Supreme Court of Canada
Corpex (1977) Inc. v. The Queen in right of Canada, [1982] 2 S.C.R. 643
Date: 1982-11-23
Corpex (1977) Inc. Appellant;
and
Her Majesty The Queen in right of Canada Respondent.
File No.: 15996.
1981: March 24, 25; 1982: November 23.
Present: Beetz, Estey, McIntyre, Chouinard and Lamer JJ.
ON APPEAL FROM THE FEDERAL COURT OF APPEAL
Crown—Contract—Construction of dam—Bid based on incomplete information—Mistake as to nature of soil—Work in addition to that provided for in plans and specifications—Delays—Additional costs—Whether contractor can be compensated—Whether contract may be annuled.
By a contract for the lease and hire of work by estimate and contract, appellant undertook to build a dam. On completing the work, it brought an action against respondent claiming to be reimbursed for (1) the additional costs of pumping resulting from a mistake as to the nature of the soil, and (2) the costs resulting from delays caused by the performance of work in addition to that provided for in the plans and specifications, ordered by the engineer of respondent pursuant to the contract. For her part, respondent maintained that she only owed the sum of $32,796. The Federal Court, Trial Division, refused to annul the contract and allowed the action. The Court of Appeal reversed the judgment, allowing the action for the uncontested amount only.
Held: The appeal should be allowed in part.
The contract could not be annuled. Clause 12 of the General Conditions applied to the case of a contractor who relied on information contained in the plans and specifications regarding the nature of the soil in preparing his bid, in light of the work provided for in the plans and specifications. It enabled the parties to renegotiate all or part of the contract on the terms which it stipulated. A contractor was thus practically certain of being compensated for additional costs if it complied with the provisions of that clause. However, in the case at bar appellant did not send respondent the notice required by clause 12, and the latter therefore could not have foreseen a claim in this regard.
As regards the costs claimed under the second item—the costs of operating a dewatering system during the delays, cost increases due to the performance of work
[Page 644]
during the winter and wage increases due to delays—they all related to work in addition to that provided for in the plans and specifications, the cost of which must be reimbursed under clauses 38 and 46 of the General Conditions, clause II(1)(e) of the contract and clauses 1 and 2 of the Terms of Payment. The purpose of these provisions was to ensure the contractor that, in the event he cannot reach agreement, he will be compensated with regard to work on which he made no bid but which he is required to perform. These provisions thus have a similar purpose to clause 12, namely to encourage full completion of the contract and compensation for the contractor. The contractor’s right to compensation did not depend on the discretion of the engineer, any more than the quantum of such compensation, which was calculated in accordance with clause 46.
Eastern Construction Ld. v. City of Montreal (1936), 74 C.S. 196; J.E. Brazeau Ltée v. Ville de Pierrefonds, [1970] C.S. 282; Sera Inc. v. Hydro-Semence Inc., [1976] C.S. 331; United Shoe Machinery Company of Canada v. Brunet, [1909] A.C. 330; La Cie J.A. Gosselin Ltée v. Péloquin and Blanchett, [1957] S.C.R. 15; R. v. Paradis & Farley Inc., [1942] S.C.R. 10; Atlas Construction Co. v. City of Montreal, [1954] C.S. 350, referred to.
APPEAL from a judgment of the Federal Court of Appeal[1], reversing a judgment of the Trial Division[2]. Appeal allowed in part.
Jean Lefrançois, for the appellant.
Jean-Claude Ruelland, Q.C., and Jean-Marc Aubry, for the respondent.
English version of the judgment of the Court delivered by
BEETZ J.—This is an action for $489,277.89 brought by an excavation and construction contractor following the performance of a contract for the lease or hire of work by estimate and contract. The contractor is claiming, first, the costs occasioned by a mistake as to the nature of the soil, and second, the costs resulting from delays caused by the performance of work in addition to that provided for in the plans and specifications. The claim also relates to an amount of $21,249.87 which, in her defence, respondent admitted owing appellant. Respondent further admitted owing
[Page 645]
appellant the sum of $8,547.09 plus 10 per cent of the latter two amounts.
Before proceedings were instituted, and after some negotiation, respondent offered the contractor the sum of $55,667.78 to avoid a court action, but the contractor declined.
Walsh J. of the Federal Court Trial Division allowed the action on the two principal items and the uncontested amount, making a total award of $182,809, with interest commencing December 5, 1974, and costs. However, Pratte and Le Dain JJ. and Hyde D.J. of the Federal Court of Appeal reversed this judgment, allowing the action for the uncontested amount only.
The contractor was Simard-Beaudry Inc., the plaintiff at first instance. It was succeeded by appellant as the result of a company merger. In these reasons, they will both be referred to as the Contractor. Respondent will be referred to as the Owner.
I—The facts
Both parties accept in general the detailed statement given by the trial judge in a very elaborate judgment; however, this judgment has not been published and it is necessary to summarize the circumstances which gave rise to the case.
1. The contract
On November 10, 1967, following a call for tenders and bids, the parties signed an agreement whereby the Contractor undertook to build a dam for the Owner in accordance with plans and specifications. Work had started a few days earlier, on November 7, 1967.
The work in question is a reinforced concrete spillway dam intended to lock the water of the St. Charles River at Quebec City, in order to keep it at a constant level. It is located near the mouth of the river underneath the Samson Bridge, used for motor vehicle traffic, and an almost immediately adjacent CN bridge.
The method proposed by the Contractor for building the dam was not the one suggested origi-
[Page 646]
nally, but it was approved by the Owner and was in fact that employed. It consisted essentially of dewatering the river at the work site in two stages. In the first stage, it required, building a cofferdam or temporary moraine dyke around the site on half the river. When this coffer-dam had been completed, it was planned to proceed with dewatering the site using a double system of pumps: individual pumps would pump off the surface water (river water, rain, snow and seepage through the moraine dyke); and a system of well-point pumps fixed in the ground would pump off the subterranean water and lower the water table below a certain level. This would provide the dry conditions needed to build half the dam. After completing this work, the same procedure had to be repeated on the other side of the river to build the other half of the dam. These two stages had of necessity to be consecutive, as of course the river could not be blocked along its entire width.
