BETWEEN:
and
G.J. CAHILL & COMPANY LIMITED
PYRAMID CONSTRUCTION LIMITED
PHB GROUP INC.
CANADIAN PROCESS SERVICES INC.
METAL WORLD INCORPORATED INC.
Heard at St. John's, Newfoundland, on June 28, 2006.
Judgment delivered at Ottawa, Ontario, on July 21, 2006.
REASONS FOR JUDGMENT BY: SEXTON J.A.
CONCURRED IN BY: LÉTOURNEAU J.A.
MALONE J.A.
Docket: A-414-05
Citation: 2006 FCA 260
CORAM: LÉTOURNEAU J.A.
SEXTON J.A.
MALONE J.A.
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
and
DESIGN SERVICES LIMITED
G.J. CAHILL & COMPANY LIMITED
PYRAMID CONSTRUCTION LIMITED
PHB GROUP INC.
CANADIAN PROCESS SERVICES INC.
METAL WORLD INCORPORATED INC.
Respondents
REASONS FOR JUDGMENT
I. INTRODUCTION
[1] These reasons are delivered in response to an appeal and cross-appeal from Design Services Ltd. v. Canada, 2005 FC 890 ["Design Services"]. In that decision, a judge of the Federal Court determined that an owner who had conducted a tendering process owed a duty in tort, but not in
contract, to the architect, consultants and subcontractors of the bid proponent who should have received the contract in issue.
[2] That contract was for the construction of a naval reserve building in St. John's, Newfoundland and Labrador (the contract). While Olympic Construction Limited ("Olympic"), a general contractor, made the actual bid for the contract, it relied on the knowledge, expertise and work of an architect, as well as a number of consultants and subcontractors, upon whom it proposed to rely if it were successful in obtaining the bid. These included Design Services Limited, G.J. Cahill & Company Limited, Pyramid Construction Limited, PBH Group Inc., Canadian Process Services Inc. and Metal World Incorporated Inc. (collectively, the "respondents"). Olympic was unsuccessful in the tendering process, as Public Works and Government Services Canada ("PWGSC") ultimately awarded the contract to Westeinde Construction Limited ("Westeinde").
[3] In the court below, the parties agreed that the trial judge should proceed on the assumption that Olympic should have won the contract. Against that factual background, he determined that PWGSC owed a duty in tort, but not in contract, to the respondents. In the cross-appeal, the respondents challenged the trial judge's latter conclusion, claiming that he should have found that PWGSC could be liable to them in contract. Meanwhile, in the main appeal, Her Majesty the Queen (the "appellant") asserted that PWGSC did not owe the respondents a duty in tort.
II. THE FACTS AS FOUND BY THE FEDERAL COURT
[4] In May 1998, PWGSC announced that it would be conducting a tendering process for a "major capital construction project," a naval reserve building in St. John's, Newfoundland to be named HMCS Cabot.
[5] To determine who was to construct this building, PWGSC decided to use what is called a "design-build" tendering process. In a traditional tendering process, the owner designs a structure and then solicits bids to construct it. Subcontractors may become involved by submitting bids to the bid proponents/general contractors through a bid-depository system. This system results in the general contractors' obtaining firm, written quotations in time to compile their own bids on a scope of work common to all proponents.
[6] In a design-build tendering process, on the other hand, bid proponents submit initial proposals that include their own detailed designs to meet the owner's requirements. In this case, PWGSC had retained an architectural firm to prepare conceptual drawings that outlined the floor plans, exterior elevations and performance specifications to be met by each proposal.
[7] The tendering process proceeded in two stages. It began with a Request for Statement of Qualifications ("Request for SOQ"). At this point, bid proponents were asked to provide evidence of the capabilities, qualifications and experience of the key individuals within their proposed design-build teams. Based on this information, PWGSC was to prepare a short list of the most highly-rated proponents. These finalists would then be invited to submit proposals at the second, Request for Proposal ("RFP") stage. After receipt, these formal proposals would be evaluated and a winning proponent would be selected.
[8] Proponents could bid on the contract alone or in conjunction with other entities as partners or joint venturers. Together, Olympic and the respondents decided that Olympic would be the sole proponent. Accordingly, Olympic entered into various agreements with the respondents, who were the members of its design-build team, including one regarding confidentiality and non-disclosure. Had Olympic been awarded the contract, it would have then entered into subcontracts to complete the work with each of its team members, as well as other suppliers of goods and services.
[9] On June 24, 1998, Olympic submitted its Reply to PWGSC's SOQ. Except for Canadian Process Services Inc., a mechanical contractor, each of the respondents was named in it as part of Olympic's design-build team. Again, those respondents are:
- Design Services Limited, a structural consultant;
- G.J. Cahill & Company Limited, an electrical contractor;
- Pyramid Construction Limited, a civil contractor;
- PHB Group Inc., an architectural practice; and
- Metal World Incorporated Inc., a structural trade contractor.
[10] Five days after Olympic submitted its SOQ Reply, PWGSC completed the pre-qualification process and announced its four, chosen finalists which included Olympic. Among the other three invitees was one which had formed a joint venture as defined and permitted by the request for SOQ. On July 2, 1998, PWGSC provided Olympic with RFP documentation, including a number of required forms, a copy of the articles of agreement (a standard form contract) and labour conditions requirements.
[11] Just over a month later, on August 12, 1998, Olympic submitted its Reply to the RFP. Like Olympic's SOQ Reply, this document named the respondents, among others, as members of Olympic's design-build team. However, the bonding and evidence of financial capability required by the Request for SOQ and RFP were provided by Olympic alone.
