T-1682-83
Continental Asphalte Inc. (Plaintiff)
v.
The Queen (Defendant)
INDEXED AS: CONTINENTAL ASPHALTE INC. V. R.
Trial Division, Addy J.—Montreal, March 25;
Ottawa, April 23, 1986.
Crown — Contracts — Unit price contract for building of
highway access roads and parking areas in La Mauricie Na
tional Park — Compensation claimed for increases in asphalt
price resulting from federal and provincial fiscal or tax meas
ures entailing price increases for petroleum products — Noth
ing in contract providing for compensation for increase in cost
of materials between date of tender and completion of work —
No verbal agreement as to variation of General Conditions, as
representatives of defendant made no promise and had no
authority to do so — Distinction to be made between defen
dant's contractual and legislative activities — Theory of
executive necessity providing co-contracting party having no
right to be compensated for loss sustained as result of govern
ment action taken to achieve fundamental goals — Action
dismissed, claim having no basis in law.
CASES JUDICIALLY CONSIDERED
APPLIED:
Nova Scotia Construction Co. v. The Quebec Streams
Commission, [1933] S.C.R. 220; Agence de Sécurité
Générale Inc. v. R., [1980] 2 F.C. 223 (T.D.); William
Cory & Son Ld. v. London Corporation, [1951] 2 K.B.
476 (C.A.).
COUNSEL:
Guy Pagé for plaintiff.
André Bluteau and Michèle Joubert for
defendant.
SOLICITORS:
Chrétien, Deschênes, Pronovost et Pagé,
Shawinigan, Quebec, for plaintiff.
Deputy Attorney General of Canada for
defendant.
The following is the English version of the
reasons for judgment rendered by
ADDY J.: This case concerns a claim under a
unit price contract for the building of a scenic
highway, access roads and parking areas extending
for a total of some 50 kilometres in the La Mauri-
cie National Park.
The contract specified a total sum of
$1,986,328.80 for work which was to start on
March 16, 1980 and to conclude on or about
October 16 of that year. The work mentioned in
the contract and certain additional work was satis
factorily performed and the plaintiff received the
full amount required except for an additional ex
penditure of some $50,744.43, which it claimed as
compensation for increases in the price of asphalt
resulting from certain government decisions taken
at the time regarding petroleum products.
Asphalt is one of the main components in the
asphaltic concrete which the plaintiff had under
taken to use in doing the paving work. Four
increases in operating costs and crude petroleum
prices occurred during the period in which the
work was being done:
1. On April 1, 1980 the federal government
imposed a surcharge of 15¢ a barrel (or about
$1.05 a metric tonne) on each refinery: this tax
was to be used to finance the development of the
Syncrude project in western Canada.
2. On July 1, 1980 the federal government can
celled an existing subsidy of 18¢ a barrel (or about
$1.26 a metric tonne) payable to refineries as
compensation for the additional cost of delivering
petroleum products in eastern Canada.
3. On July 18, 1980 a further surcharge of 75¢ (or
some $5.25 a metric tonne) was imposed on refi
neries by the federal government for the same
purposes as the tax of April 1, 1980.
4. An agreement to set the wellhead price of crude
petroleum, concluded by an exchange of letters
and also modified by letter from time to time, had
existed since 1977 between the federal government
and the province of Alberta. The most recent
increase imposed under this agreement was on
March 1, 1980, that is before the plaintiffs bid.
The agreement between the two governments came
to an end on June 30, 1980 and was not renewed.
As it was impossible to reach agreement on a
control formula, the Alberta government unilater
ally decided on August 1, 1980 to impose a tax of
$2 a barrel (or about $14 a metric tonne) at the
wellhead. Producers could reclaim this additional
charge from buyers beginning on September 30,
1980.
