116 EXCHEQUER COURT REPORTS. [VOL. XIX. 1919 APPEAL FROM QUEBEC ADMIRALTY DISTRICT Sept. 20. (MONTREAL). BETWEEN CANADIAN VICKERS COMPANY, LIMITED, (PLAINTIFF) APPELLANT ; AND THE SHIP "S`JSQUEHANNA", (DEFENDANT) RESPONDENT. Admiralty law — Shipping — Quantum meruit — Overhead charges— Contractor's profits — Cost of construction—Witnesses—Credibility. The plaintiffs were owners of marine construction works and ship yards and had large capital invested and had large contracts on hand from the Government for the construction of drifters and trawlers for war purposes. The work in question was accepted by the plaintiff only after pressing and urgent request from the defendant, whatever the cost might be, as emergency work and to oblige him, in order that the ship might get out of the river before the close of the navigation. Plaintiffs were obliged to take men off other work and went behind on Government contracts. Hold (varying judgment of the Local Judge in Admiralty) that under all the circumstances of the case, and considering the abnormal state of business and the advanced prices prevailing during the war, 90 per cent. of the cost of labour, as an overhead charge, plus 10 per cent. on the total cost as contractors' profits, were fair and reasonable items to be added to the actual cost of labour and materials, in arriving at the valuation of the work done by plaintiff: 2. That "Cost of Construction" includes, besides actual cost of labour and materials, an allowance for overhead expenses, and a profit on the capital employed in producing an article or doing a piece of work. 3. That where the trial Judge did not hear or see the witnesses, an appellant Court is as competent to appreciate the facts and estimate the credibility of the evidence as the Court of first instance. APPEAL from the decision of the Honourable Mr. Justice Maclennan, L. J. A. at Montreal, Quebec Admiralty District. 1 Reported. 18 Can. Ex. C. R. 210, 44 D. L. R. 716.
VOL. XIX.] EXCHEQUER COURT REPORTS. r 117 The action quantum meruit, was 'taken by plain-1919 tiffs to recover from defendant the sum of $52,983.34 1 v c%ER8 for work done in repairing the S.S. "Susquehanna!' L , TD. s.s. sv sQuE• The defendant admitted its liability but claimed that se rrx e ." the amount asked was excessive and that too much was charged for overhead expenses and offered the sum of $35,000 in full settlement. On December 4, 1917, the case was referred to the Deputy District Registrar, who heard the witnesses and their counsel and on October 5, 1918, filed his report allowing plaintiffs' claim in, full. The case was then heard by the Honourable Mr. Justice Maclennan, ât Montreal, on a motion of defendant to vary the report of the Deputy District Registrar, and on November 23, 1918, the said Judge delivered judgment declaring the offer and tender of $35,000 sufficient and condemning the defendant to pay this amount. Appeal was then taken from this judgment to this . Court sitting in appeal and the appeal, was heard at Montreal before the Honourable Mr. Justice Audette, on May 20, 1919. F. H. Markey, K.C. for appellant. A. R. Holden, K.C. for respondent. The facts are stated in the reasons for judgment of the Honourable Mr. Justice Audette. AUDETTE, J. (September 20, 1919) delivered judgment. This is an appeal from .the judgment of the Deputy Local Judge of the Quebec Admiralty Dis-
118 EXCHEQUER COURT REPORTS. [VOL. XIX. 1919 trict, sitting at Montreal, pronounced on November CANADIAN VICKERS, 23 7 1918. LTD. S.S. ~' suSQUE- The facts concerning the case having already been HANNA." set forth in the judgment below, it will be sufficient, Beas 3na for Judgment. for the understanding of the matter in controversy, to state briefly that the "Susquehanna," on account of her size, having been cut in two sections at Buffalo, N.Y., with the object of taking her down the St. Lawrence through the Canal, the owners of the vessel approached the plaintiff company, at Montreal, to repair and join her together. The plaintiff company was at that time overloaded with work at their shipyard, and the negotiation for the repairs, leading to the present suit, origin-d.ted in