Judgments

[1995] 2 F.C. 132

A-1520-92

Northeast Marine Services Limited (Respondent) (Plaintiff)

v.

Atlantic Pilotage Authority (Appellant) (Defendant)

Indexed as: Northeast Marine Services Ltd. v. Atlantic Pilotage Authority (C.A.)

Court of Appeal, Stone, Décary and Létourneau JJ.A.—Ottawa, November 8, 9, 1994, January 25, 1995.

Contracts — Appeal from trial judgment awarding damages for breach of contract for failure to award respondent pilot boat service contract for Strait of Canso — Respondent submitting lowest bid, but Authority concerned about monopoly as related company awarded North Sydney contract — Trial Judge concluding monopoly prevention undisclosed precondition of tendering process; finding breach of contractual term — Monopoly prevention not condition of tendering process, but relevant consideration in exercise of discretion under rejection clause to reject any tender in public interest — Trial Judge miscontrued evidence in finding appellant wanted to unfairly favour competitor — No evidence of bias — Burden on bidder to address potential monopoly, conflict of interest in bid — No obligation to give bidder opportunity to rebut concerns.

Corporations — Respondent’s bid to provide pilot boat services for Strait of Canso rejected — Pilotage Authority considering financial stability of related company, monopoly issue as related company awarded contract in same area — Judicial test for piercing corporate veil not applicable to prevent Authority from assessing financial condition of potential contractor especially where threat to public safety.

Competition — Pilotage Authority, in considering pilot boat service bids, exercising discretion in advertised rejection clause to prevent monopoly — No obligation to expressly advertise tendering Authority will not assist in creation of monopoly to public detriment — Monopoly issue legitimate consideration which should, in public interest, be taken into account.

Maritime law — Pilotage — Pilotage Authority rejecting lowest bid for pilot boat service for Strait of Canso — Concerned about monopoly as related company awarded North Sydney contract, financial stability as related company had suffered property foreclosure — Relevant commercial considerations Authority, in public interest, properly took into account.

This was an appeal from the trial judgment awarding damages for breach of contract for the failure to award the respondent a pilot boat service contract for the Strait of Canso (which separates Cape Breton Island from mainland Nova Scotia).

The appellant received six bids in response to a call for tenders to provide pilot boat services for the Strait of Canso. The newspaper advertisement contained the following clause: “The Authority reserves the right to reject any or all tenders or to accept any tender considered in its best interest,” but that clause did not appear in the specifications. The Pilot Boat Committee eliminated all tenders but those from the respondent and East Coast Marine Services Ltd. Although the respondent’s bid was the lowest, the Board accepted that of East Coast Marine Services Ltd., which was second highest, because it felt that it was unwise to entrust all pilot boat services in one area to the same company. (A company related to the respondent had been awarded the contract for North Sydney and was building a boat for Newfoundland.) Some concern was also expressed about the respondent’s financial stability because another related company was the subject of foreclosure proceedings. The Trial Judge held that the granting of the contract to East Coast Marine Services Ltd. was a foregone conclusion because of an undisclosed precondition of the tendering process—that there not be a monopoly. He found that the Authority had breached an implied term of the contract requiring the fair treatment of all bidders.

The issues were whether the Trial Judge had erred in (1) finding that the appellant had imposed a “precondition of monopoly” on the tender; an implied contractual term required the appellant to award the contract to the lowest bidder; that the rejection clause was of no effect; that it was inappropriate for the appellant to “pierce the corporate veil” and look behind the independent legal identities of the related companies; (2) quantifying damages as the profits that the respondent would have earned had it been awarded the contract; (3) concluding that the tender required the employment of only three crew members.

Held (Stone J.A. dissenting), the appeal should be allowed.

Per Létourneau J.A. (Décary J.A. concurring): The Trial Judge committed errors which fundamentally flawed his decision. His misconstruction of the evidence coloured his perception of the issues and unfavourably tainted his decision against the appellant. The issue of monopoly was never a condition of the tendering process. There is no obligation to expressly mention in the advertisements of tenders that the tendering Authority will not assist in the creation of a monopoly to the public detriment. The issue of monopoly, like those of safety, financial stability of the bidders, and conflict of interest, are legitimate and relevant commercial considerations that the appellant could, and in the public interest should take into account in the exercise of its power under the “rejection clause.” A five-year monopoly could have resulted in other boats leaving the area, possibly resulting in a more costly renewal of the contract or, leaving the area with no pilot boats in the event of a collapse of the respondent’s companies. Had the issue of monopoly been a governing condition of the tendering process, the respondent’s tender would have been rejected at the outset. The issue of monopoly emerged when the appellant exercised its authority under the “rejection clause” and was a proper and relevant consideration.

Additionally, the Trial Judge misconstrued the evidence in finding that the process was unfair because the appellant wanted to unfairly favour East Coast Marine Services Ltd. over the respondent. There was no evidence that the Committee or the Board of Directors as a whole were biased.

The judicial test enabling courts to pierce the corporate veil did not apply to the Authority which was entrusted with the duty of making contractual arrangements to ensure public safety and the best use of public funds. The judicial test could not be used to prevent the appellant from assessing the financial soundness of a prospective contractor, especially when the financial instability of that corporation might have posed a threat to public safety.

The Pilot Boat Committee was not obliged to give the respondent the opportunity to rebut the concern about monopoly. The burden is on a bidder, who knows of an actual or potential monopoly or conflict of interest, to declare such state of affairs and to provide the tendering Authority with an outline of the measures taken to remedy the problem, or the guarantees offered to prevent the occurrence of such eventuality. He who decides not to reveal or ignore such state of affairs does so at his own peril and takes the risk that the fact, if and when discovered, may adversely impact on him.

Per Stone J.A. (dissenting): A tender brings “contract A” to life, the principal term of which is the irrevocability of the bid and the corollary term of which is the obligation by both parties to enter into a contract (B) upon acceptance of the tender. Other terms include the qualified obligations of the owner to accept the lowest tender, and the degree of this obligation is established in the call for tenders. Although the obligation of fair treatment in the tendering process has sometimes been referred to as implied, it may also be seen as a judicially imposed obligation the purpose of which is to preserve the integrity of the tendering process.

As a general rule this Court must not interfere with a trial judge’s findings of fact unless there is palpable and overriding error. Although the Trial Judge apparently misunderstood some of the evidence, the evidence as a whole reasonably justified his finding that the awarding of the contract to East Coast was a foregone conclusion. The error was not palpable and overriding.

Implying a term in “contract A” that required the Authority to award the contract to the lowest bidder was not central to the Trial Judge’s conclusion that the contract had been breached. This finding merely buttressed the Judge’s view that this was so.

Although the rejection clause in the newspaper advertisement was not included in the specifications, the respondent accepted it upon submitting its bids. It became part of “contract A” when it came into existence. The clause was included in the Authority’s “offer;” the respondent’s “acceptance” took the form of the submission of its bids. The rejection clause was not intended to nullify the obligation of fair treatment. The Trial Judge’s findings, that the tender was “rigged” against the respondent and that the awarding of the contract to East Coast was “foregone,” demonstrated that fair treatment was lacking. The rejection clause could not shield the Authority from a charge that it breached the contract by failing to fulfil its fair treatment obligation. In the absence of unfair treatment, the rejection clause would have entitled the Authority to choose from among the several bids submitted regardless of whether the bid chosen was the lowest, highest, or in its best interest. Here, where unfair treatment was established, the rejection clause did not entitle the Authority to reject the respondent’s bid when to do so would not be for reason of best interest but from a desire to unfairly favour the successful bidder.

On the Trial Judge’s analysis, the respondent’s corporate veil could not be pierced unless there was evidence that the group of related companies was “deliberately designed to perpetrate some fraudulent or collusive purpose.” Despite his view of the law, the Trial Judge’s ultimate findings suggest that he did consider conditions raised by Board members as to financial soundness of the group of related companies, but was not persuaded that they were valid.

The aim of an award of damages is to put a plaintiff in the same position he would have been in if the breach had not occurred. The breach was the Authority’s failure to treat the respondent fairly in choosing between its bid and that of East Coast. If the breach had not occurred, the Authority would have been choosing between the same two bids. The claim for damages was based upon a breach of contract A, not contract B which had never come into existence. The recovery of damages for breach of contract A did not depend on the existence of an absolute obligation to award contract B to the respondent as the lowest qualified bidder, but upon the respondent standing a chance of being awarded contract B, as the lowest of two remaining qualified bidders when the decision was made. The Trial Judge erred in basing his assessment, at least in part, on a view that the Authority was bound to award contract B to the respondent as the lowest qualified bidder. There was no such obligation, but merely a chance that, absent the unfair treatment, the respondent would have been awarded contract B. It is the value of this lost opportunity, rather than of the contract itself, that should be compensated for in damages.

The Trial Judge correctly found that a four-man crew was not required by the specifications, which were vague on that requirement. It was for the Trial Judge to determine whether a three or four-man crew was called for. He did not misconstrue the specifications or misapprehend the evidence viewed as a whole.

STATUTES AND REGULATIONS JUDICIALLY CONSIDERED

Competition Act, R.S.C., 1985, c. C-34 (as am. by R.S.C., 1985 (2nd Supp.), c. 19, s. 19).

Pilotage Act, S.C. 1970-71-72, c. 52.

Pilotage Act, R.S.C., 1985, c. P-14, ss. 15, 17, 18.

CASES JUDICIALLY CONSIDERED

APPLIED:

Nedco Ltd. v. Clark et al. (1973), 43 D.L.R. (3d) 714; [1973] 6 W.W.R. 425; 73 CLLC 14,192 (Sask. C.A.); Littlewoods Mail Order Stores Ltd. v. McGregor (Inspector of Taxes), [1969] 3 All E.R. 855 (C.A.).

CONSIDERED:

R. in right of Ontario et al. v. Ron Engineering & Construction (Eastern) Ltd., [1981] 1 S.C.R. 111; (1981), 119 D.L.R. (3d) 267; 13 B.L.R. 72; 35 N.R. 40; Best Cleaners and Contractors Ltd. v. The Queen, [1985] 2 F.C. 293 (1985), 58 N.R. 295 (C.A.); Chinook Aggregates Ltd. v. Abbotsford (Mun. Dist.), [1990] 1 W.W.R. 624; (1989), 40 B.C.L.R. (2d) 345; 35 C.L.R. 241 (C.A.); Canadian Pacific Hotels Ltd. v. Bank of Montreal, [1987] 1 S.C.R. 711; (1987), 41 C.C.L.T. 1; 77 N.R. 161; Liverpool City Council v. Irwin, [1977] A.C. 239 (H.L.); Shirlaw v. Southern Foundries (1926), Ld., [1939] 2 K.B. 206 (C.A.); Toneguzzo-Norvell (Guardian ad litem of) v. Burnaby Hospital, [1994] 1 S.C.R. 114; (1994), 110 D.L.R. (4th) 289; [1994] 2 W.W.R. 609; 18 C.C.L.T. (2d) 209; Watt or Thomas v. Thomas, [1947] A.C. 484 (H.L.); Glenview Corp. v. Canada (Minister of Public Works) (1990), 44 Admin. L.R. 97; 34 F.T.R. 292 (F.C.T.D.); Kencor Holdings Ltd. v. Saskatchewan, [1991] 6 W.W.R. 717; (1991), 96 Sask. R. 171 (Q.B.); Acme Building & Construction Ltd. v. Newcastle (Town) (1992), 2 C.L.R. (2d) 308 (Ont. C.A.); Acme Building & Construction Ltd. v. Newcastle (Town) (1990), 38 C.L.R. 56 (Ont. Dist. Ct.); Cartwright & Crickmore Ltd. v. MacInnes, [1931] S.C.R. 425; [1931] 3 D.L.R. 693; Chaplin v. Hicks, [1911] 2 K.B. 786 (C.A.); Lewis v. Todd and McClure, [1980] 2 S.C.R. 694; (1980), 115 D.L.R. (3d) 257; 14 C.C.L.T. 294; 34 N.R. 1; Nance v. British Columbia Electric Ry. Co. Ld., [1951] A.C. 601 (H.L.); Houweling Nurseries Ltd. v. Fisons Western Corp. (1988), 49 D.L.R. (4th) 205 (B.C.C.A.).