The contract estimated the total cost of the work at $1,654,660, that is $1,353,051 at unit prices and $301,609 at a fixed price. The fixed price was intended primarily to defray the cost of the coffer-dam and pumping, but it also included the cost of a sluice and a temporary office.
2. The nature of the soil
In order to determine the cost of pumping, the Contractor and the dewatering experts whose equipment and services were hired had to have as accurate information as possible on the nature and permeability of the soil in the river bed. All that the plans show is the result of two borings which each bear the following description:
Fine sand, slightly organic, with boulders.
However, the plans and specifications do not indicate what system of sand classification was used in describing the sand as “fine”. Several systems of classification exist, including the M.I.T. (Massachusetts Institute of Technology) system which, according to the Contractor’s expert witness, is the most commonly used in Canada, and
[Page 647]
the Casagrande Unified System. However, what is described as “fine sand” under the Casagrande Unified System is described as “medium sand” under the M.I.T. classification system.
The Contractor and his experts assumed that the M.I.T. classification system had been used, but they were mistaken. Under that classification, the sand from the river bed proved to be medium and not fine sand. The soil was accordingly much more permeable than the Contractor and his experts had expected.
Before the bids, a representative of the Contractor contacted Dupuis and Girard, a firm of consulting engineers who had prepared the plans and specifications. He asked an engineer of this firm whether they had any further information regarding the nature of the soil. The engineer told him that all the available information was in the data from the two borings referred to in the plans.
This answer was false. As only became apparent much later, during the hearing at first instance, the consulting engineers Dupuis and Girard had made a study of the soil in 1965 and had in their possession since April 1965 granulometric analyses the result of which, if it had been given to the Contractor and his experts, would have prevented the mistake they made.
Pumping began in the spring of 1968. After about a fortnight, it became apparent that the pumping equipment provided and available on the site was not equal to the task. The pumps had to pump a volume of water five times greater than anticipated. It was concluded from this that the riverbed sand was not fine sand under the M.I.T. classification, but of a coarser variety, and this was confirmed by new borings the result of which was known about a year later. Additional pumps had to be installed.
However, no notice of a claim was given to the Owner’s engineer, as provided in clause 12 of the General Conditions of the contract, infra.
[Page 648]
One of the two principal items in the Contractor’s claim concerns the additional cost of pumping, which resulted from the mistake as to the nature of soil and was not included in the costs resulting from delays caused by the performance of work in addition to that provided for in the plans and specifications. For this item, the Contractor initially claimed the sum of $169,879.99, which included the additional cost of pumping both with individual and with well‑point pumps. However, at the close of the trial hearing, the Contractor reduced this part of the claim to $97,530, deducting the cost of pumping using the individual pumps, namely $72,349.99. The Court was not told the reason for this deduction, but if I understand the circumstances of the case correctly, it is explained by the fact that the mistake as to the nature of the soil could only have contributed to increasing the cost of pumping subterranean water, and not—or not to any significant extent—that of pumping surface water.
When he drafted his initial statement of claim, the Contractor was still unaware that the Owner’s firm of consulting engineers had neglected to give him all the information the firm had regarding the nature of the soil. Accordingly, all that is contained in paragraph 16 of the statement of claim is the following allegation, the wording of which is based on clause 12(1)(a) of the General Conditions of the contract, infra:
[TRANSLATION] …a substantial difference between, on the one hand, soil conditions as determined by plaintiff before the work was performed, in accordance with reasonable assumptions based on information contained in the plans and specifications as to the said soil conditions, and on the other hand, the actual soil conditions encountered by plaintiff when performing the work, necessitated the installation and operation of three times more dewatering equipment than plaintiff had anticipated and could reasonably have anticipated, and occasioned enormous cost and additional expense;
The Contractor was therefore not seeking at that time to have the contract annulled, merely an order to pay the sum of $489,277.89.
In his statement of claim, amended during the hearing with leave of the trial judge, the Contractor alleges that he was misled by the firm of consulting engineers. To his initial conclusions he
[Page 649]
adds alternative conclusions asking that the contract be voided and that the Owner be ordered to pay the sum of $489,277.89 on the basis of a quantum meruit.
In his submission to this Court, counsel for the Contractor alleges not only mistake but fraud, and his alternative conclusions seeking to have the contract voided become his principal conclusions. However, in his argument he said he wished to emphasize mistake and not fraud. The former principal, now alternative, conclusions are based in part on the contract, but also in part on the delictual or quasi-delictual liability of the consulting engineers employed by or representing the Owner.
3. Delays caused by work in addition to that provided for in the plans and specifications
The other principal item in the claim concerns the cost of delays caused by the performance of work not provided for in the plans and specifications.
Paragraph (1) of clause 38 of the General Conditions of the contract, infra, provides that the Owner’s engineer may order work in addition to that provided for in the plans and specifications, and that the Contractor will perform such work as if it had appeared in the plans and specifications.
Some thirty changes were in fact ordered: three of these, which were quite substantial, are the basis of the Contractor’s claim for this other item. They include the demolition and rebuilding of one of the pillars of the Samson Bridge and supporting the bridge with temporary structures while this work was in progress. They also include repairing the buttresses of other pillars and doing concrete work on those pillars.
As he acknowledges in his statement of claim, the Contractor has already received from the owner the sum of $289,700.20 for this additional work. The amount was calculated using the unit price method, agreed on by the parties, when each request for additional work was made; however, this amount allegedly does not represent the actual
[Page 650]
cost of such additional work.
According to the allegations of the Contractor, the performance of work in addition to that provided for in the plans and specifications disrupted and delayed the critical path of the scheduled work. These unforeseen delays allegedly obliged the Contractor to do part of the second stage work during the winter, contrary to expectations, and resulted in additional costs such as heating of concrete, snow and ice removal, and reduced workforce efficiency. Under this heading the Contractor is claiming $54,215.30.
In addition, wage increases were imposed in the [TRANSLATION] “Decree respecting the construction industry and trades”, and the extension caused by the changes allegedly had the result of placing part of the work within the higher wage periods. The Contractor is claiming $8,487.26 under this heading.