the following manner, there being no ,contract for the same. These negotiations were carried on by Mr. Auditore, on behalf of the vessel, and Mr. Miller on behalf of the company. The former was not heard as a witness, but Mr. Miller was, and I see no reason to question the reliability of his evidence, as was done below. Moreover, it must be said here that the learned trial Judge who pronounced below, was absolutely in no better position , than I am to estimate the credibility of the evidence, because it was taken before the Registrar, and the learned Judge did not have the advantage of seeing the witnesses and in this way have an opportunity of . determining the weight to be attached to the evidence by their demeanour while under his personal observation. Now Mr. Miller says that, after the exchange of correspondence, Mr. Auditore, in July, 1917, came to his office and asked that the company should dock
VOL. XIX.] EXCHEQUER COURT REPORTS. the two portions of his vessel, and he then quoted a • ' - price for joiningt he vessel tog g e ther, all other work. He, further stated that this c only be done provided the dock was not required for other important work, such as repairs to transports Jud or repairs to ocean-going freighters, equivalent to freighters, practically ships over which the Government had control. Mr. Auditore understood this • a nd brought his ship to Montreal, and wlien she arrived the dock was occupied by •the S.S. "Singa-pore," a large ocean freighter. The consequence was he could not dock his vessel, and then Mr. Auditore said: "What can I do? Can you carry out "the other work, such as engine room repairs, and "deck repairs and .miscellaneous work, such as he "had a list prepared. We declined. We not only "declined several times, but declined in ' writing. " (p. 7). We declined and I said we could not under- "take the work; owing to scarcity of men and so on. "Mr. Auditore begged us to do something for him "to get his ship out of the river before the close of "navigation. I then called up Quebec—the dry-"dock -,and endéavored to get them to undertake the "work and finally they succeeded, and the ship was "docked at Quebec to be joined together. . . . . Be- "fore she left our works for Quebec, and before we "undertook any work on her at all Mr. Auditore met "ine at the Grand Trunk Station in Montreal and we ``met Mr. French, Chief Sùrveyor of Lloyds Register in New York, and Mr. Auditore explained to Mr "French we had refused 'to 'do any work on the ship "on, account of the scarcity of men, and Mr. French "said: 'Mr. Miller, look, here, you have to do some- 119 1 919 AN ADIAN ~ but exclusive of C V lc . x D ~x s, Lv . ould S.S. "SusgvE- HANNA." Reason e fo . r u g dg m mentt.
120 EXCHEQUER COURT REPORTS. [VOL. XIX. 1919 "thing to help him out. He has had one trouble CANADIAN VICKERS, after another with this ship. Here he is in Mont- LTD V. S.S. "SUSQUE- "real with every likelihood of his ship being frozen HANNA." ( ̀up for the winter.' I told Mr. French I would look Jnâgmentr "into the matter and I told Mr. Auditore I would let "him know in a day or two what I could do, and the " result of all these pourparlers was the letter, Exhibit P. 1, which reads as follows : July 12, 1917. "Frank Auditore, Esq., "Windsor Hotel, "Montreal, Que. "Dear Mr. Auditore: "Mr. Cameron has been thoroughly through the "`Susquehanna' and finds it absolutely impossible, "in the incomplete state in which the various items " are, to figure a definite price. He estimates, and "judging by the description, I think he is correct, "that this work will cost in the vicinity of $35,000, "apart from joining together. "We are prepared to quote you a firm price for "joining together of $22,000, including dock dues, "but not including any repairs to damage done in "coming through the canal. "We would, however, much prefer that you take "the ship to New York for completion, as I am fully "confident that, notwithstanding the condition of the "yards in New York, you are more likely to get a "quicker job from your friend .Mr. Todd than from "us, as we cannot possibly afford to draw a large "number of men off present work.