REFERRED TO:

Canamerican Auto Lease and Rental Ltd. v. Canada, [1987] 3 F.C. 144 (1987), 37 D.L.R. (4th) 591; 77 N.R. 141 (C.A.); Miller v. Hancock, [1893] 2 Q.B. 177 (C.A.); Stein et al. v. “Kathy K” et al. (The Ship), [1976] 2 S.C.R. 802; (1975), 62 D.L.R. (3d) 1; 6 N.R. 359; Sir Robert Peel, The (1880), 4 Asp. M.L.C. (N.S.) 321 (C.A.); Clarke v. Edinburgh and District Tramways Co., [1919] S.C. 35 (H.L.); Hontestroom (S.S.) v. Sagaporack (S.S.), [1927] A.C. 37 (H.L.); Powell v. Streatham Manor Nursing Home, [1935] A.C. 243 (H.L.); Prudential Trust Co. et al v. Forseth, [1960] S.C.R. 210; (1959), 21 D.L.R. (3d) 587; 30 W.W.R. 241; Métivier v. Cadorette, [1977] 1 S.C.R. 371; (1975), 8 N.R. 129; Asamera Oil Corporation Ltd. v. Sea Oil & General Corporation et al., [1979] 1 S.C.R. 633; (1978), 12 A.R. 271; 89 D.L.R. (3d) 1; [1978] 6 W.W.R. 301; 5 B.L.R. 225; 23 N.R. 181; Victoria Laundry (Windsor), Ld. v. Newman Industries, Ld. Couldon & Co., Ld. (Third Parties), [1949] 2 K.B. 528 (C.A.); M.S.K. Financial Services Ltd. v. Alberta (Minister of Public Works, Supply and Services) (1987), 77 A.R. 362; 23 C.L.R. 172 (Q.B.); Scott Steel (Ottawa) Ltd. v. R.J. Nicol Construction (1975) Ltd. (1993), 15 C.L.R. (2d) 10 (Ont. Div. Ct.); Bate Equipment Ltd. v. Ellis-Don Ltd. (1992), 2 C.L.R. (2d) 157 (Alta. Q.B.); Penvidic Contracting Co. Ltd. v. International Nickel Co. of Canada Ltd., [1976] 1 S.C.R. 267; (1975), 53 D.L.R. (3d) 748; 4 N.R. 1; Martin (L.B.) Construction Ltd. et al. v. Gaglardi et al.; Lauze et al., Third Parties (1978), 91 D.L.R. (3d) 393; [1979] 1 W.W.R. 171; [1979] I.L.R. 1-1061 (B.C.S.C.); R. v. CAE Industries Ltd., [1986] 1 F.C. 129 (1985), 29 D.L.R. (4th) 347; [1985] 5 W.W.R. 481; 30 B.L.R. 236; 61 N.R. 19 (C.A.); Webb & Knapp (Canada) Limited et al. v. City of Edmonton, [1970] S.C.R. 588; (1970), 11 D.L.R. (3d) 544; 72 W.W.R. 500; 63 C.P.R. 21; 44 Fox Pat. C. 141; Multi-Malls Inc. v. Tex-Mall Properties Ltd. (1980), 28 O.R. (2d) 6; 108 D.L.R. (3d) 399; 9 B.L.R. 240; 12 R.P.R. 77 (H.C.); Wood v. Grand Valley Railway Co. et al., [1915] 51 S.C.R. 283; (1915), 22 D.L.R. 614; Redpath Industries Ltd. v. Cisco (The), [1994] 2 F.C. 279(C.A.); Mallett v. McMonagle, [1970] A.C. 166 (H.L.).

AUTHORS CITED

Fridman, Gerald Henry Louis. The Law of Contract in Canada, 3rd ed., Toronto: Carswell, 1994.

Halsbury’s Laws of England, 4th ed., Vol. 12, London: Butterworths, 1975.

Shorter Oxford English Dictionary, Vol. II, 3rd ed., Oxford: Clarendon Press, 1969. “rig”.

Waddams, S. M. The Law of Damages, 2nd ed., Toronto: Canada Law Book Inc., 1993.

APPEAL from trial judgment (Northeast Marine Services Ltd. v. Atlantic Pilotage Authority, [1993] 1 F.C. 371 (1992), 57 F.T.R. 81 (T.D.)) awarding damages to the respondent for breach of contract. Appeal allowed.

COUNSEL:

John D. Murphy, Q.C., and Richard F. Southcott for appellant (defendant).

Anne S. Derrick for respondent (plaintiff).

SOLICITORS:

Stewart, McKelvey, Stirling, Scales, Halifax, for appellant (defendant).

Buchan, Derrick & Ring, Halifax, for respondent (plaintiff).

The following are the reasons for judgment rendered in English by

Stone J.A. (dissenting): This is an appeal from a judgment of the Trial Division of October 19, 1992 [[1993] 1 F.C. 371. By that judgment, the respondent’s claim for damages arising out of the failure of the appellant (the Authority) to award the respondent a pilot boat service contract at the Strait of Canso (which separates Cape Breton Island from mainland Nova Scotia) was allowed and damages for breach of contract were assessed at $235,000 together with post-judgment interest at the rate of 5% per annum. Costs were reserved. We were told at the hearing of the appeal that costs have since been awarded to the respondent on a party-and-party basis.

The trial occupied a fifteen-day period of Court time, during which the learned Trial Judge heard the testimony of several witnesses who were called by both parties. As will be seen, this testimony was in conflict in some key aspects with the result that the Trial Judge had also to make findings of credibility.

THE PARTIES

The appellant was established as a body corporate in 1971 pursuant to the Pilotage Act, S.C. 1970-71-72, c. 52 (now R.S.C., 1985, c. P-14) (the Act). It consists of a Chairman and members. The members are appointed by the Minister of Transport with the approval of the Governor in Council. They together with the Chairman constitute the Board of the Authority. By section 15 of the Act, the Authority is authorized to employ officers and employees and, by section 17, to make by-laws. In addition to the Executive Officers, the Authority was served by a Director of Operations whose appointment is provided for in subsection 400(1) of the Authority’s by-laws. By that subsection the Chairman may assign to the Director of Operations “such powers and authority, duties and functions as may be required, to manage and direct the ordinary business and affairs of the Authority.” The objects of the Authority are set forth in section 18 of the Act. That section reads:

18. The objects of an Authority are to establish, operate, maintain and administer in the interests of safety an efficient pilotage service within the region set out in respect of the Authority in the schedule.

Subsection 525(1) of the Authority’s by-laws authorizes the members to create committees and appoint thereto “such persons as they see fit.” Any such committee is required to report to the members and to be chaired by a member of the Board. The Authority created a Pilot Boat Committee, which was chaired by the Chairman of the Authority and consisted of the Chairman and three other members of the Board. The Director of Operations, while not a member of the Pilot Boat Committee, customarily attended its meetings as did a recording secretary. Under the Authority’s by-laws, the Chairman, in addition to having one vote as member, was given a casting vote where there was an evenly split vote on any matter before the Authority. Questions arising at a meeting of members were to be decided by a majority of votes.

At all material times, Captain A. D. Latter was Chairman and Chief Executive Officer of the Authority while its Director of Operations was Captain Peter J. Stow.

The respondent is a Nova Scotia corporation which was incorporated in 1981. The majority of its issued and outstanding shares were held by Cantow Marine Limited of which Captain Alick Slater was the majority shareholder. This same gentleman was the majority shareholder of Chedabucto Shipwrights Limited which operated a small shipyard at Port Hawkesbury on the Cape Breton side of the Strait of Canso. Captain Slater was a director and officer of Cantow Marine Limited and of Chedabucto Shipwrights Limited. The learned Trial Judge [at page 380] found as fact that Captain Slater was “the principal actor and spokesman for all three companies.” Between 1981 and 1986, Captain Slater, through Cantow Marine Limited, had provided pilot boat service at the Strait of Canso under a contract with the Authority. Its pilot boat Captain Parker was used in the performance of that contract. In fact Captain Slater had himself served the Authority in the capacity of pilot over a number of years.

BACKGROUND OF THE DISPUTE

In the autumn of 1986, the Authority advertised calls for tenders for pilot boat services at North Sydney and the Strait of Canso, the tenders being nos. 47 and 48 respectively. The bids submitted were considered by the Pilot Boat Committee at a meeting held November 18, 1986. Captain Stow gave that meeting a written evaluation of the bids. With respect to Tender no. 47 he recommended that the Authority accept the bid of Cantow Marine Limited, which proposed to use the vessel Captain Parker which was then in use at the Strait of Canso. That boat would take the place of the Salvador A which was then in use at North Sydney. With respect to Tender no. 48, Captain Stow saw the choice as between the bid of the respondent and that of Seabase Canso Offshore Services Ltd., to supply pilot boat service at the Strait of Canso. The Committee recommended that “the contract for pilot boat service in the Strait of Canso be put off until the boat tendered by Seabase Canso Offshore Services Ltd. can be inspected by a pilot” and if found suitable that its hull be further inspected for soundness. Captain Stow’s written evaluation included the following statement:

From a conflict of interest standpoint, I would be reluctant to see one of our pilots have a monopoly on pilot boat services in Cape Breton, particularly since he is also building our new boat for Newfoundland.

The evaluation was annexed to the minutes of the meeting.

The Board met later in the day. It agreed with Captain Stow’s recommendation that the North Sydney contract be awarded to Cantow Marine Limited and that was done. It provisionally approved the bid of Seabase Canso Offshore Services Ltd. for the Strait of Canso service, subject to its boat being accepted and recommended for use after examination on behalf of the Authority and its obtaining a Canada Steamship Inspection certificate for four years. This boat was subsequently found to be unsuited. Thereupon the Chairman and the Director of Operations decided to reject all bids and put out a new tender call for pilot boat services at the Strait of Canso.

Advertisements of the new tender call were published in local newspapers on December 27, 1986 and January 3, 1987. Among these advertisements was the following which appeared in The Chronicle Herald and The Mail-Star of Halifax on December 27, 1986, under the heading “Transport Canada/Atlantic Pilotage Authority”:

ATLANTIC PILOTAGE AUTHORITY

SUITE 1203

BANK OF MONTREAL TOWER

HALIFAX, N.S.

B3J 1M5

TEL; (902) 426-2550

TENDER NO. 50

PILOT BOAT SERVICE”

STRAIT OF CANSO

Sealed tenders for the service listed above will be received by the Director of Operations of the Atlantic Pilotage Authority up to 3:00 p.m. Friday, January 16, 1987.

Detailed specifications and tender envelopes, or further information, may be obtained on application to the Director of Operations. Tenders must be submitted in envelopes supplied by the Authority.

The Authority reserves the right to reject any or all tenders or to accept any tender considered in its best interest.

By letters of various dates, Captain Stow forwarded “Specifications for Pilot Boat Service—Strait of Canso” to a number of potential bidders. These included his letter of January 5, 1987 to Captain Slater. That letter bears a file number after which appears “#50” and identifies the service as “pilot boat service in the Strait of Canso.” The specifications consisted of two pages. They specified that a “pilot boat service is required to transport pilots to and from vessels entering and leaving the Strait of Canso area commencing March 1, 1987.” There is enumerated in paragraph 1 eighteen “minimum requirements.” Paragraph 2 provides various details of the service required. It is followed by two paragraphs each numbered 3. The second of these stipulated that the service “is to be provided at a rate per assignment” and that the service contract would be for five years. Clause 3(f) of the specifications for Tenders nos. 47 and 48, viz., “The Authority reserves the right to reject any or all tenders or accept any tender considered in its best interest,” was not included in the specifications for Tender no. 50. Finally, in his covering letter of January 5, 1987, Captain Stow stated:

The Tenderer is to forward to the Atlantic Pilotage Authority prior to 1500, 16 January, 1987, a written tender proposal detailing the services offered together with an inclusive rate per assignment. The proposal should also include the specifications and certification of boat and crew.

…

The successful tenderer will be required to sign an Atlantic Pilotage Authority contract which will include the terms and conditions specified herein and in the attached documents.