The three preceding taxes or surcharges applied
directly to crude petroleum, and not to petroleum
by-products such as asphalt. However, these
increases in the crude price necessarily resulted in
increases in the prices which the plaintiff had to
pay its suppliers of asphalt. It alleged that these
increases represented a total of $50,000, which is
the subject of the claim at bar. This claim is based
on the conditions of the unit price contract itself
(Exhibit P-1) concluded between the parties and
on certain statements by representatives of the
defendant that are contained in minutes of the
fourth and fifth site meetings, filed at the hearing
as Exhibit P-7. These two meetings took place on
September 16 and October 1, 1980.
The plaintiff relied on the following provisions
of the contract:
[TRANSLATION] Clause II
2(d) When the Engineer and the Contractor are not in agree
ment, as provided in paragraphs (b), (c) and (d) of this Clause,
the Engineer shall determine the category and unit of measure
ment of the labour, equipment and materials in question, and
the unit price thereof shall be determined pursuant to clause 46
of the General Conditions.
General Conditions, 46(1)(a) and (2)(c):
[TRANSLATION] 46.(1) If the method of determining the price
stated in clause 44 of the General Conditions cannot be used,
and if the Contractor and the Engineer cannot reach agreement
as provided in clause 45 of the General Conditions, the cost of
labour, equipment and materials for the purposes of clauses 12,
18, 37, 38 and 39 of the General Conditions shall be the total of
the following amounts:
(a) all fair and reasonable amounts actually spent or legally
payable by the Contractor with respect to the labour,
equipment or materials falling within any of the expendi
ture categories mentioned in subsection (2) (representing
costs directly attributable to performance of the work and
not costs in respect of which the indemnity mentioned in
paragraph (b) is paid);
(2) the categories of eligible expenses are:
(c) payments for necessary materials incorporated in the work
or required to complete the work and in fact used for that
purpose;
It is apparent that clauses 12, 18, 37, 38 and 39
of the General Conditions, referred to in subsec
tion 46(1) cited above, do not apply here.
I do not find in the provisions cited any contrac
tual obligation by the defendant to compensate the
plaintiff for increases in the price of materials
between the date of the bid and the date the work
was finally performed.
The defendant further relied on the following
provisions of the same contract:
[TRANSLATION] 26.(1) The amount payable to the Contractor
under the contract shall be neither increased nor decreased as
the result of any increase or decrease in the cost of the work
resulting from an increase or decrease in the cost of equipment,
labour or materials or wage scales mentioned or prescribed in
the Conditions of Work.
(2) Notwithstanding clause 12 and the first subsection of this
clause, the amount stated in clause II of the Articles of
Agreement shall be adjusted in the manner provided for in
subsection (3) in the event of any change in any tax imposed
pursuant to the Excise Act, the Excise Tax Act, the Old Age
Security Act, the Customs Act or the Customs Tariff
(a) occurring after the date on which the Contractor has
submitted a bid in respect of the work, and
(b) applying to materials incorporated or to be incorporated
into the work and affecting the cost of such materials to
the Contractor.
Subsection 26(1) appears to state quite clearly
and specifically that no increase in the cost of
materials can affect the amount fixed by the con
tract when it was signed by the parties. The excep
tions to subsection 26(1), mentioned in subsection
26(2), are also quite clear and specific: there is no
mention of an increase for a tax or surcharge
imposed by the Department of Energy, Mines and
Resources for the Syncrude project or of a tax or
surcharge imposed by the Government of Alberta.
On the contrary, if there were any doubt as to the
interpretation of subsection 26(1), that doubt
would be irrefutably answered by reference to
subsection 26(2), in light of the rule expressio
unius est exclusio alterius: only increases in taxes
imposed pursuant to the five very specific statutes
mentioned in the said clause can be a basis for
adjusting the amount payable. It is worth repeat-
ing here that clause 12 has no application to the
case at bar, inasmuch as that clause is concerned
only with changes in the condition of the soil and
negligence or delay by Her Majesty in performing
her obligations under the contract.
