A-1757-83
The Queen (Appellant) (Defendant)
v.
CAE Industries Ltd. and CAE Aircraft Ltd.
(Respondents) (Plaintiffs)
Court of Appeal, Pratte, Urie and Stone JJ.-
Winnipeg, February 18, 19, 20, 21 and 22;
Ottawa, July 3, 1985.
Crown - Contracts - Appeal from trial judgment holding
letter signed by Ministers of Crown providing assurances
constituting contract - Letter stating Department of Defence
Production guaranteeing no more than 40,000 to 50,000 direct
labour man-hours per year, but Government of Canada to
employ "best efforts" to secure additional work - Partial
performance indicating intention to contract - Contract not so
incomplete as to be unenforceable - Nothing necessary left
unsettled - Fact individual service contracts required for
aircraft repair and overhaul not detracting from "set aside"
and "best efforts" commitments - Upon acceptance "assur-
ances" becoming binding commitments - Construction of "set
aside" and "best efforts" - Verreault (J. E.) & Fils Ltée v.
Attorney General (Quebec), 0977] 1 S.C.R. 41 explained
Minister of Crown having authority to bind Crown in contract
unless restricted by statute - Subject-matter of contract
within general responsibilities of ministers - Cabinet author
izing signing of letter - No statutory restrictions on Minis
ters' authority to bind Crown - Regulations not barring
performance as indicated by partial performance of contract
and flexibility in Regulations - Evidence supporting Trial
Judge's finding of breach of contract - No error in assessing
damages for loss of profits - Trial Judge erred in accepting
evidence of respondent's valuator - Factual bases supporting
assumptions too tenuous and speculative - Trial Judge acting
within authority under s. 40 of Federal Court Act in varying
post-judgment interest - Defence Production Act, R.S.C.
1952, c. 62, ss. I, 3, 9, 15, 17 (as am. by S.C. 1967-68, c. 27, s.
I) - Aeronautics Act, R.S.C. 1952, c. 2, ss. 2, 3 - Depart
ment of Trade and Commerce Act, R.S.C. 1952, c. 78, ss. 2, 3,
5 - Government Contracts Regulations, SOR/64-390, ss.
2(1)(c)(iii), 6, 14 (as am. by SOR/68-89, s. 1) - Financial
Administration Act, R.S.C. 1952, c. 116, s. 39 - Interest Act,
R.S.C. 1970, c. 1-18, s. 13 - Federal Court Act, R.S.C. 1970
(2nd Supp.), c. 10, s. 40 - Department of Supply and Services
Act, R.S.C. 1970, c. S-18, s. 3 - Government Organization
Act, 1969, S.C. 1968-69, c. 28, s. 103 - Department of
Transport Act, R.S.C. 1952, c. 79, s. 3 - Crown Liability Act,
R.S.C. 1970, c. C-38.
Practice — Costs — Appeal from Trial Judge's refusal to
increase party and party costs beyond Tariff B — Trial Judge
properly exercising discretion — Appeal dismissed — Federal
Court Rules, C.R.C., c. 663, R. 344, Tariff B.
Practice — Parties — Whether respondents parties to con
tract in litigation — Equitable assignment — Substitute
accepted by both sides — Respondents having sufficient inter
est to support causes of action.
This is an appeal from the trial judgment in favour of the
respondents in a breach of contract action.
A government official approached CAE Industries Ltd.
(CAE) to take over the Air Canada Winnipeg facilities through
its subsidiary Northwest Industries Ltd. (Northwest). North-
west's interest in taking over the facilities was conditional upon
the government agreeing to provide a minimum quantity of
work (300,000 productive hours annually). It was made clear
that such a request could not be reconciled with existing
governmental policy of competitive tendering. However, a letter
dated March 26, 1969, signed by the Ministers of Transport,
Trade and Commerce and Defence Production was sent to the
President of CAE. It set out the terms of the alleged contract.
The letter provided, inter alia, the following assurances: 1) the
Government of Canada agreed with the objective that employ
ment levels should be maintained; 2) it also agreed that
700,000 man-hours of direct labour per annum was a realistic
target for the operation of a viable enterprise; 3) the Depart
ment of Defence Production could guarantee no more than
40,000 to 50,000 direct labour man-hours per year, but the
Government of Canada would employ its best efforts to secure
the additional work required to meet the target level of 700,000
direct labour man-hours. Relying upon these assurances, CAE
decided that its subsidiary would purchase the Winnipeg base.
Agreements were entered into in September, 1969. Everything
went well until 1971 when the workload started to diminish.
When the appellants failed to comply with the commitments in
the March 26 letter, the respondents sued for breach of
contract.
The appellant argues that: 1) the Crown did not intend to
enter into a contract; 2) the document is so vague or incomplete
as to be unenforceable; 3) if it is not too vague, it cannot be
enforced because it does not bind the appellant; 4) if it binds
the appellant, the contract was not breached; and 5) the Trial
Judge erred in quantifying damages. On cross-appeal the
respondents submit that the quantum of damages should have
been higher.
A preliminary issue of the identity of the parties was raised.
The negotiations until early 1969 contemplated Northwest as
the purchaser and operator of the base. The appellant argues
that it was Northwest that became the other party to the
contract and that neither of the respondents is a party. The
respondents argue that they are the proper parties as the March
26 letter was addressed to CAE Industries Ltd., and that CAE
Aircraft Ltd. became buyer and operator of the Winnipeg base
at the behest of its parent and with the full knowledge of the
government. They submit that any interests which may have
been held by Northwest became vested in CAE Aircraft Ltd.
by way of equitable assignment.
Held (Pratte J. dissenting), the appeal should be dismissed.
Per Stone J.: It does not matter whether the deal was struck
with the parent company or with a subsidiary. The CAE group
of companies was seen as having the desired qualifications to
purchase and operate the base. The contract, if any, was made
with CAE Industries Ltd., but CAE Aircraft Ltd. was accepted
by both sides as a suitable substitute. The Trial Judge correctly
held that the evidence supports the vesting in CAE Aircraft
Ltd. of any interest in the contract which Northwest may have
acquired. He was also correct in holding that the respondents
had a sufficient interest to support the causes of action alleged.
A contract can only come into existence if an intention to
contract is present. But an intention to contract may be gath
ered from the circumstances. In a case of this kind, a heavy
onus of proof lies on the party asserting that no legal effect is
intended. That burden had not been discharged. The govern
ment itself took the initiative to find a buyer in the private
sector and approached the respondent in that regard. The
parties treated the document as a binding contract to the extent
that it was partly performed. There was an intention to enter
into a contract.
The contract is not so incomplete as to be unenforceable. It
does not leave anything unsettled that was necessary to be
settled between the parties. The fact that individual service
contracts would be required for individual items of aircraft
repair and overhaul work did not detract from the central
commitment to "set aside" repair and overhaul work and to
employ "best efforts" to secure other like work. What were
described as "assurances" were, upon acceptance, intended to
be and did become binding commitments. The Trial Judge
correctly found that "set-aside" work was a "guarantee with no
strings attached" and that the appellant was bound to carry out
this aspect of the agreement even if it was necessary "to take
work away from others." In the agreement, the government
promised to employ its "best efforts" to secure additional work.
That term, construed in the light of the contract, the parties
and its purpose, created a broad obligation to secure work up to
the limit mentioned in the agreement. This did not mean that it
required the government to disregard existing contractual obli
gations or to neglect the public interest.
