Judgments

[1993] 1 F.C. 36

T-1536-89

Edward Jesionowski (Plaintiff)

v.

Bohdan Gorecki and the Ship Wa-Yas (Defendants)

Indexed as: Jesionowski v. Wa-Yas (The) (T.D.)

Trial Division, Reed J.—Vancouver, May 12 and September 11, 1992.

Practice — Privilege — Defendants claiming privilege for surveyor’s report as to time spent on repair of vessel as relating to settlement negotiations — Report on defendants’ list of documents — Surveyor called as expert witness — Once expert becomes witness, implied waiver of privilege previously protecting papers from production — Privileged status waived when listed in defendants’ list of documents — To fall within privilege attaching to settlement negotiations, communication must be part of genuine attempt to resolve dispute — Joint report by two surveyors to resolve discrepancy between two previous reports not privileged as (1) not joint effort; (2) although copy sent to plaintiff, not as offer of settlement.

Equity — Quantum meruit — Action for damages for labour and materials provided to repair licensed fishing vessel — Cost of repairs exceeded value of vessel — Beneficiary of labour and materials supplied by another should not be unjustly enriched — Where no enforceable contract, law imposes promise to pay reasonable amount, usually related to free market value of services — Quantum meruit award assessed by reference to all circumstances — Award not constrained by increase to value of vessel from plaintiff’s labour and materials as parties intended to recover investment by using vessel in fishing industry — Defendant not entitled to reduce quantum meruit award nor to damages for poor workmanship as equally responsible for quality of workmanship and did nothing to change it.

Trusts — Action to recover for labour and materials provided in repairing fishing vessel — In deciding whether to impose constructive trust, Court must determine (1) whether claim for unjust enrichment established; (2) whether corresponding deprivation to plaintiff; (3) whether any juristic reason for enrichment; (4) whether constructive trust appropriate remedy — Must also be special reason to grant additional rights flowing from right of property i.e. specific and unique nature of property, changes in value of asset — All requirements met — Constructive trust appropriate as reason to believe defendant might sell licences in absence of restraint, rendering himself judgment proof.

Maritime law — Practice — Interest — Action to recover for labour and materials provided in repairing fishing vessel — Interest award integral part of damage claim in admiralty cases — Should restore plaintiff to position would have been in if events giving rise to claim had not occurred — Applies equally to claims in contract and in tort under maritime law — Defendants aware of interest claim — Interest awarded from reasonable time after joint relationship between parties with respect to vessel severed.

The defendants argued that neither the Smith (No. 1) nor the Harrison-Smith reports were admissible because they related to settlement discussions and were therefore privileged. The plaintiff argued that since Smith was called to give expert evidence concerning the value of the repairs, there was implied waiver of any privilege that had previously protected his papers from production: Vancouver Community College v. Phillips, Barratt (1987), 20 B.C.L.R. (2d) 289 (S.C.). The defendants argued that Vancouver Community College has not been followed, and that in any event it was wrongly decided. Alternatively, the plaintiff argued that the report’s privileged status was waived when it was listed in the defendants’ list of documents and was made available to the plaintiff. The defendants relied upon the maxim “once privileged, always privileged.” The defendants argued that the Harrison-Smith report was privileged because it was prepared jointly by representatives of the parties for settlement purposes.

The defendants submitted that any quantum meruit award should be reduced, or that they should be awarded damages, because the quality of the workmanship was poor. Finally, they argued that interest should not be awarded because the plaintiff’s claim arose in contract, not in tort, and because the plaintiff did not claim interest in the statement of claim.

The plaintiff sought a declaration that the defendant holds an interest in the Wa-Yas (the vessel) and the licences attached thereto in constructive trust based on quantum meruit for the labour supplied, and on quantum valebant for the materials supplied.

Held, the action should be allowed.

The Vancouver Community College case was based on the fact that an expert witness is in a different position from other witnesses. He is put forward because of his expertise to assist the Court in coming to a conclusion, and this imposes certain obligations of disclosure on him. The search for truth with respect to evidence given by this type of witness outweighs any interest in protecting preliminary drafts. While the operation of the adversarial trial process requires protection of counsel’s work product, it does not require protection of an expert witness’ work product. This rationale applies only to expert witnesses.

“Once privileged, always privileged” does not mean that the party who has the benefit of the privilege cannot waive it, but refers to the continued operation of the privileged status, i.e. after a client changes solicitors. Any privileged status which the Smith (No.1) report might originally have had was waived when it was listed in the defendants’ list of documents, and made available to the plaintiff. The report lost its privileged status before the second report was filed or Mr. Smith was called to the stand.

To fall within the privilege attaching to settlement negotiations, a communication must be part of a genuine attempt to settle the dispute. It must also be clear that the offer of settlement was intended to be kept confidential. The Harrison-Smith report was not privileged. First, it was not a joint effort as neither plaintiff nor his agent had any involvement in the survey. Secondly, although a copy of the report was sent to the plaintiff, this was not as an offer of settlement. The report was not part of a genuine attempt to settle the dispute.

Quantum meruit is an equitable doctrine based on the principle that one who benefits from the labour and materials supplied by another should not be unjustly enriched thereby. Where there is no enforceable contract, the law implies a promise to pay a reasonable amount for materials and labour. As a general rule, the measure of relief in all quantum meruit based restitutionary actions should be related to the free market value of the services rendered or the work done. In some cases the increased market value to the defendant of the property on which labour has been expended or to which material has been provided may operate as a limit to the amount of the award, but this is not always the case. An award based on quantum meruit is assessed by reference to all the circumstances surrounding the situation under which the obligation arose. In this case a quantum meruit award should not be constrained by the increase to the value of the vessel as a result of the materials provided and the labour expended by plaintiff. First, the vessel was a constructive write-off at the time repairs commenced. Secondly, if there had been no fishing licences attached to the vessel, neither the plaintiff nor the defendant would have expended such efforts in repairing it. The vessel alone had little value. The joint project was undertaken with a view to future profit from fishing. Money and time expended was to be recouped when the vessel engaged in the fishing industry, not as a result of the increased value of the vessel. In such circumstances the reasonable amount to be awarded under a quantum meruit claim should be based on the assessment of an amount attributable to the materials plaintiff supplied and a reasonable market value for the labour he expended. The burden of proving what is reasonable is with the plaintiff.