In due course, the Authority received six bids in response to Tender no. 50. These were opened at a meeting held in the Authority’s office on January 16, 1987. The meeting was presided over by Captain Stow. Two of the bids were submitted by the respondent on the day of the meeting. One, at a bid price of $199,375, was for the continued use of the Captain Parker;[1] the second, at a bid price of $220,904, was for the use of a yet-to-be constructed “purpose-built” boat to be equipped with twin screws. A third bid, at a price of $225,000, was submitted by East Coast Marine Services Ltd., a company controlled by Captain Alexander Gay for use of the Chapel Hill. Captain Gay had had a long-term contractual relationship with the Authority to crew a boat at North Sydney, which was terminated by the Authority as of December 31, 1986.[2] Notice of termination was given by the Authority in September of that year. Captain Stow had seen the Chapel Hill during a visit to New York in July 1986, where it was laid up from service as a pilot boat. Upon his return from New York, he reported on this boat to Captain Latter who showed some interest in it. Captain Stow drew Captain Gay’s attention to the boat later that summer. In October 1986, Captain Gay proceeded to New York and while there decided to purchase the boat with a view to tendering it for the North Sydney service. He put down a $10,000 deposit on the basis that it would be forfeited if the full purchase price were not paid. With the rejection of Captain Gay’s bid on Tender no. 47, it appeared that the purchase would fall through, but a second chance to make the purchase arose when Tender no. 50 was announced.[3] The evidence of James Veitch, a representative of the respondent at the January 16, 1987 meeting, was that as the meeting broke up Captain Gay was heard to say:

I don’t care what you heard today, I am going to get the contract. And before the year is up, the other contract will be up for grabs.

According to an evaluation of the bids prepared by Captain Stow for the Pilot Boat Committee—in which he converted the “per assignment” bids to “per contract” prices based upon a factor of 500 trip assignments—the lowest and fourth lowest bids were those of the respondent while the second highest bid was that of East Coast Marine Services Ltd. The evaluation represented Captain Stow’s best guess as to how each of the bidders met the specifications.[4] Thus the initial function in the Pilot Boat Committee was to screen out bidders who were not qualified in this sense because they failed to meet these requirements. The Pilot Boat Committee received Captain Stow’s evaluation of these bids at its meeting of January 20, 1987. The minutes of that meeting include the following:

It was the feelings of the members that everything should not go to Captain Slater, he was now building the boat for Newfoundland and providing the contract pilot boat service in Sydney.

The members decided to take the tenders from Northeast Marine and East Coast Marine Services to the Board for a decision as in their opinion the better boat would be from East Coast Marine Services and the better service would be from Northeast Marine.

A guest at the meeting, Captain T. Pittman who headed a committee of Cape Breton pilots, remarked that pilots were less willing to criticize one of their own—an obvious reference to Captain Slater.

At its meeting of January 20, 1987, the Board accepted the bid of East Coast Marine Services Ltd. The minutes of this meeting disclose the following:

The majority feeling of the meeting was that it was unwise to entrust all pilot boat services in one area to one company.

These minutes also reveal that two members of the Board (Captains Goodyear and Bell) expressed concern with the financial soundness of the respondent, and that Captain Pittman’s remarks were noted in the context of safety. A resolution of the Board approving the East Coast Marine Services’ bid by a vote of four in favour (including the Chairman) and two against, contains a recital which reads in part:

WHEREAS, it was deemed by the majority of the Board members to be unwise to give a monopoly for pilot boat services in the Cape Breton Region to one operator ….

The resolution also recites that because of the extra speed of the Chapel Hill, a saving of approximately $10,000 off the estimated quoted price of East Coast Marine Services Ltd. would be effected. The Board’s decision was provisional upon that company providing “a back-up pilot boat and fulfill all the terms of the contract.” The contract here refers to the pilot boat contract which had yet to be formally entered into between the Authority and the successful bidder.

At the trial, the respondent attacked the Authority’s decision refusing to award both the Tender nos. 48 and 50 contracts. The Trial Judge saw no merit in the respondent’s objection to the Authority’s decision on Tender no. 48. That aspect is not the subject of this appeal. He turned then to the Authority’s decision on Tender no. 50. He took the view that the respondent’s action was one of breach of contract and not of tort. In that light he made a number of findings of fact. At page 393, he found it “incontrovertible that the predominant criterion for evaluating the bids on Tender 50 at the time of the board meeting … was the issue of monopoly as it pertained to the plaintiff.” At the same page he found that this issue had been on the mind of the Director of Operations since the meeting of the Board in November 1986, that it had been the subject of discussions between him and the Chairman, Captain Latter, “on a number of occasions” and that it had never been made known to the respondent prior to the submission of its bids on January 16, 1987. He found as well, at page 395, that the failure of the Board to consider the respondent’s alternate bid for a twin-screw boat to be built—at a lower price than that submitted by East Coast Marine Services Ltd.—was not a “fair basis of evaluation by any standard.”

The Trial Judge focused on the respondent’s evidence from which it was contended that the granting of a contract for pilot boat services at the Strait of Canso to East Coast Marine Services Ltd. was a “foregone conclusion.” Some of this evidence, that of Veitch, has been referred to already. Other evidence in the same vein was in the form of affidavits to the effect that Captain Stow had informed Captain Pittman that Captain Gay would get the contract if his bid was within $30,000 of the lowest bid; that Captain Gay had represented at the time of his application to a lending institution for equity financing in January 1987, that while he had not yet been awarded a contract for pilot boat service at the Strait of Canso the “contract was a foregone conclusion” provided his company’s bid “was within $30,000.00 of the lowest or successful bidder”; and that Captain Stow “did not want one person holding all their contracts in the local area.” These affiants testified at the trial and were subjected to vigourous cross-examination. At page 398 of his reasons, the Trial Judge made the following important finding:

Taking all these factors into account, I find that it was a foregone conclusion in the collective mind of the defendant, acting through its responsible officers and directors, that the plaintiff was never even in the running for fair consideration with respect to its bids on Tender 50 because of the undisclosed preconditions of monopoly. In other words, the tendering process was rigged against the plaintiff from the very outset.

The Trial Judge also found, at page 396, that Captain Stow had played more than a passive role within the tendering process with respect to Tender no. 50 vis-à-vis the bid of East Coast Marine Services Ltd. He found that it was Captain Stow who had raised the issue of monopoly in relation to the respondent’s bid on Tender no. 48 and that it was he who had alerted Captain Gay to the availability of the Chapel Hill which he tendered for the Strait of Canso service. Moreover, the Trial Judge saw a letter of September 11, 1986, written by the Authority’s Corporate Secretary on behalf of Captain Gay and containing a “glowing testimonial to Captain Gay’s personal qualities and capabilities,” as indicating “possible favouritism.” That letter was attached to the bid of East Coast Marine Services Ltd. at the time it was submitted in response to Tender no. 50.

At page 412 of his reasons, the Trial Judge made this important finding:

I also found as a fact that the defendant rigged the bid against the plaintiff in the tendering process for Tender 50 by adopting as its governing criteria for the awarding of the tender conditions which excluded the plaintiff from any consideration whatever, and thus unfairly preferred the rival bidder, East Coast Marine Services Ltd., to whom the contract was awarded.

In this context he also found [at page 413]:

There is no question here that the plaintiff met all the terms and conditions of the specifications set out in the call for tenders, but that its low bid failed because of the defendant’s apprehension regarding monopoly.

THE ISSUES

The issues raised by the Authority, as set forth in its written argument, are as follows:

(1) Whether the Learned Trial Judge misconstrued the evidence in finding that the Appellant had imposed a “precondition of monopoly” on Tender 50, thereby breaching an implied term requiring it to treat all bidders fairly;

(2) Whether the Learned Trial Judge erred in finding that the contractual relationship between the Appellant and the Respondent on Tender 50 contained an implied term requiring the Appellant to award the contract for pilot boat service to the lowest bidder;

(3) Whether the Learned Trial Judge erred in finding that the Rejection Clause in Tender 50 was of no effect;

(4) Whether the Learned Trial Judge erred in finding that it was inappropriate for the Appellant to “pierce the corporate veil” and look behind the independent legal identities of the Slater Companies;

(5) Whether the Learned Trial Judge erred in quantifying damages as the profits that the Respondent would have earned had it been awarded the contract for pilot boat service on Tender 50; and

(6) Whether the Learned Trial Judge erred, in quantifying damages for loss of profits, in concluding that the provision of pilot boat services pursuant to Tender 50 required the employment of only three crewmembers.

ANALYSIS

General

The respondent supports the judgment below in all but one particular. It contends that the judgment should be varied because of the factor which the Trial Judge took into consideration in reducing the damages he otherwise assessed. It will be necessary to consider the respondent’s submission on this point only if it is first concluded that the Trial Judge’s finding of liability ought not to be disturbed.

The parties are in agreement that the law as laid down in R. in right of Ontario et al. v. Ron Engineering & Construction (Eastern) Ltd., [1981] 1 S.C.R. 111, with respect to the formation of contracts made in a tendering process, applies in this case. While that case concerned a tendering process in the construction industry, there would appear to be no sound reason for not applying the principles therein enunciated to the circumstances of this case. At pages 122-123, Estey J. set forth these principles as follows:

The tender submitted by the respondent brought contract A into life. This is sometimes described in law as a unilateral contract, that is to say a contract which results from an act made in response to an offer, as for example in the simplest terms, “I will pay you a dollar if you will cut my lawn”. No obligation to cut the lawn exists in law and the obligation to pay the dollar comes into being upon the performance of the invited act. Here the call for tenders created no obligation in the respondent or in anyone else in or out of the construction world. When a member of the construction industry responds to the call … that response takes the form of the submission of a tender, or a bid as it is sometimes called. The significance of the bid in law is that it at once becomes irrevocable if filed in conformity with the terms and conditions under which the call for tenders was made and if such terms so provide. There is no disagreement between [sic] the parties here about the form and procedure in which the tender was submitted by the respondent and that it complied with the terms and conditions of the call for tenders. Consequently, contract A came into being. The principal term of contract A is the irrevocability of the bid, and the corollary term is the obligation in both parties to enter into a contract (contract B) upon the acceptance of the tender. Other terms include the qualified obligations of the owner to accept the lowest tender, and the degree of this obligation is controlled by the terms and conditions established in the call for tenders.

The difficulty between the parties in the present case concerns the application of these principles.

Ron Engineering was applied by this Court in Best Cleaners and Contractors Ltd. v. The Queen, [1985] 2 F.C. 293and in Canamerican Auto Lease and Rental Ltd. v. Canada, [1987] 3 F.C. 144 It was also applied by the British Columbia Court of Appeal in Chinook Aggregates Ltd. v. Abbotsford (Mun. Dist.), [1990] 1 W.W.R. 624. These decisions show that in addition to the obligations resting upon an owner based on the terms and conditions of a call for tenders, that person is obliged, as Mahoney J.A. put in Best Cleaners, supra, at page 306, “not to award a contract except in accordance with the terms of the tender call.” Although dissenting, Pratte J.A. expressed the view, at page 300, that while Ron Engineering, supra, does not speak of implying a term in contract A, a term was to be implied so as to impose upon the owner calling the tenders “the obligation to treat all bidders fairly and not to give any of them an unfair advantage over the others.” That view was adopted by Legg J.A. in Chinook Aggregates, supra, at page 629. There is no disagreement in the present case that such a term was properly implied in contract A which came into existence on January 16, 1987 at the time the respondent’s bids were submitted.

Implying a term in a written contract may be done only in exceptional circumstances. The reason for the reluctance is based on the sound policy that parties should be held to the express terms of their contract and not saddled with terms that they did not intend. The circumstances in which a term may be implied are discussed by Le Dain J. in Canadian Pacific Hotels Ltd. v. Bank of Montreal, [1987] 1 S.C.R. 711. Of the three categories he there mentions at pages 762-767, one is based on presumed intention of the parties that such a term is necessary in order to give a contract “business efficacy.” Of the illustrations he gives of cases that fall within this category is Miller v. Hancock, [1893] 2 Q.B. 177 (C.A.), which was cited with approval by Lord Salmon in Liverpool City Council v. Irwin, [1977] A.C. 239 (H.L.), at page 263 where he said:

I find it difficult to think of any term which it could be more necessary to imply than one without which the whole transaction would become futile, inefficacious and absurd ….