The Trial Judge held that the contract was binding on the
Crown as it was signed by three ministers who either had actual
authority to bind the Crown under a number of federal stat
utes, or ostensible authority under the principle in Verreault (J.
E.) & Fils Ltée v. Attorney General (Quebec), [1977] 1 S.C.R.
41. The appellant argued that the Crown could only be bound
in contract if authority is found under a statute or an order in
council. It is argued that statutory powers of "management" or
"direction" do not extend to authorize the signing of this kind
of contract.
The cases preceding Verreault support the broad proposition
that where a statute regulates the power to make contracts, a
contract is not binding upon the Crown unless the requirements
of the statute are fulfilled. By its decision in Verreault, the
Supreme Court of Canada meant to depart from conventional
legal wisdom in holding that by the general rules of mandate,
including those of apparent mandate, a minister as head of a
government department has authority to bind the Crown in
contract unless that authority is restricted by or pursuant to
statute. The subject-matter of this contract fell within the
general responsibilities of the ministers from whose depart
ments the work with which it is concerned would emanate.
Although the letter was signed by only three Ministers, Cabinet
had authorized those Ministers to sign it. The intention was
that the government intended to be bound.
The authority of the Ministers to sign the letter was not
restricted by the Aeronautics Act, the Department of Trade
and Commerce Act, nor the Defence Production Act. Para
graph 17(1)(d) of the latter provides that the Minister could
not contract except in accordance with such regulations under
the Financial Administration Act as apply to the contract. This
restriction is irrelevant as the regulations made under that Act
apply only to a "service contract".
The Government Contract Regulations do not bar implemen
tation of the intention of the parties to create a legal commit
ment. Performance of the work was subject to those Regula
tions. The Regulations, as they pertain to "service contracts",
contain a degree of flexibility that would have enabled the
government through its ministers and, if necessary, the Trea
sury Board to direct the work referred to in the contract
without the necessity for tenders or regard to monetary limits.
The appellant is bound by the contract.
The finding of the Trial Judge, that the "set-aside" and "best
efforts" commitments had not been entirely met and that the
contract had been breached, was supported by the evidence.
The Trial Judge assessed damages for loss of profits at
$1,900,000 and for loss of capital at $2,400,000. The appellant
argues that the claim for loss of capital is not recoverable as
being too remote and uncertain. The appellant also asserts that
the awards were excessive. The Trial Judge did not err in
principle in awarding damages for loss of profits, nor in reduc
ing the quantum. As to the claim for loss of capital, the Trial
Judge accepted the valuation evidence of the respondents'
witness. The Trial Judge may have erred in accepting the
quality of the proof tendered supporting certain underlying
assumptions made by the witness. The factual bases supporting
the valuator's assumptions were too tenuous and speculative to
make his opinion reliable as evidence. The appeal should suc
ceed on this point and the damages reduced accordingly.
The appellant attacks the rates at which interest was
allowed. The Trial Judge relied upon Domestic Converters
Corporation v. Arctic Steamship Line, [1984] 1 F.C. 211;
(1983), 46 N.R. 195 (C.A.) in varying the post-judgment
interest rate from the 5% provided for in section 3 of the
Interest Act. That case settled the issue of the Court's power
under section 40 of the Federal Court Act and the Court was
not prepared to review it.
The Trial Judge refused to increase the party-and-party costs
beyond those provided in Tariff B. By Rule 344, the Tariff
governs. The Trial Judge properly addressed the issue in exer
cising his discretion.
Per Urie J.: Where there is substantial compliance with the
terms of a contract for a period of time, only if the evidence is
clear and unmistakable should the conclusion be made that the
parties neither intended to contract nor in fact entered into a
contract. The evidence is clear and unmistakable that the
parties intended to, and did, enter a binding contract.
Per Pratte J. (dissenting): The circumstances do not disclose
an intention to enter into a purely political arrangement, rather
than a contract, as submitted by the appellant.
It is surprising, in view of the importance of the matter, that
the parties did not formalize the agreement. The letter was not
written to make an offer, but to give assurances. Some of the
assurances, while disclosing an identity of views and purposes,
have clearly no contractual connotation.
The Trial Division's interpretation of a guarantee of at least
40,000 man-hours of "set-aside" work is incorrect. The letter
stated that "the Department of Defence Production can guar
antee no more than 40,000 to 50,000 manhours". It was a mere
approximation of the maximum number of hours of work that
the Department could guarantee, not a precise minimum
number of hours that the Department offered to guarantee.
The "best efforts" undertaking lacked the certainty required
of a contractual promise, as it was qualified by the govern
ment's paramount duty to act in the public interest. The
government could not intend to bind itself to do things injurious
to that interest.
The respondents submit that at examination for discovery it
was admitted that each Minister had statutory authority to
bind the Crown in relation to his own department. But that is a
question of law which could not be the subject of an admission.
What was really admitted was that Cabinet authorized the
three Ministers to sign and send the letter. An order in council
is sufficient, in the absence of statutory provisions to the
contrary, to confer authority to bind the Crown. The executive
power is vested in the Queen who acts on the advice of her
Ministers and expresses herself in the form of orders in council.
A Cabinet decision is not a decision of the Queen who is not a
party to it. A simple authorization of the Cabinet cannot be
assimilated to an order in council. The Ministers were not
authorized by statute to enter into the contract. The Defence
Production Act authorized the Minister to enter into contracts
for the maintenance and service of defence supplies (including
aircraft). The Aeronautics Act imposed on the Minister of
Transport the duty "to control and manage" all civilian aircraft
"necessary for the conduct of any of Her Majesty's services".
The contract here was neither a contract for the maintenance
of government aircraft nor a contract whereby the Minister of
Transport exercised his power of control and management over
civilian aircraft used by the Government. It was a contract
which provided that contracts for the maintenance of aircraft
would be negotiated with CAE companies. That contract,
which could have no immediate effect on the maintenance and
servicing of aircraft, was allegedly entered into for the sole
purpose of preventing the closure of the Winnipeg Air Canada
base. The Department of Trade and Commerce Act did not
describe the sphere of governmental business that was assigned
to that Department.
The Verreault decision does not help the respondents. It
stands for the proposition that, in the absence of statutory
provisions to the contrary, a minister, to have authority to
contract on behalf of the Crown, need not be expressly author
ized by statute or order in council provided that the contract be
directly related to that part of the government business
assigned to his department. The contract in question was not
directly related to the sphere of activity of any of the three
departments concerned. Under the Government Contracts
Regulations a minister, before entering into a service contract
was required to call tenders. Although the alleged contract was
not a service contract, it contemplated that service contracts
would be entered into and its performance required that those
service contracts be awarded without regard to the require
ments of the Regulations. In the absence of an express statu
tory provision to the contrary, the power of a minister to enter
into a contract on behalf of the Crown is subject to the
limitations imposed by statute and regulations. The three Min
isters did not have the authority to enter into a contract which
would violate the Government Contracts Regulations.
The submission that if the Court were to find no valid
enforceable agreement, it should find that the appellant was
liable to the respondents on the basis of negligent misstate
ments contained in the March 26 letter is untenable. The letter
did not contain any misstatements that could be the source of a
liability in tort. Had a tort been committed, there was no
evidence that the respondents suffered damages as a conse
quence thereof.
CASES JUDICIALLY CONSIDERED
APPLIED:
Attorney-General for British Columbia v. Esquimalt and
Nanaimo Railway Company, [1950] A.C. 87 (P.C.);
Lindsey v. Heron & Co. (1921), 64 D.L.R. 92 (Ont.