The defendant was not entitled to damages based on the poor quality of the workmanship. The refit of the Wa-Yas was a joint enterprise. Defendant was as responsible for the quality of the workmanship as plaintiff. He did not demonstrate any concern about the quality of the work by attempting to disassociate himself from plaintiff or move to change the manner in which the refit was progressing.

An award of interest is an integral part of a damage claim in admiralty cases. The awarding of interest should restore the plaintiff to the position he would have been in if the events which gave rise to his claim had not occurred. This principle applies equally to claims arising in contract and in tort under maritime law. The defendants were aware that the plaintiff was claiming interest because the notice to admit documents included a schedule of the applicable bank prime rates. The statement of claim seeks “such further and other relief as to the Court seems meet.” Had plaintiff had the use of his money rather than having it tied up in the Wa-Yas he would have been able to employ it elsewhere. To put him into a position close to that which he would have enjoyed had the events underlying his claim not occurred, an amount on account of interest for the money and labour he spent on the Wa-Yas should be allowed from a reasonable time after the joint relationship with respect to the Wa-Yas was severed.

A constructive trust comes into existence regardless of any party’s intent. The purpose thereof is to prevent unjust enrichment. In determining whether to impose a constructive trust (i.e. to grant a proprietary as opposed to personal remedy), the Court must determine (1) whether a claim for unjust enrichment has been established; (2) whether there has been a corresponding deprivation to the plaintiff; (3) whether there is any juristic reason for the enrichment; (4) whether in the circumstances a constructive trust is the appropriate remedy to redress that unjust enrichment. Also, before a constructive trust is awarded, there must be a special reason to grant to the plaintiff the additional rights that flow from the recognition of a right of property, eg. reasons such as the specific and unique nature of the property in question, changes in value of the asset or a need to give priority to the plaintiff in a bankruptcy situation. In this case all the requirements for imposition of a constructive trust were present. There was an enrichment of the defendant and a corresponding deprivation suffered by the plaintiff. There was no juristic reason why the defendant should be enriched at plaintiff’s expense. The declaration of a constructive trust was appropriate. The value of the Wa-Yas was not high without the fishing licences. There was reason to believe that the defendant, in the absence of some restraint, might sell the licences or transfer the licences from the vessel prior to any supervised or judicial sale of the vessel. In the absence of a trust attaching to the licences, defendant might place himself in a position where he would be unable to satisfy any judgment against him.

CASES JUDICIALLY CONSIDERED

APPLIED:

Vancouver Community College v. Phillips, Barratt (1987), 20 B.C.L.R. (2d) 289; 27 C.L.R. 11; 38 L.C.R. 30 (S.C.); Bell Telephone Co. v. The Mar-Tirenno, [1974] 1 F.C. 294 (1974), 52 D.L.R. (3d) 702 (T.D.); affd [1976] 1 F.C. 539 (1976), 71 D.L.R. (3d) 608 (C.A.).

DISTINGUISHED:

Bell Canada v. Olympia& York Developments Ltd. (1989), 68 O.R. (2d) 103; 33 C.L.R. 258; 36 C.P.C. (2d) 193 (H.C.); Highland Fisheries Ltd. v. Lynk Electric Ltd. (1989), 93 N.S.R. (2d) 256; 63 D.L.R. (4th) 493; 242 A.P.R. 256 (S.C.T.D.); Pearce v. Tucker (1862), 3 F. & F. 136; 176 E.R. 61 (N.P.); Ford (G.) Homes Ltd. v. Draft Masonry (York) Co. Ltd. (1983), 43 O.R. (2d) 401; 1 D.L.R. (4th) 262; 2 C.L.R. 210; 2 O.A.C. 231 (C.A.); Mack v. Stuike (1963), 43 D.L.R. (2d) 763; 45 W.W.R. 605 (Sask. Q.B.); Miller v. Advanced Farming Systems Limited, [1969] S.C.R. 845; Ogilvie v. Cooke and Hannah, [1952] O.R. 862 (C.A.).

CONSIDERED:

Ottawa-Carleton (Regional Municipality) v. Consumers’ Gas Co. (1990), 74 O.R. (2d) 637; 74 D.L.R. (4th) 742; 45 C.P.C. (2d) 293; 41 O.A.C. 65 (Div. Ct.); Hickman v. Taylor, 329 U.S. 495 (1947); Welton Tool Rental Limited v. Douglas Aircraft Company (1978), 28 N.S.R. (2d) 636; 43 A.P.R. 636 (S.C.T.D.); Burlington Northern Railroad v. Norsk Pacific Steamship Co. Ltd., T-587-88, Addy J., order dated 27/4/90, F.C.T.D., not yet reported; Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574; (1989), 69 O.R. (2d) 287; 61 D.L.R. (4th) 14; 26 C.P.R. (3d) 97.

