Legal Blog

Tender Damages, Revisited.

In our March 2016 newsletter, we reported on Elan Construction v. South Fish Recreational Association, dealing with damages awarded (or not awarded) for breach of tender contract A. Both the owner and the general appealed the trial judge’s decision. The general wanted the damages increased and the owner wanted a finding that it did not breach the tender contract. The Alberta Court of Appeal recently dismissed the owner’s appeal; that decision is unremarkable. It also, however, granted the general’s appeal; that decision is interesting.

Recap

The trial judge agreed the general had proved, based on its typical lost profit margin and historical profit margin, that it anticipated a profit of $705,000 for the project. The judge then reduced that amount for contingencies, basing his contingency analysis solely on the testimony of a representative of the replacement contractor. That contractor was the successful bidder and actually constructed the project. The representative testified to a litany of ills that adversely affected the replacement contractor’s project construction costs.

 

The judge concluded that the general would have been adversely affected by the same difficulties and delays as the replacement contractor and would have had no competitive advantage over that contractor in dealing with those adversities. Since the replacement contractor’s losses, suffered due to the adversities, were more than the general’s anticipated lost profit, the judge awarded the general only nominal damages of $1,000.

 

Facts

 When we review reasons for decision of a trial judge, we are dependent on these reasons fully setting out the facts and nuances of the case. If the reasons do not do so, we cannot analyse the decision properly. Appeal courts have no such problem; they have the transcripts of everything that went on at trial.

 

The appeal decision put a new light on the trial judge’s reasons for decision.

 

Sandbagged

The Court was not pleased with the owner’s conduct before trial. It knew all about the difficulties the replacement contractor encountered at the project, but had only pleaded that the general had not incurred the damages that it claimed. Pleadings are intended to put the opposing party on notice of the issues in the action. Although the owner knew it was going to rely on the experiences of the replacement contractor at trial, it sprung the issue on the general. It did not even produce the settlement documents between it and the replacement contractor, a settlement that contributed to the loss that the replacement contractor incurred.

 

The real complaint that the Court had with the trial judge was that he shifted the evidentiary onus. The Court stated, sometimes eloquently:

 

“Two essential bases for any competent comparison between the replacement contractor’s outcome and a predictable outcome for the general were missing. These gaps are: (1) any real evidential ability to factually compare the outcomes; and (2) any expert evidence to provide the reasoning bridge for any useful comparison. The trial judge erred in law in simply directly comparing what was a conclusory summary of the replacement contractor’s’ problems with a reasonable forecast of what would have happened had the general been awarded the contract.

 

The burden to establish whether the replacement contractor’s losses would have fully befallen the general in the same manner and quantum was not on the general; it was on the owner. In sum, the owner was not just attempting to have the trial judge compare an apple and an orange. It was an attempt to get the trial judge to compare a visible apple and an invisible orange.

 

We also agree with the general that the pleadings shortfall was significant. It ultimately impacted on the trial judge’s approach to the rationales he used to discount the general’s profit margin damages. In essence, the trial judge’s reasoning was a combination of speculation and improper reversal of the burden of proof. This led to conflation of two separate concepts. The trial judge correctly imposed on the general the initial burden to prove breach of contract and lost profits. But despite some references to the contrary, it is evident that in applying the facts to the law, the trial judge also incorrectly imposed on the general the burden to disprove that it would have suffered the same losses as the replacement contractor. This shifting of the burden was not an inconsequential error. To the contrary. There was insufficient evidence on this record as to how particular reasons for the losses actually played out in reality.”

 

Upshot

The court analysed all of the contingency reductions and held that none of them applied, other than two in the aggregate of $132,000. In essence, the court held that the owner had not proven that the situation of the replacement contractor would have been the same as the situation of the general. The ultimate award was $573,000.

 

Image courtesy of AKMac.

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