[12] In spite of Olympic's efforts, PWGSC ultimately announced that it had decided to award the contract to Westeinde. As a result, Olympic and the respondents launched the present litigation against the appellant. On November 17, 2004, Olympic, having reached a settlement with the appellant, discontinued its action. Meanwhile, the remaining plaintiffs continued with the litigation. For the purposes of the proceedings in the court below, the trial judge was to assume that Westeinde was non-compliant and that Olympic should have received the contract. On that basis, he was to determine whether the respondents had standing in law to bring a contract or tort claim to recover their costs or fees and the lost opportunity to share in the profits of Olympic's enterprise.
III. THE DECISION OF THE FEDERAL COURT
[13] The decision below was divided into two main parts, first the liability of PWGSC in Contract and secondly in tort. The question of damages, if any, was to be determined once the initial decision was rendered.
[14] The trial judge's analysis of the contract law issues raised by the case was made against the backdrop of the Contract A and B theory articulated by the Supreme Court of Canada. According to our highest court, at least two contracts may be relevant in the bidding context. First, upon the submission of a tender, a "Contract A" may form between an owner and a bid proponent. The terms and conditions of the tender call not only dictate whether such an initial contract exists, but also determine the nature of its terms. To take only one example, Contract A may oblige a bid proponent not to withdraw its tender for a certain period after the date of the opening of the tenders. Meanwhile, what is known as a "Contract B" results from the acceptance of a tender. In this case, Contract B would be the construction contract itself. See generally Naylor Group Inc. v. Ellis-Don Construction Ltd., 2001 SCC 58 at paras. 34-36.
[15] The trial judge acknowledged that Olympic and the respondents viewed themselves as a team. However, citing London Drugs Ltd. v. Kuehne & Nagel International Ltd., [1992] 3 S.C.R. 299 ["London Drugs"], he also observed that parties cannot be permitted to unilaterally modify the terms of the Request for SOQ and RFP.
[16] In considering the evidence of PWGSC's intention, the trial judge noted that the Request for SOQ, RFP and associated tender documents made it clear that while teams had to be qualified at the first stage of the tendering process, the bids were to be submitted by the proponents. The only exception to this general rule, he observed, concerned teams who had formed themselves into a
"Joint Venture" as defined in the tender documents. Further, he found that the members of Olympic's design-build team were not associated in such a venture.
[17] Ultimately, the trial judge concluded that there was no Contract A between PWGSC and the respondents. To be sure, he said, PWGSC required the proponent to demonstrate the capacity of its team members. He also noted that after the stage-one pre-qualification, design-build team members had to commit to perform their share of the work and remain part of the team pending the outcome of the RFP process. However, it was the proponent, he observed, who stood to be disqualified if it did not meet these requirements. Further, he added, it was the proponent who was bound by the terms of the RFP until the contract award. In addition, commented the trial judge, only the proponent was responsible for demonstrating a financial capability to perform the work.
[18] Having concluded that PWGSC did not owe the respondents a duty in contract, the trial judge turned his attention to the matter of tort liability. In this context, he acknowledged that the respondents' claims did not fit squarely within any of the established exceptions to the common law rule against recovery for pure economic loss. However, he noted that the framework for establishing new grounds of tort liability for economic loss began with the test established in Anns v. Merton London Borough Council, [1978] A.C. 728 ["Anns"] as set out in Cooper v. Hobart, [2001] 3 S.C.R. 537 ["Cooper"]:
At the first stage of the Anns test, two questions arise: (1) was the harm that occurred the reasonably foreseeable consequence of the defendant's act? and (2) are there reasons, notwithstanding the proximity between the parties established in the first part of this test, that tort liability should not be recognized here? The proximity analysis involved at the first stage of the Anns test focuses on factors arising from the relationship between the plaintiff and the defendant. These factors include questions of policy, in the broad sense of that word. If foreseeability and proximity are established at the first stage, a prima facie duty of care arises. At the second stage of the Anns test, the question still remains whether there are residual policy considerations outside the relationship of the parties that may negative the imposition of a duty of care.
[19] In applying the Anns test to the case before him, the trial judge held that it was reasonably foreseeable that PWGSC's negligence in issuing the contract to a non-compliant bidder would result in a financial loss to the respondents.
[20] Next, he turned to the question of proximity, which he defined as whether the circumstances of the relationship between plaintiff and defendant are of such a nature that the latter is obliged to be mindful of the former's legitimate interests in conducting his or her affairs. In this context, he noted that in Cooper, the Supreme Court of Canada instructed that defining that relationship may involve looking at expectations, representations, reliance and the property or other interests involved. In the same case, he observed, our highest court held that proximity has been established in cases where the relationship between the claimant and the property owner constitutes a joint venture.
[21] Turning to the facts of the case before him, the trial judge found that PWGSC's tendering process was analogous to a joint venture. For him, PWGSC intended to create a form of "partnership" between the owner and the successful design-build team. For instance, he pointed out that the owner and team were required to meet in a "partnering" session following the contract award. In addition, he said that the lead-up to the contract award was designed to evaluate whether the subcontractors would be appropriate partners, and then whether they would be the best partners for PWGSC, together with the general contractor, to perform the required services. Ultimately, the trial judge concluded that PWGSC's requirements in the tendering process created a relationship between it and the respondents that met the proximity standard.