REFERRED TO:

Tilbury Cement Ltd. v. Seaspan International Ltd. (1991), 47 C.P.C. (2d) 292 (B.C.S.C.); Canadian Brine Ltd. v. The Ship Scott Misener and Her Owners, [1962] Ex.C.R. 441; Rathwell v. Rathwell, [1978] 2 S.C.R. 436; (1978), 83 D.L.R. (3d) 289; [1978] 2 W.W.R. 101; 1 E.T.R. 307; 1 R.F.L. (2d) 1; Pettkus v. Becker, [1980] 2 S.C.R. 834; (1980), 117 D.L.R. (3d) 257; 8 E.T.R. 143; 34 N.R. 384; 19 R.F.L. (2d) 165.

AUTHORS CITED

Cross, Rupert and Colin Tapper. Cross on Evidence, 7th ed., London: Butterworths, 1990.

Fridman, G. H. L. and James G. McLeod. Restitution, Toronto: Carswell, 1982.

Goldsmith, Immanual and Thomas G. Heintzman. Goldsmith on Canadian Building Contracts, 4th ed., Toronto: Carswell, 1988.

McCormick, Charles Tilford. McCormick on Evidence, 3rd ed., St. Paul, Minn.: West Publishing Co., 1984.

Phipson, Sidney L. Phipson on Evidence, 14th ed., London: Sweet & Maxwell, 1990.

Sharpe, Robert J. “Claiming Privilege in the Discovery Process”, Special Lectures of the Law Society of Upper Canada, 1984 (Don Mills, Ont.: Richard DeBoo, 1984) 163.

Sopinka, John et al. The Law of Evidence in Canada, Toronto: Butterworths, 1992.

Waters, D. W. M. Law of Trusts in Canada, 2nd ed., Toronto: Carswell Co. Ltd., 1984.

ACTION to recover for labour and materials provided in repairing the defendant’s licensed fishing vessel. Action allowed.

COUNSEL:

Bradley M. Caldwell for plaintiff.

J. Raymond Pollard and Dawn M. Jordan for defendants.

SOLICITORS:

McMaster, Bray & Company, Vancouver, for plaintiff.

Richards, Buell, Sutton, Vancouver, for defendants.

The following are the reasons for judgment rendered in English by

Reed J.:

EDITOR’S NOTE

The Executive Editor has determined that the 43-page reasons for judgment herein should be reported as abridged. This case was selected for publication for Her Ladyship’s consideration of the following issues: the admissibility of reports said to be privileged as relating to settlement discussions; the claim for an award based on quantum meruit; the argument that any quantum meruit award should be reduced for poor workmanship; the awarding of interest and the declaration of a constructive trust.

The facts were that the defendant, Gorecki, paid $62,000 in 1985 for an old fishing vessel and its two fishing licences. In 1986-1987 defendant leased the vessel. She was grounded by the lessees and the insurer took the position that she was damaged beyond economical repair and should be burned. Instead, defendant decided to repair the vessel and enlisted plaintiff’s participation in the project. After plaintiff had put considerable effort into the undertaking, the parties decided to terminate their joint endeavour. The question, plaintiff having abandoned at trial a claim to an interest in the vessel and her licences based on a partnership agreement, was whether he was entitled to equitable relief by way of quantum meruit. Defendant’s position was that he had paid plaintiff the full amount owing under a fixed price contract for repairs.

Prior to the commencement of litigation the defendant had a report prepared by Harrison, a surveyor, estimating the amount of time spent repairing the vessel. A second report, the Smith (No. 1) report, was commissioned by the defendant after the commencement of litigation. It was originally delivered to the plaintiff as an enclosure to a “without prejudice” settlement letter. This report was on the defendant’s list of documents and privilege was claimed with respect thereto. A slightly revised version was filed for use at trial and its author, Barry D. Smith, was called as a witness in these proceedings to give expert evidence on the value of the repairs. A third report, the Harrison-Smith report, was prepared by the two surveyors on behalf of the defendant to resolve the discrepancy between the two previous reports.

Admissibility of Smith (No. 1) and Harrison-Smith Reports

Objections were raised to the admissibility of both the Smith (No. 1) report and the Harrison-Smith report. I reserved on the question of their admissibility. It was argued by counsel for the defendants that both reports are not admissible because they relate to settlement discussions and are therefore privileged.

Central to the arguments made concerning the admissibility of both reports is the fact that Mr. Smith was called in these proceedings to give expert opinion evidence on the value of the repairs in question. Indeed the Smith (No. 1) report, was identical in conclusion to the expert report he filed for use in these proceedings on April 6, 1992. It is argued that since Mr. Smith was called to give expert evidence concerning the value of the repairs, the status of those reports is brought within the decision set out in Vancouver Community College v. Phillips, Barratt (1987), 20 B.C.L.R. (2d) 289 (S.C.), at pages 296-297:

So long as the expert remains in the role of a confidential advisor, there are sound reasons for maintaining privilege over documents in his possession. Once he becomes a witness, however, his role is substantially changed. His opinions and their foundation are no longer private advice for the party who retained him. He offers his professional opinion for the assistance of the court in its search for the truth. The witness is no longer in the camp of a partisan. He testifies in an objective way to assist the court in understanding scientific, technical or complex matters within the scope of his professional expertise. He is presented to the court as truthful, reliable, knowledgeable and qualified. It is as though the party calling him says: “Here is Mr. X, an expert in an area where the court needs assistance. You can rely on his opinion. It is sound. He is prepared to stand by it. My friend can cross-examine him as he will. He won’t get anywhere. The witness has nothing to hide.”

It seems to me that in holding out the witness’s [sic] opinion as trustworthy, the party calling him impliedly waives any privilege that previously protected the expert’s papers from production. He presents his evidence to the court and represents, at least at the outset, that the evidence will withstand even the most rigorous cross-examination. That constitutes an implied waiver over papers in a witness’s [sic] possession which are relevant to the preparation or formulation of the opinions offered, as well as to his consistency, reliability, qualifications and other matters touching on his credibility.

