. Third, I am not satisfied that Golden Hill has proven on a balance of probabilities that this $152,633.13 is a cost which should be added as I cannot be satisfied that it will ever be incurred by Golden Hill. Even if I am incorrect in this finding, I am satisfied that any payment of P.S.T. should be included within the overhead allowance claimed by Golden Hill but not within the total costs claimed against which the overhead allowance will be calculated.
LOSS ON SCRAPERS ($616,942.72 CLAIMED BY GOLDEN HILL)
[1064] As a result of learning that it had been awarded the C101 Contract, Golden Hill acquired new equipment including four Caterpillar 631E Scrapers (which were designated as Units 801 through 804). These Units were acquired on a lease to purchase basis under an agreement dated July 8, 1996 with Forsyth. Under that agreement, Golden Hill agreed to rent the scrapers for a 7 month period expiring February 21, 1997. At the end of the rental period, Golden Hill had the option to purchase the scrapers. When the 7 month rental period for the
scrapers expired, Golden Hill exercised the purchase option of approximately $1,600,000.00.
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[1065] Golden Hill submits that it was later forced to sell the units at a loss as it could not afford to keep the units due to the significant costs incurred on the Project that were not paid by Kemess. Golden Hill agreed that Forsyth would sell the scrapers on its behalf and, when the scrapers were sold at the end of October, 1997, a loss of $616,942.72 was incurred by Golden Hill. Golden Hill claims this amount.
[1066] Golden submits that its recovery of this loss is not barred by either of the applicable limiting principals of causation or remoteness: Williamson Bros. Construction Ltd. V. British Columbia (1990), 41 C.L.R. 192 (B.C.S.C.) at pp.240-1. Golden Hill submits that, but for the breaches of Kemess under the Contract, the loss would not have occurred as it was the evidence of Mr. Rudolph that Golden Hill would not have sold the scrapers at a loss but for the cost overruns incurred on the Project.
[1067] On the remoteness test, Golden Hill submits that Kemess is responsible for a loss if that loss can be said to be within the reasonable contemplation at the time of entering into the Contract. In practice, losses must be “not unlikely” for them to pass the test of remoteness: J. Cassels, Remedies:
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The Law of Damages, (Toronto: Irwin Law, 2000) at pp. 312-6. Golden Hill submits that Kemess knew that Golden Hill planned to carry out the Project with two scrapper spreads, knew that Golden Hill had effectively doubled its equipment spread and knew that Golden Hill was incurring significant losses on the Project.
[1068] There was no evidence led on the issue of refinancing. Mr. Rudolph gave evidence that Golden Hill paid financing costs at the rate of prime plus 1.5% between February and October, 1997 but no documents were ever produced with regard to those costs. Mr. Rudolph could not state the amount that Golden Hill had paid, there was no written agreement regarding the payment of interest and the Golden Hill financial statements do not refer to any interest charges. In fact, the 1997 financial statements specifically state that the amount owing was without interest.
[1069] I find that any loss on the premature sale of some heavy equipment flows from a lack of work after the Project and not from the failure of Kemess to pay what the Court may find as owing to Golden Hill. In his testimony, Mr. Rudolph admitted the following:
Q. I am going to suggest to you, sir, that scrapers 801 to 804 when you sold them in
October... 1997, were surplus to your needs at that time?
A. That’s correct.
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[1070] Three of the machines sat idle between December, 1996 and October, 1997 and the fourth machine was idle between February, 1997 and October, 1997. There is no evidence which would suggest that Golden Hill tried to sell the machines in early 1997 but could not do so until October, 1997. If Golden Hill was suffering financially as much as it now suggests, Golden Hill should have sold the scrapers as soon as the equipment could have been demobilized from the Site. It did not do so. I am satisfied that this supports Mr. Rudolph’s testimony that the reason Golden Hill sold this equipment was because they were surplus to the needs of Golden Hill.
[1071] As well, the scrapers were to have been used for 4-1/2 months but the lease was for 7 months. At a rate of
$48,000.00 per month plus taxes, this meant that, unless Golden Hill was able to secure other work for the scrapers during the winter season it would be faced with a cost of
$120,000.00 plus taxes without work to cover the cost of that further 2½ months. Mr. Rudolph testified that he did not build this cost into his bid.
[1072] There is nothing to suggest that the price received for the 4 units was anything less than fair market value.
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There is no evidence that, if the units were held longer, they could have been sold for more, or that there was lost revenue or even a loss of opportunity to earn revenue from the 4 units.
[1073] Golden Hill was owed $2,758,867.00 from two other companies. It cannot be said with any degree of probability that anything done or admitted to be done by Kemess resulted in Golden Hill having to sell the scrapers. I am satisfied that the need of Golden Hill to sell the equipment is more likely based on lack of work and the monies owing from two other companies than the failure of Kemess to pay the sums that Golden Hill says are owing.
[1074] I am satisfied that the losses are too remote to be claimed against Kemess. I am satisfied that, at the time of the contract being formed, the parties could not have reasonably contemplated that this type of loss would be suffered given their knowledge of each other’s affairs. At the time of the Tender, Golden Hill represented to Kemess that it had “an extremely large fleet of heavy equipment from which to draw from, if additional equipment is required”. As well, there is no evidence that Mr. Rudolph told anyone at Kemess at
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any time that Golden Hill was undertaking or would undertake the purchase of this new equipment. In light of that, Kemess could not have reasonably foreseen that Golden Hill was acquiring the new equipment and that its breaches or tortious acts would lead to Golden Hill having to sell the scrapers at a loss.
[1075] I am satisfied that the four units were purchased as Golden Hill wished to upgrade its fleet and saw this as an opportunity to do so. Mr. Rudolph must have contemplated that there would be contracts during the 1997 construction season which would allow the four units to be used profitably on other projects. I am satisfied that any losses occurring are not attributable to anything done or not done by Kemess.
Accordingly, nothing is allowed for losses on the four scrapers that were purchased so that the sum of $616,942.72 must be subtracted from the total costs claimed by Golden Hill.
NUWAY CRUSHING (CREDIT OF $26,050.00 CLAIMED BY KEMESS)
[1076] Golden Hill claims costs relating to invoices from its subcontractor Nuway. Kemess submits that a review of the Nuway invoices rendered to Golden Hill demonstrates that there were “substantial over-billing of the volumes processed by
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Nuway”. Having reviewed the Progress Draws as well as the Nuway invoices, I am satisfied that the evidence does not support the proposition that Golden Hill has over-charged Kemess for the work done by Nuway. As well, the possibility of overcharging was not put to Mr. Rudolph in cross-examination and the amounts charged by Nuway were approved by Kemess at the time the charges were presented.
[1077] Kemess also submits that Golden Hill has not sought to be reimbursed by Nuway for camp charges paid by Golden Hill on its behalf or for the cost of demobilizing the Nuway loader from the Site back to Whitehorse. These amounts should have been invoiced to Nuway and available to Golden Hill to reduce the amount of its claim.
[1078] The parties agree that $23,050.00 before G.S.T. should have been billed to Nuway for camp charges and that
$3,000.00 before G.S.T. is a reasonable charge for Golden Hill to have demobilized the loader of Nuway to Whitehorse.
[1079] I am satisfied that the total costs of Golden Hill should be reduced by the sum of $26,050.00 as this amount should be available to Golden Hill from Nuway either by way of direct payment to Golden Hill or by way of setoff by Golden Hill against the balances which may remain owing by Golden Hill to Nuway.
SUPPLIES AND SMALL TOOLS ($223,118.14 CLAIMED BY GOLDEN HILL)
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[1080] Some of the supplies and small tools (SS) cost relates to “consumables” that were used at the Project while some of it relates to items purchased by Golden Hill which are still in the possession of Golden Hill. Kemess submits that it should not be liable for the cost of purchasing these items when their retention has led to the enrichment of Golden Hill. In a similar vein, the cost of a clearing rake purchased ($1,368.00) should also be deducted.
[1081] The breakdown between supplies and small tools which is in evidence indicates that supplies totalled $217,118.14 and small tools represents the remaining $5,000.00 of the balance claimed.