[22] Following the Anns test, the trial judge then considered whether there were other reasons that tort liability should not be recognized here. In this context, he dismissed the appellant's concern about "liability in an indeterminate amount for an indeterminate time to an indeterminate class." Liability would not be indeterminate, he said, because of the unique tendering process in issue. He defined those to whom PWGSC owed a duty of care as those members of the design-build teams whose qualifications would be examined, who had to provide terms of reference, review the plans and drawings, certify that they would perform the work and who could not be substituted without PWGSC's approval. Finally, the trial judge concluded that the scope of liability was readily ascertainable by quantifying the respondents' reasonable expectation of lost profits or fees.
[23] In conclusion, then, the trial judge determined that because of PWGSC's close management of the respondents' participation in the tendering process, it owed them a duty of care in tort not to award the contract to a non-compliant bidder.
IV. ISSUES
[24] This appeal and cross-appeal raised the same two broad issues as in the Court below-whether there was a contractual relationship between PWGSC and the respondents and whether PWGSC owed the respondents a duty of care in tort.
V. ANALYSIS
a) Introduction
[25] There is no dispute between the parties that a Contract A existed between PWGSC and Olympic. Rather, the question before me is the extent to which that Contract A covered the respondents.
[26] On appeal the respondents challenged the trial judge's conclusion that PWGSC owed them no duty in contract on three, alternative grounds. First, said the respondents, the court below erred by not finding that an explicit term of Contract A made them parties to it. In the alternative, the respondents contended that the terms of the Request for SOQ and RFP extended an implied contractual duty of fairness to them. Finally, the respondents claimed that even if this court finds that they were not parties to Contract A, they are third-party beneficiaries to it and are therefore entitled to rely on its terms.
[27] The question of whether a contract has been formed and the identity of the parties to it is one of law. Scotsburn Co-operative Services Ltd. v. WT Goodwin Ltd., [1985] S.C.J. No. 2 at para. 37. Therefore, an appellate court is to review a trial judge's answer to it on a standard of correctness. Housen v. Nikolaisen, 2002 SCC 33 ["Housen"] at para. 8.
b) Explicit Term
[28] In arguing that an express term of Contract A extended its coverage to Olympic's design-build team, the respondents argued that they were members of a "joint venture," drawing this court's attention to the following portion of the Request for SOQ:
3 LIMITATION OF SUBMISSIONS
...
2) A joint venture is defined as an association of two or more parties which combine their money, property, knowledge, skills, time or other resources in a joint business enterprise agreeing to share the profits and the losses and each having some degree of control over the enterprise. Joint ventures may be carried on in a variety of legal forms divided into three categories:
(a) the incorporated joint venture;
(b) the partnership venture;
(c) the contractual joint venture where the parties combine their resources in the furtherance of a single business enterprise without actual partnership or corporate designation.
[emphasis added]
[29] The respondents conceded that they did not qualify as a "joint venture" under paragraphs 3(2)(a) or 3(2)(b) of the above. However, they alleged that they and Olympic were in a "contractual joint venture" as defined by paragraph 3(2)(c) of the Request for SOQ.
[30] A basic problem with this submission, in my respectful opinion, is that the respondents do not meet the precondition of having agreed "to share the profits and the losses" with Olympic and one another. When asked about this in oral argument, respondents' counsel asserted that profit-sharing would result from each of the respondents receiving a portion of the profits flowing from Olympic's winning the contract. In my view, however, that profit-sharing would be traceable to the separate contracts that the respondents would enter with Olympic, following its winning the bid. I do not understand how such subsequent contracts could be used to define the relationship between Olympic and the respondents in the earlier Contract A.
[31] In any event, when asked about loss sharing, respondents' counsel admitted that there was none here. To take only one example, suppose that G.J. Cahill & Company Limited, the electrical contractor, had miscalculated its quote and consequently suffered a loss as a result of completing its portion of the work. Such a loss, conceded respondents' counsel, would not be shared with either Olympic or the other design-build team members.
[32] In my view, this admission affirms the trial judge's conclusion in Design Services at para. 96:
There was no evidence before me that the plaintiffs had constituted themselves as an incorporated joint venture, a partnership or by contract had agreed to combine their resources in furtherance of the enterprise. There was no agreement to share in a percentage of the overall profits or to accept responsibility for a share of any losses should the project run into trouble. I find, therefore, that the Olympic bid was not submitted as a joint venture bid. . . .
[33] After considering all of the arguments of the respondents, as well as the contractual documents in issue, I must agree with the trial judge in this regard. On their face, none of the tender documents indicate that the respondents were parties to Contract A.
[34] The respondents also maintained that an implied term of Contract A extended its obligations to all of Olympic's team members. This argument can quickly be disposed of, as it is inappropriate to imply a term into a contract that is contrary to an express term in it. According to Article A3 of the Design-Build Standard Form of Contract:
A3 Agreements and Amendments
1) The contract supersedes all negotiations, representations, or agreements, either written or oral, relating in any manner to the Work, that were made prior to the date of the Contract, and the express agreements therein contained and made by Canada are the only agreements upon which any rights against Canada are to be founded.
[35] Moreover, General Condition ("GC") 1.2.1 in that same document provides:
GC 1.2.1 General
...
3) Nothing contained in the Contract Documents shall create a Contractual relationship between Canada and an [sic.] Subcontractor or Supplier or the Designer or their agents or employees.
[36] In other words, the trial judge was correct to find that no implied term in Contract A brought the respondents within its scope.