Counsel for the defendants argues that the Vancouver Community College decision has not been followed: Bell Canada v. Olympia & York Developments Ltd. (1989), 68 O.R. (2d) 103 (H.C.); Highland Fisheries Ltd. v. Lynk Electric Ltd. (1989), 93 N.S.R. (2d) 256 (S.C.T.D.). Counsel for the defendants also argues that the Vancouver Community College case is, in any event, wrongly decided.

The privilege asserted in the Vancouver Community College, Bell Canada and Highland Fisheries cases was litigation privilege: the privilege which attaches to communications between a lawyer and third parties when the purpose of the communication is to enable the legal adviser to advise or act with regard to litigation.[1] Utilization of the communication for the purposes of litigation must be the dominant purpose of the communication. The privilege is a legal professional one, thought necessary to enable the adversarial system of trials to function. As was said in Ottawa-Carleton (Regional Municipality) v. Consumers’ Gas Co. (1990), 74 O.R. (2d) 637 (Div. Ct.), at page 643:

Counsel must be free to make the fullest investigation and research without risking disclosure of his opinions, strategies and conclusions to opposing counsel. The invasion of the privacy of counsel’s trial preparation might well lead to counsel postponing research and other preparation until the eve of or during the trial, so as to avoid early disclosure of harmful information. This result would be counter-productive to the present goal that early and thorough investigation by counsel will encourage an early settlement of the case. Indeed, if counsel knows he must turn over to the other side the fruits of his work, he may be tempted to forgo conscientiously investigating his own case in the hope he will obtain disclosure of the research, investigations and thought processes compiled in the trial brief of opposing counsel.

This explanation, in the Ottawa-Carleton case, is followed in the Sopinka, Lederman & Bryant text, The Law of Evidence in Canada, at page 654, by a description of the development of the law in the United States:

Although long steeped in Anglo-Canadian jurisprudence, it was only in 1947, in the case of Hickman v. Taylor, that the Americans firmly developed something comparable to this second branch of the legal professional privilege, which they termed the ‘work-product’ doctrine. Murphy J. explained its basis in the following oft-quoted passage.

The oft-quoted passage from the Hickman v. Taylor [329 U.S. 495 (1947)] case which explains the rationale for the privilege reads [at pages 510-511]:

In performing his various duties … it is essential that a lawyer work with a certain degree of privacy, free from unnecessary intrusion by opposing parties and their counsel. Proper preparation of a client’s case demands that he assemble information, sift what he considers to be the relevant from the irrelevant facts, prepare his legal theories and plan his strategy without undue and needless interference … This work is reflected, of course, in interviews, statements, memoranda, correspondence, briefs, mental impressions, personal beliefs, and countless other tangible and intangible ways — aptly though roughly termed by the Circuit Court of Appeals in this case as the “work product of the lawyer.” Were such materials open to opposing counsel on mere demand, much of what is now put down in writing would remain unwritten. An attorney’s thoughts, heretofore inviolate, would not be his own. Inefficiency, unfairness and sharp practices would inevitably develop in the giving of legal advice and in the preparation of cases for trial. The effect on the legal profession would be demoralizing. And the interests of the clients and the cause of justice would be poorly served.

The litigation privilege is not the same as solicitor-client privilege. Thus the rationale given in the Bell Canada case for not following the Vancouver Community College decision does not necessarily follow. Allowing an expert witness to be cross-examined on his working papers and the information he received from counsel, on the ground that by calling him as a witness there is an implied waiver, does not mean that when a client becomes a witness there is thereby an implied waiver of the solicitor-client privilege. The two types of privilege and the purpose of each are different. A useful description of the difference is found in Sharpe, “Claiming Privilege in the Discovery Process” in Special Lectures of the Law Society of Upper Canada, 1984(Don Mills, Ont.: DeBoo, 1984), at pages 164-165.

There are, I suggest, at least three important differences between the two. First, solicitor-client privilege applies only to confidential communications between the client and his solicitor. Litigation privilege, on the other hand, applies to communications of a non-confidential nature between the solicitor and third parties and even includes material of a non-communicative nature. Secondly, solicitor-client privilege exists any time a client seeks legal advice from his solicitor whether or not litigation is involved. Litigation privilege, on the other hand, applies only in the context of litigation itself. Thirdly, and most important, the rationale for solicitor-client privilege is very different from that which underlies litigation privilege. This difference merits close attention. The interest which underlies the protection accorded communications between a client and a solicitor from disclosure is the interest of all citizens to have full and ready access to legal advice. If an individual cannot confide in a solicitor knowing that what is said will not be revealed, it will be difficult, if not impossible, for that individual to obtain proper candid legal advice.

Litigation privilege, on the other hand, is geared directly to the process of litigation … Its purpose is more particularly related to the needs of the adversarial trial process. Litigation privilege is based upon the need for a protected area to facilitate investigation and preparation of a case for trial by the adversarial advocate. In other words, litigation privilege aims to facilitate a process (namely, the adversary process), while solicitor-client privilege aims to protect a relationship (namely, the confidential relationship between a lawyer and a client).

As I understand the decision in the Vancouver Community College case, it is based on the fact that expert witnesses are in a different position from other witnesses. Expert witnesses draw inferences from facts, inferences which their particular expertise enables them to make and which judges or jurors do not have the same expertise to make. If the expert has given a contrary opinion in the past on the same facts, or if there is evidence that his opinion has changed or been gerrymandered in response, for example, to counsel’s suggestions, then, the credibility of that opinion is significantly undercut. The witness is being put forward because of his particular expertise, to assist the Court in coming to a conclusion and this imposes obligations of disclosure on him that may not exist for other witnesses. The Vancouver Community College case implicitly states that the search for truth with respect to the evidence being given by this category of witness outweighs any interest that might be served in protecting the preliminary drafts or working papers of the witness.