[1082] Golden Hill points out that a certain number of “consumables” were brought to the Site by Golden Hill, consumables were used, were replaced, and some consumables were then taken from the Site. While the value of the consumables used on the Site was not coded to the Project, I find that those amounts are proper expenses which can be charged to the Project. I am prepared to find that the consumables taken from the Site roughly equalled the consumables brought to and used at the Site. Kemess has had
the benefit of those supplies and I am satisfied that these are direct costs of Golden Hill.
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[1083] Regarding tools which were taken to the Site, there is no evidence of their value and there is no evidence of what was rendered useless and therefore had to be replaced. As I cannot be satisfied that the $5,000.00 spent on small tools does not represent assets which remain with Golden Hill, I am satisfied that this amount is not properly claimable against the Project. Accordingly, Golden Hill will be only entitled to the sum of $217,118.14 for supplies used on the Site. The total costs of Golden Hill will be reduced by $5,000.00.
DELETED WORK (DELETION OF $12,717.00 CLAIMED BY KEMESS)
[1084] Golden Hill claims for work carried out prior to any order being received from Kemess requesting a deletion of the work being undertaken. General Condition 27.0 (“Changes in the Work”) provided that Kemess could make changes without invalidating the Contract by “altering, adding to, or deducting from the Work” with the Contract price being adjusted accordingly. General Condition 27.0 further provided in part:
The Contractor shall not claim for loss of profits or anticipated profits or damages at any time due to any decision to reduce or delete any part of the Work, provided that the Contractor will be
compensated for any materials brought to the Site and Work carried out prior to the order requesting the reduction or deletion.
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[1085] Ultimately, the Airstrip Access Road was deleted from the Work. Kemess submits that Golden Hill was informed at the July construction meeting that Kemess was investigating a new access road to the Airport and says that a July 10 letter from Mr. Lyons is evidence that Golden Hill was aware of the deletion.
[1086] I find that the July 10 letter does not constitute a deletion as what is contemplated in the letter is merely a relocation of the road. The July 10 letter merely substantiates a claim by Golden Hill for “extra work” relating to that change. While GC 27.0 contemplates and requires a “written order from the Owner”, there appears to have been no such written notice around July 10.
[1087] I find that the deletion did not occur until August
30 so that all costs incurred before that date are recoverable. Golden Hill is entitled to its equipment costs and labour costs totalling $12,717.00 which were incurred prior to August 31.
APPROVED EXTRA WORK ($54,006.00 PLUS G.S.T. CLAIMED BY GOLDEN HILL)
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[1088] General Condition 27.0 provides that Kemess is entitled to make changes to the Work and that the Contract price would then be adjusted accordingly. General Condition
28.0 establishes the procedure for determining the value of the changes made by Kemess.
[1089] The procedure set out under GC 27.0 and GC 28.0 were not followed by the parties during the Project. Rather, the procedure which was adopted was that Kemess would orally request that Golden Hill perform additional work, Golden Hill would perform the work and, on a daily basis, submit a “Daily Forecast Account Sheet” recording the cost of the work. Mr.
Rempel would then sign the sheet on behalf of Kemess and Golden Hill would attach these sheets on a regular basis to a change order that would be signed by Kemess and then paid by Kemess.
[1090] Kemess does not dispute that the sum of $54,006.00 plus G.S.T. is owing for this outstanding extra work.
Accordingly Golden Hill is entitled to the sum of $54,006.00 plus G.S.T.
ADDITIONAL EQUIPMENT COSTS ($300,000.00 CLAIMED BY GOLDEN HILL)
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[1091] Golden Hill claims for equipment costs associated with using Golden Hill equipment where those costs are not listed in the Daily Construction Reports.
[1092] Those costs relate to ancillary or support equipment including pick-ups, mechanics’ trucks, Hiab trucks, the loader, the crew van, the parts van, fuel trucks, welding trucks, light towers, the office trailer, generators, pumps and other small equipment. Mr. Rudolph estimated that this amounted to somewhere between $200,000.00 and $400,000.00 but Golden Hill claims $300,000.00.
[1093] I cannot be satisfied that Golden Hill has proven on a balance of probabilities that the sum of $300,000.00 was a direct cost to the Project. At the same time, I accept Mr.
Rudolph’s evidence that it was intended that the overhead allowance of 10% of the costs of the Project would cover this equipment cost. Accordingly, I cannot find that the
$300,000.00 constitutes a direct cost, against which the overhead allowance should be applied.
USE OF A GRADER BY KEMESS ($14,030.00 CLAIMED BY GOLDEN HILL
[1094] In the spring of 1997, Mr. Rempel asked if Kemess could borrow a grader that Golden Hill had left on the Site.
Golden Hill issued an invoice to Kemess on May 29, 1997 for
122 hours of use based on the hours metre on the machine.
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This amounted to $14,030.00 not including G.S.T. Although Kemess took issue with the hours of use, no evidence was called by Kemess to explain that position. Under cross-examination, Mr. Rempel did admit that Kemess had agreed to pay for at least 58 hours of the use of this grader.
[1095] I am satisfied that Golden Hill is entitled to the sum of $14,030.00 as at July 9, 1997, being 30 days after the invoice that was forwarded to Kemess. I am satisfied that this amount should be included within the total costs claimed as I am satisfied that it is irrelevant that the grader was used by Kemess rather than by Golden Hill personnel. At the same time, I am satisfied that the amount should be included within the lien claimed by Golden Hill.
SUMMARY OF CLAIMED TOTAL COSTS, ADJUSTMENTS REQUESTED, AND RULINGS MADE
Total costs claimed $14,429,481.61 Adjustments:
Labour costs <$213,345.40>
Freight costs <$100,000.00>
Golden Hill owned equipment <$414,872.00>
Reduction in hours of
equipment use <$130,361.90>
Rented equipment credit <$930,314.80>
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Repair and maintenance costs
including labour component <$309,280.47> (g) P.S.T. <$152,633.13>
Loss on scrapers <$616,942.72>
Nuway Crushing <$26,050.00>
Supplies and small tools <$5,000.00>
Equipment costs not listed in
the Daily Construction Reports <$300,000.00> Total Reduction $3,198,800.42
[1096] I find that there should be a reduction of
$3,198,800.42 from the total costs claimed by Golden Hill. I therefore find that the total costs of Golden Hill total
$11,230,681.19. Golden Hill then claims 10% overhead against that amount.
(W) OVERHEAD (10% CLAIMED BY GOLDEN HILL)
[1097] Golden Hill claims an overhead allowance of 10% of its direct costs to cover the costs of the Project not captured in the Job Cost Reports and on account of Head Office costs associated with performing the Work. The uncaptured job costs it claims include employer’s deductions on labour costs ($213,345.40); equipment cost of using Golden Hill’s trucks
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and trailers for on-highway transportation of equipment to and from the Project plus fuel used ($100,000.00); and equipment costs associated with using Golden Hill equipment not listed in the Daily Construction Reports being ancillary or support equipment including pick-ups, mechanics, trucks, the crew van, the parts van, fuel trucks etc. ($300,000.00).
[1098] The office overhead allowance was intended to cover administrative expenses such as head office payroll, office and repair facilities expenses including mortgage, rent, utilities, office equipment, shop equipment and general office and shop expenses; financing charges and general insurance and licences including construction liability insurance, vehicle insurance, and equipment insurance.
[1099] Golden Hill submits that, where a plaintiff suffers a loss for which the defendant is liable, the plaintiff is entitled to recover a reasonable sum for overhead costs: Hydro-Electric Power Commission of Ontario v. Mather, [1954]
O.J. (Q.L.) No. 79 (Ont. C.A.); C.P.R. Co. v. Fumagalli (1962), 38 D.L.R. (2d) 110 (B.C.C.A.); British Columbia Hydro & Power Authority v. Marathon Realty Co. (1992), 89 D.L.R. (4th) 419 (B.C.C.A.); Shore & Horowitz Construction Co. v. Franki of Canada Limited, [1964] S.C.R. 589; and Miller
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[1100] In Fumageli, supra, the Court stated:
...it would appear to be uncontroversial that certain expenses in the nature of the cost of superintendence and office expenses and overhead...are a natural consequence arising from the act complained of in this instance... In the very nature of a business such as that of the respondent there must be certain preliminaries and superintendence involved which, in turn, involve the cost of clerks and stenographers. I am unable to hold that such costs are so remote from the damage as to fall within the category of costs that cannot be allowed as compensation. (at p. 111).