[37] Finally, the respondents drew this court's attention to Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd., [1999] 3 S.C.R. 108 ["Fraser River"] and London Drugs in support of their claim that they are third-party beneficiaries of Contract A.
[38] I do not accept this argument. First of all, Fraser River, along with London Drugs, has been understood as relaxing the doctrine of the privity of contract for use as a shield, not as a sword. According to the British Columbia Court of Appeal in the recent case of Kitimat (District) v. Alcan Inc., 2006 BCCA 75 at paras. 69-71:
¶ 69 In both London Drugs and Fraser River, the third party sought the benefit of the contract to protect itself from a claim advanced against them.
¶ 70 The learned chambers judge distinguished these cases from this one, correctly in my view, on the basis that here Kitimat seeks to avail itself of the statutory and contractual relationship between Alcan and the Province so that it can advance a claim against Alcan. If, however, Kitimat had standing to advance its claim against Alcan for the latter's breach of its public obligations, it would have no need to resort to a third party beneficiary claim under the contract. In attempting to extend the third party beneficiary principle to permit it to advance, rather than to defend a claim, Kitimat is simply trying to circumvent the well settled principles governing private interest standing.
¶ 71 In my respectful view, such a claim is well beyond anything contemplated by the decisions in London Drugs or Fraser River.
[39] In light of this jurisprudence, I am reluctant to permit the respondents to rely on the Fraser River doctrine in this instance.
[40] In any event, I do not believe that the preconditions to its application are satisfied here. A two-part test for when it is appropriate to relax the doctrine of privity was suggested in FraserRiver at para. 32:
In terms of extending the principled approach to establishing a new exception to the doctrine of privity of contract relevant to the circumstances of the appeal, regard must be had to the emphasis in London Drugs that a new exception first and foremost must be dependent upon the intention of the contracting parties. Accordingly, extrapolating from the specific requirements as set out in London Drugs, the determination in general terms is made on the basis of two critical and cumulative factors: (a) Did the parties to the contract intend to extend the benefit in question to the third party seeking to rely on the contractual provision? and (b) Are the activities performed by the third party seeking to rely on the contractual provision the very activities contemplated as coming within the scope of the contract in general, or the provision in particular, again as determined by reference to the intentions of the parties?
[41] In terms of the first Fraser River question, PWGSC clearly did not intend to extend the benefit of Contract A to the respondents. Again, according to GC 1.2.1 of the Design-Build Standard Form of Contract:
GC 1.2.1 General
...
3) Nothing contained in the Contract Documents shall create a Contractual relationship between Canada and an [sic.] Subcontractor or Supplier or the Designer or their agents or employees.
[42] The two factors in the Fraser Rivertest are "critical and cumulative" (FraserRiver at para. 32). Therefore, in light of my negative answer to the first Fraser Riverquestion, there is no need for me to consider the second stage of the analysis. Simply put, I cannot find that the respondents are third-party beneficiaries of Contract A.
[43] In light of my findings above, the main issue in this appeal becomes whether a duty of care in tort should be imposed on PWGSC, taking into account all relevant factors disclosed by the circumstances. Broadly speaking, a two-stage approach is used to answer this question. According to Cooper at para. 30:
In brief compass, we suggest that at this stage in the evolution of the law, both in Canada and abroad, the Anns analysis is best understood as follows. At the first stage of the Anns test, two questions arise: (1) was the harm that occurred the reasonably foreseeable consequence of the defendant's act? and (2) are there reasons, notwithstanding the proximity between the parties established in the first part of this test, that tort liability should not be recognized here? The proximity analysis involved at the first stage of the Anns test focuses on factors arising from the relationship between the plaintiff and the defendant. These factors include questions of policy, in the broad sense of that word. If foreseeability and proximity are established at the first stage, a prima facie duty of care arises. At the second stage of the Anns test, the question still remains whether there are residual policy considerations outside the relationship of the parties that may negative the imposition of a duty of care. It may be, as the Privy Council suggests in Yuen Kun Yeu, that such considerations will not often prevail. However, we think it useful expressly to ask, before imposing a new duty of care, whether despite foreseeability and proximity of relationship, there are other policy reasons why the duty should not be imposed.
[44] The first stage of the Anns analysis, which focuses on whether a prima facie duty of care arises, can be broken down into component parts. The Supreme Court of Canada elaborated on this portion of the analysis in Edwards v. Law Society of Upper Canada, 2001 SCC 80 at paras. 9 and 10:
¶ 9 At the first stage of the Anns test, the question is whether the circumstances disclose reasonably foreseeable harm and proximity sufficient to establish a prima facie duty of care. The focus at this stage is on factors arising from the relationship between the plaintiff and the defendant, including broad considerations of policy. The starting point for this analysis is to determine whether there are analogous categories of cases in which proximity has previously been recognized. If no such cases exist, the question then becomes whether a new duty of care should be recognized in the circumstances. Mere foreseeability is not enough to establish a prima facie duty of care. The plaintiff must also show proximity -- that the defendant was in a close and direct relationship to him or her such that it is just to impose a duty of care in the circumstances. Factors giving rise to proximity must be grounded in the governing statute when there is one, as in the present case.
¶ 10 If the plaintiff is successful at the first stage of Anns such that a prima facie duty of care has been established (despite the fact that the proposed duty does not fall within an already recognized category of recovery), the second stage of the Anns test must be addressed. That question is whether there exist residual policy considerations which justify denying liability. Residual policy considerations include, among other things, the effect of recognizing that duty of care on other legal obligations, its impact on the legal system and, in a less precise but important consideration, the effect of imposing liability on society in general.