It is trite law that privilege can be claimed for certain communications because the law deems the protection of some interests and relationships to outweigh the search for truth.[2] My understanding of the Vancouver Community College case is that the need for a protected area to facilitate a lawyer’s investigation and preparation of a case does not extend to the information provided to an expert if that expert is called to the stand. Another way of saying the same thing is: while the operation of the adversarial trial process requires protection of counsel’s work product, it does not require protection of an expert witness work product. I note that the rationale in Vancouver Community College applies only to expert witnesses. I cannot disagree with the conclusion reached in that case.

Despite the fact that much argument focused on the Vancouver Community College case, counsel did not make a claim of privilege for the reports in this case on the ground of litigation privilege. It is not the preliminary drafts or working papers of the expert which are sought to be produced. There is no evidence that either of the reports was prepared for the dominant purpose of being used in the litigation. Counsel for the defendants asserts privilege for the two reports on the ground that they were communications in furtherance of settlement.

With respect to the Smith (No. 1) report, counsel for the plaintiff argues that whatever may have been the original status of that report its privileged status was waived when it was listed in Part I of the defendant’s list of documents and was made available to counsel for the plaintiff. Counsel for the defendants argues that privilege relating to settlement discussions cannot be waived: “once privileged always privileged”.

As I read the various authors on the subject of waiver of privilege[3] it is clear that the quotation “once privileged, always privileged” does not mean that the party who has the benefit of the privilege cannot waive it. That quotation refers to a continued operation of the privileged status, for example, even after the death of the solicitor or when the client has changed solicitors or if it is sought to compel production of the privileged information in other litigation. While it may be that the privilege which attaches to communications in furtherance of settlement are to the benefit of both parties and cannot be waived without the consent of both, this is not a relevant factor in the present case. The plaintiff, by seeking to introduce both reports, signifies his consent and only the presence or absence of waiver on the part of the defendant need be assessed.

In my view, any privileged status which the Smith (No. 1) report might originally have had, was waived when it was listed in Part I of the defendants’ list of documents and made available to counsel for the plaintiff. There is no reason to think that this was done through inadvertence. Its inclusion in Part I demonstrated an intention to use the report at trial. The report lost its privileged status before Mr. Smith’s second report was filed or he was called to the stand, thus I do not need to decide whether those actions constituted an implied waiver of privilege.

That does not dispose of the issue however. Counsel for the plaintiff did not seek to introduce the Smith (No. 1) report as part of his case in chief although it was marked for identification. He did not seek to formally introduce it when cross-examining Mr. Smith. His failure to do so was a mere slip. He sought to introduce the report at the end of the trial. I am not convinced that it should be admitted in that way. Mr. Smith had no opportunity to comment on it in its entirety. At the same time, the refusal to accept the report as part of the documentary evidence because of this procedural slip is not particularly important. (If it were, I would probably allow the report in and give counsel for the defendants an opportunity to re-examine Mr. Smith with respect to it.) Counsel for the plaintiff cross-examined both Mr. Gorecki and Mr. Smith with respect to the report. That oral evidence is part of the record and it is my understanding that it covers the points which counsel for the plaintiff wishes to make by reference to the report. Thus nothing would be gained by reopening the evidence. The report will not be admitted; the oral evidence with respect to it is admitted and is properly a part of the record.

To turn then to the Harrison-Smith report. It is argued that this too carries a privileged status because it is a communication in furtherance of settlement. In Sopinka, Lederman and Bryant, at pages 719-721, a description of this category of privilege is set out:

III COMMUNICATIONS IN FURTHERANCE OF SETTLEMENT

A.         Policy and General Rule

It has long been recognized as a policy interest worth fostering that parties be encouraged to resolve their private disputes without recourse to litigation or if an action has been commenced, encouraged to effect a compromise without a resort to trial. In furthering these objectives, the courts have protected from disclosure communications, whether written or oral, made with a view to reconciliation or settlement. In the absence of such protection, few parties would initiate settlement negotiations for fear that any concession that they would be prepared to offer could be used to their detriment if no settlement agreement was forthcoming. The principle of exclusion was enunciated in two early Ontario cases. In York (County) v. Toronto Gravel Road & Concrete Co. Proudfoot J. said:

The rule I understand to be that overtures of pacification, and any other offers or propositions between litigating parties, expressly or impliedly made without prejudice, are excluded on grounds of public policy.

Four years later, in Pirie v. Wyld, Cameron C.J. confirmed the rule as follows:

The authorities seem, though not very numerous, to be clear upon the first point, that letters written or communications made without prejudice, or offers made for the sake of buying peace, or to effect a compromise, are inadmissible in evidence. It seemingly being considered against public policy as having a tendency to promote litigation, and to prevent amicable settlements.

Many other authorities have expressed this public policy to be the justification for the recognition of the privilege. However, there are a number of competing theories which are discussed in Wigmore on Evidence:

1. That admissions in settlement negotiations are likely to be hypothetical or conditional only, as a supposition on which a settlement might rest, whether that supposition is true or false, and that such an admission has no relevance and is inadmissible on that ground, though if an admission is clearly an unqualified admission of fact, it would be admissible;

2. That all admissions in the course of negotiations towards settlement are without prejudice, whether those words are used or not, and are protected by a privilege based on public policy, and are not admissible in evidence;

3. That settlement negotiations are conducted on the normal contractual basis of offer and acceptance and with an express reservation of secrecy, and that, if a contract is reached, the negotiations are superseded by the contract itself, and become irrelevant and inadmissible, and if no contract is reached, then the negotiations are, for that reason, irrelevant;

4. That admissions made in the course of settlement negotiations may not be concessions of wrongs done, but merely an expression of a desire to purchase peace, and as such irrelevant and inadmissible.

