CONSTRUCTION LAW LETTER Volume 30 Number 5

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CASE SUMMARY





SUMMARY JUDGMENT
IN CONSTRUCTION LAW
CASES: AN UPHILL BATTLE
Canada Forgings v. Atomic Energy of Canada
Limited
In Canada Forgings v. Atomic Energy of Canada
Limited, Justice Arrell was presented with
a motion for leave to appeal the decision
of Justice Matheson, which dismissed a motion
for summary judgment brought by the defendant.
Leave to appeal was denied. The facts of the case
were as follows:
A nuclear reactor was due for refurbishment by
the Owner, Bruce Power. The Defendant Atomic
Energy of Canada Limited (AECL) was to be
the general contractor for this job and requested
tenders for fuel channel end fitting assemblies
from three subcontractors: Invar, Donlee Precision,
and Precision Nuclear (the End Fitting Assembly
Subcontractors). The bids were to remain open
for 180 days. Because one of the raw inputs to a
fuel channel end fitting assembly is an end fitting
forging, bidders were responsible for including
pricing from a forging supplier in their bids.
Of the three bidders, Precisions bid was non-
compliant. Invars bid was significantly lower than
that of Donlee. There were delays in executing
the prime contract between AECL and Bruce, and
the 180-day tender period expired.
Several months later, Bruce Power indicated an
interest in proceeding with the project. In light
of the delay in executing the prime contract and the
consequent expiry of the bid validity period,
AECL approached Invar to confirm their contract
price for the project. Invar advised AECL that their
price was dependent upon the pricing of their forg-
ing sub-contractor, Patriot. The other forging sup-
plier who had submitted pricing to Invar was the
Plaintiff, Canada Forgings Inc. (Canforge).
When AECL contacted Patriot, Patriot advised that
a queue was developing at its steel supplier and
that it would need to receive any order soon, or the
supply of forgings could be delayed by several
months. In order to allow Patriot to place an order
for steel and prevent a delay to the overall project,
AECL issued a Letter of Intent to Patriot, advising
that Patriot would be receiving an order from one
of Invar, Donlee, or Precision for forgings.
The Letter of Intent stated that if Patriot did not
subsequently receive an order for forgings, AECL
would reimburse it for its out-of-pocket expenses.
There were no tenders issued by Invar or AECL
for forgings.
In March 2006, Canforge commenced an action
against AECL, alleging various torts, including
conspiracy and defamation. All the claims were
dismissed on a subsequent motion to strike, except
for the defamation claim. In April 2009, Canforge
sought to amend its claim to include the allegation
that AECL had breached a duty of fairness to
Canforge.
In 2012, AECL brought a motion for summary
judgment to dismiss Canforges action against it.
Shortly before the hearing of the motion, Canforge
sought to further amend its claim to plead negli-
gence on the part of AECL. Justice Matheson iden-
tified five issues on the motion:
Canforges claim being barred (or not) by
the Limitations Act, 2002
Breach of Duty of Fairness
Defamation
Safia Lakhani
Associate
Glaholt LLP
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Fraudulent Concealment (related to the discov-
erability of Canforges claim for a breach
of the duty of fairness)
Negligence
Courts Findings
Canforge argued that a duty of fairness arose when
AECL issued a tender for the fuel channel end fit-
ting assemblies and that the tender period had been
extended by AECLs conduct. Canforge thus sub-
mitted that AECL had breached the duty of fair-
ness when it issued its Letter of Intent to Patriot.
AECL, in turn, argued that the 180-day bid period
had expired at the time that the Letter of Intent was
issued to Patriot and that consequently, no duty of
fairness was owed by AECL to Canforge. Further,
AECL argued that even if a duty of fairness con-
tinued to exist following the 180-day bid validity
period, that duty of fairness existed only as be-
tween AECL and the End Fitting Assembly
Subcontractors and did not extend to the level
of the forgings suppliers (Patriot and Canforge).
Justice Matheson stated in his reasons that he was
not able to find any document, affidavit, or exam-
inations of people [sic] involved with the bid pro-
cess that there had been an extension of the time
for the tender period beyond the 180 days provided
for in the bid documents. He went on to state, I,
therefore, find that the tendering period had long
since passed and that AECL could negotiate with
suppliers, without the need of a bid process.
In spite of a factual finding that the tender period
was over and that AECL could negotiate with sup-
pliers, Justice Matheson went on: Having stated
that, I find that there is a duty to act in a fair way.
Without further elaboration, he stated that there
were arguable issues to be dealt with [] dealing
with the duty of fairness, which required viva
voce evidence. (Viva voce evidence is evidence
given by a witness orally in open court, as opposed
to by way of written witness statement or affidavit,
for example.)