[45] In other words, at the first stage of the Anns test, two distinct elements-reasonable foreseeability of harm and sufficient proximity-must be established. In considering the question of sufficient proximity, the court is to begin by determining whether there are analogous categories of cases in which proximity has been recognized. If there are no such cases, the question becomes whether a new duty of care should be imposed in the circumstances. At this point, factors arising from the defendant and plaintiff's relationship, including broad policy considerations, may be taken into account to determine whether the defendant and plaintiff were in such a close and direct relationship that it is just to impose a duty of care on the former.
[46] To summarize, then, to determine whether a duty of care is owed, the courts should consider the following:
1) Was there a prima facie duty of care?
a) Was there reasonably foreseeable harm?
b) Was there sufficient proximity?
i) Are there analogous categories of cases in which proximity has been recognized?
ii) If no such cases exist, should a new duty of care be recognized in the circumstances?
2) If a prima facie duty of care has been established, are there residual policy considerations that justify denying liability, such as:
a) The effect of recognizing that duty of care on other legal obligations?
b) The impact of the contemplated duty of care on the legal system? and
c) The effect of imposing liability on society in general?
[47] I can only interfere with the trial judge's application of this test to the facts of this case if it was marred by palpable and overriding errors. Housen at paras. 10 and 36. In my respectful opinion, the trial judge made such errors of fact and mixed law and fact in the decision below.
b) Prima FacieDuty of Care
i) REASONABLY FORESEEABLE HARM
[48] The appellant agreed that this court can assume reasonable foreseeability of harm for the purposes of disposing of this appeal.
(1) Analogous Categories of Cases
(a) The Decision Below
[49] According to Design Services at paras. 113-115:
¶ 113 At paragraph 36 of Cooper, the Court noted that among the categories in which proximity has been established are cases where the relationship between the claimant and the property owner constitutes a joint venture. When a case falls within that situation or an analogous one and reasonable foreseeability is established, a prima facie duty of care may be posited.
¶ 114 Notwithstanding my finding that Olympic and its team members had not constituted a formal joint venture as defined by the SOQ and RFP, the process adopted by the defendant in this case is analogous, in my view, to a joint venture. The PWGSC's intent was to create a form of "partnership" between the owner and the successful design-build team in which to build HMCS Cabot. I note, for example, that the team and the owner were required to meet in a "partnering" session following the contract award. In addition, the lead-up to the award of the contract was designed to evaluate whether the subcontractors would be appropriate partners, and then whether they would be the best partners for PWGSC , [sic.] together with the general contractor, to perform the services required.
¶ 115 I find that PWGSC's requirements in the pre-qualification and tendering process created a relationship between it and the plaintiffs that meets the proximity standard.
[emphasis added]
[50] In other words, the trial judge suggested that the process adopted by PWGSC in this case was analogous to a joint venture, such as that discussed in Cooper at para. 36. The section of the reasons in Cooper to which the trial judge referred reads:
What then are the categories in which proximity has been recognized? . . . Relational economic loss (related to a contract's performance) may give rise to a tort duty of care in certain situations, as where the claimant has a possessory or proprietary interest in the property, the general average cases, and cases where the relationship between the claimant and the property owner constitutes a joint venture: Norsk, supra; Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., [1997] 3 S.C.R. 1210. When a case falls within one of these situations or an analogous one and reasonable foreseeability is established, a prima facie duty of care may be posited. [emphasis added]
[51] In considering whether the situation in this appeal was analogous to the joint ventures between property owners and claimants in Canadian National Railway Co. v. Norsk Pacific Steamship Co., [1992] 1 S.C.R. 1021 and Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., [1997] 3 S.C.R. 1210, the trial judge only examined the relationship between PWGSC and the respondents. Likewise, the parties focused exclusively on this relationship in this court. Consequently, I will do the same.
[52] The trial judge concluded that PWGSC was in a quasi-joint venture with the respondents on the basis of the following findings of fact. First, he relied on PWGSC's supposed intent to create a form of "partnership" between itself and the successful design-build team. In particular, he noted that once the contract was awarded, PWGSC and the design-build team were required to meet in a "partnering" session. Further, in his mind, "the lead-up to the award of the contract was designed to evaluate whether the subcontractors would be appropriate partners, and then whether they would be the best partners for PWGSC , [sic.] together with the general contractor, to perform the services required." Design Services at para. 114. In addition, later in his reasons, the trial judge suggested that the design-build team members who were entitled to a remedy in tort were those whose qualifications were examined, who had to provide terms of reference, review the plans and drawings, certify that they would perform the work and who could not be substituted without PWGSC's approval. Design Services at para. 118. He also found that PWGSC "closely manag[ed]" the respondents' participation in the tendering process.
[53] In my view, the foregoing findings of the trial judge evince palpable and overriding errors. First of all, PWGSC did not intend to create a form of "partnership" between itself and the successful design-build team. The "partnering" session that was of such interest to the trial judge was part of Project Delivery Control. It had nothing to do with PWGSC partnering with design-build team members and everything to do with the efficient completion of the project. According to section two of the General Project Management Guidelines:
2 Project Delivery Control
.1 Purpose
.1 The purpose of the project design/construction schedule and progress control system is to provide the Design-Builder [the winning bid proponent] with the necessary tools to plan and perform his design and construction activities in a timely and effective manner, and to enable him to control the progress of these activities so that he can maintain his schedule and meet the contract completion date.