The disruption caused by the changes allegedly also had the effect of making part of the work fall within a strike period, during which it was necessary to keep guards, clerks and a superintendent on the site, to pay for the transportation of certain pieces of equipment and to assume the cost of keeping others without using them. Under this heading the contractor is claiming $6,859.63.
Finally and most importantly, during the delays caused by work in addition to what was provided for in the plans and specifications, it was necessary to keep the site dry, and consequently to keep the individual and the well-point pumps in operation. According to the Contractor, he had to pay the total amount of $126,088.90 under this heading, that is $51,443.68 for the individual pumps and $74,645.22 for the well-point pumps.
The Contractor makes a further claim of 15 per cent of all the foregoing amounts for general site costs and 10 per cent for general administrative costs, head office expenses and profits.
[Page 651]
II—Principal clauses of the contract
The principal clauses of the contract are as follows:
[TRANSLATION]
Article II
(1) At the times and in the manner stated or mentioned in the attached document, titled “Terms of Payment” and marked “B” (referred to as “Terms of Payment” in the documents making up the contract), Her Majesty shall pay the Contractor, in consideration for the performance of the part of the work to which the fixed price arrangement applies, the sum of $ (subject to additions or deductions mentioned in these Articles, the General Conditions, the Terms of Payment or the Work Conditions, except for any addition or deduction which is expressly stated to be applicable only to unit price arrangements).
(2)
(a) At the times and in the manner stated or mentioned in the attached document, titled “Terms of Payment” and marked “B” (referred to as “Terms of Payment” in the documents making up the contract), Her Majesty shall pay the Contractor, in consideration for the performance of the part of the work to which the unit price arrangement applies, an amount equal to the number of units of measurement in each category of labour in fact performed, plant in fact used or materials in fact supplied by the Contractor in the performance of the work, in accordance with measurements made by the Engineer and contained in his final certificate of measurement, multiplied by the price fixed for each unit of measurement in the Unit Price Table, taking into account additions or changes provided for in subparagraphs (b), (c) and (d) of this clause, or if applicable, determined in accordance with subparagraph (e) of this clause (the said amount being subject to the additions or deductions provided for in the General Conditions, the Terms of Payment and the Work Conditions, except for any addition or deduction expressly stated to be applicable only to fixed price arrangements).
(b) The Engineer and the Contractor may, by means of a written agreement, add to the Unit Price Table categories of labour, plant or materials and units of measurement, unit prices and estimated quantities relating thereto, when the final certificate of measurement of the Engineer refers to labour, plant or materials not included in a
[Page 652]
labour, plant or materials category mentioned in the Unit Price Table.
(c) The Engineer and the Contractor may, by means of a written agreement, alter the unit price indicated in the Unit Price Table for any scheduled category of labour, plant or materials, when an estimated quantity is stated therein for the said category of labour, plant or materials, if the final certificate of measurement of the Engineer indicates or must indicate a total quantity less than 85 per cent of the said estimated quantity in this category of labour performed, plant used, or materials supplied by the Contractor in performing the work.
(d) The Engineer and the Contractor may, by means of a written agreement, alter the unit price indicated in the Unit Price Table for any scheduled category of labour, plant or materials, when an estimated quantity is stated therein for the said category of labour, plant or materials, by fixing a unit price for units of this category of labour performed, plant used or materials supplied by the Contractor in the performing of the work, which exceeds 115 per cent of the said estimated quantity.
(e) When the Engineer and the Contractor do not agree as provided in subparagraphs (b), (c) and (d) of this clause, the Engineer shall determine the category and unit of measurement of the labour, plant or materials in question, and the unit price thereof shall be established in accordance with clause 46 of the General Conditions.
(f) For the information and guidance of the Contractor and the persons administering the contract on behalf of Her Majesty, but not so as to constitute a warranty, representation or undertaking of any nature, either by Her Majesty to the Contractor or by the Contractor to Her Majesty, it is estimated that the total amount payable by Her Majesty to the Contractor for the portion of the work to which the unit price arrangement is applicable will not exceed $1,654,660.00.
(3) Paragraph (1) of this clause is not applicable when the unit price arrangement applies to the work as a whole.
(4) Paragraph (2) of this clause is not applicable when the fixed price arrangement applies to the work as a whole.
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(As the trial judge noted, clause II(2)(f) is incorrect, because the amount of $1,654,660 is the total amount of the contract and includes not only unit prices but also the fixed price for dewatering, namely $301,609).
Article III
…
(2) Any of the provisions of these Articles, the Terms of Payment and the General Conditions which are expressly stated to be applicable only to a unit price arrangement are not applicable to the whole or to the portion of the work to which the fixed price arrangement is applicable.
(3) Any of the provisions of these Articles, the Terms of Payment and the General Conditions which are expressly stated to be applicable only to a fixed price arrangement are not applicable to the whole or to the portion of the work to which the unit price arrangement is applicable.
…
“B”
Terms of Payment
1. Her Majesty shall pay the Contractor, at the times and in the manner hereinafter stated, the amount by which
(a) the whole of the amounts mentioned in clause 2 of the Terms of Payment
(b) exceeds the whole of the amounts mentioned in clause 3 of the Terms of Payment,
and the Contractor shall accept the payment as consideration in full for everything which it has supplied or done in connection with the work.
2. (1) The amounts mentioned in paragraph (a) of clause 1 of the Terms of Payment are:
(a) the amount mentioned in clause II of the Articles of Agreement;
(b) the amount, if any, payable to the Contractor in accordance with clause 12 of the General Conditions regarding unforeseen soil conditions, negligence or delays;
(c) the amount, if any, payable to the Contractor as a consequence of suspension of the work in accordance with clause 18 of the General Conditions;
(e) the amount, if any, payable to the Contractor as a consequence of an order or change in accordance with clause 38 of the General Conditions;
(f) …
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(2) Subparagraph (e) of paragraph (1) shall apply only to fixed price arrangements.
“C”
General Conditions
1. (1) In the contract,
…
(c) “materials” includes any materials, goods, matters and things supplied under the contract for the purposes of incorporation in the work;
…
(e) “plant” includes animals, tools, instruments, machines, vehicles, buildings, works, equipment, matters and things required for the performance of the work;
…
(i) “work” includes the whole of the works, materials, matters and things required to be done, furnished and performed by the Contractor under the contract.