[1101] In Shore & Horowitz, supra, Spence, J. specifically approved a percentage representing the average of the “actual overhead taken as a percentage of direct cost...” (at p. 591). In Miller Dredging, supra, the Court allowed the plaintiff to calculate its overhead costs in a similar manner. In that decision, the Court of Appeal rejected a number of cases which purported to limit recovery of overhead to items bearing a “definite relation to the particular work performed”.
[1102] Similarly, in Marathon Realty Co., supra, Seaton,
J.A. on behalf of the Court said that it was unreasonable to attempt to set a value on “each letter, each phone call, each intervention”. “It is not practical to calculate different
amounts for different tasks” (at pp. 424-5). As well, Goldie,
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J.A. in dismissing the appeal in Miller Dredging, supra, stated that it was appropriate to calculate overhead by looking at “...the relationship historical expenditures not directly charged or allocated bore to the historical total of wages and salaries...” (at para. 22).
[1103] Mr. Rudolph testified that it was his practice to add an amount of between 5% and 15% for overhead and that, traditionally, Golden Hill has incurred general overhead expenses of 8% to 10% of its project costs on its financial statements.
[1104] Employing the method approved by the Supreme Court of Canada in Shore, supra, and by the British Columbia Court of Appeal in Miller Dredging, supra, Golden Hill submits that its cost of sales for the Project in its financial statements was $9,069,709.43 (or 42% of its total cost of sales for the year), so that 42% of its expenses would be $1,727,379.78.
Golden Hill points out that this is approximately $600,000.00 greater than its claim for overhead.
[1105] Kemess submits that this is a simplistic approach and that, unless Mr. Rudolph can say that his bid was based on a particular percentage, it would be inappropriate to provide Golden Hill with compensation on that basis. Rather, the
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benefit of the doubt should be given to Kemess and a 5% overhead allocation would be an appropriate amount if any is to be awarded. As to the calculation used to the financial statements, Kemess points out that, after subtracting amortization expense, the overhead is 6.5% of the cost of the sales.
[1106] I am satisfied that Golden Hill is entitled to an overhead allowance of 10%. This is the average amount reflected in the financial statements of Golden Hill and considerably less than the overhead which would be ascribed to this Project if overhead was allocated on the basis of the relationship of the costs of this Project in relation to the total costs of sale as reflected in the financial statements of Golden Hill. Accordingly, I allow the sum of $1,123,068.12 for overhead.
STANDBY CHARGES ($482,440.00 CLAIMED BY GOLDEN HILL)
[1107] General Condition 37.1 allowed Kemess to suspend the operations of Golden Hill under the Contract in whole or in part. General Condition 37.2 provided that, if the Work is suspended, Kemess shall reimburse Golden Hill for (a) expenses incurred for employees necessarily retained by Golden Hill during the period of suspension who could not be usefully employed by Golden Hill on any portion of the Work not under
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suspension: (b) standby rental charges incurred for equipment furnished by Golden Hill necessarily idle during the period of suspension and which could not reasonably be removed from the Site (“such charges to be determined in accordance with the Contract”); and (c) reasonable demobilization and remobilization charges on a basis approved by Kemess. General Condition 37.2 also provided that Kemess was not to be held liable for any other “...loss, damage or expenses incurred by the Contractor on account of suspension of Work.”
[1108] Kemess suspended the Work at the Airstrip in December, 1996 because they wanted the final grading to be performed by Golden Hill after the Spring break-up in 1997. This was not what Golden Hill had originally intended. Golden Hill had performed an extensive amount of survey work to stake the final grade of the Airstrip in late 1996. This work was a wasted effort when the decision was taken by Kemess that the work would not be finished in 1996. Golden Hill was never paid for the survey work since it did not complete the final grading and was not paid the unit prices for the final grading work.
[1109] Golden Hill required belly dumps, packers, graders and a water truck to finish placing Granular A on the Airstrip and bulldozers to finish the cleanup work at the Site
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generally. When it left the Site in December, 1996, Golden Hill left this considerable equipment on the Site. Golden Hill returned to the Site to complete the Millsite Access Road in February, 1997 and then left the Site again on March 4, 1997. Golden Hill asked Kemess for permission to demobilize some of its equipment. Further equipment was demobilized but, at the direction of Kemess, two bulldozers, two packers, two excavators and one grader were left on Site from March 2, 1997 to the end of June, 1997.
[1110] The standby rates in the Contract for these pieces of equipment were equal to 25% of the monthly double shift rate shown in Statement C.1 of the C101 Tender. Golden Hill submits that the standby charges for this equipment using those rates amounts to $482,440.00. Golden Hill claims that amount from Kemess.
[1111] Kemess submits that the Post Tender Meeting Minutes limit the Standby Charges that can be claimed by Golden Hill: “There will be no stand by charges for equipment left on site at GHV’s convenience.” Kemess submits that the equipment left on Site between December, 1996 and March, 1997 was left on Site for the convenience of Golden Hill and, accordingly, Standby Charges for that period cannot be claimed.
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[1112] I agree. I am satisfied that equipment left on the Site was left merely for the convenience of Golden Hill and at the suggestion of Golden Hill. First, there is no evidence that the equipment was required elsewhere. The evidence was that Golden Hill would usually store its equipment over the winter months as it had no need for its equipment during the non-construction period in Northern B.C. and the Yukon.
Second, the schedule which saw certain of the work delayed until the Spring of 1997 was proposed by Golden Hill and not by Kemess. Accordingly, I find that no standby charges are payable for the period December, 1996 through March, 1997.
[1113] Regarding the period March through June, 1997 for which Golden Hill claims standby charges, Kemess submits that suspension of Work could only arise when and if Kemess decided that the Work should be delayed. No request or order was ever forwarded by Kemess to Golden Hill for a suspension of Work.
[1114] However, it is important to note that the General Conditions distinguish between “delays” and “suspension of work”. General Condition 36.2 dealing with “delays” requires notice to be given by Golden Hill whereas GC 37.0 dealing with “suspension of work” contains no provision dealing with how Golden Hill is to be notified of any decision taken by Kemess to suspend operations under the Contract.
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[1115] In the absence of a notice provision, I am satisfied that it was not necessary for a written notice of suspension to be provided by Kemess to Golden Hill or for Golden Hill to request a suspension of the Work. Nothing about GC 37.0 allows me to conclude that it was incumbent upon Golden Hill to make such a request.
[1116] It is clear that GC 37.0 leaves it to Kemess to decide whether or not work should be suspended “in whole or in part”. That is clearly set out in the first part of GC 37.1. The issue which arises is whether Kemess did or did not suspend the Work. On the basis of the following answers given by Mr. Rempel under cross-examination, I am satisfied that Kemess formed the intention to suspend operations and that this intention was conveyed to Golden Hill:
Q. In December of 1996 or late November, 1996, Sir, you reached the conclusion that it would be of some benefit to leave the final grading of the Airstrip to the Spring of 1997?
A That’s correct.
Q. And you asked Golden Hill to not complete the Airstrip in 1996 and to leave that final grading until after Spring break up in 1997?
A. That’s correct.
Q. And they agreed to that?
A. Yes
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[1117] Mr. Rempel confirmed that Golden Hill had sought permission to demobilize equipment in early 1997 and that he wrote them on February 6, 1997 setting out that Kemess thought the equipment and the personnel: “should remain for the outstanding work”. Mr Rempel also advised: “Please be advised that if additional equipment is required to complete the outstanding work as per the submitted 1997 Construction Schedule; the added cost for mobilization will be at the Contractor’s account.”