.2 Similarly, the parallel purpose of the project design/construction schedule and progress control system is to provide the Engineer, the ongoing assurance that the Design-Builder's projected progress is being maintained and that the contract completion date will be met.
[54] In any event, this session was held after the award of the contract. From a strictly logical point of view, then, I do not understand how it can be taken as evidence of PWGSC's owing a duty to the respondents that supposedly arose prior to the contract award and therefore before the "partnering" session even occurred.
[55] In terms of what the trial judge referred to as "the lead-up" to the contract award, it is evident that throughout the tendering process, the relevant relationship was between PWGSC and the proponent, not between PWGSC and the proponent's team members. For instance, the trial judge acknowledged that only Olympic had to demonstrate a financial capability to perform the work. According to Design Services at para. 98:
Only Olympic had to submit a financial reference and statements in order to qualify and only Olympic had to submit contract security with its bid. All of the documentation was submitted to PWGSC solely in Olympic's name.
[56] In addition, generally speaking, all communications were between PWGSC and the proponent. The respondents were not signatories to Olympic's replies to the Request for SOQ or RFP. Meanwhile, the obligation to provide relevant and important documents to PWGSC lay with Olympic and not with the respondents. Section 0200 of the Proponent Submission Requirement reads:
6 WRITTEN DOCUMENTS
.1 The design builder shall provide written documents as follows:
.1 A written declaration that all drawings and project plans have been discussed with the entire design team and principal trade contractor teams.
.2 A written acknowledgement of requirements to produce, as a minimum, the deliverables listed in para. 2.1.1.2.
.3 Confirmation of design coordination with existing services and the identification of site service shortfalls that your design shall expose. Explain how your plan accounts for these shortfalls.
.4 Identify the following Design-Build Team personnel and present a point form Terms of Reference for each member, signed by the appointed individual:
Project Manager
Project Architect
Project Civil / Municipal Engineer
Project Mechanical Engineer
Project Electrical Engineer
Project Superintendent
Principal Structural Trade Contractor
Principal Mechanical Trade Contractor
Principal Electrical Trade Contractor
Special consultants such as landscape architects, geotechnical engineers, and/or environmental engineers shall be retained by the Design-Builder as required.
[emphasis added]
[57] Moreover, only the proponent's prime contact could submit questions to PWGSC and answers to those questions would only go to the proponent's prime contact. The "Enquiries and Addenda" portion of the RFP documentation instructs:
1) Any questions or requests for clarification must be submitted in writing prior to seven (7) days of the closing date by the prime contact of the Proponent, and answers and corresponding questions will only be sent by PWGSC to the prime contact of the Proponent who will be responsible for further internal distribution as required. Questions and Answers will be issued to prime contacts of Proponents incorporation of formal Addenda in to the RFP [sic.].
[emphasis added]
[58] Simultaneously, PWGSC maintained a distance between itself and the members of the design-build teams who were not proponents. For example, Clause 3.3. of the Request for SOQ reads:
3) An arrangement whereby Canada contracts directly with a Design-Builder which may retain an Architect, Consultants, and sub-contractors to perform portions of the services is not a joint venture arrangement.
[59] The great emphasis by the trial judge on the design-build team members whose qualifications would be examined, who had to provide terms of reference, review the plans and drawings, certify that they would perform the work and who could not be substituted without PWGSC's approval is in my view misplaced. A more realistic analysis of the relationship is articulated by the trial judge in Design Services at para. 90:
Another way of looking at the design-build process employed in this instance is that PWGSC recognized that, while conceivable, it was unlikely that any general contractor interested in submitting a bid to build HMCS Cabot would have sufficient resources to complete the project without relying on other firms to perform major elements of the work. Thus its insistence that each proponent's team must be defined and qualified, and that the members commit to the project was simply a practical approach to the realities of the construction marketplace. PWGSC was careful in defining the SOQ and RFP to make it clear that while teams had to be qualified, the bids were to be submitted by the proponents and not by the teams, unless they formed themselves into a joint venture as defined in the documents. . . .
[60] I agree with this portrayal. In my opinion, PWGSC recognized the magnitude and complexity of this construction project. Consequently, it decided to use the tender documents to outline in detail what was required for its completion. That enabled the proponent, in turn, to determine whether to bid for the contract either alone or in a joint venture or form a design-build team. If it chose to form a design-build team, the tender documents informed it of what would be expected of its team members.
[61] The importance of all having a detailed understanding of the construction project is highlighted by the following passage from section 0200 of the Proponent Submission Requirement:
.1 The proponent shall submit, with his/her proposal, the information as outlined in this section. This information shall be in sufficient detail that evaluators can fully understand the design approach for each specific area indicated. In addition, the detail shall be such that the proposal can be evaluated as to its compliance to the performance specifications.
