Legal Blog

Mistake

In our newsletter of January 2012, we discussed the case of Asco Construction Ltd. v. Epoxy Solutions, in the context of the legal principles, such as they were, in which the case was decided. The decision was appealed to the Ontario Divisional Court, which decided the matter in a manner completely different from the trial decision.

Recap

A sub tendered to provide the floor epoxy work for a theatre project. The sub based its tender on a sketch that the architect provided. The general accepted the tender and sent a formal contract for the sub to sign. The sub never signed the contract. Instead, it hired a surveyor to survey the theatre floor so that the sub could determine the exact work it was to perform. The evidence at trial indicated that this was a usual practice.

The surveyor determined that the tender sketch was inaccurate and that the sub would need 490cf of fill rather than the 290cf originally estimated. Accordingly, the sub informed the general that the subcontract price had to be increased from $72,500 to $105,000.

The general, aside from complaining about late notification and delay, told the sub to start its work and that, if there were “extra material and labour that could be proven to the consultant it would be fairly dealt with at that time. I expect this work to start ASAP.”

The sub was not keen on this ringing endorsement of its claim and refused to start the work. After a number of letters and emails back and forth, the general asked for the sub’s prior detailed backup calculations for its original bid quantities. After receiving no response, the general formally terminated the sub about 5 days later and commenced an action against the sub to recover its increased cost, the grand sum of $17,000, to have a replacement sub perform the work. The sub counterclaimed for the profit it would have made on the project had the sketch been accurate.

The trial judge absolved the sub from performing its work. He held that the sub had a right to refuse the work if it were unable to agree with the general on the increased payment for the additional work. The judge then went further. He held that the general was in breach of contract, although he did not say which contract, and allowed the sub’s counterclaim for its lost profit.

Criticism

Normally, we do not significantly criticise a judge’s reasons for decision, but the trial judge’s reasons made no sense to us. We found “the judge’s analysis a touch convoluted and important facts were lacking.” The trial judge did not set out the terms of the tender contract or the terms of the prime contract that would normally be imported by reference into the subcontract.

We stated,

“So what happens when the sub and the general cannot agree on the construction contract and neither is resiling from tender contract A? Is there no contract B and both parties walk? That all depends. What did the tender documents say? We do not know; there is no mention of their terms in the reasons for decision. Was the sub being unreasonable in refusing to sign a contract that has the usual CCDC terms? Possibly. If the proposed subcontract gave the sub a right to additional compensation for a scope that was greater than that specified, then the sub was being unreasonable and ought to have executed the contract and performed the work. Conversely, if the subcontract tried to foist an increased scope on the sub, then the sub would have been well within its rights to refuse to execute the contract and to refuse to perform the work. ”

Appeal

How did the Divisional Court deal with this dog’s breakfast? It conjured up the legal principle of mistake, although neither of the parties, nor the trial judge, had raised mistake as an issue.

The Court noted two important aspects: i) the general provided the sub with a tender sketch that was wrong and the sub could not reasonably have been expected to have discovered the error before delivering its tender and (ii) the parties had reached an impasse regarding the construction subcontract (contract B).

The Court analysed the matter as follows:

Both parties refused to budge from their positions. By their conduct, they walked away from any contractual obligations they had with each other. The positions they adopted arose from a common mistake. The sketch the appellant provided with the tender documents was not a detailed survey and failed to provide adequate information necessary to calculate accurately the costs of labour and materials required to do the work. The respondent did not become aware of the mistake until informed by its surveyor, almost ten months after submitting its bid, of the inadequacy of the sketch. We find that the mistake was so fundamental that it renders the contract between the parties void. No damages can flow from a contract that does not exist.

Since there was no breach of contract, the Court dismissed the general’s action and set aside the trial judge’s award in favour of the sub for damages ($30,000 including interest) and costs ($48,000) and dismissed the counterclaim. The Court was so enthralled with the positions of both the general and the sub that it ordered no costs, either for the trial or the appeal.

Comment

We can accept the Court’s reasoning and its decision. It makes sense – based on the evidence that was available to the Court. However, we would have liked to have seen the prime contract and the tender documents to determine whether the sub was reasonable in walking away from contract B.

We fully agree that if there were no contract for which the general could claim a breach, then there could be no contract for which the sub could claim a breach and the trial decision had to have been wrong.