The second theory is clearly the one that is accepted in Ontario. It is unclear however whether the law in British Columbia is to the same effect. It was suggested by Spencer J. in Derco Industries Ltd. v. A.R. Grimwood Ltd. that the British Columbia Court of Appeal in Schetky v. Cochrane preferred Wigmore’s first “conditional admissibility” theory. Lambert J.A. on the appeal of Derco left the question of the basis of the “privilege” open, but commented that no ratio decidendi could be determined from Schetky that was binding on the British Columbia courts. Other courts have applied the express or implied agreement theory. The undesirability of different theories applying in different provinces is patent.

Where the privilege theory applies it is true that the overriding policy interest may justify the exclusion of evidence which may otherwise be relevant and probative. An offer to pay a sum of money to settle a dispute, for example, may be relevant as suggesting a weak case on liability, and, but for the privilege, be tendered as an admission of such by the opposing party should the offer not be accepted. [Underlining added (footnotes omitted).]

As is clear from the above, the privilege in question attaches to communications between the parties or their agents, for the purpose of trying to reach a settlement. In addition, it must be clear, explicitly or implicitly, that the offer of settlement was intended to be kept confidential.

Counsel for the defendants urges me to conclude that in preparing the Harrison-Smith report, Mr. Harrison was representing Mr. Jesionowski and Mr. Smith was representing Mr. Gorecki. It is argued that the report was the preparation of a joint report by representatives of the parties for settlement purposes. I cannot so conclude. In the first place, neither Mr. Jesionowski nor an agent acting on his behalf had any involvement in the survey. In the second place, while a copy of the report was sent to the plaintiff’s solicitor this was not sent as an offer of settlement. To fall within the privilege attaching to settlement negotiations, the communication must be part of a genuine attempt to settle the dispute.[4] The document in question does not fall in that category and therefore does not have a privileged status. It is therefore admissible.

Reed J. concluded that not much turned on the admission of these reports into evidence. They carried little weight and did not stand up to scrutiny.

Amount of Quantum Meruit Award

“Quantum meruit” literally translates “as much as he deserves”. It is an equitable doctrine based on the principle that one who benefits from the labour and materials supplied by another should not be unjustly enriched thereby. Under circumstances where contracts are not enforceable because of uncertainty or where there has been no contract (e.g., the voluntary provision of goods and services under certain circumstances), the law implies a promise to pay a reasonable amount for the materials and labour which have been furnished.

Counsel for the defendants quotes from the text by G. H. L. Fridman, Restitution (Carswell, 1982), at page 478:

As a general rule, the measure of relief in all quantum meruit based restitutionary actions should be related to the free market value of the services rendered or the work done. Where relief is assessed on this basis, the plaintiff [sic] receives reasonable remuneration for his work or services rendered. As well, the defendant is called upon to account for the market value of the actual benefit received. The benefit is not merely the increase in value to his property from the work or services rendered but rather what it could cost him on the open market to obtain such improvement.

On the other hand, especially in cases concerning mistaken improvements to land, where the plaintiff improves the defendant’s lands for his own benefit in reliance upon a contract of sale concerning land which is subsequently held to be void for mistake, there is no reason why the defendant should be called upon to pay an amount greater than any resulting increase in the value of his land. Finally, it is suggested that the measure of a restitutionary award based not upon the principle of unjust enrichment or prejudicial conduct but on the grounds of public policy alone should be limited to the lesser of the fair market value of the plaintiff’s work and any resulting increase in the defendant’s total wealth.

Reference was made by counsel for the defendants to Welton Tool Rental Limited v. Douglas Aircraft Company (1978), 28 N.S.R. (2d) 636 (S.C.T.D.). In that case the parties discussed an amount of approximately $20,000 for the construction of a shelter to house an aeroplane while repairs were being undertaken. It was found that the parties had not reached an agreement as to the price to be paid for the work and the Court found that the plaintiff was to be compensated on a quantum meruit basis. The plaintiff had rendered a bill in the amount of $107,494.75 for the completed job. Mr. Justice Hallett stated as follows, at page 646, of his decision:

In measuring the extent of the restitution, I see no reason to distinguish between personal services as provided in the Deglman case and the services of a contractor as provided in the case before me. In a case such as that before me, where the plaintiff provided the services knowing that he did not have a contract, the criterion to be applied in determining the amount of restitution to be paid to the plaintiff on the doctrine of unjust enrichment is the value of the benefit to the defendant and not the reasonableness of the charges of the plaintiff as it could be that the charges for services as proposed by the plaintiff might be reasonable while, at the same time, the benefit to the defendant not commensurate with the effort put into providing the services by the plaintiff.

On page 652, he stated that the actual hours worked by the plaintiff were of no importance as the award was being made on the basis of the value of the benefit to the defendant.

While it may be that in some cases the increased market value to the defendant of the property on which labour has been expended, or to which material has been provided, will operate as a limit to the amount of the award given, I do not understand this always to be the case. As I understand the law, an award based on quantum meruit is assessed by reference to all the circumstances surrounding the situation under which the obligation arose.[5]

In the present case, it is abundantly clear that a quantum meruit award should not be constrained by the increase to the value of the vessel which occurred as a result of the materials provided and the labour expended by Mr. Jesionowski. In the first place, the vessel was a constructive write-off at the time repairs commenced. Secondly, if there had been no fishing licences attached to the vessel, it is unlikely that either the plaintiff or the defendant would have expended such efforts in repairing it. The vessel alone is not now and was not in 1987 worth very much. The joint project which was undertaken was undertaken with a view to future profit from fishing. Money and time expended was not to be recouped as a result of the increased value of the vessel. It was to be recouped later when the vessel engaged in the fishing industry. In such circumstances the reasonable amount to be awarded under a quantum meruit claim to the plaintiff should be based on the assessment of an amount attributable to the materials Mr. Jesionowski supplied and a reasonable market value for the labour he expended or paid others to expend. The burden of proving what is reasonable in this regard rests with the plaintiff.

