A-343-77
251798 Ontario Inc. (formerly the Jacques Car-
tier Mint Inc.) Silver Shield Mines Inc., and
255330 Ontario Limited (formerly Canadian
Smelting and Refining Corporation Inc.) (Appel-
lants) (Plaintiffs)
v.
The Queen (Respondent) (Defendant)
Court of Appeal, Ryan J., MacKay and Kelly
D.JJ.—Toronto, June 26 and October 9, 1979.
Crown — Contracts — Respondent's approval of DREE
grants to appellants withdrawn — Appeal from Trial Divi
sion's decision to dismiss action on ground that alleged con
tracts were rendered void by reason of bribes paid by appel
lants to agent of respondent — Whether or not contracts were
void or voidable, and if voidable, whether or not they were
rescindable.
This is an appeal from the Trial Division's dismissal of
appellants' action for damages for anticipatory breach by
respondent (defendânt) of alleged contracts to pay appellants
incentive grants under the Regional Development Incentives
Act and Regulations. The Trial Division dismissed the action
on the ground that the alleged contracts were rendered void by
reason of bribes paid by the appellants to an agent of the
respondent. The agent was a person involved in making the
decision to offer the grants to the appellants. There are two
issues: were the contracts void or voidable? and if voidable,
were they rescindable?
Held, the appeal is dismissed. A party seeking to avoid a
contract because of bribery or some other circumstance must
make restitution to the other party as a condition precedent to
rescission, but restitution here means handing back to the other
party the benefits he has received from the performance or
partial performance by the other party of his contractual
obligations. If the person rescinding has received no such
benefits, he has nothing to restore, and is not subject to a duty
to make restitution. In building the plants, appellants were not
performing any obligation they owed to respondent: they were
endeavouring to meet a condition the satisfaction of which was
essential in order to claim the incentive grants. Moreover, the
Crown had not received any benefits: the work done by the
appellants remained their property and was at their disposition.
The respondent had not received anything that it would be
unfair to retain while at the same time disclaiming the con
tracts. The expenditures made by the appellants, even assuming
they were made in reliance on the undertaking to pay the
grants, did not have the effect of barring the respondent from
rescinding the alleged contracts: the expenditures did not give
rise to a duty to make restitutio in integrum.
Steedman v. Frigidaire Corp. [1933] 1 D.L.R. 161, distin
guished. Roberts v. James 85 Atlantic Reporter 244,
referred to.
APPEAL.
COUNSEL:
C. R. Thomson, Q.C. for appellants (plain-
tiffs).
J. A. Scollin, Q.C. and S. Ghan for respond
ent (defendant).
SOLICITORS:
Campbell, Godfrey & Lewtas, Toronto, for
appellants (plaintiffs).
Deputy Attorney General of Canada for
respondent (defendant).
The following are the reasons for judgment
rendered in English by
RYAN J.: This is an appeal from a judgment of
the Trial Division [[1978] 1 F.C. 90], dated April
20, 1977, dismissing with costs the action brought
by the appellants (the plaintiffs) claiming damages
for anticipatory breach by the respondent (the
defendant) of alleged contracts to pay the appel
lants incentive grants under the Regional De
velopment Incentives Act' and Regulations 2 . The
Trial Division dismissed the action on the ground
that the alleged contracts were rendered void by
reason of bribes paid by the appellants to an agent
of the respondent, the agent being, as I understand
the Trial Judge's reasons, a person involved in
making the decision to offer the grants to the
appellants. The agent was, as the Trial Judge saw
him, in a position analogous to an agent acting
under a general power of attorney.
It was conceded by counsel for the appellants
that the appellants had secretly conferred substan
tial benefits on the respondent's employee and that
he had played a significant role in appraisals lead
ing up to the decision to make the grants and in
making the decision. Counsel also conceded that, if
the briberies had the effect of rendering the
R.S.C. 1970, c. R-3, as amended.
2 SOR/69-398, as amended.
alleged contracts void ab initio, the appeal must
fail. He submitted, however, that the contracts had
been made, and that the effect of the bribes was to
render them voidable, not void. His argument—
and this was, he submitted, critical to his case—
was that in the circumstances the respondent was
no longer in a position to avoid the contracts when
the attempt to do so was made; the appellants, he
submitted, had by then made substantial expendi
tures on the strength of the promised grants, and
as a consequence the respondent could not restore
the appellants to the position they were in before
the grants were promised.
There are thus two issues: were the contracts
void or voidable? and, if voidable, were they
rescindable?