Another is Shirlaw v. Southern Foundries (1926), Ld., [1939] 2 K.B. 206 (C.A.), at page 227, where MacKinnon L.J. expressed the now generally accepted view that a term may be implied where to do so is “so obvious that it goes without saying.” In the present case, the Trial Judge accepted Captain Latter’s evidence that the Authority desired every tenderer to have “an even break or fair chance in the bidding process.”

The circumstances which obtained in the foregoing decisions gave rise to a need to imply a term in a contract in order to give it business efficacy. As I see it, that is not the precise office of an obligation of fair treatment in the tendering process. Although this obligation has sometimes been referred to as implied, it may also be seen as a judicially imposed obligation whose purpose and object is to preserve the integrity of the tendering process.

In any appeal from a trial judge another important consideration comes into play. As a general rule, this Court must not interfere with findings of fact. The scope of the principle was most recently summed up in Toneguzzo-Norvell (Guardian ad litem of) v. Burnaby Hospital, [1994] 1 S.C.R. 114, at page 121, where McLachlin J. stated:

It is by now well established that a Court of Appeal must not interfere with a trial judge’s conclusions on matters of fact unless there is palpable or overriding error. In principle, a Court of Appeal will only intervene if the judge has made a manifest error, has ignored conclusive or relevant evidence, has misunderstood the evidence, or has drawn erroneous conclusions from it: see P. (D.) v. S. (C.), [1993] 4 S.C.R. 141, at pp. 188-89 (per L’Heureux-Dubé J.), and all cases cited therein, as well as Geffen v. Goodman Estate, [1991] 2 S.C.R. 353, at pp. 388-89 (per Wilson J.), and Stein v. The Ship “Kathy K”, [1976] 2 S.C.R. 802, at pp. 806-8 (per Ritchie J.). A Court of Appeal is clearly not entitled to interfere merely because it takes a different view of the evidence. The finding of facts and the drawing of evidentiary conclusions from facts is the province of the trial judge, not the Court of Appeal.

By this statement, I do not understand McLachlin J. to have rejected any of the reasons which underlie the principles she so succinctly summarizes. This would seem to be so from her reliance upon Stein et al. v. “Kathy K” et al. (The Ship), [1976] 2 S.C.R. 802, where Ritchie J., at pages 806-808, referred to a number of English authorities: Sir Robert Peel, The (1880), 4 Asp. M.L.C. (N.S.) 321 (C.A.); Clarke v. Edinburgh and District Tramways Co., [1919] S.C. 35 (H.L.); Hontestroom (S.S.) v. Sagaporack (S.S.), [1927] A.C. 37 (H.L.); Powell v. Streatham Manor Nursing Home, [1935] A.C. 243 (H.L.) and the Supreme Court’s own decision in Prudential Trust Co. et al v. Forseth, [1960] S.C.R. 210. That Court has since repeated its insistence as indeed Toneguzzo-Norvell, supra, illustrates, that a trial judge’s advantages as the finder of fact must be borne in mind by an appellate court and that interference with such findings must be limited to exceptional cases. Particular difficulty arises for a reviewing court where the credibility of witnesses is in issue or even where witnesses were seen to exaggerate or prone to partisanship.

The sound reasons for the principle of non-intervention are identified in the decisions which I have just mentioned. I refer to one additional authority as illustrative of the point. In Watt or Thomas v. Thomas, [1947] A.C. 484 (H.L.), many of the earlier English decisions were again canvassed. Each of the law lords who heard the case expressed themselves on the point. I wish here to draw on the speeches of Lord Macmillan and Lord Simonds who reminded us of the difficulty faced by an appellate court in reviewing findings of fact and the caution that must be exercised in carrying out the task. One of these difficulties arises from the fact that an appellate court must conduct its review on the basis of a written record. The significance of this was emphasized by Lord Macmillan, at pages 490-491:

The appellate court has before it only the printed record of the evidence. Were that the whole evidence it might be said that the appellate judges were entitled and qualified to reach their own conclusion upon the case. But it is only part of the evidence. What is lacking is evidence of the demeanor of the witnesses, their candour or their partisanship, and all the incidental elements so difficult to describe which make up the atmosphere of an actual trial. This assistance the trial judge possesses in reaching his conclusion but it is not available to the appellate court. So far as the case stands on paper, it not infrequently happens that a decision either way may seem equally open. When this is so, and it may be said of the present case, then the decision of the trial judge, who has enjoyed the advantages not available to the appellate court, becomes of paramount importance and ought not to be disturbed.

A passage in the speech of Lord Simonds seems to me of relevance here as well because, as I shall note, apart from some specific instances, the Trial Judge made no adverse comment on the credibility of witnesses whose testimony, if accepted, could well have led him to a different conclusion. Lord Simonds makes the following observation at page 492 in response to a submission of counsel:

There I should be content to leave this case but for certain criticisms made by counsel for the respondent in his able and candid address. Relying on the testimony of certain witnesses called on behalf of the respondent (whom I need not name) he said that the learned Lord Ordinary had come to a conclusion which was diametrically opposed to that testimony, yet he had not explicitly stated that he did not accept them as witnesses of truth nor indeed, made any adverse comment upon them. Your Lordships were therefore invited to find that the learned judge had forgotten or ignored this evidence and to hold that his judgment was thereby vitiated. I believe this to be fundamentally unsound criticism. The trial judge has come to certain conclusions of fact; your Lordships are entitled and bound, unless there is compelling reason to the contrary, to assume that he has taken the whole of the evidence into his consideration. If his conclusion is inconsistent with the evidence of certain of the witnesses but he does not, in terms, stigmatize them as false witnesses, it is not the proper or necessary inference that he has forgotten or ignored them; of this the present case is a cogent example, for I can well understand why the Lord Ordinary, while not accepting his evidence, did not think fit to comment unkindly on one at least of the witnesses in question.

Further, it has been held that an appellate court should not interfere with the findings at trial where the only point in issue is the interpretation of the evidence as a whole (Métivier v. Cadorette, [1977] 1 S.C.R. 371). This is particularly so where the credibility of witnesses is in issue.

Misconstruction of the evidence

I turn now to the first issue raised by the Authority. The submission here is that the Trial Judge misconstrued the evidence in finding that the Authority had imposed a “precondition of monopoly.” I agree that the Trial Judge was mistaken in his treatment of some of the evidence when he stated, at page 381, that the minutes of the meeting of the Pilot Boat Committee of November 18, 1986 were “signed by Captain Stow” and, that these minutes concluded with the statement I have already quoted from Captain Stow’s written evaluation of the same date. That evaluation was annexed to the minutes. The Trial Judge was mistaken as well when he found later on, at page 385, that this concern of Captain Stow was “reiterated” at the meeting of the Pilot Boat Committee of January 20, 1987. The subject of monopoly was raised at this second meeting of the Pilot Boat Committee; there is no evidence that it was considered at the first.

On the other hand, I can detect no error in the Trial Judge’s findings, at page 393, that while it may not have come “openly to the fore” until the January 1987 Board meeting, Captain Stow’s concern with monopoly “had been very much on the mind of the Director of Operations” since the meeting of the Board in November 1986 and “had been the subject of discussions between him and the Chairman on a number of occasions.” They are supported by the evidence. There was evidence that Captain Stow discussed his monopoly concern with Captain Latter even before the November meeting of the Board where the bids on Tenders 47 and 48 were considered.[5] It is important to recall that there existed a close working relationship between Captain Stow and Captain Latter. This is envisaged by the Authority’s by-laws. Because Captain Stow had had no previous experience with tendering for pilot boat service (he had assumed the position of Director of Operations on April 1, 1986), he had to rely on the Chairman of the Board for assistance in going through the process and took most of his instruction from that officer.[6] Captain Stow was responsible to Captain Latter within the Authority. All of this and, indeed, the evidence as a whole must not be ignored in reviewing the Trial Judge’s findings. Although the Trial Judge appears to have misunderstood the evidence with respect to the signing of the minutes of the November 18, 1986 meeting and some of the content thereof, that was not the only evidence upon which he based his findings of monopoly and lack of fair treatment in the tendering process. The issue of monopoly was clearly raised and extensively considered at the Pilot Boat Committee’s meeting of January 20, 1987 and at the Board meeting that followed.

Evidence that, if accepted, might have put a concern with “monopoly” in a different light from the standpoint of the Authority, by perhaps suggesting that it centred on a valid anxiety of conflict of interest and the need of the Authority to make a prudent commercial decision, was plainly not accepted by the Trial Judge. The specifics of this evidence may be summarized. Although the Authority’s by-laws permitted one of its pilots to tender his own boat, this could produce a so-called “conflict of interest” by causing reluctance of other pilots to complain about quality of service; safety on board either of the pilot boats, not cost, was the Authority’s primary concern;[7] financial difficulties being experienced by another member of the Slater group of companies— Chedabucto Shipwrights Limited—which at the time was under contract with the Authority to build a new pilot boat for use in the Authority’s Newfoundland region; the Chapel Hill was a faster boat and would result in lower cost per assignment trip; the awarding of the contract to the respondent might cause difficulty five years later from an absence of competition. It was, of course, open to the Trial Judge to accept this evidence and, had he done so, the appellant’s position might have been strengthened. The fact remains that he preferred other evidence which was to the effect that the true reason for awarding contract B to East Coast Marine Services Ltd. was not because of these or other concerns but a desire to unfairly favour that company over the respondent. It did not escape the Trial Judge’s attention that the respondent’s second bid, which was for use of a purpose-built boat equipped with twin screws, was not apparently considered by the Authority’s Board at its January 20, 1987 meeting, despite the fact that it was approximately $4,000 under the bid of East Coast Marine Services Ltd., the successful bidder, whose boat Chapel Hill was equipped with twin screws.

I have no doubt that the Trial Judge’s finding on the issue of monopoly is intertwined with his finding that the awarding of the pilot boat service contract at the Strait of Canso to East Coast Marine Services Ltd. was a “foregone conclusion.” In his words (at page 412), “the defendant rigged[8] the bid against the plaintiff … by adopting as its governing criteria … conditions which excluded the plaintiff … and thus unfairly preferred the rival bidder, East Coast Marine Services Ltd., to whom the contract was awarded.” I have already referred to the evidence upon which this finding was based. It is not necessary to repeat it here. This included his acceptance of the witness Veitch over Captain Stow, with respect to the above-quoted remark of Captain Gay made as he departed the room in which the bids were opened on January 16, 1987. This is an additional reason for this Court not interfering with the finding. The evidence included the letter of September 11, 1986, which was written by the Authority on behalf of Captain Gay some time before tenders for the service at North Sydney and the Strait of Canso were called. While I agree that this letter might have been seen differently, it remained for the Trial Judge to assess and weigh it in the light of the evidence and of any impressions he may have formed about the reliability of witnesses. That apart, as was noted already, that letter was obviously not the only evidence of unfair treatment before the Trial Judge. In my view, the evidence as a whole can be reasonably regarded as justifying the conclusion that the awarding of contract B to East Coast Marine Services Ltd. was foregone.

Captain Latter, who was both an important witness for the Authority and the occupant of a key position as Chairman of the Authority with a casting vote at meetings of the Board, categorically denied the respondent’s assertion that the tendering process was rigged against the respondent and in favour of the successful bidder. The evidence was clearly not accepted by the Trial Judge as his conclusions plainly indicate. The Trial Judge’s finding that the Director of Operations had discussed the issue of monopoly with Captain Latter on a number of occasions between November 1986 and January 20, 1987, is supported by the evidence and was not challenged by the Authority. The evidence also shows that these two men discussed monopoly even before Tenders 47 and 48 were considered by the Board in November 1986. I wish here to underline that the decision taken by the Authority on January 20, 1987, was not unanimous. The vote was split: four in favour and two against. Those in favour included Captain Latter. In effect, the decision of which of the two remaining bidders would be selected lay in his hands. If the vote had been tied—three for and three against—the Chairman could have broken the tie with his casting vote. This placed him in a pivotal position as a decision-maker. Although this circumstance was not specifically dwelt on by the Trial Judge, it is not to say that it did not enter his consideration in deciding as he did.