The Trial Judge proceeded to review the various amounts claimed by plaintiff for materials, work done by others and his own labour.

Quality of Workmanship

The defendants argue that any award which is made on the basis of quantum meruit should be significantly reduced or, alternatively, that the defendant should be awarded damages because the quality of the workmanship is poor. Reference was made to decisions such as those in Pearce v. Tucker (1862), 3 F. & F. 136; 176 E.R. 61 (N.P.); Ford (G.) Homes Ltd. v. Draft Masonry (York) Co. Ltd. (1983), 43 O.R. (2d) 401 (C.A.); Mack v. Stuike (1963), 43 D.L.R. (2d) 763 (Sask. Q.B.); Miller v. Advanced Farming Systems Limited, [1969] S.C.R. 845; Ogilvie v. Cooke and Hannah, [1952] O.R. 862 (C.A.).

There is no doubt that the workmanship was not up to top quality professional shipyard standards. Mr. Payment, in talking of the welding which had been done, summed it up by saying “it is not pretty—but it’s hellish strong”. The Harrison-Smith report says “quality considered good to shipyard standards (journeyman rate)”. Mr. Jesionowski admitted that there had been more wastage of materials and time than would have been the case if professionals had been hired. He states that this is to be expected if you are only paying people $5 to $10 an hour. The work is incomplete. There are clearly many cosmetic defects.

The jurisprudence which has been cited concerning the quality of workmanship and its effect on the amount a plaintiff recovers is not relevant to the present circumstances. Those cases in general relate to contracts for the supply of goods and services where an implied warranty is involved. In the present case, as has been noted, the refit of the Wa-Yas was a joint enterprise. Mr. Gorecki was as responsible for the quality of the workmanship, if not more so, as Mr. Jesionowski. He was involved in the detailed day-to-day decision-making. He gave detailed instructions when he was away. He controlled all of the significant major decisions: whether to drydock the vessel or not; whether to replace the aft as well as the fore deck; whether to fibreglass the hull. He did not demonstrate any significant concern about the quality of the work in the fall of 1987, for example, by attempting to disassociate himself from Mr. Jesionowski at that time because of the quality of the work. He did not at that time move to change the manner in which the refit was progressing. He was present when the rear deck was installed and was around the site when the cleaning, grinding and subsequent recaulking of the hull seams was done. I do not accept his evidence that he relied on Mr. Jesionowski’s expertise and thus all the defects and corrections that had to be made were Mr. Jesionowski’s responsibility and not his own. Accordingly, I reject Mr. Gorecki’s counterclaim for an award of damages based on the poor quality of the workmanship.

In so far as the Coast Guard’s inspection (Mr. Hansen) is concerned, I accept the evidence of Mr. Lund and Mr. Payment: the defects reported are, in the context of the whole, minor; their correction will not be costly; it is not unusual for a certain number of such defects to be identified in these inspections. I must note that the defendant’s conduct, in having this inspection done just a few days before the beginning of trial and then putting the report in evidence at the last minute, does not leave a good impression. It carries with it the suggestion that an attempt is being made to surprise the plaintiff, to stampede considered decision-making and to take the opposite party by surprise. It would have been a preferable course of action for Mr. Gorecki to have had the vessel inspected at some considerably earlier time, when the nature of the alleged defects could be properly addressed in a considered fashion by both parties.

Interest on Award—Declaration of Constructive Trust—Damages for Interference with Licences

1.         Award of Interest

It is clear that an award of interest is an integral part of a damage claim in admiralty cases. In Bell Telephone Co. v. The Mar-Tirenno, [1974] 1 F.C. 294(T.D.), Mr. Justice Addy, with whose judgment the Federal Court of Appeal agreed [[1976] 1 F.C. 539, said at page 311:

It is clear that this Court, under its admiralty jurisdiction, has the right to award interest as an integral part of the damages suffered by the plaintiff regardless of whether the damages arose ex contractu or ex delicto.

The Admiralty Courts, in the exercise of their jurisdiction, proceeded upon different principles from that on which the common law authorities were founded; the principle in this instance being a civil law one, to the effect that, when payment is not made, interest is due to the obligee ex mora of the obligor.

Mr. Justice Addy went on to explain that the awarding of interest is an application of the principle of restitutio in integrum. That is, the award to a successful plaintiff should attempt to restore him to the position he would have been in if the events which gave rise to his claim had not occurred.

In Burlington Northern Railroad v. Norsk Pacific Steamship Co. Ltd., T-587-88, order dated April 27, 1990, F.C.T.D., not yet reported, Mr. Justice Addy said, at pages 14-15:

Regarding the reference for damages and the rates of interest applicable thereto, it is well settled law that, in admiralty cases, where damages ex delicto are awarded, the principle of restitutio in integrum requires that, where claimed, interest is to be awarded from the date the loss occurred, without the necessity of there being any enabling legislation such as is required in ordinary common law claims.

Since the rate of interest to be applied can depend on the circumstances of the case, it is proper for me to at least fix the means by which the rate can be ultimately proven and determined upon the reference.