[1118] While the agreement reached was a mutual agreement, it is clear and I find that Kemess suspended work in March, 1997 so that the remaining work at the Millsite and the Airstrip including the placement of Granular surfacing of 150mm at the Millsite and the Airstrip could be finished after the Spring break-up. The Proposed Construction Schedule (1997) referred to by Mr. Rempel in his February 6, 1997 letter sets out an April 27 start on the work at the Airstrip and a May 11 start on the work at the Millsite.
[1119] Golden Hill will be entitled to standby charges for the equipment left on Site at the request of Kemess for the period March through June, 1997 calculated in accordance with the formula established in GC 37.0 and at the Post Tender
Meeting, being 25% of the monthly double shift rate for the equipment which was on Site as outlined as follows:
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D8K 25% x $70,000/month x 4 months = $ 70,000.00 D8N 25% x $98,000/month x 4 months = $ 98,000.00 EX400 25% x $123,200/month x 4 months = $123,200.00 EX200 25% x $54,040/month x 4 months = $ 54,040.00 Packers 25% x $33,600/month x 4 months = $ 33,600.00 25% x $50,400/month x 4 months = $ 50,400.00
Grader 25% x $53,200/month x 4 months = $ 53,200.00 TOTAL $482,440.00
[1120] No amount is set in the Contract for an Ex 200 excavator, but the blue book hourly rate plus 10% is $96.50 (Exhibit 25, Tab 7, p. 1). Golden Hill’s monthly rate for the EX 400 excavator on Statement C.1 was 560 times the hourly rate, so I find that a reasonable monthly rate for an Ex 200 is $96.50 x 560.
[1121] Golden Hill will have judgment for the amount of
$482,440.00 plus overhead of 10% but will not be entitled to claim profit on those amounts as I am satisfied that the parties agreed under GC 37 that no profit would be available on amounts payable.
[1122] At the same time, it is not appropriate for standby charges to be included within the lien amount of Golden Hill as it cannot be said that the $482,440.00 relates to “work on” or materials supplied to the Project.
PROFIT ON WORK PERFORMED (5% CLAIMED BY GOLDEN HILL)
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[1123] Where a breach of contract by the owner occasions additional expenditure, profit on that additional expenditure will not be recoverable: I.N.D. Wallace, Construction
Contracts: Principles and Policies in Tort and Contract (London: Sweet & Maxwell, 1986) at p. 118; B.G. Checo International Limited v. British Columbia Hydro and Power Authority (1993), 75 B.C.L.R. (2d) 145 (S.C.C.) at p. 154; and
[1124] If the effect of the breach is to delay completion, a profit may be recoverable on the basis of the loss of the opportunity to earn a profit elsewhere. However, there is no evidence that Golden Hill had other available work and, accordingly, Golden Hill should not be entitled to profit on that basis.
[1125] However, Golden Hill is entitled to profit on the basis of the costs flowing from the tortious acts of Kemess. Alhough Mr. Rudolph could not recall the precise amount he put into the bid for profit, on the basis of his evidence about the general level of profit he expected to make on the Project at bid time, Golden Hill submits that it should be allowed profit of 5% of its cost of the work performed.
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[1126] Golden Hills submits that the amount of profit is based on a number of factors including Golden Hill’s competitors on the Tender, the fact that Golden Hill was “not desperate for work” but was interested in mine development projects, the large size of the Project and the expectation that Kilborn would be reasonable in its administration of the Project.
[1127] Golden Hill submits that the claim of 5% profit is at the low end of the range of the profits Golden Hill expects when bidding earthworks projects (5% to 15%) and that the reasonableness of this claim can be tested by referring to its profits as a percentage of costs of sales on its financial statements. For instance, in the year proceeding this Project (1995), the profit Golden Hill made was 6.5%. However, the average for the previous 3 years was 3%.
[1128] Kemess submits that the only profit that can be claimed is on those items where Mr. Rudolph intended to make a profit so that no profit was intended or added to: (a) mobilization and demobilization costs; (b) temporary facilities and indirect costs; (c) insurance; (d) mobilization and demobilization charges of Nuway; (e) the crushing plant Monthly Indirect Costs which were actually charged by Nuway;
(f) likely all of the costs relating to aggregate production
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(as the profit was already built into the rate that Golden Hill put into its bid sheet which reflected a mark up from the rate that Nuway was charging to Golden Hill; and (g) possibly the drainage item portion of the bid.
[1129] Kemess submits that the total bid was $5,924,019.80 and, after deducting the amounts referred to above but after including the drainage amount, the total contract would have been $4,517,269.00. At 5%, the profit portion including the 10% mark up for overhead is $215,108.00. Kemess also submits that the 3% average over 3 years is a more appropriate “starting position from which to begun deducting those costs”.
[1130] Golden Hill submits that Kemess has misunderstood or mis-characterized Mr. Rudolph’s evidence in this regard. His evidence was that he added 5% to all of the costs on his Bid Estimate Sheet. Therefore, the total price includes profit on all estimated costs. Accordingly, the amount of profit expected at bid time can be calculated by taking 5% of the final price on the Bid Estimate Sheet. This produces an anticipated profit of $296,200.99.
[1131] After reviewing the evidence of Mr. Rudolph, I am satisfied that it was his evidence that he added 5% to all of the costs on his Bid Estimate Sheet. Accordingly, I am satisfied that Golden Hill should be compensated for a loss of
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profit as a result of the tortious acts of Kemess. However, I cannot be satisfied that 5% profit is an appropriate amount in view of the inability of Mr. Rudolph to recall the precise amount he put into the Bid for profit and in view of the average profit of 3% over the previous 3 years. In the circumstances, I am satisfied that profit of 3% ($177,721.35) should be allowed.
CLAIM IN QUANTUM MERUIT OR UNJUST ENRICHMENT
[1132] The alternative claim of Golden Hill is that it should be compensated on the basis of quantum meruit. In the further alternative, Golden Hill submits that it is entitled to compensation on the basis of unjust enrichment. In view of my findings regarding the breaches of contract, the tortious acts and the acceleration of some of the Work on the Project, it will not be necessary to deal with these two alternative claims.
(AA) IS INTEREST PAYABLE ON THE DAMAGES AWARDED?
[1133] Golden Hill submits that it is entitled to pre-judgment interest under s. 1.1 of the Court Order Interest Act, R.S.B.C. 1996, c.79, as it submits that the Contract did not deal with interest and Golden Hill has not waived its right to interest. Golden Hill submits that it is not caught
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by the provisions of s.2 of that Act which states that the court must not award interest: “...if there is an agreement about interest between the parties.”
[1134] Golden Hill states that the only mention of interest in the Contract is contained in Article III of the Form of Agreement which states:
If on account of climatic or other conditions reasonably beyond the Contractor’s control, there are items of Work that cannot be performed after all other Work has been substantially completed, then payment for Work which has been performed and approved by the Owner shall not be withheld or delayed on account thereof, but the Owner may withhold from the total amount due under the Contract until the remaining Work is finished and accepted by the Owner such monies as the Owner determines are sufficient and reasonable to cover the cost of performing to it’s [sic] satisfaction such remaining Work and to adequately protect the Owner from claims arising from the non-performance or the improper performance of such Work by the Contractor. The Owner shall not have any obligation to pay to the Contractor interest on any unpaid amounts owed to the Contractor under the Contract.
[1135] Golden Hill submits that the last sentence relates only to interest on the unpaid portion owing that is withheld from the total amount due under the Contract until the remaining Work is finished and accepted by Kemess.
[1136] Golden Hill has two submissions in that regard. First, a contractual provision must be interpreted in its context: G.H.L. Fridman, The Law of Contract, 4th ed. (Toronto:
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Carswell, 1999) at pp. 491-499. Golden Hill submits that the fact that the only provision about interest in the Contract is contained in the last sentence of the paragraph dealing with the very specific payment situation suggests that its meaning is limited to that situation. Second, the interest provision should be interpreted contra proferentem: G.H.L. Fridman, The Law of Contract, 4th ed. (Toronto: Carswell, 1999) at p. 495.