I conclude from all of the foregoing that the Trial Judge did not misconstrue the evidence. I have the impression from the judgment that his conclusions were based on the evidence as a whole adduced at the very lengthy trial and on his assessment of the witnesses as to their reliability. In my view, the process by which a trial judge comes to findings of fact and conclusions are difficult if not impossible to duplicate in an appellate court even with the assistance of the written reasons. I have mentioned a particular error but do not regard it as both palpable and overriding. On the whole I am persuaded that the Trial Judge’s findings are supported by the evidence and that he did not misuse his advantages.

Implied term—lowest qualified bidder

The basis of the second attack is that the Trial Judge erred in finding, at page 413, that the contractual relationship between the parties under contract A included an implied term or obligation which required the Authority to award contract B to the lowest qualified bidder. It is my view that the implying of such a term was not central to the Judge’s conclusion that the contract A had been breached. This finding, it appears, did no more than buttress the Judge’s view that this was so. It seems clear, however, that the Trial Judge was influenced in the approach he took to the issue of damages by his view that the Authority was obliged to award contract B to the respondent as the lowest qualified bidder. Thus, at page 422, he found that the Authority “was aware that the plaintiff would be acting in accordance with the low bid concept on Tender 50.” While I agree that this issue does require consideration, it is best deferred until the issue of damages is addressed.

Effectiveness of the “rejection clause”

The Authority then attacks the Trial Judge’s conclusion that the “rejection clause”—which was included in the newspaper advertisements of Tender no. 50 but not in the specifications—did not entitle the Authority “to ignore the implied terms of the preliminary contract A.” He appears here to have had in mind both the requirement for fair treatment of all bidders and of awarding the contract to the lowest qualified bidder. It is convenient to repeat the rejection clause:

The Authority reserves the right to reject any or all tenders or to accept any tender considered in its best interest.

Although this clause was not included in the specifications which were sent to the respondent on January 5, 1987, I am persuaded that the respondent accepted it upon submitting its bids on January 16, 1987. The advertisement containing the clause was placed in widely circulated daily newspapers in Halifax and on Cape Breton Island, where Captain Slater resided at the time. Captain Slater agreed on cross-examination that he probably saw the advertisement and that it was in the same form as had been published by the Authority on earlier occasions. The advertisement expressly identified the tender as “Tender no. 50” which is the same number that appeared on the face of the Authority’s letter of January 5, 1987 to Captain Slater to which was attached the two-page specifications document. That letter, the specifications themselves and the advertisement each identified the service for which bids were invited as “Pilot Boat Service” at the Strait of Canso. While the Trial Judge did not make an explicit finding that this clause was included in contract A, he seems to have proceeded on the assumption that it was so included. I am satisfied from all of the evidence that this clause did become part of contract A at the time it came into being on January 16, 1987. In effect, applying the Ron Engineering analysis, the clause was included in the Authority’s “offer;” the respondent’s “acceptances” took the form of the submission of its bids.

The substantial issue is whether the Trial Judge erred in his treatment of the rejection clause. The reasons given for so doing are the following (at page 413):

I adopt the reasoning of Legg J.A. in Chinook Aggregates Ltd. v. Abbotsford (Mun. Dist.), supra, that the defendant, by attaching the undisclosed preconditions of monopoly to its tender offer, deprived itself of any benefit or advantage afforded by the disclaimer clause because it would be inequitable to allow that clause to govern in the face of the contractual duty or obligation to treat all bidders fairly.

In Chinook Aggregates, supra, it was argued that a disclaimer or privilege clause by which the “lowest or any tender will not necessarily be accepted” allowed the owner to give preferences to local contractors notwithstanding that the local preference was not revealed in the tendering documents. The argument was rejected by Legg J.A. who stated, at pages 628-629:

I am unable to accept counsel’s submission that the privilege clause gave the appellant the right to exercise a local preference when that local preference was not revealed by, or stated in, the tender documents. The basis for that portion of the reasoning in Ron Engr., supra, and for the reasoning in M.S.K. Fin. Services Ltd., supra, giving effect to a privilege clause and relied upon by the appellant is the proposition that the tender documents have set out fully all the terms which will be incorporated into contract A once a bidder submits his bid in response to the tender documents. The concept is based upon offer and acceptance in the law of contract. But where the appellant attaches a condition to its offer, as the appellant did in the case at bar, and that condition is unknown to the respondent, the appellant cannot successfully contend that the privilege clause made clear to the respondent bidder that it had entered into a contact on the express terms of the wording of that clause …. It would be inequitable to allow the appellant to take the position that the privilege clause governed when the appellant had reserved to itself the right to prefer a local contractor ….

I am of the view for the reasons which I have already expressed for imposing an obligation of fair treatment, that the rejection clause was not intended to operate so as to nullify that obligation. If it were otherwise the obligation would fail to fulfill its true role of preserving the integrity of the tendering process by preventing the awarding of contract B on a basis other than as set forth in the tendering documents upon which contract A was based. Counsel for the Authority concedes, indeed, that the rejection clause could not override a requirement of fair treatment if it appeared from the evidence that the Authority somehow failed to act in good faith towards the respondent in the tendering process. This accords with views expressed by Denault J. in Glenview Corp. v. Canada (Minister of Public Works) (1990), 44 Admin. L.R. 97 (F.C.T.D.), at page 104, that “the Court must be vigilant in assuring itself that the Crown is acting in the utmost good faith and is not actually attempting to obviate the tendering process.” In my view, the findings of the Trial Judge that Tender no. 50 was “rigged” against the respondent and that the awarding of the contract to East Coast Marine Services Ltd. was “foregone” amply demonstrate that fair treatment was lacking in this case. Accordingly, in my view, the rejection clause cannot shield the Authority from a charge that it breached contract A by failing to fulfill its fair treatment obligation.

In the absence of unfair treatment, of course, the rejection clause would have entitled the Authority to choose from among the several bids submitted regardless of whether the bid chosen was the lowest or even the highest or to reject all bids provided, of course, it considered this to be in its “best interest.” In the present case where unfair treatment has been established, the rejection clause did not entitle the Authority to reject the respondent’s bid when to do so would not be for reason of best interest but, as the Trial Judge found, was from a desire to unfairly favour the successful bidder.

There remains the question of whether, despite the views I have just expressed, the rejection clause stands in the way of implying a term that contract B must be awarded to the respondent as the lowest qualified bidder. I have yet to deal with the question of whether such an obligation exists because, as I have stated, it adds nothing to the determination of whether the Authority breached contract A. That question may, however, have a bearing on the damages that may be recoverable on account of the breach of that contract. It is conveniently deferred until that question is considered.

Piercing the corporate veil

The fourth issue concerns the view of the Trial Judge that the Authority Board arbitrarily pierced the corporate veil of the respondent by having regard to evidence suggesting that another of Captain Slater’s companies—Chedabucto Shipwrights Limited—was financially unsound. Two Board members in particular, Captains Goodyear and Bell, thought that this situation reflected financial unsoundness of the respondent itself. The error alleged, it is said, led the Trial Judge to conclude that the respondent itself was not financially unstable.

Because it is a distinct legal entity, the respondent’s legal status would ordinarily have to be respected. On the Judge’s analysis, the respondent’s corporate veil could not be pierced unless there was evidence that the Slater group’s corporate structure was “deliberately designed to perpetrate some fraudulent or collusive purpose.” The evidence was to the effect that Chedabucto Shipwrights Ltd. had suffered the foreclosure of a property but that it was nevertheless able to successfully complete the construction of a new pilot boat for use in the Authority’s Newfoundland region. Despite his view of the law, the Trial Judge’s ultimate findings do suggest that he did pay attention to the concerns of two of the Authority’s Board members. These findings appear at pages 397-398, as follows:

In my view, there is no cogent evidence to support the conclusion of Captains Goodyear and Bell that “Northeast Marine was not as financially sound as they would like to see”. At best, this can be seen as nothing other than far-fetched speculation based on second hand knowledge of apparent financial difficulties besetting Chedabucto Shipwrights. Nor is there any evidence, in my view, capable of supporting the defendant’s long-term concern that the awarding of the contract on Tender 50 would somehow eliminate all future competition for pilot boat service in the Cape Breton area and enhance the risk of ransom demands being made by Captain Slater or his group of companies.

In effect, based on the evidence adduced, the Trial Judge was simply not persuaded that the concerns that had been raised by these two Board members at the Board meeting of January 20, 1987, were valid. In the end, as we have seen, apart from a cost saving the Board’s avowed reason in its majority resolution for rejecting the respondent’s bid was not financial soundness of that party but because “it was unwise to give a monopoly for pilot boat services in the Cape Breton Region to one operator.”

Damages

The Trial Judge’s assessment of the damages came at the end of a lengthy consideration of the law and evidence. His award is attacked by both parties. The Authority maintains that damages must be limited to the expenses incurred by the respondent in submitting its bid of January 16, 1987 and, accordingly, that it was wrong for the Trial Judge to have allowed damages for loss of profits from the failure of the Authority to award contract B to the respondent. The respondent attacks the award as insufficient on the ground the Trial Judge reduced the damages he otherwise assessed by too great a measure.

I have already referred to the part played in the determination of this issue by the Trial Judge’s view that contract A included an implied term requiring the Authority to award contract B to the lowest qualified bidder. That was one of the several factors he took into account, as appears in the following passage (at pages 421-422):

In my opinion, the evidence, weighed on the balance of probabilities, establishes to a sufficient degree of certainty that the plaintiff bid on Tender 50 with the full expectation of realizing some profit or monetary advantage therefrom over the whole contract period had it been successful on its bid, and that the loss of such profit was something which the defendant ought reasonably to have foreseen or contemplated, in the usual course of things, as the likely consequence of any breach of the preliminary contract A at the time it was made. Consequently, I am unable to find the plaintiff’s claim for damages for loss of profits, based on its reasonable expectation interest, to be too remote under the first branch of the rule in Hadley v. Baxendale [(1854), 156 E.R. 145 (Ex. Ct.)] or otherwise. The defendant was experienced in the practice of calling tenders for the provision of pilotage service, knew the plaintiff and the nature of its business, and was aware that the plaintiff would be acting in accordance with the low bid concept on Tender 50. In the result, I find as a fact that the defendant must be taken to have reasonably foreseen the likely consequences of the breach of its contract with the plaintiff. [Emphasis added.]

The Trial Judge dealt with the arguments for and against implying a “lowest qualified bidder” term at some length. He first had regard to certain provisions of the Authority’s by-laws and of its tendering manual which are referred to therein. Although neither of these specifically required the awarding of any contract to the lowest qualified bidder, the Trial Judge expressed the view (at page 392) that neither “necessarily exclude an implied, qualified obligation to accept the lowest bid in the case of public tender calls, where cost or price is the chief or sole criterion.” This latter expression is found in the manual under the heading “Opening of Tenders.” The policy there set down requires that any call for tenders advertised in a newspaper “shall be opened publicly unless the requirement is one for which cost is the chief or sole criterion.”

Also of importance to the Trial Judge was that the case involved “a call for public tenders by a Crown corporation for the supplying of a pilot boat service where cost or price would have to be an important criterion in the evaluation of tenders and the ultimate accountability of such Crown corporation to the Parliament of Canada for the conduct of its affairs” (page 413).[9] In his view, the language of the tendering manual implied that this should be so “according to the weight of the evidence.” Moreover, he was influenced by what he described, at page 413, as “a customary low bidder practice” on the part of the Authority. This was based on testimony of Captain Slater in re-direct examination. According to that evidence, as summarized by the Judge, at page 413, “they expected to be treated fairly and had presumed they would be likely to get the contract, based on the low bidder concept and from the fact of having the right equipment.”

Earlier in his reasons (at page 402), the Trial Judge referred to the following statement of Legg J.A. in Chinook Aggregates, supra, at page 630, as pertinent:

I agree with counsel for the respondent that it is inherent in the tendering process that the owner is inviting bidders to put in their lowest bid and that the bidders will respond accordingly. If the owner attaches an undisclosed term that is inconsistent with that tendering process, a term that the lowest qualified bid will be accepted should be implied in order to give effect to that process. [His emphasis.]