The extracts from the minutes of site meetings
relied on by the plaintiff in its claim are the
following:
[TRANSLATION] Meeting of September 16, 1980:
4.7 Increase in asphalt price
Mr. Morneau presented a copy of a letter from Esso announc
ing an asphalt price increase as of July 12, 1980. This increase
entails an additional cost of some $20,000 to the contractor. A
further increase is also scheduled for September 30. He asked
that the contract be adjusted accordingly.
Mr. Gohier mentioned that the contractor could submit a claim
at the end of the contract, when costs would be known and
finally determined. The claim would then be duly considered.
Mr. Morneau told the Department that a claim to this effect
would in fact be made at the end of the contract.
Meeting of October 1, 1980:
5.3 Asphalt price increase
Mr. Morneau said that they had been told that same day of an
increase of some $16/tonne in the asphalt price.
This increase will be handled as agreed at the last meeting
(clause 4.7).
In my opinion, the foregoing extracts do not
establish a promise or undertaking by the defen
dant to pay the additional cost occasioned by the
increase in the asphalt price. The defendant's rep
resentatives at the site meetings simply said that
the decision would be postponed. Moreover, nei
ther the engineer in charge of the project nor the
other representatives of the defendant had any
authority to vary the General Conditions or terms
of payment of the main contract by statements
made at site meetings. The president of the plain
tiff testified regarding the additional work, for
which some $5,000 was claimed, that if he had
thought he would not be able to recover the price
increase he would not have agreed to do it. I
accept this testimony but I am still persuaded that
it was because he thought he was entitled to be
reimbursed for the cost of the tax increase for all
the work done under the contract, not because he
was given a promise of repayment by the
employees of the defendant before he agreed to do
the additional work. It is possible that if there had
been such a promise it might have affected the
compensation payable for the additional work,
which the plaintiff was not obliged to perform, but
not the work which it had already undertaken to
do for a fixed price under the provisions of the
contract.
The contract constitutes the law between the
parties. Cannon J. of the Supreme Court of
Canada, in Nova Scotia Construction Co. v. The
Quebec Streams Commission, [1933] S.C.R. 220,
approved the following observation, by Lafontaine
C.J. of the province of Quebec at page 225 of the
above-cited report:
[TRANSLATION] one cardinal principle must underlie the
entire proceeding. It is that of the sanctity of contracts, which
the courts exist to preserve, not to make over in order to assist a
contracting party in difficulty.
I also take the liberty of citing Marceau J. in
Agence de Sécurité Générale Inc v. R., [1980] 2
F.C. 223 (T.D.). In that case the plaintiff was
claiming additional compensation due to a rise in
the minimum wage which it had to pay its
employees in order to perform the contract. It had
been allowed similar compensation on two earlier
occasions by supplementary agreements. Despite
this, the Court upheld the right of the defendant to
rely on the strict wording of the contract. Marceau
J. said at 231:
In my opinion, in law defendant's position is beyond chal
lenge. There was a contract; its terms are clear and were not
subsequently amended either expressly or by implication. The
terms and conditions which it contains, onerous though they
may be, are still "the law of the parties". Plaintiff was not
entitled to claim reimbursement of labour costs beyond the
maximum annual amounts provided for. Its action is without
foundation.
Counsel for the plaintiff argued that the Court
should not allow one of the parties to the contract
to enrich itself by means of a unilateral alteration
of the cost of materials and require the plaintiff to
suffer an unforeseen loss. Of course, this argument
could not in any way apply to the last tax increase,
since this was imposed by the province of Alberta
unilaterally, and not by the defendant or in agree
ment with it.
In the case of the two taxes imposed by the
defendant and the cancellation of the transport
subsidy for petroleum products, a distinction needs
to be made between the contractual activities and
the governmental, legislative or public activities of
the defendant. This principle is well illustrated by
William Cory & Son Ld. v. London Corporation,
[1951] 2 K.B. 476 (C.A.). The defendant, the
London Corporation, which was created a public
health corporation under the United Kingdom sta
tute titled Public Health (London) Act, 1936 [26
Geo. 5 & 1 Edw. 8, c. 50], hired the services of the
plaintiff for a fixed remuneration for a period of
twenty-one years, to remove garbage and rubbish
from a wharf. When the contract was signed,
certain public regulations were in effect which
could affect its performance.