`
VOL. XIX.] EXCHEQUER COURT REPORTS. "We will be glad to let you know as soon as we "ascertain the extent of the damage to the Singa "pore' when your ship can get on the dock. "I am sorry we cannot quote you a firm price, but "you will understand the conditions. "Yours faithfully, (Sgd.) B. L. MILLER." Now this letter shows the works were accepted under pressure and to oblige the defendant, as the company could not possibly afford to draw a large ' number of men off present work, and lest too much importance is attached to these figures of $35,000, which were afterwards offered in settlement by the defendant, it is, in fairness, well to bear in mind that while that estimate is made with the qualification that "Mr. Cameron has been thoroughly through "the `Susquehanna' and finds it absolutely impos sible, in the incomplete 'state in which the "various items are, to figure a definite price," and with the further hereinafter mentioned statement about the number of items covered at the time. Mr. Miller at p.,104 of his evidence adds "that Mr. "Auditore, at that time, said: 'Mr. Miller, for good-"ness sake put your men on, and go on with the `` work. I don't care what it costs, but get my ship "out of the river before the river freezes." " • The work was done and the ship taken down to Quebec . to be put together. Then at pp. 98 and 99, of the evidence, Mr. Miller says that when this estimate of $35,000 was made, 121 CANADIAN, VICKERS LTD. s.s. "sûSpva- HANNA." R Ju ea d s g o m ns e n for t. -•
122 EXCHEQUER. COURT REPORTS. [VOL. XIX. 1919 as above mentioned, the list of the repairs only con- CANADIAN VICKERS, tained 65 items,—plus about 7 or 8 more on which LTD. v. work was not done—the actual numbers completed S.S. " SUSQUE• HAN NA." being sixty-five on the first list, to which in August Reason" for Judgment. were added 122 more items of repairs making this figure of $35,000, obviously inadequate. Captain Barlow in the course of the work also signed three emergency orders (p. 220 and 221) for extras of the list on hand at the works. The number of men employed on these repairs from July 9 to August 14, as shown in Exhibit R. 4, was 2 on the first day, increasing during the first week to 73, the second week to 200, the third week to the highest total, of 271, and subsequently dropping to 82 on the last day. A number of men were taken off from some other important . works in the yard, the construction of which involved $1,000,000, and as a result the plaintiffs went behind on their contracts for Drifters and Trawlers, and Mr. Miller further contends that every repair in the ' yard. was interfered with by yielding to the defendant and accepting his work under pressure. The only question now to be determined, the defendants having accepted and taken over the works, is what is the fair and reasonable value, the market value, so to speak of the said works under the circumstances. The defendant having accepted and . taken over the works, stands in the position of a per- son who employs another to do work for him without any agreement as to his compensation, and in such a case the law implies a promise from the em-
VOL. XIX.] EXCHEQUER COURT REPORTS. 123 ployer to the workman that he will pay him for his 1919 services as much as he may deserve or merit- CANADIAN VI CNBRS, LTD. quantuni meruit. V. S.S. "sU5Qu8- HANNA. What can be done in the absence of .actual evi- Reasons for lodgment. deuce of the fair cost and value of each item of work mentioned in this famous statement of these 65 plus 122 items? Under such circumstances nothing else is left but to take the figures given—which have not been controverted by any evidence, with respect' to labour and material,—and consider whether . the overhead and profit charges are right and fair. The defendants admit liability for the work done, and materials supplied, but contest the amount claimed. The defendants have really thrown themselves at the mercy of the plaintiffs with the object of having their work done promptly to enable them to get out of the St. Lawrence before the freezing of the river, and carry on the profitable business of freighting. during the war. And the plaintiffs would probably do that work in much less time than any other firm. No price being mentioned ; the *builder is entitled to the fair and reasonable value of his work, and the materials supplied. - "Suck reasonable price must include payment for "skill, supervision and services of contractor him-• "self." Hudson, 4th Ed. 476. The amount claimed by the plaintiffs is the sum of $53,190.00, and the account rendered, filed as Exhibit p. 2, reads, as follows :
