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Saskatoon Chapter: PO Box 7273, Saskatoon, Saskatchewan S7K 4J2 Editor: Brad Smith [email protected]
Part 2 of Elan Construction Limited v. South Fish Creek Recreational Association:
Why the courts can’t compare visible apples with invisible oranges
By: Misty Alexandre, Robertson Stromberg LLP
Earlier this year, I reported on a decision of the Alberta Court of Queen’s Bench in Elan Construction
Limited v. South Fish Creek Recreational Association (2015 ABQB 330).
As a recap, this case involved the tendering of an addition to a skating rink/multi-purpose facility.
South Fish Creek Recreational Association (“Fish Creek”) included a relatively complex evaluation
formula in its Instructions to Bidders, one that would award points to each bidder based on 4 specific
criteria (price, completion date, experience and references). When the project was awarded to
Chandos Construction, Elan Construction Limited (“Elan”) ultimately sued Fish Creek and alleged that
they had not followed their own evaluation criteria in awarding the project. The trial judge agreed with
Elan, holding that Fish Creek had in fact breached their obligations in Contract A. To Elan’s surprise,
though, the Court determined that Elan was only entitled to nominal damages of $1,000 (a ways off
from the $704,908 Elan was claiming). The Court’s reasoning: since Chandos Construction actually
suffered a loss on the project, the trial judge determined that Elan would have been doomed to a
similar fate.
This decision has made many in the industry uneasy; no one is comfortable with the prospect of
painstakingly proving a breach of Contract A, only to receive a purple participation ribbon at the end.
As it turns out, neither party was happy with the result – Fish Creek appealed the finding that it had
breached Contract A, while Elan appealed the nominal damage award. So, the Alberta Court of
Appeal took a closer look, and their findings will be of some comfort to contractors.
Breach of Contract A
The Court first reviewed Fish Creek’s appeal on the finding that they breached Contract A. In a
nutshell, Fish Creek argued that the provision in the Instructions to Bidders allowing them “sole and
unfettered discretion” gave them the absolute power to award the project to the bidder of their
choosing, using whatever methodology they saw fit.
Not surprisingly, the Court of Appeal affirmed the trial decision, finding that “to maintain the legitimacy
and integrity of the bid process, a reference to an owner’s being entitled to evaluate criteria in their
“sole and unfettered discretion” cannot include the right to depart from fundamental contents of the
Instruction to Bidders on which bidders would properly and reasonably place reliance in composing
their bids.”
To demonstrate this conclusion, the Court pointed out that while Fish Creek included a reference to
August 1, 2011 as a desired (though not mandatory) completion date in the bid documents, the fact
that Elan committed to this date in their bid was somehow held against it! Using a criteria not
explained to the bidders, Fish Creek took the average of all completion dates in the bids (which turned
out to be August 5, 2011), and then awarded points to bidders based on how far their own completion
date deviated from that one. Fish Creek justified this approach by stating it would constitute “the most
achievable or right date”, and further by expressing concerns whether Elan could even meet the
desired August 1 date (despite not having any evidence to support this concern). Such an approach
was flawed, and ignored the reality of Elan’s own capacity to meet this date (as an aside, 4 other
contractors actually bid the August 1 date or earlier).
The Saskatoon September 2016
csc-dcc.ca Page 6 of 10
Legal Article, cont'd
Damages
On the damage issue, the Court of Appeal’s views were much different than the trial judge though. In
addition to purely technical deficiencies with the pleading documents, the Court rejected the trial
judge’s assessment of nominal damages for several other reasons, including:
• The trial judge incorrectly placed the burden of proving Elan’s fate v. Chandos fate on Elan; rather, it was Fish Creek’s job to prove that Chando’s losses would inevitably have been incurred by Elan as well;
• Fish Creek failed to provide any real evidence (both expert and otherwise) to compare the outcomes of Elan v. Chandos. In particular, the evidence showed that Chandos and Elan had different approaches and plans for proceeding on the project, including sequence of events, start times, personnel and subcontractors (with the exception of a few in common);
• For the subtrades in common between Elan and Chandos, the trial judge discounted Elan’s profit margin calculations, reasoning that the losses suffered by Chandos for these common trades would have equally been suffered by Elan. This approach was found to be based primarily on speculation by the trial judge, and once again, incorrectly placed the burden on Elan to disprove that its losses would not have been the same as Chandos.
• While the trial judge assumed that losses related to bad weather and design flaws would also have been incurred by Elan, the Court of Appeal found no evidence to support this (and actually, even some evidence to suggest otherwise).
• Finally, in assessing Elan’s potential losses, the Court noted that the trial judge factored in a settlement figure reached between Fish Creek and Chandos in relation to the design flaws and resulting delay on the project. In particular, the evidence suggested that Chandos was risk averse, a factor likely taken into account in the settlement amount, but Elan was less so. For example, the Court of Appeal suggested that both Elan and Chandos could have relied on GC 6.5.1 in the CCDC2 contract to justify a claim for more compensation from Fish Creek in relation to the design flaws and resulting delays. While Chandos appeared more risk averse, there was no evidence to show that Elan would not have asserted those rights more vigorously in settlement discussions.
The Court summed it up best when it concluded that “Fish Creek was not just attempting to have the
trial judge compare an apple to an orange. It was an attempt to get the trial judge to compare a visible
apple and an invisible orange.”
Both parties agreed that the Court of Appeal should re-assess damages as opposed to sending the
matter back to Queen’s Bench. As a result, the Court of Appeal awarded Elan the amount claimed,
minus 2 discounted amounts for expenses that, on the evidence, Elan could not have avoided.
In my prior article following the Queen’s Bench decision, I cautioned contractors to put careful thought
into the hypothetical outcome of the project had it rightfully been awarded to them. Even despite the
Court of Appeal’s findings in this case, this advice still rings true. If it can be shown to the Court that
the unsuccessful bidder would have suffered a loss similar to that of the successful party, the
unsuccessful bidder’s damages will be altered accordingly. However, what has changed (or rather,
been clarified) is who is responsible for predicting the future. The burden of proving the likely fate of
the unsuccessful bidder lies not at their own feet – the Owner must bring this evidence and convince
the Court likewise.
The Saskatoon September 2016
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