C.A.); Kelly v. Watson (1921), 61 S.C.R. 482; Hillas and
Co. Limited v. Arcos Limited (1932), 147 L.T. 503
(H.L.); Marquest Industries Ltd. v. Willows Poultry
Farms Ltd. (1969), 66 W.W.R. 477 (B.C.C.A.); May
and Butcher, Ltd. v. R., [1929] All E.R. Rep. 679 (H.L.);
Murphy v. McSorley, [1929] S.C.R. 542; Sheffield Dis
trict Railway Company v. Great Central Railway Com
pany (1911), 27 T.L.R. 451 (Rail and Canal Corn.);
Verreault (J. E.) & Fils Ltée v. Attorney General
(Quebec), [1977] 1 S.C.R. 41; Town Investments Ltd. v.
Department of the Environment, [1978] A.C. 359 (H.L.);
British Westinghouse Electric and Manufacturing Com-
papy v. Underground Electric Railways Company of
London, [1912] A.C. 673 (H.L.); Penvidic Contracting
Co. Ltd. v. International Nickel Co. of Canada Ltd.,
[1976] 1 S.C.R. 267; Wood v. Grand Valley Railway Co.
et al. (1915), 51 S.C.R. 283; Domestic Converters Cor
poration v. Arctic Steamship Line, [1984] 1 F.C. 211;
(1983), 46 N.R. 195 (C.A.).
DISTINGUISHED:
Joy Oil v. The King, [1951] S.C.R. 624; 3 D.L.R. 582;
Meates v Attorney-General, [1979] 1 NZLR 415 (S.C.).
CONSIDERED:
The King v. McCarthy (1919), 18 Ex.C.R. 410; The
Quebec Skating Club v. The Queen (1893), 3 Ex.C.R.
387; Wood v. The Queen (1877), 7 S.C.R. 634; Drew,
Aileen M. v. The Queen, [1956-1960] Ex.C.R. 339;
Walsh Advertising Co. Ltd. v. The Queen, [1962]
Ex.C.R. 115; Jacques-Cartier Bank v. The Queen
(1895), 25 S.C.R. 84; The King v. Vancouver Lumber
Co. (1914), 41 D.L.R. 617 Ex. Ct.; R. v. Transworld
Shipping Ltd., [1976] 1 F.C. 159 (C.A.); Mackay v.
Attorney-General for British Columbia, [1922] 1 A.C.
457 (P.C.); Livingston vs The King (1919), 19 Ex.C.R.
321; State of New South Wales v. Bardolph (1933-
1934), 52 C.L.R. 455 (Aust. H.C.); Cudgen Rutile (No.
2) Pty. Ltd. v. Chalk, [1975] A.C. 520 (P.C.); Hadley v.
Baxendale (1854), 9 Ex. 341; 156 E.R. 145; Victoria
Laundry (Windsor), Ld. v. Newman Industries Ld.,
Coulson & Co., Ld. (Third Parties), [1949] 2 K.B. 528
(C.A.); Czarnikow (C.) Ltd. v. Koufos, [1969] 1 A.C.
350 (H.L.); Freedhoff v. Pomalift Industries Ltd. et al.,
[1971] 2 O.R. 773 (C.A.); Midway Mfg. Co. v. Bern-
stein, [1983] 1 F.C. 510 (T.D.).
REFERRED TO:
Brandt's (William) Sons & Co. v. Dunlop Rubber Com
pany, [1905] A.C. 454 (H.L.); Rose and Frank Co. v.
Crompton and Brothers, [1923] 2 K.B. 261 (C.A.);
Edwards v. Skyways Ltd., [1964] 1 W.L.R. 349 (Q.B.);
Bahamas Oil Refining Co. v. Kristiansands Tankrederei
AIS and Others and Shell International Marine Ltd.
(The "Polyduke"), [1978] 1 Lloyd's Rep. 211 (Q.B.);
Province of Quebec v. Province of Ontario (1909), 42
S.C.R. 161; Attorney-General for Ceylon v. A. D. Silva,
[1953] A.C. 461 (P.C.); Guerin et al. v. The Queen et al.,
[1984] 2 S.C.R. 335; (1985), 55 N.R. 161; Nance v.
British Columbia Electric Ry. Co. Ld., [1951] A.C. 601
(P.C.); Flint v. Lovell, [1935] 1 K.B. 354 (C.A.); South
Australia and A.-G. (S.A.) v. Commonwealth (1962), 35
A.L.J.R. 460 (H.C.); Australian Woollen Mills Pty. Ltd.
v. The Commonwealth (1954), 92 C.L.R. 424 (Aust.
H.C.), affd. [1955] 3 All E.R. 711 (P.C.); Milne v.
Attorney-General for Tasmania (1956), 95 C.L.R. 460
(Aust. H.C.); Papua and New Guinea Administration v.
Leahy (1961), 34 A.L.J.R. 472 (H.C.); Terrell v. Mabie
Todd & Coy Ld. (1952), 69 R.P.C. 234 (Q.B.); Randall
v. Peerless Motor Car Co., 99 N.E. 221 (S.C. Mass.
1912)—Chaplin v. Hicks, [1911] 2 K.B. 786 (C.A.).
COUNSEL:
E. A. Bowie, Q.C. and B. Mcisaac for appel
lant (defendant).
Marc M. Monnin, L. N. Mercury and D. G.
Hill for respondents (plaintiffs).
SOLICITORS:
Deputy Attorney General of Canada for
appellant (defendant).
Aikins, McAuley & Thorvaldson, Winnipeg,
for respondents (plaintiffs).
The following are the reasons for judgment
rendered in English by
PRATTE J. (dissenting): This is an appeal from a
judgment of Collier J. of the Trial Division
[[1983] 2 F.C. 616] in an action for breach of
contract brought by the respondents against the
Crown. That judgment was in favour of the
respondents. Collier J. found that they had entered
into a contract with the Crown and that the Crown
had breached that contract; as a result, he award
ed the respondents damages in the sum of
$4,300,000 and costs.
There is also a cross-appeal from the same
decision. The respondents contend that the Trial
Judge should have been more generous in his
assessment of the damages and that he erred in
failing to exercise his discretion to award the
respondents costs over and above the applicable
tariff.
The series of events which culminated in these
proceedings are well summarized by Collier J. [at
page 621]:
In its early years the operations of Air Canada (formerly
T.C.A.) were centralized in Winnipeg. In 1949 an operating
and maintenance base was begun in Montreal. In 1959, a large,
modern overhaul base was completed in that City.
In 1962 Air Canada expressed an intention to close its
Winnipeg base. This brought strenuous protest. The loss of up
to 1,000 highly skilled jobs in the Winnipeg area was the likely
result of any close-down. At that time the main overhaul and
maintenance work at Air Canada's Winnipeg base was its
Viscount fleet.
The Prime Minister of the day, in late 1963 and early 1964,
stated government policy was to keep the Winnipeg base, in
some manner, open. A Royal Commission was established to
review the whole matter. The Commission made a number of
recommendations. But subsequent negotiations, to work out an
acceptable plan to keep the Winnipeg base open, floundered.
In early October, 1967, Air Canada announced its Viscount
fleet would, by 1970, drop to such an extent that the Winnipeg
base would be closed. This announcement led to meetings
between the federal Minister of Transport and the Province of
Manitoba. Three results of this meeting were (see Ex. P.