At page 413, the Trial Judge added:

Does the exclusion or disclaimer or privilege clause, call it what you will, entitle the defendant to ignore the implied terms of the preliminary contracts A arising from the submission of the tender bids by attaching to its tender call preferential preconditions which were not disclosed or communicated to the bidders? In my opinion, it does not. I adopt the reasoning of Legg J.A. in Chinook Aggregates Ltd. v. Abbotsford (Mun. Dist.), supra, that the defendant, by attaching the undisclosed preconditions of monopoly to its tender offer, deprived itself of any benefit or advantage afforded by the disclaimer clause because it would be inequitable to allow that clause to govern in the face of the contractual duty or obligation to treat all bidders fairly. In the result, I find that the defendant has breached the preliminary contract A with the plaintiff and is prima facie liable in damages.

The Authority submits that to imply a “lowest qualified bidder” term and to give it primacy over the rejection clause would be to neutralize that clause and impose upon the Authority an obligation to accept the lowest qualified bid in practically all cases. Thus, the Authority could not reject the lowest bid in other circumstances even if it had good and sufficient reasons to do so from a commercial standpoint. This, it is said, would be out of harmony with decided cases. In Acme Building & Construction Ltd. v. Newcastle (Town) (1992), 2 C.L.R. (2d) 308 (Ont. C.A.), for example, an owner was permitted to reject the lowest bid and to award a contract to a higher bidder where that bidder would get the job done in a shorter period of time and would save the owner other costs.

I have difficulty with the view that custom or usage required the Authority to award contract B to the lowest qualified bidder. The Authority’s tendering manual did not require it to do so. Further, the evidence of a suggested custom or usage was, in my view, somewhat tenuous. The Trial Judge had reference to the testimony of Captain Slater who had “presumed”[10] he would be likely to get the contract. With respect, I do not see this as decisively showing the existence of custom or usage. It appears to fall short of establishing the essential element of certainty required for either custom or usage to prevail. (See e.g. Halsbury’s Laws of England, 4th ed., Vol. 12, at pages 9 and 53.)

The Authority submits that even if custom or usage could be established, it could not override the express language of the rejection clause. The case of Cartwright& Crickmore Ltd. v. MacInnes, [1931] S.C.R. 425 is relied upon for the proposition that an express provision of a contract prevails over custom or usage. At pages 429-430 Rinfret J. stated:

But it is, after all, a question of fact whether the contract was or was not entered into with reference to the customs and usage referred to (Clarke v. Bailie). Custom and usage cannot override a special contract. [Footnote omitted.]

and later, at page 431, he added:

But there can be no recognized custom in opposition to an actual contract, and the special agreement of the parties must prevail.

In Acme, supra, it was argued that an alleged custom or usage in the industry of awarding contracts to the lowest qualified bidder could be overridden by an express privilege clause in the instructions to tenderers. The Trial Judge [(1990), 38 C.L.R. 56 (Ont. Dist. Ct.)] there had rejected evidence of custom and usage. Nevertheless, the Court of Appeal stated, at page 309:

In our opinion, even if there was acceptable evidence of custom and usage known to all the tendering parties, it could not prevail over the express language of the tender documents which constituted an irrevocable bid once submitted, and a contract, when and if accepted ….

and, at page 310:

With respect to accepting any given bid, the instructions to tenderers stated the “[o]wner shall have the right not to accept lowest or any other tender”. This gave the respondent the right to reject the lowest bid and accept another qualifying bid without giving any reasons.

…

Chinook has no application to the case on appeal in light of the findings of the trial judge that no such custom and usage existed …. There is no evidence of any undisclosed policy which was inconsistent with the tender process.

It is evident that the views expressed at page 309 were not necessary to the Court’s decision; the Trial Judge had already found that no custom or usage existed in the industry. Moreover, the Court was careful to distinguish Chinook Aggregates, supra, on that ground and on the further ground that in Acme, supra, there was no evidence of any undisclosed policy which was inconsistent with the tender process. Where a breach of the fair treatment obligation is not shown, there would appear to be no sound reason for refusing to give the rejection clause its full rein, for it is fully a part of contract A.

It must be noted that only the low bid of the respondent and the bid of East Coast Marine Services Ltd. were in play after all bids were reported to the Board by the Pilot Boat Committee following its meeting of January 20, 1987. There appears little doubt on the evidence that the Committee viewed both bids as qualified, although it considered the Chapel Hill to be the “better boat” and the service of the respondent the “better service.” Bearing in mind the Judge’s findings, nothing in the record suggests that the rejection of the respondent’s low bid was inevitable had the Authority not decided to award contract B to East Coast Marine Services Ltd. on the pretext, according to the Trial Judge’s finding, that to award it to the respondent would result in monopoly. Furthermore, there is the critical finding at trial that the respondent was never in the running for contract B because the Authority had rigged the tendering process against that party.

The position of the Authority is that damages for lost profits are not available to the respondent as there is no basis for saying that if it were not for the breach of contract A the respondent would have been awarded contract B. This argument rests on the Authority’s contention that it could have used the rejection clause to reject all the bids, including the respondent’s, at any time. It seems to me that there is a flaw in this reasoning. The aim of an award of damages in contract is to put a plaintiff (in this case the respondent) in the same position he would have been in if the breach had not occurred.[11] The breach in this case was the Authority’s failure to treat the respondent fairly in choosing between the respondent’s bid and the bid of East Coast Marine Services Ltd. The Authority did not choose to invoke the rejection clause so as to have a new call for tenders with new conditions; it chose to act unfairly. If the breach had not occurred, the Authority would have been choosing between the same two bids on a fair basis, having already decided not to rely on the rejection clause. In that situation, with no bias and no undisclosed conditions being relied on, it seems evident that the respondent would have stood a chance of being awarded contract B, the terms and conditions of which required no further negotiations between the parties.[12]

It cannot be said, of course, that “contract B” was breached because no such contract came into existence between the parties. Accordingly, we are not here dealing with a claim for damages based upon a breach of that contract. Rather, the case is one of damages flowing from the breach of contract A. As the Trial Judge held, the contractual relationship between the parties required the Authority to treat the respondent fairly in making its selection. As I see it, the failure of the Authority to do so deprived the respondent of the opportunity of being awarded contract B where, as the Trial Judge found, the respondent had met all the terms and conditions of the specifications. Under these circumstances, in my view, the recovery of damages for breach of contract A does not depend on the existence of an absolute obligation to award contract B to the respondent as the lowest qualified bidder.[13] Indeed, as Estey J. stated in Ron Engineering, supra, at page 123, “the degree of this obligation is controlled by the terms and conditions established in the call for tenders.” In my view, what the law seeks to compensate where a breach of contract A occurs is for the value of the loss suffered by the respondent by reason of that breach.

The common law recognizes a right to damages for loss of opportunity caused by the breach of a contract. Chaplin v. Hicks, [1911] 2 K.B. 786 (C.A.), is the seminal case on the point. It was concerned with a public competition whose object was to select several persons as the most beautiful women in the United Kingdom. Those selected were to be given an engagement at a London theatre for one week at specified remuneration. The plaintiff, who had complied with all of the preliminary requirements of the competition, was denied the opportunity of being selected when it was impossible for her to submit to a final interview on short notice. She alleged a breach of contract and claimed damages as a result of that breach. The Trial Judge found for the plaintiff. On appeal, two issues were raised. The first was that damages could not be awarded because they were too remote. The second was that the damages were of such a nature as to be impossible of assessment. The appeal failed.

In addressing the first issue, Vaughan Williams L.J. stated, at page 791:

Now, the moment it is admitted that the contract was in effect one which gave the plaintiff a right to present herself and to take her chance of getting a prize, and the moment the jury find that she did not have a reasonable opportunity of presenting herself on the particular day, we have a breach attended by neglect of the defendant to give her a later opportunity; and when we get a breach of that sort and a claim for loss sustained in consequence of the failure to give the plaintiff an opportunity of taking part in the competition, it is impossible to say that such a result and such damages were not within the contemplation of the parties as the possible direct outcome of the breach of contract. I cannot think these damages are too remote, and I need say no more on the question of remoteness.

At page 795, Fletcher Moulton L.J. added these views:

To my mind the contention that they are too remote is unsustainable. The very object and scope of the contract were to give the plaintiff the chance of being selected as a prize-winner, and the refusal of that chance is the breach of contract complained of and in respect of which damages are claimed as compensation for the exclusion of the plaintiff from the limited class of competitors. In my judgment nothing more directly flowing from the contract and the intentions of the parties can well be found.

There was also a concurrence of views on the second issue. The argument was that it was impossible to say that the loss had any value because of a number of contingencies. The judges agreed that the circumstances would render it difficult to assess the value of the loss with precision because of these contingencies. However, Vaughan Williams L.J. expressed the view, at page 792, that:

… the fact that damages cannot be assessed with certainty does not relieve the wrong-doer of the necessity of paying damages for his breach of contract.

Fletcher Moulton L.J. made the same point in the following way, at page 794:

The Common Law Courts never enforced contracts specifically, as was done in equity; if a contract was broken, the common law held that an adequate solatium was to be found in a pecuniary sum, that is, in the damages assessed by the jury. But there is no other universal principle as to the amount of damages than that it is the aim of the law to ensure that a person whose contract has been broken shall be placed as near as possible in the same position as if it had not. The assessment is sometimes a matter of great difficulty.

At page 795, he added:

But it is said that the damages cannot be arrived at because it is impossible to estimate the quantum of the reasonable probability of the plaintiff’s being a prize-winner. I think that, where it is clear that there has been actual loss resulting from the breach of contract, which it is difficult to estimate in money, it is for the jury to do their best to estimate; it is not necessary that there should be an absolute measure of damages in each case.[14]

This case has been applied in Canada: see e.g. Webb & Knapp (Canada) Limited et al. v. City of Edmonton, [1970] S.C.R. 588; Multi-Malls Inc. v. Tex-Mall Properties Ltd. (1980), 28 O.R. (2d) 6 (H.C.). See also Waddams, The Law of Damages, 2nd ed., (Toronto, 1993), at paragraphs 13.270-13.370; Fridman, The Law of Contract in Canada, 3rd ed., (Toronto, 1994), at pages 751-753. Its application has been extended to other situations involving loss of an expected profit or advantage from breach of contract.

The case at bar, in my view, falls within these principles. By its unfair treatment, the Authority deprived the respondent of the opportunity of being selected as the successful bidder in the tendering competition. It is not to say that the respondent was assured of contract B but, from the findings at trial, it does appear that the respondent stood a chance of being selected had the competition been conducted in a fair and honest manner. The respondent’s bid was in fact the lowest one submitted. It would have enabled the Authority to procure the service it required at the least cost. At the time the final decision was made, the task was not one of selecting the successful bidder from a group of six but from the only two qualified competitors.[15] In those circumstances, and assuming fair treatment all around, the possibility remained that the Authority would have yet rejected the respondent’s bid in favour of that presented by East Coast Marine Services Ltd.

I turn next to the Trial Judge’s assessment of damages. At the trial, the respondent called Mr. O. B. Tilley, a chartered accountant, as an expert witness on the issue of damages. Mr. Tilley presented two sets of calculations. In the first, he arrived at a figure of $329,311 as the projected after-tax earnings over the five-year term of contract B. His second calculation, which was based on assumptions put to him in cross-examination on the first calculation, produced a figure of $44,580 in after-tax earnings. After noting some dissatisfaction with Mr. Tilley’s evidence and finding that the first figure was “too high” while the second was “inordinately low,” the Trial Judge proceeded to adopt what he described as “a global approach in endeavouring to arrive at a fair and realistic assessment of the plaintiff’s damages for breach of contract.” In doing so, he turned for guidance to the decision of the Supreme Court of Canada in Lewis v. Todd and McClure, [1980] 2 S.C.R. 694, at pages 708-709, where Dickson J. (as he then was) stated:

If the Courts are to apply basic principles of the law of damages and seek to achieve a reasonable approximation to pecuniary restitutio in integrum expert assistance is vital. But the trial judge, who is required to make the decision, must be accorded a large measure of freedom in dealing with the evidence presented by the experts. If the figures lead to an award which in all the circumstances seems to the judge to be inordinately high it is his duty, as I conceive it, to adjust those figures downward; and in like manner to adjust them upward if they lead to what seems to be an unusually low award.