If the contracts were void ab initio, the appeal
must, as was conceded, fail. If, on the other hand,
the contracts were voidable but were not rescind-
able, it would appear that the appeal should suc
ceed; the appellants would succeed in their actions
based on the unrescinded contracts, subject to
possible counterclaims. But if the contracts were
both voidable and rescindable, the appeal must fail
(there is no real doubt that, if they were rescind-
able, the respondent had succeeded in rescinding
them); if this were the case, it would not, of
course, be necessary to decide whether the con
tracts were void ab initio. I will assume, initially,
that, because of the bribery, the "accepted offers"
were voidable contracts and I will consider wheth
er, in the circumstances, they remained rescind-
able.
It may be as well to describe the factual back
ground in greater detail.
The appellant, 251798 Ontario Inc., formerly
the Jacques Cartier Mint Inc., ("Ontario Inc.")
was incorporated by the appellant Silver Shield
Mines Inc. ("Silver Shield"). Ontario Inc. applied
for an incentive grant under the Regional De
velopment Incentives Act and Regulations. The
proposed development for which the grant was
sought was a new plant to be used for the produc
tion of silver mint coins and commemorative items
for the collectors market. The plant was to be
located at Cobalt, Ontario. In the application it
was estimated that seventy-five man-years of
employment would be generated directly in the
operation of the plant over the second and third
years after the start of production. It was also
estimated that construction of the plant would
begin on October 1, 1972. The application was
dated March 7, 1972.
By letter dated April 5, 1972, signed on behalf
of the Assistant Deputy Minister (Incentives) of
the Department of Regional Economic Expansion,
the applicant was informed that its application had
been appraised, and that "... an offer of a de
velopment incentive is hereby authorized under the
Regional Development Incentives Act...."
The letter stated in part:
The amount of the development incentive will be based on
the approved capital costs and the number of jobs, averaged
over the second and third years after the date of commercial
production, as determined by the Minister to have been created
directly in the new facility.
On the basis of the capital costs of the estimated eligible
assets and the estimated number of jobs created directly in the
operation of the facility, the amount of the development incen
tive is estimated to be $617,000, calculated as follows:
(a) Primary development incentive
20% of $1,383,000 $277,000
(b) Secondary development incentive
$4,000 for 85 jobs $340,000
Total development incentive $617,000
In accordance with and subject to the provision of the Act and
Regulations, 80% of the development incentive may be paid
following the date of commencement of commercial production,
as determined by the Minister. The remainder will be paid
within a period not longer than 42 months from the date of
commercial production.
The offer was stated to be subject to all the
provisions of the Act and Regulations. It was made
expressly subject to nine specifically stated "terms
and conditions".
On the last page of the letter, these words
appear over the signature of the applicant: "The
above offer is hereby accepted." The acceptance is
dated April 5, 1972.
An application for an incentive grant on behalf
of the appellant 255330 Ontario Limited, formerly
Canadian Smelting and Refining Corporation Inc.,
("Ontario Limited") was also submitted. It, too,
was dated March 7, 1972. The application was in
respect of a new plant, also to be located in Cobalt,
for the production of fine silver. A formal offer,
also dated April 5, 1972, was made on behalf of
the Assistant Deputy Minister (Incentives) in
respect of the application and was accepted by the
applicant. The total development incentive offered
was $119,970. There were differences in detail,
but, in essentials, the accepted offer was similar to
that accepted by Ontario Inc.
It is not—as already noted—disputed that prior
to and immediately after the making and accept
ing of the offers, bribes were made by a person
acting on behalf of the successful applicants to an
official of the Department who played a significant
role in assessing the applications and in making
the decision to offer the incentive grants.
The appellants Ontario Inc. and Ontario Lim
ited made substantial expenditures in building the
new plants. Then, in a letter dated November 8,
1972, signed by the Deputy Minister of the
Department and addressed to Mr. Norton Cooper,
the president of Silver Shield, it was stated:
On April 5, 1972, acting for The Jacques Cartier Mint Inc.
and Silver Shield Mines Inc. (on behalf of a new company to be
formed), you accepted two incentive grant offers made by this
Department in support of proposals for a silver refining facility
and a commercial mint to be located at Cobalt, Ontario.