150-151):
(1) The Minister of Transport reaffirmed the Prime Minis
ter's earlier commitment but pointed out that this did not
necessarily mean direct operation by Air Canada although it
would require substantial support by Air Canada.
(2) Air Canada was asked to review its aircraft overhaul
requirements in the light of changes in circumstances subse
quent to the completion of the Royal Commission Report.
(3) An inter-governmental working party was established to
study the various proposed solutions to the problem.
Later in 1967, an official of the Department of
Industry approached a Mr. Reekie, who was the
President and Chief Executive Officer of the
respondent CAE Industries Ltd. (CAE), in order
to know whether its subsidiary, Northwest Indus
tries Ltd. (Northwest), would be interested in
taking over and operating the Air Canada Win-
nipeg facilities. Northwest was in the business of
repairing and overhauling aircraft in Edmonton.
Mr. Reekie expressed interest; there followed
lengthy negotiations with federal officials and Air
Canada.
From the outset, Northwest's interest in taking
over the Air Canada Winnipeg facilities was
linked to a request that the government should
agree to provide the company a minimum quantity
of work for several years to come. On the other
hand, very early in the negotiations, officials of the
federal government made clear that such a request
could not be reconciled with the existing govern
mental policy of competitive tendering.'
' The Government Contracts Regulations (SOR/64-390, as
amended by SOR/68-89, s. 1) imposed on the various depart
ments the obligation to call tenders before entering into service
contracts.
In January, 1969, Northwest submitted "a pro
posal to Air Canada for the purchase and con
tinued operation of the present Air Canada Main
tenance Base at Winnipeg International Airport."
That document contained the following statement:
We must repeat again that unless and until firm commit
ments totalling 300,000 productive hours per annum until 1976
are made we will be unwilling to take over and operate the
Winnipeg Maintenance Base. It is a condition of our proposal,
therefore, that commitments be made by Air Canada and/or
the Canadian Government to provide 300,000 hours of produc
tive work annually until 1976 over and above that work gener
ated by Northwest Industries Limited. Without such a commit
ment we cannot undertake to maintain employment on existing
levels, nor can we be confident of our ability to develop a
lasting and healthy industry for the Province of Manitoba.
On February 28, 1969, Mr. Reekie, the Presi
dent of CAE, wrote a Mr. E. L. Hewson, Director
of Transportation Policy and Research in the
Department of Transport, to set out CAE's
requests:
We understand that the Canadian Government has been
advised by Air Canada that Northwest Industries Limited is
their preferred choice as the contractor to take over and operate
the Air Canada maintenance base in Winnipeg, based upon an
assessment and evaluation of proposals submitted by interested
parties in January of this year. We understand further that the
Government of Canada now wishes to negotiate with the
preferred contractor with a view to satisfying its demands on
the Canadian Government, which were spelled out in a general
way in the proposal referred to above.
To further the resolution of this problem we wish to elaborate
on, and to clarify, the commitments requested by us from the
Government of Canada, which in conjunction with the commit
ments required from Air Canada, and the contributions to be
made by Northwest Industries should enable us to achieve the
aims of all interested parties. These aims can be briefly stated
as the development of a sustaining aircraft industry in Manito-
ba on a long term basis, and the maintenance of employment at
existing levels.
Our requirements have been spelled out consistently over a
period of nearly two years. They are calculated to be the
minimums needed to maintain employment levels for a period
of time sufficient, in our view, to enable other sources of work
to be developed. We are well aware of the problems for both
Air Canada and the Government of Canada in making work
and other commitments, however, it must be recognized that
without the necessary support from Air Canada and the Gov
ernment of Canada, there is no likelihood that the desired
employment levels will be maintained.
Indications to date are that the guarantee of 300,000 man
hours per year until 1976, which we requested from Air
Canada and/or the Government of Canada will not be provided.
Air Canada has offered work guarantees of 150,000 man hours
per year until 1976, and the Government of Canada has offered
some 50,000 man hours per year until 1976, for a combined
total of 200,000 man hours per year. This is some 100,000 man
hours per year short of the total requested, equivalent to the
work of approximately 50 productive people. These commit
ments are in addition to the Viscount overhaul work presently
performed at the base.
Government policy has been expressed by the ex-Prime Minis
ter of Canada, the Right Honourable Lester B. Pearson, and
the Minister of Transport, the Honourable Paul Hellyer, who
have stated that employment levels would be maintained, and
that a viable aircraft industry would continue in the place of
the Air Canada maintenance facility in Winnipeg. It is difficult
in our view to equate these statements with the reluctance to
commit from the resources of the Government of Canada for
the work of fifty persons. We are well aware that existing
contracting procedures and policies in the Department of
Defence Production and the Department of Industry, do not
provide for a solution such as we are suggesting, but if the
assurances given to the employees at the Air Canada base, to
the Government of Manitoba and to the citizens of that Prov
ince are to be meaningful, then these policies and practices
must be amended.
To assist in the resolution of this problem, therefore, we would
like to suggest the following:
1. A letter be addressed to Northwest Industries Limited,
stating that it is the government's aim to maintain present
employment levels and to assist in the development of a
viable and continuing aircraft industry in Winnipeg.
2. This letter would agree on the validity of our need for
300,000 man hours of committed work to accomplish the
desired ends.
3. The letter would state the number of man hours and the
work programs which can presently be committed, based
on current information.
4. The letter would agree that the Government of Canada
would use its best efforts to provide additional work, for
the required period of time, between that offered and the
amount stipulated in our proposal.
5. The letter would agree that any work provided to the
Winnipeg facility would not come from contracts or air
craft programs presently handled by Northwest Industries
in Edmonton.
6. The letter would state that government policy would be to
encourage and support only one aircraft repair and over
haul contractor in the Winnipeg area, and that future
aircraft repair and overhaul programs would not be avail
able to any other in the area.
7. The government would agree to assign existing land leases
to Northwest Industries as per our proposal to Air
Canada.
It is our desire to ensure that this venture in the Winnipeg area
continues on a sustaining basis. We ask that this letter be
signed by those Ministers of the Crown and their Deputies
whose responsibility it would be to ensure that the work com
mitments are met as stipulated.
On March 20, 1969, the Cabinet approved a
reply to Mr. Reekie's letter. That reply was in the
form of a letter addressed to Mr. Reekie, signed by
the Honourable Paul Hellyer, Minister of Trans
port, the Honourable J.-L. Pépin, Minister of
Trade and Commerce, and the Honourable D. C.
Jamieson, Minister of Defence Production. That
letter was dated March 26, 1969. It deserves to be
quoted in full since, according to the respondents,
it states the terms of the contract concluded by the
parties:
THE MINISTER OF TRANSPORT
OTTAWA, March 26, 1969
Mr. C. D. Reekie,
President,
CAE Industries Ltd.,
P.O. Box 6166,
Montreal 3, P.Q.
Dear Mr. Reekie:
On February 28, 1969, you wrote to Mr. E.L. Hewson of the
Department of Transport asking for certain assurances in con
nection with the proposed purchase of Air Canada's Winnipeg
Maintenance Base by Northwest Industries Ltd., a subsidiary
of CAE Industries Ltd. On the basis of an agreement having
been signed by your firm and by Air Canada, the undersigned
have been authorized to provide the following assurances in this
matter:
(a) The Government of Canada agrees with the objective that
present employment levels should be maintained and that
every possible effort should be made to assist in the
development of a viable and continuing aerospace industry
in Winnipeg.