[1137] Accordingly, Golden Hill claims interest on the amount of the Progress Certificate No. 8 and the certified holdback ($758,545.24) less the agreed back charges ($426,881.44) from May 1, 1997 to May 12, 2000 when partial payment of $289,259.24 was made and thereafter on the sum of
$42,404.56. On the balance of its claim, Golden Hill claims interest from September 15, 1997, the date by which Golden Hill says Kemess ought to have negotiated and paid the claim.
[1138] Kemess submits that Article III of the Form of Contract precludes a contractual interest claim on a plain reading. Article III states that Kemess will pay for the Work calculated in accordance with the Contract with interim progress payments and also provides:
The Owner shall not have any obligation to pay to the Contractor interest on any unpaid amounts owed to the Contractor under the Contract.
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[1139] Article III is the primary payment provision in the Form of Contract. The word “any” within the phrase “any unpaid amounts owing to the Contract” must be given meaning so that “any unpaid” amounts cannot be limited to those amounts that might be payable for work after substantial completion.
This “no interest” provision contains no restrictive and limited wording and cannot be “read down” as Golden Hill submits. I am satisfied that s. 2(b) of the Court Order Interest Act applies.
[1140] If the Contract contains a “no interest provision”,
s.2 (b) of the Interest Act, prevails and the Court must not award interest: Belgium Farms Ltd. v. Schumaker, [1983] B.C.J. (Q.L.) No. 1733 (B.C.S.C.); Richardson Securities of Canada v. Shoji (c.o.b. Shohan Investments), [1982] B.C.J. (Q.L.) No. 616 (B.C.S.C.); Cornford v. Westec Aerospace Inc., [1993]
B.C.J. (Q.L.) No. 1268 (B.C.S.C.); Pine-Laurel Investments Ltd. v. Shapiro, [1991] B.C.J. (Q.L.) No. 240 (B.C.C.A.); Aluminex Extrusions Ltd. v. Double “D” Glass Ltd. (1987), 22
B.C.L.R. (2d) 220 (B.C.S.C.); Crestwood Kitchens Ltd. v. Voth Bros. Const. (1974) Ltd., [1983] B.C.J. (Q.L.) No. 1736 (B.C.S.C.); Shelter Industries Inc. v. Great Northwest Contracting Ltd. (2000), 2 C.L.R. (3d) 126 (B.C.S.C.); Nascor Inc. v. Kadukski (1995), 10 B.C.L.R. (3d) 29 (B.C.S.C.); Sign-
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(4th) 641 (B.C.C.A.); West Bank Indian Band v. Royal Bank of Canada, [1985] B.C.J. (Q.L.) No. 3014 (B.C.S.C.); Foster Air
and McLean & Higgins Ltd. v. Somass Holdings Ltd., [1982]
B.C.J. (Q.L.) No. 498 (B.C. Co. Ct.).
[1141] I am satisfied that Article III could not be any clearer. All of Article III deals with the payment requirements imposed by the Contract. Subparagraph (a) sets out the amount to be paid. Subparagraph (b) requires Kemess to make “interim progress payments. Subparagraphh (c) requires payment of the balance ten days after all lien rights have expired. The next subparagraph of Article III sets out the requirement of Kemess to pay the progress draw 30 days after receipt of the progress billing and all supporting evidence.
[1142] While it would have been clearer if the elimination of any obligation to pay interest had been set out in a separate paragraph under Article III rather than at the end of the paragraph dealing with the holdback for the cost of completing the Work, I am satisfied that the words are clear.
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[1143] As I am satisfied that there is an agreement in place between the parties regarding whether interest is payable, s. 2(b) of the Court Order Interest Act applies. There will be no interest payable on amounts which Golden Hill claims are owing pursuant to the Contract as a result of the breaches of contract proven as against Kemess.
(BB) THE BUILDERS LIEN
CAN THERE BE A LIEN FOR TORT DAMAGES?
[1144] The Builders’ Lien Act, R.S.B.C. 1996, c. 41 (“Applicable Lien Act”) applies to the case at bar. Section 4 provides that, if Golden Hill “... does or causes tIe done any work on, or supplies material, or does both work and supplies material, to and for an improvement, for an owner [Kemess] ... [Golden Hill] has a lien for wages or for the price of the work or material, or both or any of them, or for so much of it as remains owing ...” Golden Hill submits that the quantum of a claim of lien is the total price to which the claimant is entitled less any amounts paid as of the date when the lien was filed.
[1145] Golden Hill submits that the object of the Applicable Lien Act is as set out in the following statement by Rand, J. in Earl F. Wakefield Co. v. Oil City Petroleums
(1959), 21 D.L.R. (2d) 577 (P.C.):
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The end and object as well as the limitations of a mechanics’ lien, a creation of statute, is, for the value of labour and materials, in the widest sense, applied to an improvement of land, to provide a security to those furnishing them in a legal charge upon the improvement and the land to which it has been added. (at p. 612).
[1146] In Kettle Valley Contractors Ltd. v. Cariboo Paving Ltd. (1986), 1 B.C.L.R. (2d) 236 (B.C.C.A.), McLachlin, J.A.,
as she then was, stated on behalf of the majority that the value of work is claimable under a lien if it is “an integral and necessary part of the actual physical construction of the project” (at p. 256). Similarly, in Harmony Co-ordination Services Ltd. v. 542479 B.C. Ltd. (1999), 64 B.C.L.R. (3d) 376
(B.C.S.C.), Smith, J. held that the “price” includes all relevant inputs of labour and materials that make up the delivered product, provided such inputs are not “manifestly unrelated to the improvement” (at p. 385).
[1147] Overhead and profit are claimable inputs or components of the price: Lauder Bros. & Tate Builders Ltd. v. Vanmore Holdings Ltd. (1985), 12 C.L.R. 128 (B.C. Co. Ct.) and Astro Contracting Ltd. v. McArthur (1986), 17 C.L.R. 230 (B.C. Co. Ct.).
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[1148] The failure to pay the contract price determined in accordance with the express and implied terms of the contract is a breach of contract which give rise to both a claim for damages for breach of contract and a builder’s lien. However, the question which arises is whether damages arising as a result of tortious conduct are lienable.
[1149] Kemess submits that it is “well recognized” that under the British Columbia legislation, the “damages for which a lien is available is the balance of the price for work” but that a lien is not available for “damages in the broad sense of the term”. In this regard, they rely on the decision in Stro-Built Wall and Ceiling Inc. v. Kamal & Bros. Enterprises Ltd., [1997] B.C.J. (Q.L.) No. 2725 (B.C.S.C.). Kemess
submits that a lien cannot be based on the tort damages available to Golden Hill as the price of the Work cannot be determined by applying the principles of tort law.
[1150] Kemess submits that there is nothing in the Applicable Lien Act which suggests that a person with only a tort claim against an owner is entitled to a builder’s lien. The amount the owner is legally obliged to pay the contractor for doing the work does not include any amounts which the owner is obliged to pay the contractor for being the victim of a misrepresentation.
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[1151] It should be noted that Stro-Built Wall, supra, dealt with the question of whether claims for profit on work taken away from the claimant were lienable or not. In concluding that “damages are not lienable”, the learned Master relied on the decision in Hanwor Construction Ltd. v. Sundial Properties Ltd. (1986), B.C.L.D. Civ. 2588-01 (B.C. Co. Ct.).
That case also dealt with a claim for price and profits on work taken away from a claimant. I am satisfied that it is uncontroversial that such amounts are not lienable as the damages there relate to lost profits not to work done.
[1152] Counsel for Golden Hill was not in a position to provide me with any decisions where damages in tort were found to be lienable. I am satisfied that I should be guided by the judgments in Majestic Contractors Ltd. v. N.C.L. Contracting Ltd., [1994] 2 W.W.R. 619 (Sask.Q.B.), where the court rejected the claim for damages arising from the allegation of the subcontractor that the prime contractor wrongfully induced it to reduce its bid and by Turf Masters Landscaping Ltd. v.
[1153] While this point appears not to have been considered in British Columbia, I am satisfied that there is ample
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authority across Canada for the proposition that damages arising solely from tortious acts are not part of the “price of the work” and are therefore not lienable. I am also satisfied that tort damages cannot be included in the interpretation of “price” as set out in s. 4 of the Applicable Lien Act.