For interest on the economic loss damages caused the railways, since they are business organizations, the fairest way of ensuring the application of the principle of restitutio in integrum would be to use the prime bank lending rate as it existed from time to time between the date when the damage occurred until the date of judgment on the reference. Since the damage would necessarily be continuously increasing from the time of the collision until the bridge was put back in use, the amount of damage will have to be estimated as it occurred throughout the period and the prevailing rates applied to the amount of damage as it accumulated during that time.

These principles were recently applied by Mr. Justice Trainor in Tilbury Cement Ltd. v. Seaspan International Ltd. (1991), 47 C.P.C. (2d) 292 (B.C.S.C.).

Counsel for the defendants argues that interest should not be awarded because the plaintiff’s claim arises in contract not in tort and because the plaintiff did not claim interest in his statement of claim. The first objection is answered by reference to the Bell Telephone decision of Mr. Justice Addy, supra, where he indicates that the principle is equally applicable in both circumstances under maritime law. With respect to the second point, in the Bell Telephone case Mr. Justice Addy declined to give interest based on the bank prime lending rate because the issue “was never claimed or raised in the pleadings, or in the evidence or argued at trial”. In the present case counsel for the defendants was made aware that the plaintiff was claiming interest, at least, as of April 13, 1992, because the notice to admit documents sent to him as of that date included a schedule of the applicable bank prime rates. The issue was raised at trial and has been argued. The plaintiff’s statement of claim contains a claim for “such further and other relief as to the Court seems meet”. See also Canadian Brine Ltd. v. The Ship Scott Misener and Her Owners, [1962] Ex.C.R. 441, at page 452.

It is clear from the evidence, as well as being a matter of common sense, that if Mr. Jesionowski had had the use of his money rather than having it tied up in the Wa-Yas, he would have been able to employ it elsewhere. He could, for example, have put it to use in his business M.E. Marine Consultants. In order to put him into a position close to that which he would have enjoyed had the events underlying his claim not occurred, it is reasonable to allow for an amount on account of interest for the money and labour he spent on the Wa-Yas.

Counsel argues that interest should be awarded from November 11, 1990, the date as of which the two men decided to sever their joint relationship with respect to the Wa-Yas. In this case, while one can say that as of November 11, 1990, the two men decided to go their separate ways, and by analogy Mr. Jesionowski could be said to have presented his bill to Mr. Gorecki for payment on that date, I do not think Mr. Jesionowski expected to be paid as of that date. It was anticipated that a reasonable time thereafter would be taken to allow for an evaluation of the amount to be paid. In my view, the interest should be paid from February 8, 1989. The interest rate will be at the prime bank lending rate as it varied thereafter until the amount awarded by this judgment is paid.

2.         Declaration of Constructive Trust

The plaintiff asks for a declaration that the defendant holds an interest in the Wa-Yas and the licences presently attached thereto in constructive trust based on quantum meruit for the labour supplied, and on quantum valebant for the materials supplied.

A constructive trust comes into existence “regardless of any party’s intent, when the law imposes upon a party an obligation to hold specific property for another”: see Waters, Law of Trusts in Canada (2nd ed., 1984), at page 377. A constructive trust is a remedial, equitable instrument, the purpose of which is to prevent unjust enrichment: Rathwell v. Rathwell, [1978] 2 S.C.R. 436, at page 455; Pettkus v. Becker, [1980] 2 S.C.R. 834.

In determining whether or not to impose a constructive trust (i.e. to grant a proprietary, as opposed to personal, remedy), the Court must determine, first, whether a claim for unjust enrichment has been established, second, whether there has been a corresponding deprivation to the plaintiff, third, whether there is any juristic reason for the enrichment and, fourth, whether in the circumstances a constructive trust is the appropriate remedy to redress that unjust enrichment. In Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574, at page 678, Mr. Justice La Forest wrote: “[i]n the vast majority of cases a constructive trust will not be the appropriate remedy” (underlining added). This is because in most cases a plaintiff’s claim can be satisfied simply by a personal monetary judgment. Also, before a constructive trust is awarded, there must be a special reason to grant to the plaintiff the additional rights that flow from the recognition of a right of property (eg. reasons such as the specific and unique nature of the property in question, changes in value of the asset, or a need to give priority to the plaintiff in a bankruptcy situation). See Lac Minerals, supra, at page 678.

Counsel for the plaintiff argues and I agree that in this case all the requirements to impose a constructive trust are present: it is clear that there has been an enrichment to the defendant and a corresponding deprivation to the plaintiff. In addition, there is no juristic reason why the defendant should be enriched at the expense of the plaintiff. The question remains then whether the imposition of a constructive trust is appropriate in the circumstances.

I have concluded that it is. It is clear that the value of the Wa-Yas without the fishing licences is not high. Also, from the evidence, it is clear that there is reason to be concerned that the defendant, in the absence of some restraint, might sell the licences or transfer the licences from the vessel prior to any supervised or judicial sale of the vessel. It is also clear that there is reason to think that, in the absence of a trust attaching to the licences, Mr. Gorecki might be in, or place himself in a position where he is unable to satisfy any judgment which Mr. Jesionowski obtains against him. In the circumstances, it is clear that all the requirements for the declaration of a constructive trust exist and I am persuaded that a declaration of a constructive trust is an appropriate remedy in the circumstances of this case.

Finally, Reed J. held that defendant’s counterclaim for damages for interference with his use of the fishing licences had become a non-issue in view of the disposition of the other aspects of this litigation. Given that a partnership interest in the vessel was alleged, it was not unreasonable for plaintiff’s counsel to have written to the Department of Fisheries and Oceans requesting that the licences not be transferred without his client’s consent. Furthermore, plaintiff had demonstrated a willingness to have the vessel used or sold so long as the proceeds remained available to satisfy any judgment he might obtain.

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