Justice Matheson went on to state that he should
have dismissed the motion for summary judgment
at the onset because of the sheer volume of the
material on the motion, the contradictions of the
witnesses in their affidavits and examinations and
the magnitude of the action. Justice Matheson
did not explain these comments further.
In spite of these comments, Justice Matheson dis-
missed AECLs motion for summary judgment
only in part. He granted AECLs motionand
dismissed Canforges claimwith respect to def-
amation. He dismissed AECLs motion for sum-
mary judgment with respect to Canforges claim
for a breach of the duty of fairness. In addition to
his comments noted above, he stated that he was
unable to make a finding with respect to AECLs
argument that the claim was statute barred by
the Limitations Act, 2002. In spite of having raised
it as one of five issues on the motion, Justice
Mathesons reasons made no further mention
of Canforges new claim for negligence.
Appeal
AECL sought leave to appeal the decision of
Justice Matheson. In its materials, AECL argued
that Justice Matheson had erred in law on various
points, including
1. that there was a duty of fairness after the expiry
of the tender process;
2. that AECL owed a duty of fairness to Canforge,
notwithstanding that Canforge was a supplier
submitting pricing to bidders/subcontractors and
that AECL was the contractor soliciting bids
from subcontractors; and
3. that there was any genuine issue requiring a trial
for the Plaintiffs claim of a breach of duty of
fairness.
Appeal Courts Findings
On the motion for leave to appeal, Justice Arrell
began by citing the Rules of Civil Procedure,
which provide:
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(4) Leave to appeal shall not be granted unless,
(a) there is a conflicting decision by another judge or court in Ontario
or elsewhere on the matter involved in the proposed appeal and it
is, in the opinion of the judge hearing the motion, desirable that
leave to appeal be granted; or
(b) there appears to the judge hearing the motion good reason to
doubt the correctness of the order in question and the proposed
appeal involves matters of such importance that, in his or her
opinion, leave to appeal should be granted.
Justice Arrell considered AECLs argument that
the trial judge made an error in law in finding that
AECL owed Canforge a duty of fairness. He noted
Canforges argument that this finding was, in fact,
obiter (i.e., an opinion of the court not necessary
for the judgment and therefore not binding) and
not the real ratio (i.e., part of the binding grounds
or reasons for the decision).
Justice Arrell stated that in order to succeed on its
appeal, AECL had to persuade him that the finding
with respect to the duty of fairness was the ratio
of the decision and the sole reason Matheson J.
dismissed the motion and, further, that it was de-
sirable for leave to appeal to be granted.
Justice Arrell concluded that AECL had not per-
suaded him on either ground. Specifically, he
found that the trial judges comments about the
duty of fairness were not determinative of the issue
as set out in his decision, but were obiter, and
should not be reconsidered. He also stated that in
his view, the case had been motioned to death
and needed to be moved forward.
Leave to appeal was thus refused.
Conclusion
In Canadian bidding and tendering law, the duty
of fairness has been understood as the obligation
on an owner to treat all bidders in a tender process
fairly and equally. The stated policy objective
of this implied duty is to protect and promote
the integrity of the tender process: Martel
Building Ltd. v. R.
Justice Mathesons reasons in Canada Forgings v.
Atomic Energy of Canada Limited suggest a much
more expansive understanding of the duty of fair-
ness than has previously existed. Though Canforge
was not a bidder and was not responding to any
call for tenders, AECL was nonetheless found to
owe it a duty to act in a fair way. Moreover,
Justice Matheson seemed to find that this duty was
owed outside of the bidding period.
This decision represents a departure from existing
understandings of the duty of fairness in
existing bidding and tendering law in Canada.
A free-floating duty of fairnessthat is, outside
of a tender process or outside of the Contract A
relationship between bid-caller and bidderhas
not been accepted in Canadian law. In light of the
Divisional Courts explicit finding that Justice
Mathesons comments on the duty of fairness were
strictly obiter, and therefore without precedential
value, it is doubtful that that decision should be
seen as changing the law of tendering in Canada.
Indeed, Justice Arrell specifically commented that
he was not persuaded that there was anything
particularly important to the public or the devel-
opment of the law in Justice Mathesons reasons.
This case is perhaps better understood as an exam-
ple of the difficulty of obtaining summary judg-
ment in construction cases, where a large volume
of documents are commonplace. It is also, perhaps,
an example of the impatience of the bench with
motions for summary judgment in general and
a reflection of the preference of courts for full
trialswhether or not a cause of action exists in
the first place.
Ontario Superior Court of Justice
Matheson J.
August 16, 2013
Ontario Superior Court of Justice
(Divisional Court)
Arrell J.
October 1, 2013