[1154] I am not in a position to distinguish the decisions relied upon by Kemess. Section 22(1) of the Builders’ Lien Act of Saskatchewan which was under consideration in Majestic is sufficiently similar to s. 4 of our Act that it would be difficult to find a meaningful distinction sufficient to make tortious damages a lienable claim in British Columbia.
[1155] I find that the lien amount of Golden Hill relates only to the amount owing for amounts owing under the Contract as I am satisfied that this “price” includes all relevant inputs of labour and materials that made up the delivered product and that the balance owing under the Contract is “manifestly” related to the improvement.
[1156] However, as I am satisfied that the balance owing under the Contract is coincidental with the amount available to Golden Hill for damages arising as a result of the tortious acts of Kemess, I am satisfied that the lien amount is
$6,521,177.57 exclusive of G.S.T. and costs. That amount is made up as follows:
Total Costs | $11,230,681.19 | |
Overhead | $1,123,068.12 | |
Profit | $177,721.35 | |
Total | $12,531,470.66 | |
Less Amount | Paid | $ 6,010,293.09 |
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Lien Amount
(Not including Costs or G.S.T.)
$ 6,521,177.57
[1157] In addition to the sum of $6,521,177.57 Golden Hill is also entitled to include its assessable costs in the amount of the lien. The bid of Golden Hill was to include all applicable taxes except G.S.T. (GC 31). As that is an amount that Kemess is obligated to pay but which Golden Hill is obligated to collect and remit, I am satisfied that the amount of G.S.T. payable is an amount which should be included within the lien of Golden Hill. Accordingly, the assessable costs and any applicable G.S.T. payable shall be added to the lien amount.
CAN INTEREST BE CLAIMED UNDER THE LIEN?
[1158] Golden Hill does not take issue with the general proposition that interest is not generally recoverable under a
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builder’s lien. However, Golden Hill submits that interest is recoverable where the Court finds that money was wrongfully withheld and that such a conclusion is sustainable in this case. Golden Hill submits that the decision in Phoenix Assurance Co. of Canada v. Bird Construction Co. (1984), 11
D.L.R. (4th) 1 (S.C.C.) applies. In that decision, the Supreme Court of Canada approved an Order issued at first instance by the learned Master which provided that Bird Construction Company Limited was entitled to “a lien...in the amount of
$357,169.40 together with interest thereon from the date of registration of the claim of lien...”. The Ontario Court of Appeal (1981), 125 D.L.R. (3d) 680 at pp. 688-9 had also approved the Order made by the learned Master. In that decision, Weatherston, J.A. stated on behalf of the Court:
The Master also found that Ownix was liable to Bird Construction Company for interest at 1% per month pursuant to the construction contract. Interest is not a lienable item under the Act, but interest may be allowed to a lien claimant for money wrongfully withheld: see Nor-Min Supplies Ltd. et al. v.
[1159] In Nor-Min Supplies Ltd. v. Canadian National Railway Co. (1979), 106 D.L.R. (3d) 325 (Ont.C.A.), Houlden,
J.A. on behalf of the Court provided the basis upon which interest could be allowed to a lien claimant:
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At the time of the trial the lien claimants had been waiting some seven years for payment of their claims. The C.N.R. did not see fit to pay the amount of the holdback into Court in accordance with
s. 11(7) of the Mechanics’ Lien Act. While this action has been wending its way through the Courts, the C.N.R. has had the use of the money to which the claimants have been found to be entitled by the trial judgment. We think it is proper in these circumstances to order the C.N.R. to pay interest to the claimants. To do otherwise would, in our opinion, be unjust. (at p. 328).
[1160] The interest available to Nor-Min Supplies Ltd. was ordered paid not based on the interest rate in the contracts of the lien claimants but at a rate equivalent to the borrowing rates of the claimants.
[1161] Golden Hill submits that interest should be awarded as Kemess has chosen not to pay money into court so that it has had the benefit of the money that it otherwise would have had to finance in the open market. This unjust enrichment of Kemess should be recognized in the lien claim of Golden Hill.
[1162] Kemess relies on the decision in Westburne Industrial Enterprises Ltd. v. Lougheed Towers Ltd. (1985), 61
B.C.L.R. 187 (B.C.C.A.), where Hinkson, J.A. on behalf of the Court stated that court ordered interest is not payable on a judgment declaring a claimant entitled to a lien under the
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[1163] Kemess submits that no interest is payable under the Contract and under the Court Order Interest Act so that, even if interest was lienable, no interest should be available under the lien of Golden Hill. As well, Kemess submits that a builders lien judgment is a declaratory not a pecuniary judgment. Therefore, interest is not recoverable by a lien claimant even where the claim for interest arises by virtue of a contract: Westburne, supra, at para. 31; Keeprite Inc. v.
C.L.R. 145 (B.C.C.A.); Ross Gibson Industries Ltd. v. Greater Vancouver Housing Corp. (1985), 67 B.C.L.R. 55 (B.C.C.A.); Lauder Bros. & Tate Builders Ltd. v. Vanmore Holdings Ltd. (1985), 12 C.L.R. 128 (B.C. Co. Ct.) and Lauder Bros. & Tate Builders Ltd. v. Vanmore Holdings Ltd., [1987] B.C.J. (Q.L.) No. 295 (B.C.C.A.).
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[1164] I am not able to distinguish the decision in Westburne. First, the Court considered but distinguished both the Ontario Court of Appeal and the Supreme Court of Canada decision in Phoenix Assurance, supra. Accordingly, it cannot be said that the principles established in that decision were not before our Court of Appeal when it decided the issue of whether a builders lien was an in personam judgment which would attract interest or whether it was a declaratory judgment which would not. Second, I am satisfied that no importance should be placed on the fact that the Court in Westburne found that the full amount of the lien claim had been paid into Court as security. While the failure to pay money into court resulted in the court in Nor-Min Supplies stating that it would be unjust for the defendant to have the benefit of the funds without corresponding interest being made available to the lien claimants, the Court in Westburne stated that interest on the funds in court would not be available to the lien claimants:
The short answer to the appellants’ submission is that the moneys paid into court are not the funds of the appellants. They simply replace the land as security in the event that the claimants establish their right to a declaration of lien. As Weatherston J.A. said in the Phoenix case at p. 815 [33 O.R.]: “Interest is not a lienable item under the Act,...” That is also my opinion. As the appellants are not entitled to interest under the
Act they are not entitled to any interest earned on the security paid into court. (at para. 33).
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[1165] In Lauder Bros. & Tate Builders Ltd. v. Vanmore Holdings Ltd., [1987] B.C.J. (Q.L.) No. 295, a five judge panel of the Court of Appeal sat to expressly reconsider its decision in Westburne and reached the conclusion that the principles set out in Westburne continue to apply in British Columbia and that its decision in Westburne was correctly decided.
[1166] While the Court in Lauder did not refer to the following statement of Leggatt, Co. Ct. J., as he then was, at the trial level, I am satisfied that this statement correctly states the law in British Columbia on the question of whether interest can be included in the amount of the declaration of the builder’s lien:
Whether or not security has been posted under s.32, and whether or not the claimant has a contractual relationship with the owner of the builders’ lien, as is the case at Bar, the law of British Columbia is now well settled and this does not permit a builders’ lien for court order interest.
There is a clear distinction in law between the claim for personal judgment pursuant to the breach of contract and the claim for a declaration of lien. The fact that two different amounts will remain owing to the plaintiffs is not inconsistent since the causes of action are distinct. (at p. 138)
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[1167] Accordingly, even though I might have been prepared to hold that money has been “wrongfully withheld”, I am bound by the decisions in Westburne and Lauder Bros. Even if I am wrong in concluding that Golden Hill is not entitled to claim interest pursuant to the Contract or the Court Order Interest Act, I am satisfied that Golden Hill is not entitled to claim any interest under its builder’s lien.