(b) It also agrees that 700,000 manhours of direct labour per
annum is a realistic target for the operation of a viable
enterprise in these facilities and that current estimates of
future workload suggest a potential gap between actual
and minimum levels in the years 1971 to 1976 unless new
repair and overhaul work or aerospace manufacturing
contracts can be obtained.
(c) The Department of Defence Production can guarantee no
more than 40,000 to 50,000 direct labour manhours per
year in the period 1971-1976 as "set-aside" repair and
overhaul work, but the Government of Canada will employ
its best efforts to secure the additional work required from
other government departments and crown corporations to
meet the target level of 700,000 direct labour manhours.
(d) In fulfilling the commitment set out in (c) above, the
Government of Canada agrees that any additional work
allocated to the Winnipeg Maintenance Base will not be
taken from government contract work presently carried
out by Northwest Industries in Edmonton.
(e) It further agrees that the existing Air Canada lease from
the Department of Transport will be assigned to NWI
under present financial terms and conditions for a period
of ten years.
Yours sincerely,
Paul T. Hellyer
Concurred in by:
Hon. J. L. Pépin,
Minister of Trade and Commerce
Hon. D. C. Jamieson,
Minister of Defence Production
Relying on the assurances contained in that
letter, CAE decided that its subsidiary would pur
chase and operate the Air Canada Winnipeg facili
ties. On april 2, 1969, Northwest entered into a
preliminary agreement with Air Canada. Shortly
afterwards, however, CAE decided that the acqui
sition, instead of being made by Northwest, would
be made by a new wholly-owned subsidiary of
CAE named CAE Aircraft Ltd. (Aircraft). Early
in September, that new subsidiary entered into the
necessary agreements with Air Canada, took over
the Air Canada base and began to carry on busi
ness. At first everything went well, but, in 1971,
the workload started to diminish. The respondents
asked the appellant to comply with the commit
ments contained in paragraph (c) of the March 26
letter and provide Aircraft with work. Their
demands were not satisfied. As a consequence,
they sued for breach of contract.
The first question to be resolved is whether the
Trial Judge was right in holding that the letter of
March 26, 1969, resulted in a legally enforceable
contract under which:
(a) the Department of Defence Production was
under an obligation to provide to the respondents
at least 40,000 labour man-hours per year in the
period 1971-1976 as "set-aside" repair and over
haul work, 2 and
(b) the Government of Canada was obliged to
use its best efforts to secure from other govern
ment departments and Crown corporations the
additional work required to meet during those
years the annual target level of 700,000 direct
labour man-hours.
z It is common ground that the phrase "set-aside work"
referred to work "put into certain suppliers" without
competition.
The respondents' position is that the March 26
letter contained an offer made to CAE by the
three Ministers acting on behalf of the Crown.
They say that this offer was impliedly accepted
when Aircraft acquired the Air Canada Winnipeg
facilities.
Counsel for the appellant do not deny that the
respondents and the three Ministers acting on
behalf of the Cabinet entered into an agreement;
they do not contest either that, under that agree
ment, the government might have been under a
moral or political obligation to provide work to
Aircraft. Their position is that this agreement was
not a contract and did not impose any legally
enforceable obligation on the appellant.
In support of their position, counsel for the
appellant say that an examination of the circum
stances in which the March 26 letter was sent
shows that the parties intended to enter into a
purely political arrangement rather than a con
tract; they also say that the terms of the letter of
March 26 show that its authors never intended to
enter into a legally binding contract; finally, their
last argument is that, in any event, the agreement
entered into by the three Ministers and the
respondents could not bind Her Majesty since the
three Ministers were not authorized to contract on
Her behalf.
There may exist political agreements which, like
social or domestic agreements, do not give rise to
any legal obligations (see: Attorney-General for
British Columbia v. Esquimalt and Nanaimo
Railway Company, [1950] A.C. 87 (P.C.); Meates
y Attorney-General, [1979] 1 NZLR 415 (S.C.);
South Australia and A.-G. (S.A.) v. Common
wealth (1962), 35 A.L.J.R. 460 (H.C.); Australi-
an Woollen Mills Pty. Ltd. v. The Commonwealth
(1954), 92 C.L.R. 424 (Aust. H.C.), affd. [1955]
3 All E.R. 711 (P.C.); Milne v. Attorney-General
for Tasmania (1956), 95 C.L.R. 460 (Aust. H.C.);
Papua and New Guinea Administration v. Leahy
(1961), 34 A.L.J.R. 472 (H.C.)). However, if I
look merely at the circumstances in which the
March 26 letter was written, I cannot say with any
assurance that they disclose an intention to enter
into a political arrangement rather than a con
tract. It was obviously the policy of the govern-
ment of the time to try and prevent the closure of
the Air Canada Winnipeg base. However, it does
not follow that any agreement entered into by the
government to achieve that political objective was
a purely political agreement.
It is, therefore, necessary to examine the terms
of the March 26 letter in order to determine
whether they disclose an intention to enter into a
legally binding contract.
A few preliminary observations may be made.
The first one, which is far from conclusive, is that,
if the parties intended to enter into a contract, it is
a little surprising, in view of the importance of the
matter, that they did not choose to formalize their
agreement. The second observation, which is per
haps a little more pertinent, is that, on its face, the
March 26 letter does not appear to have been
written to make an offer but, rather, to give some
"assurances". That is not the kind of language
normally found in an offer to enter into an impor
tant contract. Thirdly, some of the assurances
contained in the letter, namely those found in
paragraphs (a) and (b), while disclosing an identi
ty of views and purposes between the parties, have
clearly no contractual connotation.
The important part of the March 26 letter is
paragraph (c) which, according to the respondents,
expressed two contractual promises which the
appellant allegedly failed to fulfil. The first of
these two promises was found in the first part of
the paragraph:
(c) The Department of Defence Production can guarantee no
more than 40,000 to 50,000 direct labour manhours per
year in the period 1971-1976 as "set-aside" repair and
overhaul work ....
The second promise was contained in the last part
of the same paragraph (c):
but the Government of Canada will employ its best efforts to
secure the additional work required from other government
departments and crown corporations to meet the target level of
700,000 direct labour manhours.
Let us consider separately each one of these two
commitments:
1. The guarantee of "set-aside" work
The Court of first instance interpreted the first
part of paragraph (c) as a guarantee of at least
40,000 man-hours of "set-aside" work. That inter
pretation is, in my opinion, incorrect. In that part
of paragraph (c), the authors of the letter of
March 26 did not give Mr. Reekie the assurance
that the Department of Defence Production guar
anteed or offered to guarantee his company a
minimum of 40,000 man-hours of "set-aside"
work; they simply assured him that "the Depart
ment of Defence Production can guarantee no
more than 40,000 to 50,000 manhours". In other
words, they gave a mere approximation of the
maximum number of hours of "set-aside" work
that the Department could guarantee; this, in my
view, cannot be interpreted as specifying the pre
cise minimum number of hours that the Depart
ment offered to guarantee.
For that reason, I am of opinion that the first
part of paragraph (c) did not express the firm
intention of guaranteeing a precise number of
man-hours of "set-aside" work; it did not, there
fore, contain an offer that the respondents could
accept so as to create the contractual guarantee on
which they rely.
2. The "best effort" undertaking
In the last part of paragraph (c) of their letter of
March 26 to Mr. Reekie, the three Ministers gave
him the assurance that:
the Government of Canada will employ its best efforts to secure
the additional work required from other government depart
ments and crown corporations to meet the target level of
700,000 direct labour manhours.