Investigation has led to the conclusion that, during a period
before and after the date on which the Departmental offers
were made, including the period during which the relevant
applications were evaluated, an officer in a responsible position
in the Department (who is no longer employed by the Depart
ment) was offered and received improper benefits from a
person or persons associated with the companies and in a
position to profit from the incentive grants concerned. Because
of this, the Minister has authorized me to inform you that the
Department no longer considers itself bound by the obligations
flowing from the accepted incentive offers. This means that the
grants in question will not be paid.
A public announcement about this action will be made today.
The appellants treated the Deputy Minister's
letter as a repudiation or anticipatory breach of
the respondent's obligation to pay the incentive
grants and sued for damages. The position taken
by the appellants was that the contracts, being
voidable but not void ab initio, could not be
rescinded, as the respondent had purported to do
by the letter of November 8, 1972, because the
respondent was not then in a position to make
restitution to the appellants in the sense of restor
ing the appellants to the position they were in
before the contracts were made, having in mind
the expenditures the appellants had already made
in endeavouring to satisfy the conditions precedent
to qualification for payment of the incentive
grants. The submission, as I understood it, was
that the duty to make restitution, which was a
condition precedent to rescission, extended, not
merely to the return of benefits, if any, received by
the respondent, but to making compensation for
the expenditures incurred in reliance on the under
taking to pay the incentive grants even if the
respondent had not actually benefitted from the
expenditures. The duty to make restitution, it was
submitted, amounted to a duty to restore the
appellants to the position they were in before the
contracts were made, or at least to do this
substantially.
I would note that a feature of both of the alleged
contracts was that neither of the appellants
became obligated to the Crown to undertake con
struction of or to complete either of the plants in
respect of which the incentive grants were to be
paid. Each of the contracts was unilateral in the
sense that the undertaking of the Crown was
simply to pay an incentive grant if the Company
concerned complied with the conditions set out in
the alleged contract. Neither expressly nor
impliedly was there any undertaking by either
Company that it would perform those conditions.
It follows that the expenditures made by the appel
lants were not made in performance of an obliga
tion owed to the Crown under the alleged
contracts.
The appellants relied principally on a passage
from the reasons of Lord Macmillan in Steedman
v. Frigidaire Corporation 3 . The contract in ques
tion in that case was one in which the plaintiff had
agreed to instal refrigerating equipment in stalls in
the defendant's market with a view to the defend
ant's leasing the stalls to tenants. The defendant
agreed to make a cash payment and, with respect
to the balance of the price, to furnish to the
plaintiff notes of the tenants payable to the plain
tiff on conditions set out in a standard form. The
equipment was installed, and certain of the stalls
3 [1933] 1 D.L.R. 161 (P.C.).
were let to and occupied by tenants, but the
defendant did not obtain the required notes from
them. The plaintiff sued for the balance of the
price or, in the alternative, for damages. It was
discovered in the course of the trial that the plain
tiff had bribed an agent of the defendant in con
nection with the making of the contract. The
defendant, with leave, counterclaimed for rescis
sion.
The Ontario Court of Appeal, reversing the
Trial Judge, refused rescission of the contract and
left the defendant to his remedy in damages,
having in mind that the defendant's conduct ".
in operating the refrigerating apparatus renders it
impossible to reinstate the parties ...." The Privy
Council affirmed, at least in respect of this aspect
of the decision. Lord Macmillan said at p. 165:
Their Lordships are of opinion that the Appellate Division
were right in refusing the appellant's claim to rescind the
contract. In such a case, however reprehensible may be the
briber's conduct, the injured party is not entitled to the equita
ble remedy of rescission unless he can establish (the onus being
on him) that it is possible to restore the position to what it was
before the contract. He must be in a position to offer restitutio
in integrum, and must formally tender such restitution.... The
appellant has entirely failed to do so. The evidence, scanty as it
is, is consistent only with the appellant having exercised or
authorized acts of ownership and use in relation to at least a
large part of the equipment installed, by letting it out to be
operated by his tenants. He cannot give it back as he got it.
The appeal therefore so far fails, and the finding of the
Appellate Division that the contract remains binding should be
affirmed.
It is important to note that, so far as the plain
tiff in the Frigidaire Corporation case was con
cerned, there had been execution of his contractual
obligation; he was bound by the contract to instal
the refrigeration equipment, and he had done so.
Part at least of the equipment had been used for
the very purpose for which it had been installed.
The contractee had thus received benefits from the
plaintiffs performance of its contractual obliga
tions. That is not the case here.