The defendant had the power to amend these
regulations for public health purposes and subse
quently made certain amendments which it felt to
be necessary. These amendments made the perfor
mance of the plaintiff's contractual obligations so
much more difficult and onerous that it suffered
economic loss. It repudiated the contract and
asked the Court to rescind it since it had become
impractical from a business standpoint. The Court
of King's Bench dismissed the application and this
judgment was unanimously upheld on appeal. Lord
Asquith of Bishopstone said the following at page
486 of the report cited:
In the present case the corporation act in a dual character,
though in both characters they are a sanitary or health author
ity, not a body trading for profit. Qua sanitary authority for the
City, they have to employ contractors, and it was in this
capacity that they entered into their contract with the clai
mants. Qua health authority for the Port of London, they are
charged with making by-laws for the prevention, inter alia, of
nuisances arising from dust, ashes, rubbish, etc., in the port.
Neither in the former capacity nor in the latter (which is the
directly relevant one) are they a trading corporation. They are
charged with the duty of making by-laws to promote public
health, inter alga, by dealing with refuse; and the considerations
which were thought relevant in the Southport case, [1925] Ch.
794 (so far as that decision threw doubt in the York case,
[1924] 1 Ch. 557) have no application here. In this setting it
would seem that the implied term relied on would impose an
unwarrantable fetter on the corporation in the exercise of their
statutory duties under s. 84, sub-s. 1(a), of the Public Health
(London) Act, 1936.
In my opinion this principle applies here. The
distinction between the contractual acts of a gov
ernment and its acts "of government authority"
has legal force in Canada not only in the common
law provinces but in the province of Quebec also.
In this connection I would refer to certain extracts
from a text published in 1981 by Professor Pierre
Lemieux, titled Les Contrats de l'Administration
fédérale provinciale et municipale:
[TRANSLATION] Page 338
In approaching the contract of a public authority as a
contract under the ordinary law, Canadian and Quebec courts
have not found that a co-contracting party has any right to be
compensated for the loss it sustains as a consequence of action
by the government or external, unusual and unforeseeable
developments.
Page 354
Unlike the French theory on the unilateral variation of a
contract, which is based on the requirement that a public
service should protect the public interest in the best way
possible, the theory of executive necessity is based on this idea
of "public power". It simply allows public authorities to achieve
the fundamental goals for which they were created, even if in
doing so they affect the contractual rights against them
acquired by individuals. A contract can also be rescinded by
legislative authority. It accordingly follows that a contract is
varied as of right ... "and regardless of the intent of the
parties, since it is the restraint of princes".
The question then arises as to compensation for individuals
injured by the exercise of this extraordinary power.
In British and Canadian law, unlike French law, an individu
al contracting party finding himself in such a situation has at
the present time no remedy against the government. There is no
rule in such a case that the contract should be maintained on
conditions consonant with equal financial status or that if the
contract cannot be maintained in any form, the other party
should be compensated.
Page 366
In short, according to the old and new decisions of the courts,
a co-contracting party who encounters unforeseen natural, eco
nomic or administrative contingencies while the work is in
progress, which result in a substantial alteration of his obliga
tions, has no alternative but to bring the matter to the attention
of the government as soon as possible in the hope that a new
agreement can be negotiated and that he can thus attempt to
obtain adequate compensation: otherwise, he faces a catas
trophic financial situation. In some cases, it will mean
bankruptcy.
Page 366
The only real remedy which an individual has is to try and
obtain compensation from the government on the basis of
unjust enrichment or an ex gratia payment.
It follows, therefore, that the claim at bar has no
basis in law. It is dismissed with costs.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.