The problem, as I see it, is to determine whether
this undertaking was sufficiently precise to mani
fest an intention to enter into a contract. Indeed, in
order for a contract to exist, its terms must be
reasonably certain.'
That problem did not create any difficulty to the
Trial Judge. He did not see any difference between
this case and others where the courts have recog
nized the validity of a contractual undertaking by
'See: Fridman, The Law of Contract in Canada, Carswell,
1976, pp. 33 & foll.
a person to use his best efforts or endeavours to
achieve a specified result. 4
However, the meaning of a "best efforts" com
mitment is not necessarily always the same. It may
vary with the circumstances. In my opinion, the
commitment contained in the last part of para
graph (c) cannot be assimilated to a similar com
mitment given by an individual in an ordinary
commercial transaction.
The commitment here in question was given for
the purpose of ensuring that governmental con
tracts would be awarded to the CAE companies in
preference to others. That commitment, however,
was given in the name of the Government of
Canada whose first duty it was to act in the public
interest as it saw it. I cannot conceive that the
government, by promising to use its best efforts to
achieve a certain result, could wish to oblige itself
to do things which it considered injurious to the
public interest. More precisely, by promising to
employ its best efforts to give work to the CAE
companies, the government, in my opinion, could
not mean to oblige itself to give work to those
companies if the circumstances were such that, in
its judgment, the public interest required that that
work be given to others. The "best efforts" under
taking contained in the last part of paragraph (c)
must therefore be read as subject to that very
important subjective qualification. When so read,
it lacks, in my view, the certainty that is required
of a contractual promise.
I am therefore of opinion that, as was argued by
counsel for the appellant, the terms of paragraph
(c) of the March 26 letter did not disclose an
intention to assume contractual obligations.
I am confirmed in that conclusion when I con
sider the appellant's contention that the three Min
isters had no authority to bind the Crown to the
kind of contract alleged by the respondents. I am
indeed of the view that this contention is well
founded.
The learned Judge referred to: Sheffield District Railway
Company v. Great Central Railway Company (1911), 27
T.L.R. 451 (Rail and Canal Corn.); Terrell v. Mabie Todd &
Coy. Ld. (1952), 69 R.P.C. 234 (Q.B.); Randall v. Peerless
Motor Car Co., 99 N.E. 221 (S.C. Mass. 1912).
The Trial Judge was of a different opinion.
Counsel for the respondents put forward many
arguments in support of his view. He said:
(1) that the Crown had admitted that the three
Ministers had the necessary authority;
(2) that the Cabinet had authorized the Minis
ters to send the letter of March 26;
(3) that, as was decided by the Trial Judge, the
necessary authority was confered on the Ministers
by the Defence Production Act [R.S.C. 1952, c.
62], the Department of Trade and Commerce Act
[R.S.C. 1952, c. 78] and the Aeronautics Act
[R.S.C. 1952, c. 2];
(4) that, pursuant to the decision of the
Supreme Court of Canada in the Verreault case,
the three Ministers could bind the Crown even if
there was no statute or order in council which
conferred on them that authority; and
(5) that the Crown, in the circumstances, was
estopped from relying on the lack of authority.
I see no merit in the argument that this problem
was settled by an admission. The admission in
question, which was made by a representative of
the appellant during an examination for discovery,
was to the effect that each Minister had the
necessary authority under the statute governing his
department. That is a question of law which could
not be the subject of an admission.
What was really admitted during discovery was
that the Cabinet, on March 20, 1969, had author
ized the three Ministers to sign and send the letter.
It is on this admission that the respondents base
their argument that this authorization by the
Cabinet was sufficient to confer on the three Min
isters the authority to bind the Crown. That argu
ment, in my opinion, should be rejected. An order
in council is sufficient, in the absence of statutory
provisions to the contrary, to confer authority to
bind the Crown; the reason for this is that, under
our system of government, the executive power is
vested in the Queen who acts on the advice of her
Ministers and expresses herself in the form of
orders in council. A decision of the Cabinet, how
ever important as it may be, is not a decision of the
Queen who is not a party to it. For that reason, a
simple authorization of the Cabinet cannot be
assimilated to an order in council.
I cannot see any merit, either, in the contention,
which found favour with the Trial Judge, that the
three then Ministers had been conferred the neces
sary authority by the Defence Production Act,' the
Aeronautics Act 6 and the Department of Trade
and Commerce Act. 7
True, sections 15 and 17 of the Defence Produc
tion Act authorized the Minister of Defence Pro
duction to enter into contracts, on behalf of Her
Majesty, for the maintenance and service of
defence supplies (including aircraft) and sections 2
and 3 of the Aeronautics Act imposed on the
Minister of Transport the duty "to control and
manage" all civilian aircraft "necessary for the
conduct of any of Her Majesty's services". How
ever, the contract that was allegedly entered into
on behalf of Her Majesty in this case was neither a
contract for the maintenance of government air
craft nor a contract whereby the Minister of
Transport exercised his power of control and man
agement over civilian aircraft used by the Govern
ment. It was a contract which provided that con
tracts for the maintenance of aircraft would be
negotiated with CAE companies; that contract,
which could have no immediate effect on the
maintenance and servicing of aircraft, was alleged
ly entered into for the sole purpose of preventing
the closure of the Winnipeg Air Canada base by
inducing the CAE companies to acquire and oper
ate it; it was not, in my opinion, a contract that the
Minister of Defence Production and the Minister
of Transport were authorized to enter into by the
Defence Production Act and the Aeronautics Act.
As to the Minister of Trade and Commerce,
who also signed the March 26 letter, I do not see
how the Department of Trade and Commerce Act 8
could be interpreted so as to authorize him to enter
into a contract of the sort that was alleged by the
respondents. That statute did not contain any
description of the sphere of governmental business
5 R.S.C. 1952, c. 62, as amended.
6 R.S.C. 1952, c. 2.
R.S.C. 1952, c. 78.
8 R.S.C. 1952, c. 78.
that was assigned to the Department of Trade and
Commerce. It merely created a department called
"the Department of Trade and Commerce", pro
vided that the Minister of Trade and Commerce
should have "the management and direction" of
that Department and described in the following
manner the duties and powers of the Minister:
5. The duties and powers of the Minister of Trade and
Commerce extend to the execution of laws enacted by the
Parliament of Canada, and of orders of the Governor in
Council, relating to such matters connected with trade and
commerce generally as are not by law assigned to any other
department of the Government of Canada, as well as to the
direction of all public bodies, officers and servants employed in
the execution of such laws and orders.
It is common ground that there was no statute or
order in council contemplating the conclusion of a
contract such as the one here in question. It fol
lows, in my view, that the Minister of Trade and
Commerce did not have the statutory authority to
bind the Crown to the kind of contract alleged by
the respondents.
As I understand it, the decision of the Supreme
Court of Canada in Verreault 9 does not help the
respondents. It stands for the proposition that, in
the absence of statutory provisions to the contrary,
a minister, in order to have the authority to enter
into a contract on behalf of the Crown, need not be
expressly authorized by statute or order in council
provided that the contract in question be directly
related to that part of the government business
that is assigned to his department. In the instant
case, the contract that was alleged by the respond
ents was not, as I have already said, directly
related to the sphere of activity of any of the three
departments concerned.