In building the plants, the appellants were not
performing any obligation they owed to the
respondent: they were endeavouring to meet a
condition the satisfaction of which was essential in
order to claim the incentive grants. Moreover, the
Crown had not received any benefits: the work
done by the appellants remained their property
and was at their disposition. The respondent had
not received anything that it would be unfair to
retain while at the same time disclaiming the
contracts. It is true that members of the local
community had no doubt been employed in the
construction work on the plants, but the purpose of
the incentive grants was the creation of assets that
would provide long-term employment in the area.
So far as employment was concerned, the incentive
grants covered by the "accepted offers", the
alleged contracts, were expressed as being based
on "... the number of jobs, averaged over the
second and third years after the date of commer
cial production ...." Counsel, as I understood
him, did not rely—and in my view properly did not
rely—on the employment of local labour during
the construction phase as having conferred on the
respondent any part of the benefit envisaged by the
Act.
My understanding of relevant principle is that a
party seeking to avoid a contract because of brib
ery or some other circumstance must, as a condi
tion precedent to rescission, make restitution to the
other party, but restitution here means handing
back to the other party, at least in substance, the
benefits he has received from the performance or
partial performance by the other party of his
contractual obligations. If the person rescinding
has received no such benefits, he has nothing to
restore; he is thus obviously not subject to a duty
to make restitution 4 .
4 See Roberts v. James 85 Atlantic Reporter 244 (1912), per
Swayze J., at pp. 244-245:
It is settled that, where a party seeks to be relieved from a
contract upon the ground that it was induced by fraud, he
must, except so far as he has some legal excuse for failure,
restore his adversary to the position he was in at the time of
the contract, and that there can be no rescission as long as he
retains anything received under the contract, which he might
have returned, and the withholding of which might be injuri
ous to the other party. This statement of the rule is taken
from the opinion of the Supreme Court in Byard v. Holmes,
33 N.J. Law, 119, 127. ... The reason upon which it rests is
the injustice of permitting a man to retain a benefit under a
contract which he on his part repudiates. By its terms the
rule requires only the return of what has been received. It is
(Continued on next page)
My conclusion is that the expenditures made by
the appellants, even assuming they were made in
reliance on the undertaking to pay the grants, did
not have the effect of barring the respondent from
rescinding the alleged contracts: the expenditures
did not give rise, as the appellants submitted they
did, to a duty to make restitutio in integrum 5 . I
have also concluded—as I indicated earlier—that
the respondent did rescind by the letter dated
November 8, 1972.
It may be just as well, before concluding, to
recall that counsel's case before us was that the
"accepted offers" were contracts from which in the
circumstances the respondent could not escape,
and that I have considered his submission on the
basis that voidable contracts were made. I do,
however, have some doubt whether the "accepted
offers" would, in law, be contracts even if they had
not been soiled by bribery. For purposes of this
case, however, I do not have to decide whether
they were because, even if they were, the appeal
must fail.
Counsel for the respondent submitted that, even
if the "accepted offers" were voidable contracts
that in the circumstances could not be rescinded,
nevertheless the appellants could not sue on them
because to permit the appellants to do so would be
to permit them to profit from their own wrongs,
the bribes, which, he said, were crimes or torts or
both. Counsel for the appellants, in reply, relied on
tlie Frigidaire Corporation case, discussed above,
which, he submitted, also involved a bribe, but in
which recovery was not barred. He also submitted
that there was, in fact, no causal link between the
(Continued from previous page)
applicable only to a contract that has been partly executed,
and not to a contract that still remains wholly executory on
the part of the alleged fraud doer. In such a case the party
who undertakes to rescind has received no advantage, he has
nothing to return, and all he can do is to deny his obligation
under the contract. If he does so in reasonable time, he has
rescinded the contract....
5 The respondent in the present case relied on the bribery of
her servant as a defence to the appellants' action. The respond
ent did not seek affirmative relief by way of equitable rescis
sion. This was an acceptable course where, as here, the
respondent was entitled to rescind: Halsbury's Laws of Eng-
land (3rd ed.), vol. 26, para. 1597, pp. 859 and 860.
bribes and the "accepted offers". I do not find it
necessary to resolve the problems presented by the
respondent's submission and the reply to it, having
in mind my conclusion that, at any rate, the
contracts, if they were contracts, were rescindable
and had been rescinded. Also (as I indicated at the
outset of these reasons), because of this conclusion
I do not find it necessary to decide whether the
"accepted offers" were void ab initio.
I would dismiss the appeal with costs.
* * *
MACKAY D. J.: I concur.
* * *
KELLY D. J.: I concur.
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.