In coming to his final assessment, the Trial Judge stated at page 424:

Taking Mr. Tilley’s cumulative earnings figure of $329,311 as a starting point, I would add back income tax of $72,448, calculated at his 22 per cent rate of tax, which yields the gross-up total of $401,759. I feel this should be reduced by the deduction of 42 per cent contingency factor to account for uncertainties, which leaves a net balance of $233,020. I would allow the plaintiff the additional sum of $2,390 for the cost of preparing its bid on Tender 50. The resulting total is $235,410 which I hereby assess as the plaintiff’s damages for breach of contract, rounded off to $235.000.

Now, it is a well-established principle that an appellate court ought not to reverse a finding of a trial judge as to the quantum of damages merely because the court is of the view that, had it tried the case in the first instance, it would have awarded a lesser or greater sum. The case of Nance v. British Columbia Electric Ry. Co. Ld., [1951] A.C. 601 (H.L.), sets out the limits within which an appellate court may interfere with the quantum of damages assessed at trial. At pages 613-614, Viscount Simon stated:

Whether the assessment of damages be by a judge or a jury, the appellate court is not justified in substituting a figure of its own for that awarded below simply because it would have awarded a different figure if it had tried the case at first instance. Even if the tribunal of first instance was a judge sitting alone, then, before the appellate court can properly intervene, it must be satisfied either that the judge, in assessing the damages, applied a wrong principle of law (as by taking into account some irrelevant factor or leaving out of account some relevant one); or, short of this, that the amount awarded is either so inordinately low or so inordinately high that it must be a wholly erroneous estimate of the damage (Flint v. Lovell, approved by the House of Lords in Davies v. Powell Duffryn Associated Collieries, Ld.). The last named case further shows that when on a proper direction the quantum is ascertained by a jury, the disparity between the figure at which they have arrived and any figure at which they would properly have arrived must, to justify correction by a court of appeal, be even wider than when the figure has been assessed by a judge sitting alone. The figure must be wholly “out of all proportion” (per Lord Wright, Davies v. Powell Duffryn Associated Collieries, Ld.). [Footnotes omitted.]

It seems to me that the relevant question, therefore, is whether the Trial Judge applied a wrong principle of law in assessing the damages. With respect, in my view he erred in two aspects. As I have indicated, his assessment was based at least in part on a view that the Authority was bound to award contract B to the respondent as the lowest qualified bidder. In the view I have taken, while there was no such obligation in the circumstances, there remained a chance that, absent the unfair treatment, the respondent would have been awarded contract B. It is the value of this lost opportunity rather than of the contract itself that should be compensated for in damages. It was also wrong for the Judge to take the expert’s figure of $329,311 as his “starting point,” when he had already rejected that figure as “too high.” The record shows that there was general agreement on the expert’s lower figure of $44,580 as the starting point. The dispute was whether this figure represented total damages or whether it should be increased to reflect the use of a three-man rather than a four-man crew on board the Captain Parker. The use of a three-man crew would have increased the net earnings over the projected period of contract B by $163,000 including interest. As I am of the view, for the reasons expressed below, that the Trial Judge did not err in finding that a four-man crew was not required by the specifications, this sum of $163,000 should be added to the base figure of $44,580 which I would regard as the starting point. To the combined figures should be added the 22% factor for income tax which is not in dispute, for an aggregate of $45,676. This results in a gross earnings over the said period of $253,248.

I return then to the contingency factor which was adopted by the Trial Judge. As indicated above, the error of principle in arriving at the factor selected was the failure to take account of the uncertainty as to whether contract B would have been awarded to the respondent in a fair competition. The task of the Trial Judge was to make an estimate of what the chances were that contract B would have gone to the respondent but for the unfair treatment and to reflect those chances in the award of damages (Mallett v. McMonagle, [1970] A.C. 166 (H.L.), per Lord Diplock, at page 176). As was stated by McLachlin J.A. (as she then was) in Houweling Nurseries Ltd. v. Fisons Western Corp. (1988), 49 D.L.R. (4th) 205 (B.C.C.A.), at page 211:

The plaintiff is entitled to compensation for the loss of that opportunity. But it would be wrong to assess the damages for that lost opportunity as though it were a certainty.

As the Trial Judge did not reflect this element of uncertainty in his assessment, in my view this Court is required to do so.

There remains for consideration three sub-issues. The first is whether the Trial Judge erred in allowing the respondent an expense of $2,390 for bidding on Tender no. 50 in addition to lost profits. The second is whether the Trial Judge erred in the manner he quantified the lost profits having regard to all of the evidence. The last is whether the Trial Judge erred in reducing the damages he had otherwise assessed.

In my view, the expense incurred in submitting the bid on January 16, 1987, is not recoverable as damages for breach of contract A in addition to lost profits. I agree with the Authority that had the respondent been awarded contract B it would not have been reimbursed this expense. I do not think it mere idle speculation that a business entity in the position of the respondent would most likely have factored the tendering expense into the bid price and recouped this expense in that manner.

The second sub-issue is concerned with the Trial Judge’s finding that Tender no. 50 did not require a four-man crew for any pilot boat chosen by the Authority. This, says the Authority, was in error because the evidence is clear that a four-man crew was specified. If the Authority is correct, the measure of damages should be correspondingly reduced because the respondent’s lost profits would not be as large as those which were found by the Trial Judge.

I agree that the specifications on this point are somewhat vague. Clause 1(h) thereof refers to the boat being “manned by a minimum crew of two persons at all times when underway.” Subclause 2(c)(i) then provides:

(i) Boat must be manned by at least a launchmaster and deckhand when underway but may be partially manned when not in use provided that the boat can be underway under all circumstances within one hour of the launchmaster being notified by Cape Breton dispatch.

These provisions spell out the crew requirements when the boat would be in use and when not; they do not spell out the total number of crew. The basis of the Authority’s assertion is that the proposal submitted by the respondent referred to a four-man crew and that this was the past practice of the respondent in the Strait of Canso area where a system of compulsory pilotage continued to prevail. On the other hand, there was evidence that, based on the Authority’s own understanding, the Captain Parker would be operating the service at the Strait of Canso with a three-man crew after September of 1986. The Trial Judge appears to have accepted that evidence. It remained on all of the evidence for the Trial Judge to determine as a mixed question whether a three or four-man crew was called for by the specifications. I am unable to see that he misconstrued the specifications or misapprehended the evidence viewed as a whole.

The final point is raised by the respondent but, in view of what I have already indicated, the contingency factor of 42% applied by the Trial Judge to account for uncertainties requires examination because of neglect to include the uncertainty of whether contract B would have been awarded to the respondent. I shall deal first with the respondent’s submission. Its position is that this factor should be reduced. I agree with the Authority, however, that there was evidence of uncertainty that was not accounted for by the respondent’s expert witness. I am satisfied that the Trial Judge committed no error in refusing to adopt a lower factor than 42%. This was for him to determine in the first instance and it has not been demonstrated that the factor he selected was too high.

On the other hand, I am persuaded for the reasons already given that the factor adopted by the Trial Judge is too low. It simply does not include any element to account for the uncertainty of whether contract B would have gone to the respondent but for the Authority’s unfair treatment. The Court must seek to compensate the respondent for the value of the lost opportunity; not to over-compensate for that loss. In my view, bearing in mind the scenario I have described above of the Authority acting fairly towards the two bidders remaining in the competition, there was no certainty that the respondent’s bid would have been selected over that of East Coast Marine Services Ltd. Being qualified meant that the respondent stood a chance of being selected but its selection in what had become a two-way contest was not assured. Weighing the matter as best I can, I consider that the contingency factor should be increased to 50% to account for this further uncertainty. As applied to the gross earnings of $253,248 referred to above, this would reduce the “net balance” to $126,624. No portion of the respondent’s expense of preparing its bid on Tender no. 50 should be added to this sum.

DISPOSITION

I would allow the appeal in part by disallowing any portion of the sum of $2,390 incurred by the respondent in submitting its bid on Tender no. 50 and by reducing the damages otherwise assessed at trial to $126,624. I would vary the judgment of the Trial Division accordingly and would otherwise affirm it in all other respects. Success being almost equally divided, I would allow the respondent one-half of its costs of this appeal.

* * *

The following are the reasons for judgment rendered in English by

Létourneau J.A.: I have had the benefit of reading the reasons for judgment of my colleague Stone J.A. and I am in general agreement with them, except for his rejection of the appellant’s contention that the Trial Judge misconstrued the evidence before him. In my view, the learned Judge of the Trial Division committed errors which fundamentally flawed his decision. His misconstruction of the evidence coloured his perception of the issues and unfavourably tainted his decision against the appellant. Consequently, I have reached conclusions different from those of my colleague.

The learned Trial Judge came to the conclusion that the granting of the contract to East Coast Marine Services Ltd. on Tender no. 50 was a foregone conclusion because of an undisclosed precondition of the tendering process, namely that of monopoly. This finding of the Trial Judge, found at page 398 of his reasons and quoted by my colleague, bears repeating:

Taking all these factors into account, I find that it was a foregone conclusion in the collective mind of the defendant, acting through its responsible officers and directors, that the plaintiff was never even in the running for fair consideration with respect to its bids on Tender 50 because of the undisclosed preconditions of monopoly. In other words, the tendering process was rigged against the plaintiff from the very outset.

Indeed, the learned Judge saw the condition of monopoly as the governing criterion in the tendering process. At page 412 of his decision, he wrote:

I also found as a fact that the defendant rigged the bid against the plaintiff in the tendering process for Tender 50 by adopting as its governing criteria for the awarding of the tender conditions which excluded the plaintiff from any consideration whatever, and thus unfairly preferred the rival bidder, East Coast Marine Services Ltd., to whom the contract was awarded.

In my view, this was an error induced by his misconception and misinterpretation of the evidence. He confused a relevant consideration in the exercise of the appellant’s power under the “rejection clause” to reject any tender in the public interest with a condition of the tendering process. The issue of monopoly was never a condition or precondition of the tendering process which made that process unfair and a foregone conclusion. Indeed, there is no obligation, as the respondent claims and as the Trial Judge’s decision would require, to make any express mention in the advertisements of tenders that the tendering authority will not assist or be an accomplice in the creation or granting of a monopoly to the public detriment. There is no more an obligation to make that kind of consideration a condition of the tendering process than there is to require as a condition of the process that bidders not be in conflict of interest or in breach of the Competition Act [R.S.C., 1985, c. C-34 (as am. by R.S.C., 1985 (2nd Supp.), c. 19, s. 19)] and be financially sound.

The issue of monopoly like those of safety, financial stability of the bidders and conflict of interest are legitimate and relevant commercial considerations that the appellant could, and indeed in the public interest should, take into account in the exercise of its power under the “rejection clause.” As a result of a monopoly for five years, other boats would have been likely to leave the area. This could have subsequently resulted in a more costly renewal of the contract or, worse, it could have left the area with no pilot boats in the event of a collapse of the respondent’s companies one of which (Chedabucto Shipwrights Ltd.) at the time was the subject of foreclosure proceedings on account of financial difficulties.

In the case at bar, the issue of monopoly was not made a governing condition of the tendering process since the respondent was one of the two qualified bidders as a result of the process. Had it been a condition of the tendering process, the respondent’s tender would have been rejected at the outset with the four others which were dismissed and the respondent would not have been qualified. This issue of monopoly emerged at the stage when the appellant exercised its authority under the “rejection clause” and, as I have already mentioned, it was in my opinion a proper and relevant consideration to take into account.

In addition, I cannot accept the Trial Judge’s finding that the process was unfair because the appellant wanted to unfairly favour East Coast Marine Services Ltd. over the respondent. Such finding was induced by the learned Judge’s misconstruction of the evidence.

First, the Trial Judge was mistaken when he concluded that the subject of monopoly, a concern of the Director of Operations, Captain Stow, was raised at the November 18, 1986 meeting of the Pilot Boat Committee, which had been set up by the appellant to assess the bids, and appeared in the minutes of the Committee. The matter came up for the first time at the second meeting held on January 20, 1987 which tends to contradict the Judge’s finding that the refusal to grant the contract to the respondent was a foregone conclusion from the very outset.