Moreover, even if the connection between that
contract and the sphere of business assigned to
these departments were considered to be sufficient
to support the application of the Verreault princi
ple, I would still hold that it does not apply. Under
the Government Contracts Regulations, 10 a minis
ter, before entering into a service contract, was
normally required to call tenders. Obviously, the
contract that was alleged by the respondents was
9 Verreault (J. E.) & Fils Ltée v. Attorney General (Quebec),
[1977] 1 S.C.R. 41.
10 SOR/64-390, ss. 14 and following, as amended by SOR/
68-89, s. 1.
not itself a service contract. However, it contem
plated that service contracts would be entered into
in the future and its performance required that
those service contracts be awarded without regard
to the requirements of the Government Contracts
Regulations. In the absence of an express statu
tory provision to the contrary, the power of a
minister to enter into a contract on behalf of the
Crown is subject to the limitations imposed on that
power by statute and regulations; for that reason,
the three Ministers did not have the authority to
enter into a contract which could not be executed
without violating the Government Contracts
Regulations.
Finally, I would reject the respondents' argu
ment based on estoppel. In so far as I know, a
person cannot, by his own representations, make
himself the agent of another.
I am therefore of opinion that the respondents'
action for breach of contract should not have
succeeded. This, however, does not dispose of the
appeal since the respondents' action was framed
both in contract and in negligence. The Trial
Judge, having found that the appellant was liable
in contract, did not find it necessary to deal with
this second aspect of the case. However, we cannot
ignore it since counsel for the respondents argued
that if the Court were to find no valid enforceable
agreement, it should nevertheless find that the
appellant was liable to the respondents on the basis
of negligent misstatements contained in the letter
of March 26, 1969. That contention is untenable.
The letter did not contain any misstatements that
could be the source of a liability in tort. Moreover,
even if the three Ministers had, when they signed
and sent the letter, committed a tort that could be
the source of Crown liability under the Crown
Liability Act," there is no evidence that the
respondents suffered damages as a consequence of
that tort. Indeed, if the letter of March 26, 1969,
had not been sent, it is likely that no CAE com
pany would have purchased the Air Canada Win-
nipeg base; however, the record does not show that
the respondents' present situation is worse than it
" R.S.C. 1970, c. C-38.
would have been if that acquisition had not taken
place.
I would allow the appeal with costs, dismiss the
cross-appeal with costs, set aside the judgment of
the Trial Division and dismiss with costs the
respondents' action.
* * *
The following are the reasons for judgment
rendered in English by
URIE J.: I have had the advantage of reading
the draft reasons for judgment of each of my
brothers, Pratte and Stone JJ. I agree with those
of Mr. Justice Stone, including his proposed dispo
sition of the appeal. I merely wish to add this
observation. It is abundantly clear from the evi
dence that until sometime in the latter part of
1973, four years after the commitments of March
26, 1969 had been entered into, all of those per
sons who had been employed in implementing
them, viewed the letter as being contractual in
nature. As Stone J. has pointed out, there had
been, in fact, substantial compliance with its
terms, i.e., there had been part performance of the
mutual obligations contained therein. That fact
cannot be overlooked in deciding whether or not
there had been an intention to contract and wheth
er or not a contract had resulted. In such circum
stances, only if the evidence is clear and unmistak
able should the conclusion be that the parties
neither intended to contract nor did they in fact,
enter into a contract. For the reasons given by
Stone J., I am of the opinion that the evidence is
clear and unmistakable that the parties intended to
and did, in fact, enter a binding contract.
* * *
The following are the reasons for judgment
rendered in English by
STONE J.: I have had the advantage of reading
in draft the reasons for judgment prepared by Mr.
Justice Pratte. As the facts of the case are set out
with some particularity in the reasons for judg
ment of the Trial Judge 12 as well as by Mr. Justice
Pratte it is not necessary to repeat them here.
12 [1983] 2 F.C. 616 (T.D.).
Five major questions are raised by this appeal
and cross-appeal. For the appellant it is argued
that the parties did not intend to form a binding
legal contract, that if they did the document in
question is so vague and uncertain or incomplete
as to be unenforceable, that if it is not it cannot be
enforced because it does not bind the appellant,
that if it binds the appellant the learned Judge
erred in concluding that the contract was breached
and, finally, that he erred in quantifying damages
flowing from that breach and in fixing the rate of
interest. For their part the respondents join issue
on these questions and press an alternative argu
ment based upon negligent misstatement. By their
cross-appeal they also contend that an error was
made in assessing damages but say that an
increased quantum ought to have been allowed and
so also with costs.
Before taking up these issues, I should first deal
with a preliminary point that was argued before us
concerning the identity of the second party to the
contract assuming, for the purpose, that a contract
was made. The evidence on the point was referred
to and considered by the learned Trial Judge so it
is unnecessary to review it in detail. The respond
ent CAE Industries Ltd. is the parent of two
subsidiary companies. One is Northwest Industries
Ltd. which, during the material period, carried on
an aircraft maintenance operation at Edmonton.
The second, the respondent CAE Aircraft Ltd.,
was incorporated a few weeks subsequent to
March 26, 1969 for the express purpose of pur
chasing and operating Air Canada aircraft mainte
nance base at Winnipeg and it did so. CAE Indus
tries Ltd. had also been involved for some time in
the same line of business at its facilities in Mon-
treal. It is clear and the learned Judge so found,
that shortly after the initial contact was made with
Northwest the president of CAE Industries Ltd.,
Mr. C. D. Reekie, became actively involved in the
negotiations which led up to the letter of March
26, 1969.
The record discloses however that virtually until
early 1969 the negotiations contemplated North
west as the future purchaser and operator of the
base. Indeed the letter of March 26, 1969 itself,
while addressed to Mr. Reekie as president of
CAE Industries Ltd., refers to the "proposed pur
chase of Air Canada's Winnipeg Maintenance
Base by Northwest Industries Ltd., a subsidiary of
CAE Industries Ltd." The appellant argues from
the evidence that it was therefore Northwest that
became the other party to the contract and that
neither CAE Industries Ltd. nor its subsidiary
CAE Aircraft Ltd. is a party. From this it argues
that Northwest was the proper party to the action
as only it could recover any damages that result
from a breach of the contract or, alternatively, in
tort.
The respondents take the position that the
learned Trial Judge was correct in treating them
as the proper parties in that the letter of March
26, 1969 was addressed to CAE Industries Ltd.
and that CAE Aircraft Ltd. came onto the scene
as the buyer and operator of the Winnipeg base at
the behest of its parent and with the full knowl
edge of the government. Any interests which may
have been held by Northwest, they claim and the
Trial Judge agreed, became vested in CAE Air
craft Ltd. by way of equitable assignment.
What impresses me most about the evidence is
that throughout the negotiations it was the desire
of the government to strike a deal with CAE
Industries Ltd. in one form or other and, more
over, that it seemed to matter not whether the deal
was struck with the parent company or with a
subsidiary. The CAE group of companies were
seen as having the desired qualifications to pur
chase and operate the base which remained
throughout the central objective of the negotia
tions. Viewed in this way I do not think we should
be too astute to look for a technical answer on the
point, the overall intention being apparent. I
incline to the view that the contract, if any, was
made with CAE Industries Ltd. but otherwise that
CAE Aircraft Ltd., though incorporated after the
offer was made, was accepted by both sides to the
negotiations as a suitable substitute. In the latter
case I would respectfully agree with the learned
Trial Judge that the evidence supports the vesting
in CAE Aircraft Ltd. of any interest in the con
tract which Northwest may have acquired. (See
e.g. Brandt's (William) Sons & Co. v. Dunlop
Rubber Company, [1905] A.C. 454 (H.L.), per
Lord Macnaghten, at page 462.) I think the Trial
Judge was correct in treating both CAE Industries
Ltd. and its subsidiary CAE Aircraft Ltd., the
respondents herein, as having a sufficient interest
to support the causes of action alleged. For the
sake of convenience I will refer to both respond
ents simply as "the respondent".