124 EXCHEQUER COURT REPORTS. [VOL. XIX. 1919 "Naval Construction Works, v CKERS "Maisonneuve, LTD. "Montreal, P. Q. Dec. 3, 1917. S.S. ` SUSQUE- HANNA.+ • " M r. Frank Auditore, Rea for Jnd gme " 44 Sackett Street, "Brooklyn, N.Y., "Bought of Canadian Vickers Limited. "To joining together S.S. "Susquehanna" as per "statement attached: "Material from stock $5,517.57 "Material purchased. 829.98 6,347.55 "Handling charges 5 " per cent. 317.88 6,665.43 "Labour 14,905.73 "Overhead factor 90 " per cent. on labour 13,415.16 28,320.89 34,986.32 "Profit, etc. 16,554.89 51,541.21 "Tug services as per " copy invoices at- " tached 2,000.00 " $53,541.21 The items with respect to the material, handling charges and labour, while not admitted are not contested. The contestation centres on the two items
VOL. XIX.] EXCHEQUER COURT REPORTS. 125 of overhead factor at 90 per cent. on labour and the 1919 ~..-..-._. rate ofp rofit. cANADLAN Vicx$xs, The defendant, as we have seen, was very anxious S.S. " n s T u D s ' Q u-- to get the work done as expeditiously as, possible, HANNA.' with the object of using his vessel, the freight rates âüégmâ t= being then very high on account of the war—and on the other hand, the. cost of ship building and repairs had again, on account of the war, increased. to abnormal figures. I think I may state that both parties will agree as to the principle that both overhead and profit charges 'are properly allowable in such a case as this; and that controversy arises only as to, the respective rates of such charges. The percentage of overhead made in this case refers to works of the yard outside of the floating dock, and the shell shop operations. It is the percentage that overhead, bears to productive labour. Having said so much it becomes unnecessary to go into the question of "overhead" beyond saying that "overhead" is part of the actual 'costs (Evd. p. 233) . "Overhead" takes care of the general expenses of the business, not coming under the head of material and labour, but such expenses: as cannot be charged up to any one • job, and have to be apportioned over. the whole business of the firm. So that "overhead," if properly ' • ascertained, is just as much actual costs as the other items. Mr. Fawcett, in his "Manual on Political Econ-.omy,71 lays down that: "The term 'cost of produc-" `tion,' includes not simply the cost of material and "the wages of labour, but also the ordinary profit 4 ` upon the capital employed in producing the ' par-" ticular commodity." 18th Edition, p. 351.
126 EXCHEQUER COURT REPORTS. [VOL. XIX. 1919 After taking into consideration all the circum-CANADIAN VICKERS, stances of the case, the abnormal state of the busi-LTD. v. ness during the war followed by advanced prices, S.S. "Susgun- HANNA. and moreover weighing the conflicting evidence upon Bessons for Judgment. the subject—inclusive of the view cited from the authorities,—to the list of which I might add "Cost of Accounting," Nicholson & Rohrback,—I have come to the conclùsion not to interfere with the overhead charge. It is of common and general knowledge that during the war the Government of Canada entered into contracts allowing over 90 per cent. on overhead charges, but with only 10 per cent. profit. Coming to the question of profit, I must say I am entirely at variance with any conception that could, under the present circumstances, justify a profit of 47 3-10 per cent. as charged. What reason is there to depart from the usual rate of profit under contractual works, I fail to see. Some evidence upon this question is furnished by witnesses who have no idea, as appears upon the face of their testimony— of our Canadian climatic conditions, if it has any bearing upon the question. "Although the average profits realized in dif- ferent trades may greatly and permanently differ, "yet there is a certain rate of profit belonging to "each trade. Such a rate indicates a point of "equilibrium about which the averagè profits of the "trade may be considered to oscillate. And the "competition of capital is an agency which is ever "at work to restore the average rate of profit to the "position of equilibrium whenever disturbed from "it." Fawcett, 1Vlanuai of Political Economy, p. • 349.
VOL. XIX.] EXCHEQUER COURT REPORTS. A good normal profit under the circumstances -. would be between 10 per cent. and 15 per cent., but .. in view of the large overhead charges allowed, I have come to the conclusion that 10 per cent. will S' NQuB- reasonably and justly compensate the plaintiff. The item of $2,000 for towage is a disbursement made by the plaintiff at the request of the defendant, and should be allowed in full. The plaintiff is therefore entitled to recover from the defendant the sum of $40,484.95, arrived at in the following manner : "Material from stock .. $ 5,517.57 "Material purchased, .. . "Handling chargés 5 per " cent. (Dubitante, but " de minimis) `Labour $14,905.73 "Overhead factor 90 per " cent. on labour 13,415.16 "10 per cent. profit "Tug services i; The appeal is allowed, with all costs. Solicitors for plaintiff : Markey, Skinner and Hyde. Solicitors for respondent :. Hague, Shaughnessy and Heward. 127 vc sRs LTD V. . Reasons for judgment 829.98 6,347.55 317.88 28,320.89 • $34,986.32 3,498.63 $38,484.95 . 2,000.00 . $40,484.95 Meredith, Holden,
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.