Legal Blog

The Legal Principle of Mistake, Used in Error

In our newsletter of January 2012, we discussed the case of Asco Construction Ltd. v. Epoxy Solutions, in the context of the legal principles at issue in the case. The decision was appealed to the Ontario Divisional Court, which decided the matter in a manner completely different from the trial judge; we updated that case in our newsletter of November 2013. Since then, an appeal to the Court of Appeal and, in 2014, another reversal.

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.

The Divisional Court, as we put it, “conjured up the legal principle of mistake, although neither of the parties, nor the trial judge, had raised mistake as an issue.” It held that the parties’ position arose from a common mistake relating to the survey, a mistake so fundamental that it rendered the contract between the parties void.

Appeal

The Court of Appeal in a short decision overturned the Divisional Court decision and reinstated the decision of the trial judge for two reasons:

1. The Divisional Court decided the matter based on common mistake even though the issue was not pleaded or argued at any stage of the trial or appeal. The parties became aware of the theory for the first time when the decision was released. A court should not decide matters on grounds that the parties did not advance. That, in itself, was fatal to the decision.

2. The Divisional Court also erred in applying the doctrine of mutual mistake for two reasons. First, the mistake was not mutual. The sub made no mistake. Any bidder is entitled to rely on the accuracy of design information that the consultant prepares. “A bidder does not have to duplicate design and analysis prior to submitting a bid.” Second, if there were a mutual mistake, then the general, by asserting its claim against the sub, elected to affirm the contract and could not rely on the doctrine of mutual mistake.

Result

Not only did the general not receive its claimed damages of $17,000, it had to pay a) the sub for its foregone profit of $23,000 b) its own counsel for the trial and appeals, and, to add insult to injury, c) the sub for costs awarded for a 5-day trial and an additional $35,000 for costs of the appeals. This all arose out of a contract for the grand sum of $72,500 and the general’s attempt to recoup $17,000.

Image courtesy of Flikr, Creative Commons.

Written by Jonathan Speigel Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.