[62] Meanwhile, design-build team members were scrutinized to ensure that they were qualified to perform the required work. According to the terms of the Request for SOQ:
2) STAGE I This Request for Statement of Qualifications initiates Stage I of the selection procedure. The objective is to identify, evaluate and rate accomplishments of design-build entities and teams interested in being considered for this requirement. Proponents are asked to provide evidence of their accomplishments and the capabilities, qualifications and experience of the key individuals within their proposed Design-Build Team who would be responsible for the delivery of services for this project if the Proponent were to be successful. After review, evaluation and rating of submissions by a PWGSC Screening Board, a short list of a maximum of four of the most highly-rated Proponents is established as the list of Finhalists [sic.] which will be invited to submit Proposals in Stage II. . . . [emphasis added]
[63] The goal of having the most experienced and capable workers complete the project also led PWGSC to require design-build team members to provide terms of reference, review plans and drawings and certify that they would perform the work. It also explains why they could not be substituted without PWGSC's approval. None of this had anything to do with a joint venture between PWGSC and design-build team members. In fact, as the trial judge commented in Design Services at para. 97:
. . . While PWGSC insisted that the capacity of the members of the team to build the project be demonstrated and, that when qualified, they commit to perform their share of the work and remain part of the team pending the outcome of the RFP process, those were demands made of the proponent. It was the proponent Olympic's bid that stood to be disqualified if it did not meet PWGSC's requirements. And it was the proponent Olympic that was bound by the terms of the RFP until the contract award was decided.
In other words, the relevant relationship was between PWGSC and Olympic, not PWGSC and the respondents. It was the duty of Olympic to use subcontractors with the necessary experience and capabilities.
[64] For that reason, I doubt the trial judge's conclusion that PWGSC "closely managed" the respondents. The Terms of Reference for Design-Build Team describes the lines of communication and the roles of the various participants in detail. They make it clear that PWGSC was not in direct contact with the architect, consultants and subcontractors. Instead, it was Olympic that was to liaise with all of the consultants. Olympic was also the liaison with PWGSC.
[65] As is evident from the above, PWGSC was in a direct relationship with only Olympic. Olympic, in turn, was in a direct relationship with the respondents. The centrality of Olympic in the process was again highlighted in the Design-Build Standard Form of Contract:
GC3.2 Project Design and Role of the Designer
...
2) The Design-Builder shall employ or otherwise engage the architects, professional engineers and other consultants required to provide the Design Services to be performed by the Designer under the Contract.
...
GC3.4 Execution of the Work
...
2) The Design-Builder shall provide or furnish, and pay for, all professional services, Design Services, labour, Plant, Material, tools, construction machinery and equipment, water, heat, light, power, transportation, and other facilities and services necessary for the performance of the Work in accordance with the Contract.
...
[66] In fact, the trial judge even acknowledged in Design Services at para. 15: "At both the SOQ and RFP stages, PWGSC had no direct dealings with any of the plaintiffs."
[67] For the above reasons, I conclude that the trial judge made a palpable and overriding error in analogizing the joint venture jurisprudence mentioned in Cooper to the present case.
(b) Other Jurisprudence
[68] In this court, the respondents pointed to other cases that they claimed favoured a finding of a duty of care in this instance. For example, respondents' counsel appeared to draw great comfort from Martel Building Limited v. Canada, [2000] 2 S.C.R. 860 ["Martel"]. However, in that case, the Supreme Court of Canada simply left open the question of whether an owner could ever owe a subcontractor a duty of care. According to Martel at para. 108:
Finally, we note that Desjardins J.A. relied on two cases to support the view that a duty to treat all bidders fairly and equally has been recognized in the context of tort claims. However, we note that both cases have subsequently been reversed by appellate courts: Twin City Mechanical v. Bradsil (1967) Ltd. (1996), 31 C.L.R. (2d) 210 (Ont. Ct. (Gen. Div.)), rev'd (1999), 43 C.L.R. (2d) 275 (Ont. C.A.); Ken Toby Ltd. v. British Columbia Buildings Corp. (1997), 34 B.C.L.R. (3d) 263 (S.C.), rev'd (1999), 62 B.C.L.R. (3d) 308 (C.A.). . . . In both cases, the appellate courts refrained from deciding whether or not a duty of care was owed in such situations, and preferred to limit their decisions to the fact that a breach could not be established. We believe that the issue of whether a duty of care can arise between a subcontractor and an owner must be left to a case in which it arises. [emphasis added]
[69] The respondents also point to Edgeworth Construction Ltd. v. N.D. Lea & Associates Ltd., [1993] 3 S.C.R. 206. That case concerned a firm, Edgeworth Construction Ltd. ("Edgeworth"), which built roads in British Columbia. After submitting the winning bid for the construction of a section of highway, it entered into a contract with the province for the work. Unfortunately, Edgeworth lost money on the project, allegedly because of errors in the specifications and construction drawings. As a result, it commenced proceedings for negligent misrepresentation against, inter alia, the engineering firm that prepared those drawings. The Supreme Court of Canada held that the engineering firm owed a duty of care to Edgeworth.
[70] I must confess to being at a loss as to how this case is of any assistance to the respondents. There is not even a passing reference in it to the extent to which owners and subcontractors are in a proximate relationship to one another. The respondents have not explained at all how this case is in any way analogous to that at bar.
[71] Based on the submissions of the parties, then, I conclude that there are no categories of cases in which proximity has been recognized that are analogous to this one. Accordingly, I now consider whether a new duty of care should be recognized in these circumstances.
[72] In my view, several considerations militate against the imposition of a new duty in the present circumstances. First, as I indicated above, the factual matrix in this case simply does not support a relationship of sufficient proximity to found a duty of care. PWGSC's relationship with the respondents was solely through Olympic, which acted as an intermediary between PWGSC and its design-build team members. Because Olympic was interposed between PWGSC and the respondents, PWGSC was only in a distant and indirect relationship with them. I do not see how PWGSC and the respondents can be said to be in a close and direct relationship.