PRIORITY OF THE LIEN
[1168] The parties have agreed that Golden Hill performed work on the following mineral claims:
Claim No. Claim Name
239098 NOR4
242991 NOR5
350859 NOR7
301219 NOR8
243445 TISZI4
238404 RON4
350858 RON5
238819 DU
242576 DUE2
[1169] Section 6 of the Applicable Lien Act provides that a registered mortgage has priority over a lien only to the extent of mortgage money secured in good faith or advanced in good faith before the filing of the claim of lien. The following documents in favour of Trilon Financial Corporation were recorded against the mineral claims on or about June 23,
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1998: Royalty Agreement, Debenture and a further Debenture. Also recorded on the same date was a further Debenture in favour of Northgate Exploration Ltd.
[1170] Golden Hill submits that the “unambiguous expression of the legislative will” found in this provision of the Applicable Lien Act with respect to the priority of prior filed liens over secured charges ought not to be negated: Yorkshire Trust Co. v. Canusa Construction Ltd. et al (1984),
10 D.L.R. (4th) 45 (B.C.C.A.) at p. 51. I agree. Ordinarily, the declaration that would be available to Golden Hill is that its lien ranks in priority ahead of the security of Trilon Financial Corporation and Northgate Exploration Ltd.
[1171] However, neither of those entities are before the Court. Accordingly, Golden Hill is at liberty to apply for a declaration that its lien ranks in priority prior to the security of Trilon Financial Corporation and Northgate Exploration Ltd. after appropriate notice is given to those companies and Kemess. At the same time, Golden Hill will be in a position to request an order for enforcement proceedings against the mineral claims if the lien amount has not been paid.
ARE COSTS INCLUDED IN THE LIEN?
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[1172] The issue which arises is whether assessable legal costs are covered by the lien or not. Section 39 of the Applicable Lien Act states:
s.39(1) Subject to section 6, all money realized by action or proceedings under this Act or paid into court under section 20 must be applied and distributed in the following order:
the costs of all the lien holders of and incidental to the proceedings of registering and proving their claims of lien;
6 weeks’ wages, if so much is owing, of all workers employed by the owner, contractor and subcontractor;
the sums of money owing the workers in excess of 6 weeks’ wages, the material suppliers and the subcontractors;
the amount owing the contractor.
[1173] Golden Hill submits that its costs are recoverable under the lien in addition to the amount found to be owing under the claim of lien and rely on the decision in Convert-A-Wall Ltd. v. Brampton Hydro-Electric Commission (1987), 27
C.L.R. 58 (Ont.H.C.) at p. 62 in that regard.
[1174] Kemess relies on the following sections of the Applicable Lien Act in its submission that all of the costs claimed by Golden Hill are not claimable under the lien:
Section 37 – If it appears to the Court in any action to enforce a claim of lien that the action has been brought from the failure of an owner ... to fulfill the terms of the contract,
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... the Court may order the owner ... to pay all the costs of the action in addition to the amount of the contract ... due ... and may order a final judgment against the owner ... for costs;
Section 41 – Costs of an action awarded to the plaintiffs, ... subject to the maximum costs allowed exclusive of disbursements, by the Rules of Court, are in addition to the amount of the judgment;
Section 44 - If ... judgment is–given for ... a claimant, in addition to the costs of the action, the Court may allow a reasonable sum for the costs of drawing and filing the claim of lien;
Section 45 - The costs incident–l to all applications and orders under this Act and not otherwise provided for are in the discretion of the court to which the application or by which the order is made.
[1175] On the basis of these sections, Kemess submits that the Applicable Lien Act only recognizes three categories of costs being: (a) the “costs of the action to enforce the lien” which can be added to the amount of the judgment but subject to the maximum amounts allowed under the Rules of Court; (b) the “costs to prepare and file” the claim of lien which can also be added to the judgment; and (c) “costs of any other applications and orders under the Act” which Kemess submits includes applications like an application to post security
under s. 24 or an application to pay money into court under s. 20.
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[1176] Kemess submits that s. 39 is only the “distribution” section and that this section does not itself purport to give any entitlement to costs and only establishes the priority in which available funds are to be distributed in case of a shortfall. Kemess submits that the words “costs of all the lien holders of and incidental to the proceedings of registering and proving their claims of lien” were not intended to give a greater entitlement to costs than what is set out in what Kemess says are the three categories of costs set out in ss. 37, 41, 44 and 45 of the Applicable Lien Act.
[1177] Surprisingly, there is very little British Columbia authority dealing with the question of whether all of the costs of this type of litigation are included within the phrases used in s. 39(1)(a) of the Applicable Lien Act or whether the costs which are lienable are limited to those matters set out in ss. 37, 41, 44 and 45 of the Applicable Lien Act.
[1178] In Wall Bros. Construction Co. v. Canson Enterprises Ltd. (1987), 17 B.C.L.R. (2d) 101 (B.C. Co. Ct.), the Court
dealt with the submission of the counsel for the defendants that costs were only payable under s. 39(a) from the proceeds
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of the sale of land. In the context of the appropriate holdback fund required, Singh, Co. Ct. J., as he then was, stated:
He states that costs are only payable under Section 39(a) from the proceeds of the sale of land.
Sections 41 – 46 of the Builders’ Lien Act provide otherwise. Costs can be awarded, and are in addition to the amount of the judgment.
Furthermore, pursuant to Section 39(a) of the Builders’ Lien Act the costs of all lienholders of and incidental to the proceedings of registering and proving their claims of lien are to be paid first. (at p. 113).
[1179] In Arctic Distributors Ltd. v. Nordin (1984), 52
B.C.L.R. 110 (B.C. Co. Ct.), Millward, Co. Co. J., as he then was, stated:
Section 39 refers to “lienholders”, that is persons adjudged to be entitled to a lien under the Act. By virtue of s. 20 the holdback is impressed with a trust for those lien claimants whose claims and quantum thereof are proved at trial. Such lien claimants then become “lienholders” and are entitled to share in the pro-rata distribution envisaged by s. 39.
Section 39 thus contemplates a trial to determine the validity of a lien claimant’s lien and the quantum thereof. (at paras. 9-10).
[1180] I am satisfied that the clear language used by s. 39(1)(a) of the Applicable Lien Act allows Golden Hill to add to the amount of its lien its assessable costs of these proceedings throughout. These are proceedings to prove the
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claim of lien of Golden Hill. It could not have been the intention of the Legislature that the costs of “registering and proving their claims of lien” were not available to a lien claimant unless, as Kemess submits, the land or mineral claims of an owner were being sold. Similarly, it could not have been the intention of the Legislature that the lien claimant was only entitled to “the cost of drawing and filing the claim of lien” (s. 44).
[1181] I am satisfied that the provisions of ss. 39, 37, 41 and 45 all contemplate the awarding of costs and that the purpose of the Applicable Lien Act is served by those costs being included within the amount of the lien.
[1182] The Rules of Court deal with the question of whether costs will be available to a litigant in an action commenced by the litigant. The additional provisions dealing with costs in the Applicable Lien Act allow me to conclude that the Legislature intended to make it clear that, in addition to the costs that would ordinarily be available to a litigant, the costs to register, prove and enforce a claim of lien can also be claimed and are a lienable amount. I cannot be satisfied that it was the intention of the Legislature to disentitle a litigant and a lien claimant to include the cost of
registering and proving the claim of lien under the lien itself.
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[1183] Accordingly, while the parties are at liberty to speak to the question of costs, any costs awarded to Golden Hill will be included within the lien amount.
(CC) THE COUNTERCLAIM OF KEMESS
[1184] Pursuant to the Contract, Golden Hill was obligated to pay camp charges to Kemess of $50.00 per day per person.
Golden Hill personnel spent 8,490 days on the Project (7,950 days in 1996 and 540 days in 1997) thereby attracting camp charges of $425,500.00 not including G.S.T. ($397,500.00 for 1996 and $27,000.00 for 1997).
[1185] Golden Hill submits that camp charges plus additional amounts invoiced by Kemess to Golden Hill for gas and propane total $426,881.44 ($399,741.44 for 1996 and
$27,140.00 for 1997) all before G.S.T. whereas Kemess has withheld payment of $469,285.00 from the certified holdback amount owing.