…
5. The description of the work and the materials stated in the contract shall include not only the particular type of work and materials mentioned, but also any labour, plant and materials necessary for the full performance, completion and delivery in a usable state of the work and materials.
…
7. Time is of the essence of the contract.
…
12. (1) No payment shall be made by Her Majesty to the Contractor in addition to the payment expressly promised by the contract on account of any extra expense, loss or damage incurred or sustained by the contractor for any reason, including a misunderstanding on the part of the Contractor as to any fact, whether or not such misunderstanding is attributable directly or indirectly to Her Majesty or any of Her Majesty’s agents or servants (whether or not any negligence or fraud on the part of Her Majesty’s agents or servants is involved) unless, in the opinion of the Engineer, the extra expense, loss or damage is directly attributable to
(a) a substantial difference between information relating to soil conditions at the work site, or a reasonable assumption of fact based thereon, in the plans and specifications or other documents or material communicated by Her Majesty to the Contractor for his use in preparing his bid and the actual soil conditions encountered at the work
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site by the Contractor when performing the work, or
(b) …
in which case, if the Contractor has given the Engineer written notice of his claim before the expiry of thirty days after encountering the soil conditions giving rise to the claim […] Her Majesty shall pay to the Contractor in respect of the additional expense, loss or damage incurred or sustained by reason of that difference […] an amount equal to the cost, calculated in accordance with clauses 44 to 47 of the General Conditions, of the additional plant, labour and materials necessarily involved.
(2) If, in the opinion of the Engineer, the Contractor has saved certain expense because the performance of the work by the Contractor was made less difficult and less costly, due to the fact that the soil conditions actually found at the site by the Contractor in performing the work are substantially different from the soil conditions indicated in the information or inferred from a reasonable assumption based on the said information, contained in the plans and specifications, or other documents or items of information communicated to the Contractor by Her Majesty to be used in the making of his bid, the amount stated in clause II of the Articles of Agreement shall be reduced by an amount equal to the saving made by the Contractor.
(3) Subparagraph (a) of paragraph (1) and paragraph (2) are applicable only to fixed price arrangements.
(4) If information relating to soil conditions at the work site appeared in the plans and specifications, or in other documents or material, communicated by Her Majesty to the Contractor for his use in preparing his bid, and if the actual soil conditions encountered at the work site by the Contractor when performing the work are substantially different from such information, or a reasonable assumption of fact based thereon, so that the cost to the Contractor of performing the work is directly and substantially increased or decreased by reason of such difference, then the Engineer and the Contractor shall exercise their powers under paragraph (2) of clause II of the Articles of Agreement relating to amendment of the Unit Price Table so that the benefit of a substantial decrease in cost shall accrue to Her Majesty and the burden of a substantial increase in cost will not be borne by the Contractor.
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(5) Paragraph (4) is applicable only to a Unit Price Arrangement.
…
38. (1) The Engineer may at any time before he issues his Final Certificate of Completion, in writing,
(a) order work or materials in addition to that provided for in the plans and specifications; and
(b) dispense with or change the dimensions, character, quantity, quality, description, location or position of the whole or any part of the work or materials provided for in the plans and specifications, or as ordered pursuant to subparagraph (a),
and the Contractor shall perform the work in accordance with such orders, dispensations and changes as if the same had appeared in and been part of the plans and specifications.
(2) The Engineer shall determine whether anything done or not done by the Contractor pursuant to an order, dispensation or change made by the Engineer pursuant to paragraph (1) increased or decreased the cost of the work to the Contractor.
(3) If the Engineer decides, pursuant to paragraph (2), that the cost was increased, Her Majesty shall pay the Contractor the cost, calculated in accordance with clauses 44 to 47 of the General Conditions, of the additional labour, materials and plant necessarily involved.
(4) If the engineer decides, pursuant to paragraph (2), that the cost was decreased, Her Majesty may reduce the amount payable to the contractor under the contract by an amount equal to the cost, calculated in accordance with clauses 44 to 47 of the General Conditions, of the plant, labour and materials necessarily involved.
(5) Paragraphs (2), (3) and (4) shall apply only to fixed price arrangements.
…
44. Whenever it is necessary, for the purposes of clauses 12, 18, 37, 38 and 39 of the General Conditions, to determine the cost of plant, labour and materials, reference shall be made to the Unit Price Table, that is, the cost shall be equal to the product of multiplying the quantity of such plant, labour or materials, expressed in terms of the unit stated in column 2 of the Unit Price Table for the plant, labour or materials in question, by the price stated for the unit in column 3 of the Unit Price Table.
45. If the method of determination in clause 44 of the General Conditions cannot be used because the labour, plant or materials involved is not included in the Unit
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Price Table, the cost of the labour, plant or materials for the purposes of clauses 12, 18, 37, 38 and 39 of the General Conditions shall be the amount from time to time agreed upon by the Contractor and the Engineer.
46. (1) If the method of determination in clause 44 of the General Conditions cannot be used and if the Contractor and the Engineer cannot agree as contemplated by clause 45 of the General Conditions, the cost of labour, plant or materials for the purposes of clauses 12, 18, 37, 38 and 39 of the General Conditions shall be equal to the aggregate of
(a) all reasonable and proper amounts actually expended by or legally payable by the Contractor in respect of the labour, plant or materials which fall within one of the classes of expenditure described in paragraph (2) (being costs which are directly attributable to the performance of the work and are not costs in respect of which the allowance in subparagraph (b) is made); and
(b) 10 per cent of the total of the expenditures of the Contractor that meet the test in subparagraph (a), being an allowance for all other expenditures by the Contractor and for profit, and without limiting the generality of the foregoing, being also an allowance for payments and charges relating to overhead, head office expenses and general administrative costs of the Contractor, including finance and interest charges.