[73] Considerations of policy also favour not imposing a duty of care here. First off, the respondents in this litigation were in an excellent position to protect themselves. They could have easily bid for the project as a contractual joint venture with Olympic. That possibility was explicitly contemplated by the tender documents. Indeed, at least one proponent, who also happened to be a finalist, took advantage of this opportunity.
[74] Moreover, it was open to all of the respondents except PHB Group Inc., the architect, to submit proposals to other bidders. In fact, Superior Masonry Limited submitted a price to Olympic, as well as Westeinde, for the masonry work on the project. In the end, it even performed the masonry subcontract for Westeinde. Given the availability of these types of "self-help" remedies, I do not believe that justice requires a finding of proximity here.
[75] In conclusion, then, the proximity between PWGSC and the respondents is not such as to justify the imposition of a prima facie duty of care on PWGSC.
c) Residual Policy Considerations
[76] Since I have found that PWGSC did not owe even a prima facie duty of care to the respondents, it is not necessary for me to proceed to the second stage of the Anns analysis. Nonetheless, I would like to comment on the basis that led the trial judge to conclude that policy considerations do not justify denying liability in this case, and in particular, that liability would not be indeterminate if he imposed a duty of care on PWGSC.
[77] In Design Services at para. 118, the trial judge observed:
In this case, however, I do not accept that liability would be indeterminate because of the particular -- and according to the evidence before me, unique -- approach adopted by the defendant in the tendering process. . . .
[78] It seems to me that the trial judge overestimated the alleged "uniqueness" of this tendering process. First of all, it should be noted that design-build tendering processes are not rare occurrences. The following testimony of Carl Mallam ("Mallam"), Professional Engineer and President of Olympic, for instance, indicates that they are used "across the country":
. . . these days in the design build situation across the country, a lot of tender-calling authorities or design build process calling authorities, when they put these proposals out they recognize the amount of work that has to go into these things and they do identify up front an honorarium for the unsuccessful proponent, and that's used a fair bit across the country right now, but there was nothing identified as an honorarium for the unsuccessful proponents for this particular tender, no.
[79] Moreover, after considering other provincial and federal tendering call documents, I cannot conclude that the requirements of the particular design-build tendering process in issue here were that unusual. In this regard, the trial judge stated in Design Services at para. 56:
Mr. Mallam conceded that the standard forms used for tendering bids to the province of Newfoundland and to PWGSC included provisions for the subcontractors to be listed. Similarly, he acknowledged that the standard PWGSC contract form provided for the subcontractors to be listed and if listed, they could be changed with the consent of the owner. However, in his experience the names of the subcontractors were rarely required. If required, the owner might specify on the form that it wanted the names of certain of the sub-trades, such as the mechanical or electrical contractor. But this was not common and he had never seen a requirement to list all of the key consultants and contractors. [emphasis added]
[80] It is my opinion that the trial judge made a palpable and overriding error by favouring Mallam's evidence on this point over that of the documentary evidence before him. After all, Mallam admitted that his testimony was based solely on his own experience. With all due respect to Mallam, the limits of that experience were revealed by the standard-form contracts to which the appellant pointed in the court below and in this one. Like the tender documents at the heart of this case, they contain limitations on team-member substitutions.
[81] For instance, a form contract entitled Government of Newfoundland and Labrador Tender for Stipulated Price Contract reads:
7. WE understand and agree to list the names of sub-contractors and suppliers whose bids have been used in the preparation of this tender price in Appendix "A". The list will be subject to the approval of the Owner. . . .
...
WE reserve to us the right to substitute other sub-contractors for any trades in the event of any sub-contractor becoming bankrupt after the date hereof. Any such substitution shall be subject to the approval of the Owner and contingent upon satisfactory evidence of bankruptcy.
[82] A tender form contract of Public Works Canada Atlantic Region, entitled Tender Form Major Construction Works is to the same effect:
NOTE: Notwithstanding the instructions contained in Section 9 of the Instructions to Tenderers, the subcontractors [sic.] name and address for each part of the work listed herein shall be provided at the time this tender is submitted.
[83] In light of this evidence, I respectfully note that the trial judge overstated the unique nature of this design-build tender, thereby committing a palpable and overriding error.
VI. CONCLUSIONS
[84] PWGSC is not liable to the respondents in either contract or tort. I would allow the appeal with costs and dismiss the cross-appeal with costs.
"I agree
Gilles Létourneau J.A.".
"I agree
B. Malone J.A.".
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-414-05
(APPEAL FROM A JUDGMENT OF THE HONOURABLE MR. JUSTICE RICHARD MOSLEY DATED JUNE 23, 2006, NO. T-219-00)
STYLE OF CAUSE: HER MAJESTY THE QUEEN v. DESIGN SERVICES LIMITED, G.J. CAHILL & COMPANY LIMITED, PYRAMID CONSTRUCTION LIMITED, PHB GROUP INC., CANADIAN PROCESS SERVICES INC., METAL WORLD INCORPORATED INC.
PLACE OF HEARING: St. John's, NL
DATE OF HEARING: June 28, 2006
REASONS FOR JUDGMENT BY: Sexton J.A.
CONCURRED IN BY: Létourneau J.A.
Malone J.A.
APPEARANCES:
| FOR THE APPELLANT
|
|
| FOR THE RESPONDENT
|
SOLICITORS OF RECORD:
| French, Noseworthy & Associates St. John's, NL |
FOR THE APPELLANT
|
| Stewart McKelvey Stirling Scales St. John's, NL |
FOR THE RESPONDENT
|