[1186] Golden Hill submits that all camp charges in excess of $245,000.00 flow from the breaches of contract and tortious acts of Kemess so that any amounts in excess of $245,000.00 should not be awarded to Kemess as part of its Counterclaim.
Kemess submits that the full sum of $426,881.44 (not including G.S.T.) is payable.
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[1187] Kemess also submits that Golden Hill in its Further Amended Statement of Claim has made an admission that
$456,763.31 (which includes G.S.T.) is owing to Kemess for camp charges and that such an admission is conclusive against the party making it: Caviglia v. Tenorio (1992), 71 B.C.L.R. (2d) 255 (B.C.S.C.).
[1188] Paragraph 32 of the Further Amended Statement of Claim reads:
Kemess has failed to pay the following amounts calculated at the Contract unit rates:
$118,124.31 (certified progress payment #8)
(including G.S.T.)
$648,146.69 (holdback) (excluding G.S.T.)
$456,763.31 (less room and board owed by Golden Hill to Kemess pursuant to the
Contract), (including G.S.T.)
$309,507.69
Excluding G.S.T., this amount is $331,661.65.
[1189] In answer to the submission of Kemess, Golden Hill submits that the decision in Caviglia only supports the proposition that an admission by one defendant in one action is admissible in another action against the same defendant although the admission should be accorded negligible weight. Golden Hill further submits that Kemess has not provided any
evidence that they relied upon the admission or that they would suffer prejudice if the admission were withdrawn.
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[1190] Rule 31(5) of the Rules of Court governs when admissions in pleadings can be withdrawn: “A party is not entitled to withdraw ... an admission made in a pleading except by consent or with leave of the court.” The test of whether leave should be granted to allow a withdrawal of an admission has been variously described:
Only where the admission can be withdrawn without prejudice to the other side: McNaughton v. Baker (1988), 25 B.C.L.R (2d) 17 (B.C.C.A.); Abacus Cities Ltd. v. Port Moody (1981), 26 B.C.L.R. 381 (B.C.C.A.) at pp. 382-3; Norlympia Seafoods Ltd. v. Dale & Co. (1982), 141 D.L.R. (3d) 733 (B.C.C.A.) at pp. 737-8; Gillies v. Couty (1984), 100 B.C.L.R. (2d) 115 (B.C.S.C.) at pp. 122-4 and Fontaine v. British Columbia (Official Administrator) (1996), 22
B.C.L.R. (3d) 371 (B.C.C.A.) at p. 381.
If, in the circumstances, the court is satisfied that it is in the interests of justice to allow the admission to be withdrawn: Norlympia Seafoods Ltd., supra; Abacus Cities Ltd., supra; Kamei Sushi Japanese Restaurant Ltd. v. Epstein (1996), 25
B.C.L.R. (3d) 366 (B.C.S.C.); British Columbia Ferry Corporation v. T&N, plc (1993), 31 C.P.C. (3d) 379 (B.C.S.C.); and Blowey v. National Trust Co., [1998]
B.C.J. (Q.L.) No. 174 (B.C.S.C.).
Where the opposite party has not relied on the admission and its withdrawal would not prejudice that party: Caviglia, supra, at p. 260.
To ensure that the real matters in controversy between the parties may be decided on the merits: Fontaine, supra; at p. 381; La v. Le (1993), 78
B.C.L.R. (2d) 322 (B.C.C.A.); Abacus Cities Ltd.,
supra, and Squamish Indian Band v. Canadian Pacific Ltd., [1998] B.C.J. (Q.L.) No. 1726 (B.C.S.C.).
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[1191] The phrase “in the interests of justice” is explained in Norlympia Seafoods, where the Court stated that, whether the admission had been made inadvertently, hastily, without knowledge of the facts, or whether facts come to the attention of the Court after the admission has been made are all matters to be taken into consideration in deciding whether or not the circumstances show there is a triable issue which ought to be tried in the interests of justice.
[1192] I am satisfied that it is in the interests of justice that Golden Hill be allowed to withdraw what is described as an admission contained in paragraph 32 of the Further Amended Statement of Claim. I am satisfied that there is no prejudice to Kemess. First, there is no factual dispute about the camp charges owing, the amount of progress payment number 8 or the amount of the holdback. Accordingly, there would be no evidence required from either party as to the exact amount owing for camp charges. Second, the only issue before the parties is whether camp charges should be “capped” at $245,000.00 as that is what was originally projected by Golden Hill. That submission was raised by Golden Hill in its written submissions and Kemess was give ample time to respond
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to the question of whether, at law, camp charges should be capped at $245,000.00 in view of the alleged tortious acts and breaches of contract. Third, the statement relied upon in paragraph 32 of the Further Amended Statement of Claim is in the context of what amount Kemess had failed to pay from what was said to be owing by Kemess under the Contract. The statement does not constitute an admission in the context of whether or not camp charges were owing and, if so, the amount of those camp charges. I will allow the admission to be withdrawn.
[1193] The question which then arises is whether the submission of Golden Hill should be accepted so that camp charges are capped at $245,000.00. I am satisfied that it is not appropriate for the Counterclaim to be capped at
$245,000.00. First, the Tender Schedule was not intended to commit Golden Hill to a certain level of personnel. While there was no evidence to suggest that the estimate of Golden Hill was unreasonable in the circumstances, it was only an estimate and it was neither an upper limit nor a lower limit of what might be charged by Kemess.
[1194] Second, while Kemess charges $50.00 per day per person for all camp charges, Golden Hill will be compensated for its damages arising out of the tortious acts and breaches
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contract of Kemess. In obtaining those damages, Golden Hill receives compensation for the personnel and equipment that were on Site. It would be inequitable to allow Golden Hill to collect for those damages without allowing Kemess to require the payment of the camp charges associated with having those personnel on Site. In this regard, Kemess must be taken as being a separate supplier of services for which Golden Hill must pay. Accordingly, judgment is granted in favour of Kemess for $426,881.44 owing for camp charges and gas and propane costs and for any G.S.T.
[1195] The question which then arises is whether counterclaims which are reduced to pecuniary judgments can or cannot be set off against the amount found owing under the builder’s lien. The answer to that question is found in s.
30(4) of the Applicable Lien Act which states:
A defendant in an action to enforce a claim of lien may set off or set up by way of counterclaim any right or claim arising out of the same transaction for any amount, whether the set off or counterclaim sounds in damages or not, and the court has the power to pronounce a final judgment in the same action on the claim of lien, set off and counterclaim.
(DD) SUMMARY
[1196] Golden Hill will be entitled to Judgment for the sum of $7,003,617.57 made up as follows:
Total Costs $11,230,681.19
Overhead $1,123,068.12
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Standby Charges $482,440.00
Profit $177,721.35
Total $13,013,910.66
Paid to Date $ 6,010,293.09
Judgment Amount
(Not including Costs or G.S.T. payable)
$ 7,003,617.57
[1197] The Judgment amount does not include the costs available to Golden Hill after they have been assessed or any
G.S.T. payable by Kemess. Both of those amounts should be added to the Judgment amount.
[1198] Golden Hill will be entitled to a lien in the amount of $6,521,177.57 as set out above as well as the costs payable by Kemess as assessed plus any G.S.T. payable by Kemess as a result of its obligation to pay G.S.T. under the Contract between the parties.
[1199] Both the Judgment and lien amounts assume that Golden Hill has claimed only $110,000.00 for mobilization and demobilization of the equipment originally set out in the bid of Golden Hill as well as the amount that was agreed to be paid by Kemess to Golden Hill for the additional equipment
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that was mobilized and demobilized during the currency of the Work of Golden Hill on the Project. If an amount in excess of those amounts has been claimed by Golden Hill in its total costs, then the balance owing under the Judgment and the balance under the lien in favour of Golden Hill shall be reduced respectively.
[1200] The parties will be at liberty to speak to the question of the costs of these proceedings and Golden Hill will be at liberty to apply for an order to establish the priority of its lien and to enforce its lien.
"G.D. Burnyeat, J.”
The Honourable Mr. Justice G.D. Burnyeat
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