(2) Classes of expenditure that are allowable are:
(a) payments to subcontractors;
(b) wages, salaries and travelling expenses of employees of the Contractor while they are actually and properly engaged on the work, other than wages, salaries, bonuses, living and travelling expenses of personnel of the Contractor generally employed at the head office, or at a general office, of the Contractor, unless such personnel is engaged at the site of the work with the approval of the Engineer;
(c) payments for materials necessary for and incorporated in the work, or necessary for and consumed in the performance of the work;
(d) payments for tools, other than tools customarily provided by tradesmen, necessary for and used in the performance of the work;
(e) payments for the preparation, inspection, delivery, installation and removal of plant and ma-
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terials necessary for the performance of the work;
(f) payments for renting, erecting, maintaining and removing temporary offices, sheds and similar structures necessary for and used by the Contractor in performing the work;
(g) assessments payable under any statutory scheme relating to workmen’s compensation, unemployment insurance or holidays with pay;
(h) payments for renting plant and allowances for plant owned by the Contractor necessary for the performance of the work, providing that such payments or allowances are reasonable or have been agreed to by the Contractor and the Engineer; and
(i) payments made with the approval of the Engineer that are necessary for the performance of the work.
III—The trial judgment and the judgment of the Court of Appeal
The trial judge refused to annul a contract already performed, or to divide it so as to annul the fixed price portion. He allowed in part the item in the Contractor’s claim based on mistake as to the nature of the soil and not included in the other item based on delay caused by work in addition to that provided for in the plans and specifications. He treated the fault committed by the Owner’s consulting engineers as a breach of contract. In allowing this item of the claim in part, he based himself on considerations of equity rather than on the clauses of the contract so breached. He explained his reasoning as follows:
…this portion of Plaintiffs claim must be considered as fair and equitable and should not be defeated by technical application of certain clauses in the General Conditions, whether or not the contract as a whole is cancelled. This is not in my view a case where the contractor is making a fraudulent and unjustified claim, but merely where it is trying to recover additional expenses to which it has been put.
I conclude that the proper juridical basis for this part of Plaintiffs claim is for damages for breach of contract rather than for extra amounts under the contract which would be subject to the conditions and limitations thereof. I do not believe that it is necessary to cancel the contract for error in order to allow damages for breach
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of it, and in any event it would not be possible to find that the fixed portion of the contract alone be set aside for error but that the rest of the contract should remain in effect.
On the item of the claim resulting from delays caused by work in addition to that provided for in the plans and specifications, he allowed the principal headings in part, this time relying on the clauses of the contract, to which he gave a wide and liberal interpretation, and invoking against the Owner the contra proferentem rule.
The following is a table of amounts allowed by the trial judge under each item and each heading:
| A.—Cost of delays |
|
| (i) Operation of dewatering system during delays |
$60,850.00 |
| (ii) Supplementary winter work due to delays |
31,390.00 |
| (iii) Cost of salary increases due to delays |
3,860.00 |
| (iv) Maintenance of site during strike |
nil |
| B.—Change in Soil Conditions |
|
| (i) Cost of operation of additional equipment |
48,840.00 |
| C.—Miscellaneous |
|
| (i) Preparatory work for future diversions AB and BC |
21,250.00(1) |
| D.—General Expenses of Site |
|
| (i) Nil |
nil |
| E.—General Administration, Head Office and Profit |
|
| (i) 10% |
16,819.00(2) |
| TOTAL |
$182,809.00(3) |
(1) The trial judge rounded off the admitted amount of $21,249.87 and omitted to add to this amount that of $8,547.09 admitted by the defence.
(2) Should read $17,437.69, in light of the mistake mentioned in footnote 1.
(3) Should read $192,210.65, in light of the foregoing.
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The method of calculation and the amounts arrived at by the trial judge for each item and each heading are not disputed by the parties, apart from the amount of $48,840 for the item based on mistake as to the nature of the soil and not included in the other item based on delays caused by work in addition to that provided for in the plans and specifications. Counsel for the Contractor maintained that this amount should be increased by the sum of $72,350 because the trial judge made an error which they described as manifest in deducting the same amount twice. In the submission of counsel for the Owner, no error was made in this calculation by the trial judge, still less a manifest one.
The Court of Appeal dismissed the part of the claim based on the delay caused by work in addition to that provided for in the plans and specifications, because the parties agreed on the cost of this work in the manner stipulated in clauses 44 and 45 of the General Conditions and because clause 12 provides that the Contractor may not demand more than the amounts stipulated.
The Court of Appeal also dismissed the part of the claim based on mistake as to the nature of the soil, for the reason that the Contractor did not give the notice provided for by clause 12 of the General Conditions of the contract. The Court of Appeal thus also implicitly refused to annul the contract. The Contractor had further argued that this part of his claim could be allowed on a delictual basis, in view of the fault by the consulting engineers. The Court of Appeal questioned whether clause 12 of the General Conditions also applies to claims of a delictual nature, but decided that in any case the record does not show that the engineers who committed the fault were employees of the Owner.
The Court of Appeal accordingly allowed the claim only as to the amount which the Owner admitted owing the Contractor.
IV—Prescription
Counsel for the Owner relied on the five-year prescription referred to in art. 2260.6 of the Civil Code. In his submission, the work ended on or around September 27, 1969 and the cause of
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action for each of the items and headings of the claim predates the closing of the site. The action was brought on December 5, 1974.
This argument was apparently raised for the first time in the Court of Appeal, but it is not dealt with in the judgment of that Court. It did not have to be, in view of the Court’s findings.
This prescription is absolute—art. 2267 of the Civil Code—and a court may apply it of its own motion. However, there must still be in the record sufficiently specific evidence for this prescription to be imposed, and when it is not pleaded at first instance there is danger that the record will contain gaps on the point, as is the case here.
Thus, counsel for the Owner referred the Court to the site log, the last entry in which, dated September 27, 1969, reads: [TRANSLATION] “Contract terminated”. He also referred the Court to Exhibit P-4, which is not reproduced in the printed appeal record. This is the detailed claim made by the Contractor to the Owner before proceedings were brought. On page 17 it indicates that the work was terminated on September 24, 1969.
Counsel for the Contractor referred the Court to change orders and approval of additional funds dated December 11 and 31, 1969. The provisional completion certificate stating that the work is [TRANSLATION] “almost terminated” and acceptable to Her Majesty is dated December 19, 1969. The trial judge further observed that over a year after completion of the work, the latter had not yet been formally approved.