It is true that the question of monopoly, as the Trial Judge pointed out, was on the mind of the Director of Operations, Captain Stow, since the November meeting. However, this fact is no evidence of a prejudicial attitude of the Committee itself toward the respondent. Indeed, it was the function of the Director of Operations to bring to the attention of the Committee any fact pertaining to the qualified bidders which could justify the refusal of a contract in the best public interest pursuant to the tendering process.

Second, the learned Judge saw as an indication of “possible favouritism” a letter of September 11, 1986 testifying to the personal abilities and capabilities of Captain Gay who now owns East Coast Marine Services Ltd. The letter was issued by the appellant’s corporate secretary. At pages 396-397, after having found that the Director of Operations, Captain Stow, was favourable to East Coast Marine Services Ltd., the learned Judge wrote:

However, he was not the only one among the defendant’s officers inclined to possible favouritism. Indeed, I find it to be quite significant in this regard that Captain Gay’s bid on Tender 50 had annexed thereto as Exhibit “B” a letter dated September 11, 1986 on the Authority’s letterhead from the Corporate Secretary, J. B. Kushner, in which the author gives a glowing testimonial to Captain Gay’s personal qualities and capabilities as well as the “eminently satisfactory” service provided by him for the Authority in the North Sydney crewing service and pilot boat operations since 1977.

This letter was a mere letter of reference for future employment sent to Captain Gay in September 1986 at the same time the appellant informed him that he had lost his job as the Sydney crewing contract was being phased out on December 31 of the same year. This appears from this excerpt from the transcript of the trial proceedings:

Q.  Now you mentioned a Sydney crewing contract. Could you tell us what the time frame is for that, and tell us a little more about that?

A.   The time frame?

Q.  Yes. What years are we talking about for that Sydney crewing contract?

A.   We’re talking from 1977—April 1st, 1977.

Q.  To?

A.   Until ’86.

Q.  Until ’86.

A.   When it was—

Q.  And I gather that this was an A.P.A. contract.

A.   Yes, sir, it was.

Q.  Yes. So you were crewing a boat for A.P.A. up in Sydney.

A.   Yes.

Q.  All right. And then this contract came to an end, you say. Tell me about that. How did it come to an end?

A.   I received a letter from the Atlantic Pilot Authority, stating that the contract will—they’re closing off the contract on December 31st, ‘86, and tendering for a company with their own boat.

Q.  Okay. When did you get that letter, just roughly?

A.   It was sometime in September.

Q.  So you get this letter from A.P.A., saying that the Sydney crewing contract is being phased out, in September sometime. What was your reaction on getting that letter?

THE COURT

September or December?

MR. HAYASHI

September.

BY CAPTAIN GAY

A.   At the time, it was a feeling of panic sort of. I would possibly have to look for other employment, or try and find a vessel of my own, to tender.

Q.  Now you mentioned, try to find other employment. Did you follow-up that avenue?

A.   Yes. I had submitted applications to Fisheries and Oceans, and Public Service of Canada.

Q.  And what kind of work were you looking for, through those organizations?

A.   Either Master or Mate, or something in that department.

Q.  So it was in the marine field again.

A.   Yes.[16]

The letter of reference speaks for itself:

September 11, 1986

TO WHOM IT MAY CONCERN

RE: Captain A. Gay

This is to certify that Captain Alexander Gay has provided a crewing service and pilot boat operation for the Atlantic Pilotage Authority pilot boat in North Sydney since 1977. His service during these ten years has been eminently satisfactory and in recognition of his ability and good service, the Board has granted yearly increases in the value of his contract over this time.

Captain Gay provides a 24 hour service and to expedite this, hires three (3) other full time workers and two (2) casual workers. His record keeping and administration have been appropriate and reliable and we have found him to be sober, industrious and hard working. We have also found him to be resourceful and energetic in solving the various problems that have come his way in providing continuous operation of the pilot boat in North Sydney.

The Authority has been pleased with its contractual association with Captain Gay and would be happy to supply any further information you may require about him.

J.B. Kushner

Corporate Secretary

Captain Gay decided to file with his application for the contract to be issued by the appellant this letter of reference as proof of previous experience and qualification. Although it was unnecessary for him to do so as he was well known to the appellant, he cannot be blamed for having done that. Nor can the appellant be blamed for such decision taken by Captain Gay over which it had no control. It was improper for the Trial Judge to infer from this letter of reference a possible favouritism on the part of the appellant while the issuance of such a letter is merely usual and standard practice in the case of the dismissal of an employee who has provided valuable services over a ten-year period.

Third, the Trial Judge drew an inference adverse to the appellant from the fact that Captain Gay was confident after the first meeting of the Pilot Boat Committee that he would get the contract, regardless of what had been said at the meeting.

With due respect, the optimism, confidence and even bragging of Captain Gay is no evidence of bias or favouritism on the part of the Pilot Boat Committee or the appellant. Indeed, while the Director of Operations, Captain Stow, may have been favourable to Captain Gay, there is no evidence whatsoever that the Pilot Boat Committee was biased. In addition, Captain Stow was not a member of the Committee and did not vote. The four-member Committee considered the tenders and raised in the course of the meetings different questions in relation to the respondent’s tender. One member showed his disquietude with a possible conflict of interest resulting from the fact that the respondent was a pilot and that the pilots who would be using his services would be loath to criticize a colleague. Another member expressed concern about the financial stability of one of the respondent’s related companies (Chedabucto Shipwrights Ltd.) with which the appellant already had a contract and which, as I have already mentioned, had been made the subject of foreclosure proceedings. The majority was apprehensive of a possible monopoly. These concerns were all legitimate and relevant concerns on the part of the appellant which rather than prove favouritism, reveal a sound and responsible exercise of its jurisdiction to issue a contract in the best public interest.

Fourth, the learned Trial Judge saw as an error of law and as another example of unfair treatment of the respondent the fact that the appellant looked at the financial stability of the related companies of the respondent. It should be recalled that, under its proposal, the respondent had committed itself to commence construction of a new twin-screw vessel. In addition, it should be noted that Captain Slater, who is the principal actor and spokesman for the respondent, was also the majority shareholder and director and officer of the two other related companies, i.e., Chedabucto Shipwrights Ltd. which was building boats and Cantow Marine Limited. At page 397 of his decision, the learned Judge wrote:

In my opinion, the directors committed a serious error of law by arbitrarily lifting or piercing the corporate veil so as to deny the autonomous and independent existence of the Slater group of companies in the absence of any evidence at the material time to suggest that the group corporate structure was deliberately designed to perpetrate some fraudulent or collusive purpose: see Re Kinookimaw Beach Association and The Queen in right of Saskatchewan (1979), 102 D.L.R. (3d) 333 (Sask. C.A.) per Culliton C.J.C. at page 336; and Northern Electric Co. Ltd. v. Frank Warkentin Electric Ltd. et al (1972), 27 D.L.R. (3d) 519 (Man. C.A.).

It is common practice in commercial matters for banks and businesses to look at the financial stability of another business before embarking upon any commercial transaction with that business. This means looking not only at the books of that business, but also at the books of any other company owned by that business which may affect its financial stability.

In my view, it was certainly not unfair for the appellant to consider the financial stability of the respondent, as affected by its related and commonly owned companies, before entering into contractual arrangements with it. It was proper for the appellant to assess the commercial realities represented by the common ownership and control of all the respondent’s companies.

Furthermore, it was no error of law to do so. Counsel for the respondent cited, as did the Trial Judge, some decisions to support his position.[17] All these decisions refer to a judicial test for enabling the courts to pierce the corporate veil and disregard the doctrine of corporate legal personality in order to determine liability.

In Nedco Ltd. v. Clark et al.,[18] the Saskatchewan Court of Appeal allowed the Court to lift the corporate veil for the purpose of determining whether the picketing of the premises of Nedco Ltd., a wholly-owned subsidiary of Northern Electric Company Ltd., during a legal strike at Northern Electric Company Ltd. ought to be permitted. This case shows that the judicial test is not as restricted as the Trial Judge suggested. A similar view can be found in this statement of Lord Denning M.R. in Littlewoods Mail Order Stores Ltd. v. McGregor (Inspector of Taxes):

The doctrine laid down in Salomon v. Salomon & Co., Ltd. ([1897] A.C. 22; [1895-99] All E.R. Rep. 33) has to be watched very carefully. It has often been supposed to cast a veil over the personality of a limited company through which the courts cannot see. But that is not true. The courts can and often do draw aside the veil. They can, and often do, pull off the mask. They look to see what really lies behind. The legislature has shown the way with group accounts and the rest. And the courts should follow suit. I think that we should look at the Fork company and see it as it really is—the wholly-owned subsidiary of the taxpayers. It is the creature, the puppet, of the taxpayers in point of fact; and it should be so regarded in point of law.[19]

In addition, the judicial test designed to assist the courts in the fulfillment of their role, in my view, does not apply to the appellant who is entrusted with the duty in making contractual arrangements to ensure public safety and the best use of public funds. Accordingly, the judicial test could not be used to prevent the appellant from properly assessing the financial suitability of the party it wanted to contract with, especially when the financial instability of that party might have posed a threat to public safety.

All these misconstructions of the evidence coloured the learned Trial Judge’s views of the appellant’s behaviour during the tendering process and led him to disregard positive evidence of the appellant’s responsible conduct designed to establish, operate, maintain and administer in the interests of safety an efficient pilotage service in the Strait of Canso.

The appellant set up a Committee of four to assess the bids and make recommendations. There is no evidence whatsoever that this Committee as a whole was prejudiced against the respondent and in favour of East Coast Marine Services Ltd. The final decision was taken by the Board of Directors of the Atlantic Pilotage Authority and there is no scintilla of evidence that this Board as a whole was biased in favour of East Coast Marine Services Ltd. On the contrary, the respondent and its related companies were given by the appellant, at the November 18, 1986 meeting, a five-year contract with respect to Tender 47 for the use of one of their boats in North Sydney. That contract was won by the respondent over East Coast Marine Services Ltd. whose bid was found to be too high.[20]

Finally, counsel for the respondent submits that on the subject of monopoly, if it were found to be a legitimate concern, the Pilot Boat Committee should have given her client the opportunity to be heard and to rebut such concern. Consequently, failure to do so was unfair.

With due respect, I cannot agree with this submission. What counsel for the respondent is asking us to do is, in essence, to transform the tendering process into a show cause order whereby the appellant would have had to summon the respondent to give reasons why the contract should not be denied to it on account of a possible monopoly. Other bidders would also have had to be summoned to show cause why the contract should not be denied to them on account of the fact that their proposals did not meet the safety standards or that they were not financially stable.

I believe it is of the very nature and essence of the tendering process that bidders provide probative evidence of their financial capacity, commercial reliability as well as their commitment and capacity to meet any safety standards imposed in the public interest. In the same way, I believe the burden and duty are on a bidder, who knows of an actual or potential monopoly or conflict of interest in which he finds or may find himself, to declare such state of affair and to provide the tendering authority with an outline of the measures that he has taken to remedy the actual problem or the guarantees he offers to prevent the occurrence of such eventuality. In my view, he who decides not to reveal or to ignore such state of affair does it at his own peril and takes the risk that the fact, if and when discovered, may adversely impact on him.

In conclusion, I can find no fault with the procedure followed by the appellant. Four members of the Pilot Boat Committee assessed the bids. Six members of the appellant’s Board of Directors, of which three were not members of the Pilot Boat Committee, took the final decision to give the contract to East Coast Marine Services Ltd. on the basis of relevant considerations in the public interest. It is difficult to imagine how and why all or the majority of these persons would all at the same time be prejudiced against the respondent to whom they had just issued a five-year contract. The respondent’s contention, accepted by the Trial Judge, that the appellant unfairly favoured East Coast Marine Services Ltd. to the respondent’s detriment is unsupported by properly construed evidence.

For these reasons, I would allow the appeal with costs, set aside the decision of the Trial Judge and dismiss with costs the action of the respondent.

Décary J.A.: I concur.

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