It is thus not possible on the basis of the record to fix the completion of the work at a specific date.
Further, although counsel for the Owner argued that the starting point of prescription for each of the items and headings in the claim predates the completion of the work, he did not indicate to the Court an actual point of departure for each of them, if they really can be distinguished from each other and the claim can be divided in this respect,
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a point which is at least debatable but was not discussed.
The trial judge concluded that it was impossible to determine in advance with minimal precision the cost of delays caused by work in addition to that provided for in the plans and specifications. This is a conclusion on a matter of fact which was not challenged as containing any error, obvious or otherwise.
The dewatering work apparently terminated towards the end of May 1969. It is conceivable that, during the next few weeks, the cost of operating the dewatering system during the delays could have been calculated. The costs of the other delays could probably not have been estimated before the work ended.
The cost of the mistake as to the nature of the soil might have been estimated some time after it was discovered.
However, this is a matter of conjecture and at bottom the Court lacks information. The evidence did not deal with these points and neither the Court of Appeal nor the trial court ruled on these matters of fact and of law.
In such circumstances, I do not think that this Court can be asked to decide these matters for the first time and I would dismiss the argument based on prescription.
V—Mistake as to the nature of the soil and the claim to annul the contract
In my view the Court of Appeal and the trial judge were correct in not annulling the contract. I am further of the opinion, with due respect for the opposite view, that the Court of Appeal correctly dismissed the part of the claim based on mistake as to the nature of the soil.
To begin with, there was no evidence of fraud by the consulting engineers. The trial judge made no finding of fraud, and as I indicated above, the argument of counsel for the Contractor that the contract should be annulled was based primarily on mistake.
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However, counsel for the Owner maintained, one of the very purposes of clause 12 of the General Conditions is to avoid the contract being annulled at the request of the Contractor.
I find this argument conclusive.
There is some authority for the view that, when a building contractor in the course of his work encounters major and unforeseen difficulties due to the nature of the soil or other similar causes, he must suspend the work and ask for the contract to be annulled on the ground of mistake. However, he cannot perform the work and ask for additional compensation if he has completed the work without concluding a new agreement: Eastern Construction Ld. v. City of Montreal (1936), 74 C.S. 196; J.E. Brazeau Ltée v. Ville de Pierrefonds, [1970] C.S. 282, at p. 284; Sera Inc. v. Hydro-Semence Inc., [1976] C.S. 331. Furthermore, these judgments apply general principles under which mistake and fraud, since they only give rise to relative nullity, can no longer be pleaded by a victim who, having discovered them, has gone on to perform the contract: United Shoe Machinery Company of Canada v. Brunet, [1909] A.C. 330; La Cie J.A. Gosselin Ltée v. Péloquin and Blanchett, [1957] S.C.R. 15.
However, the application of these principles to a building contract has been criticized, because from a practical standpoint, and perhaps even from a legal standpoint, interruption of the work and an immediate request to annul or renegotiate the contract imposes considerable risk on the contractor, such as that of being sued by subcontractors, losing the support of his surety, and exposing his business to bankruptcy if he loses his case after several years and after incurring considerable cost; see in this regard: Yves Bertrand, Comment contracter avec les organismes publics?—“La pratique du contrat administratif pour l’entrepreneur”, 1974-75, Formation permanente du Barreau, Course 4, page 74, at pp. 109 to 111.
Additionally, a number of building contracts which do not include a provision such as clause 12 of the General Conditions are often unduly harsh
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on the contractor, in that they provide that the latter should not rely on information provided by the owner, should himself obtain information on the site, or that he has in fact obtained information on the soil conditions. In such cases, the courts have refused to compensate, on a quantum meruit basis, a contractor who has been misled, and they have refused to go beyond the draconian wording of the contract: R. v. Paradis & Farley Inc., [1942] S.C.R. 10; Atlas Construction Co. v. City of Montreal, [1954] C.S. 350.
A clause like clause 12 of the General Conditions eliminates or at least reduces the problems mentioned above, resulting from a significant mistake as to the nature of the soil. However, by enabling the parties, for all practical purposes, to renegotiate the contract or part of the contract on the terms which it stipulates, or to demand that it be renegotiated, it of necessity excludes annulling the contract for mistake, one of the effects of which would be to prevent such renegotiation. One of its objectives is to avoid interrupting the work and encourage its completion.
Both the contractor and the owner derive some benefit from such a clause.
The contractor is practically certain of being compensated for additional costs either during the work or later, if he complies with the provisions of clause 12, and in particular, if he gives the notice provided for in that clause. He enjoys much greater protection than that afforded by contracts such as those in question in R. v. Paradis & Farley Inc., supra, and Atlas Construction Co. v. City of Montreal, supra.
An owner who is thus informed of a mistake as to the nature of the soil knows that the contractor will probably not drop his claim, and he is enabled to reconsider his position. He can in practice be assured that the work will go forward if he wishes, but clause 19 of the General Conditions also enables him to unilaterally rescind the contract. He may conclude another agreement with the same contractor or some other. If he prefers for the work to continue under the new circumstances, he may make arrangements to monitor quantities
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and costs of additional work so that the payments due the contractor under clauses 44 to 46 of the General Conditions can be made.
The practical effect of the notice would appear to be to place the parties in the position they enjoyed at the time of the bid.
However, once the work is complete, a contractor cannot claim in a court of law benefits similar to those which clause 12 would have guaranteed if he has not himself observed that clause and given the notice for which the clause provides. Otherwise, he would be depriving the owner of the benefits which he is guaranteed by clause 12.
In the case at bar, the Contractor knew the actual conditions of the soil in May 1968, but he did not inform the Owner. The latter could accordingly assume that no claim would be made against her in this regard.
It is true that the Contractor did not know at the time all the causes which might have contributed to his mistake or which could have prevented it; but he knew the consequences, which were not affected by the seriousness of the causes. He had found a substantial difference between the information on soil conditions at the work site, or a reasonable assumption based on that information, and the actual soil conditions. In order to preserve his rights, he had to notify the Owner. With such notice, his claim might have been more sure of success once the failure of the consulting engineers to provide him with all the information they had on the nature of the soil had been established. Without such notice, however, his claim in my opinion cannot succeed, whether such claim is based on a reasonable assumption on the basis of the information he was given or on the fault of the consulting engineers, because the parties were in exactly the position provided for by clause 12 of the General Conditions.
In my view it does not really matter whether the fault of the consulting engineers was contractual, delictual or quasi-delictual in nature. Clause 12 of the General Conditions is worded quite broadly, in order to cover each of these faults as a possible cause of mistake as to the nature of the soil. Its
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application is so broad it would seem to include compensating the contractor even in cases where neither of the two parties has committed any fault, as for example in Atlas Construction Co. v. City of Montreal, supra. Although at first sight it appears to be a provision excluding liability, clause 12 in fact regulates the liability of the owner and the right of the contractor to be compensated in the event of a mistake as to the nature of the soil.
To the extent that the contractor, as in the case at bar, relied on information provided by the owner or on a reasonable assumption based on such information, the fact that he knew or did not know that the inaccuracy as to the nature of the soil was caused by a fault—of whatever kind—by the owner or one of her employees does not prevent the compensation machinery of clause 12 from applying.
However, the contractor may not take advantage of the compensation machinery established by clause 12 when he has not himself observed it.
In view of my conclusions on this item of the claim, it is not necessary to decide whether the record discloses that the consulting engineers were the servants or agents of the Crown, a point on which counsel for the Owner expressly stated that he did not insist.
Finally, it is not necessary to decide whether the trial judge made an error, obvious or otherwise, in quantifying this part of the claim.
VI—Cost of delay resulting from work in addition to that provided for in plans and specifications
This item of the claim contains three headings, for each of which, as noted above, the trial judge awarded compensation to the Contractor. According to the trial judge’s findings of fact, these three amounts represent costs which were in fact incurred by the Contractor and which in fact benefited the Owner. It therefore only remains to decide whether the trial judge was right in concluding that these costs should be repaid to the Contractor under the contract.
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The nature of the costs claimed under this item should first be clearly identified. In his submission, counsel for the Contractor identified all three under the same heading: [TRANSLATION] “the cost of delay in the principal work resulting from the imposition of certain additional work”.
I feel that this terminology should be rejected.
First, it is not that of the contract, which speaks not of [TRANSLATION] “principal work” and “additional work” but of “work provided for in the plans and specifications” and “work in addition to that provided for in the plans and specifications”.
Then, this terminology risks being misleading: by classifying some work as “principal” or “additional”, it suggests that the word “work” is synonymous with “works” or “construction”. In this sense, the spillway dam would be the principal work and the pillar which was rebuilt under the Samson Bridge, for example, would be additional work. The word “work” defined in clause 1.(1)(i) of the General Conditions has a much wider meaning that the words “works” or “construction”: it also includes [TRANSLATION] “the whole of the […] things required to be done […] by the Contractor under the contract”, and this includes work in addition to that provided for in the plans and specifications, which the Contractor is ordered to do under paragraph (1) of clause 38 of the General Conditions, as under that provision this work must be performed [TRANSLATION] “as if the same had appeared in and been part of the plans and specifications”. It is also necessary to include, under clause 5 of the General Conditions, which also applies to work in addition to work provided for in the plans and specifications as much as to work contemplated, [TRANSLATION] “not only the particular type of work […] mentioned but also any labour […] necessary for the full performance, completion and delivery in a usable state of the work and materials”.
In my view, the costs claimed under the three headings of this item all relate to work in addition to that provided for in the plans and specifications and imposed on the Contractor under paragraph (1) of clause 38 of the General Conditions.
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The dewatering work performed because of the delays is work in addition to that provided for in the plans and specifications, which the Contractor had to do if he was to perform the other work required of him under paragraph (1) of clause 38 of the General Conditions. Thus, the dewatering had to be done while the rebuilding of a pillar of the Samson Bridge, work not provided for in the plans and specifications, was in progress, and the Owner’s engineer by implication or expressly, but necessarily, ordered this unscheduled dewatering work by ordering that the pillar be repaired. This results from the fact that the building method proposed by the Contractor and approved by the Owner involves dewatering work along with other work.
The same is true, in my view, for work such as the heating of concrete during the winter and the removal of ice and snow. It was not included in the plans and specifications and was made inevitable as a consequence of work done in accordance with paragraph (1) of clause 38 of the General Conditions.
As regards the cost resulting from loss of efficiency of the labour force during the winter and from wage increases due to delays, I am of the view that these should be treated like the costs of work in addition to that provided for in the plans and specifications, in light of clause 7 of the General Conditions which states that time is of the essence of the contract. This clause applies to both parties, and if the changes ordered by the Owner cause a disruption of the critical path and an increase in costs, the Owner must bear them provided the other clauses of the contract make provision therefor, as I think is the case here.
I do not feel that a distinction should be made between fixed price work and unit price work, as regards payment for the cost of delays resulting from work in addition to that provided for in the plans and specifications. The crucial clauses of the contract, in this connection, are clauses 38 and 46 of the General Conditions and article II(2)(e) of the contract and clauses 1 and 2 of the Terms of Payment.
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Paragraph (1) of clause 38 of the General Conditions, and clause 46 of those Conditions, are so far as I can see the only clauses of the contract which apply equally to fixed price work and to unit price work.
When the work ordered by the Owner under paragraph (1) of clause 38 of the General Conditions is fixed price work, like pumping, paragraphs (2), (3), (4) and (5) of the same clause must be applied, and they refer to clause 46 when the parties are not in agreement.
It is true that the Owner’s Engineer did not decide in the circumstances that the change had increased the cost of the work, but the Contractor’s right to compensation cannot depend on the discretion of the Engineer, any more than the quantum of such compensation, which is calculated in accordance with clause 46 of the General Conditions. For all practical purposes the cost in question, under paragraph (1)(a) and (b) of clause 46, is the actual cost of eligible expenses, representing costs directly attributable to performance of unscheduled dewatering work, plus 10 per cent. All costs under this heading clearly fall within the categories of eligible expenses under paragraph (2) of clause 46, which indeed appears to admit nearly all conceivable payments, but which does not cover, for example, losses such as those of anticipated profits.
The trial judge estimated the cost of this heading at $60,850, and he correctly allowed it in view of the provisions which I have just mentioned and clause 1 and paragraphs (1)(e) and (2) of clause 2 of the Terms of Payment.
However, a question arises which neither the trial judge nor the Court of Appeal had to answer in view of their findings: should the Court subtract from the sum of $60,850 awarded by the trial judge the cost of additional pumping done during the delays because of the mistake as to the nature of the soil, in view of its findings on this last item of the claim?
In so far as the dewatering work done during the delays forms an integral part of work in addition
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to that provided for in the plans and specifications, the compensation provisions of clause 12 of the General Conditions cannot be applied to it.
Clause 12 applies to the case of a contractor who relies on information contained in the plans and specifications regarding the nature of the soil in preparing his bid, in light of the work provided for in the plans and specifications.
However, when the owner orders work in addition to that provided for in the plans and specifications, the situation is no longer that contemplated by clause 12 but that covered by clause 38, and it is the provisions of the latter clause which must be used in determining the amount the contractor will be entitled to for the fixed price portion of work done in addition to that provided for in the plans and specifications.
It then becomes a matter not of compensating the contractor for the additional cost of pumping caused by a mistake as to the nature of the soil, but of fixing the price of work which was not included in the plans and specifications. This price represents the actual cost of work in addition to that provided for in the plans and specifications, and is thus the actual cost of pumping made necessary in connection with such work, plus 10 per cent.
In other words, the consequences of failure to give the notice required by clause 12 of the General Conditions cannot be extended to pumping done during work in addition to that provided for in the plans and specifications. These are two different situations and the contract provides for them two schemes of compensation subject to different conditions.
When the work ordered by the owner under paragraph (1) of clause 38 of the General Conditions is unit price work, it is covered by paragraph (2)(e) of article II of the contract, which also refers to clause 46 of the General Conditions when the parties are unable to agree. Payment of the cost determined by this method is authorized by clause 1 and paragraph (1)(a) of clause 2 of the Terms of Payment.
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It is true that in the case at bar, the Owner’s Engineer did not incorporate in the unit prices the costs eligible under clause 46 of the General Conditions, but here again the right of the Contractor to compensation cannot depend on the discretion of the Engineer, any more than can the quantum of the compensation.
It is also true that in estimating the costs of these two headings at $31,390 and $3,860, the trial judge also did not incorporate them in the unit prices, but it was also unnecessary to do so at his level because he was required to liquidate the claim on the basis of the actual cost of unscheduled work plus 10 per cent, as provided for in clause 46 of the General Conditions.
Finally, it is true that the Contractor has already received from the Owner, as indicated earlier, amounts totalling $289,700.20 for unit price work in addition to that provided for in the plans and specifications. It might have been advisable for the Contractor to reserve his rights when receiving these amounts; but he waived nothing and cannot be presumed to have waived anything.
Could the Contractor have tried to calculate the cost of the delays and incorporated them in the unit prices? The trial judge says the following in this regard:
Although there were some 30 changes and additions ordered to the original contract Plaintiff is only claiming for delays resulting from three of them. While it was argued that in making its estimates as to the costs of these extras and submitting them for approval to the engineer Plaintiff should have included an allowance for the consequential cost of delays on other work on the general contract, I do not accept this argument.
It would clearly be impossible to foresee with any accuracy what additional costs would be incurred by delay of other work as a result of undertaking the extras for which a price was submitted and approved, and it would appear that if any attempt had been made to include such consequential costs in the tenders this would have been rejected as being too hypothetical and incapable of determination until the work was actually done.
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As I mentioned earlier, this is a conclusion of fact which no one has disputed as containing any error, obvious or otherwise.
The trial judge was accordingly correct in allowing these two headings of the claim relating to the cost of delays caused by work not provided for in the plans and specifications and payable by the unit price method.
I will add the following to articulate my reasoning as to how the provisions of the contract relating to the cost of work not provided for, but ordered by the Owner pursuant to paragraph (1) of clause 38 of the General Conditions, should be interpreted.
The purpose of the various provisions which I have analysed is to ensure the Contractor that, in the event he cannot reach agreement with the Owner, he will be compensated up to the actual cost plus 10 per cent with regard to such work, on which he made no bid but which he is required to perform, whether the work is on a fixed price or unit price basis. In return for being bound by the Owner’s new requirements, the Contractor is freed from the constraints of competition involved in the making of bids and is thus encouraged to perform the unscheduled work rather than interrupt it or refuse to carry it out, which also constitutes a benefit for the Owner. These provisions thus have a similar purpose to that of clause 12 of the General Conditions, regarding mistake as to the nature of the soil: it is designed to encourage full completion of the contract, including work in addition to that provided in the plans and specifications, guaranteeing the Contractor complete compensation for work on which he made no bid.
I would also agree with the following reasons of the trial judge:
Reading the Specifications and General Conditions of these contracts by the Department of Public Works as a whole it is evident that the intent is to provide a fair and equitable basis for settling claims by a contractor whether the contract is on a unit price or lump sum basis provided such claims are legitimate and arise out of extra work duly authorized and completed…
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As might be expected and is quite proper the Specifications and General Conditions are so drawn as to provide every possible protection for the Department against unprovable, exaggerated, or excessive claims. It is nevertheless a fundamental rule of legal interpretation that in cases of doubt a contract must be interpreted against the party who has drawn the contract and in favour of him with whom he contracts.
VIII—Conclusions
The Contractor is entitled to $60,850 for the cost of operating the dewatering system during the delays, $31,390 for cost increases due to the performance of work during the winter, $3,860 for wage increases due to delays, $29,796.96 which the Owner acknowledged owing, and 10 per cent of the foregoing amounts, namely $12,589.69, making a total amount of $138,486.65.
I would allow the appeal in part, reverse the judgments of the Federal Court of Appeal and of the Federal Court Trial Division, and allow the action for the sum of $138,486.65 with interest at the legal rate from December 5, 1974[3], and costs of an action of this class in all courts.
Appeal allowed in part.
Solicitors for the appellant: Guy, Mercier, Bertrand, Bourgeois & Laurent, Montreal.
Solicitor for the respondent: Jean-Claude Ruelland, Ottawa.