I now turn to discuss the major issues identified
above.
Was a Contract Intended?
The appellant contends that in the circum
stances the letter of March 26, 1969 was never
intended to become a binding legal contract,
assuming always that it can be characterized as an
offer that was accepted by the respondent and that
there was legally sufficient consideration. It is the
question of intention to enter a contract that arises
here. I take as a starting point the following
statement of the law in Attorney-General for Brit-
ish Columbia v. Esquimalt and Nanaimo Railway
Company, [1950] A.C. 87 (P.C.), at page 108:
Besides involving an offer and an acceptance (either of which
may in appropriate cases be expressed in words or by conduct)
and the presence of consideration a contract can only come into
existence if an intention to contract is present.
See also Rose and Frank Co. v. Crompton and
Brothers, [1923] 2 K.B. 261 (C.A.).
I share the view expressed by Mr. Justice Pratte
that the circumstances in which the letter was
written do not disclose an intention to enter into a
purely political arrangement rather than a con
tract. Intention to enter a contract may be gath
ered from the surrounding circumstances, as was
pointed out by Middleton J. in Lindsey v. Heron &
Co. (1921), 64 D.L.R. 92 (Ont. C.A.), at pages
98-99 quoting from Corpus Juris, Vol. 13 at page
265:
The apparent mutual assent of the parties essential to the
formation of a contract, must be gathered from the language
employed by them, and the law imputes to a person an inten
tion corresponding to the reasonable meaning of his words and
acts. It judges of his intention by his outward expressions and
excludes all questions in regard to his unexpressed intention.
The government of the day was faced with a
decision by Air Canada to phase out its aircraft
maintenance base at Winnipeg. The initiative to
find a buyer in the private sector was taken by the
government itself and it was the government that
approached the respondent as a potential buyer. It
was seeking through the respondent a solution for
a particular problem. It was eager and anxious to
find a buyer so that the maintenance base and
associated employment in Winnipeg could be
preserved.
In my view the circumstances in which the letter
was written distinguishes this case from others
where it has been found that no intention to con
tract was present. (See e.g. Joy Oil v. The King,
[1951] S.C.R. 624; 3 D.L.R. 582, and Meates y
Attorney-General, [1979] 1 NZLR 415 (S.C.)). It
is clear from the evidence that the parties treated
the document as a binding contract to the extent
that it was partly performed. Moreover, as has
been pointed out the onus of proof in a case of this
kind "is on the party who asserts that no legal
effect was intended, and the onus is a heavy one"
(Edwards v. Skyways Ltd., [1964] 1 W.L.R. 349
(Q.B.), at page 355; and see also Bahamas Oil
Refining Co. v. Kristiansands Tankrederei AIS
and Others and Shell International Marine Ltd.
(The "Polyduke"), [1978] 1 Lloyd's Rep. 211
(Q.B.)). It is my view that that burden has not
been discharged. I have concluded on the basis of
evidence and the findings of the Judge below that
there was an intention on the part of both parties
to enter into a binding legal contract.
Is the Contract Vague and Uncertain or
Incomplete?
My conclusion that the parties intended to enter
into a binding legal contract does not mean that
they succeeded in doing so. The appellant stren
uously contends that the language used by the
parties is so vague and uncertain or the document
is so incomplete as to render the contract unen
forceable. The learned Judge below disagreed.
No doubt the parties chose to cast their agree
ment, arrived at after lengthy negotiations, in a
somewhat unusual form and style. But that, in
itself, ought not to deter us from giving it effect if
the parties have expressed themselves in language
sufficiently clear as to have created rights and
obligations enforceable in a court of law. This is
especially so where, as already noted, the contract
has been partly performed for then, as Mignault J.
said in Kelly v. Watson (1921), 61 S.C.R. 482, at
page 490, unless it be incomplete "the court ...
will struggle against the difficulty ensuing from
the vagueness of the contract." As in Hillas and
Co. Limited v. Arcos Limited (1932), 147 L.T.
503 (H.L.) we are dealing here with a commercial
contract and as Lord Wright pointed out in that
case (at page 514):
Business men often record the most important agreements in
crude and summary fashion; modes of expression sufficient and
clear to them in the course of their business may appear to
those unfamiliar with the business far from complete or precise.
It is accordingly the duty of the court to construe such docu
ments fairly and broadly, without being too astute or subtle in
finding defects ....
I am of the view that we should make every effort
to find a meaning in the words actually used by
the parties in deciding whether an enforceable
contract exists. That, it seems to me, is called for
by the cases. Thus in Marquest Industries Ltd. v.
Willows Poultry Farms Ltd. (1969), 66 W.W.R.
477 (B.C.C.A.), it was stated (at pages 481-482):
In the first place, consideration must be given to the duty of
a court and the rules it should apply, where a claim is made
that a portion of a commercial agreement between two con
tracting parties is void for uncertainty or, to put it another way,
is meaningless. The primary rule of construction has been
expressed by the maxim, "ut res magis valeat quam pereat" or
as paraphrased in English, "a deed shall never be void where
the words may be applied to any extent to make it good." The
maxim has been basic to such authoritative decisions as Scam-
mell & Nephew Ltd. v. Ouston [1941] AC 251, 110 LJKB 197,
[1941] 1 All ER 14; Wells v. Blain [1927] 1 WWR 223, 21
Sask LR 194 (C.A.); Ottawa Elec. Co. v. St. Jacques (1902)
31 SCR 636, reversing 1 OLR 73, as well as many others,
which establish that every effort should be made by a court to
find a meaning, looking at substance and not mere form, and
that difficulties in interpretation do not make a clause bad as
not being capable of interpretation, so long as a definite
meaning can properly be extracted. In other words, every clause
in a contract must, if possible, be given effect to. Also, as stated
as early in 1868 in Gwyn v. Neath Canal Navigation Co.
(1868) LR 3 Exch 209, 37 LJ Ex 122, that if the real intentions
of the parties can be collected from the language within the
four corners of the instrument, the court must give effect to
such intentions by supplying anything necessarily to be inferred
and rejecting whatever is repugnant to such real intentions so
ascertained.
On the other hand I would also agree that the
contract before us would not be good if it is so
vague and uncertain as to be unenforceable, or if it
is incomplete in the sense described in May and
Butcher, Ltd. v. R., [1929] All E.R. Rep. 679
(H.L.), at page 682, where Lord Buckmaster
wrote:
It has been a well-recognised principle of contract law for many
years that an agreement between two parties to enter into an
agreement by which some critical part of the contract matter is
left to be determined is no contract at all.
Viscount Dunedin added the following observa
tions (at pages 683-684):
The law of contract is that to be a good contract you must have
a concluded contract, and a concluded contract is one which
settles everything that is necessary to be settled, and leaves
nothing still to be settled by agreement between the parties. Of
course, it may leave something which still has to be determined,
but then that determination must be a determination which
does not depend on the agreement between the parties.
In this country, a land purchase contract which
provided that the balance of the purchase price
was "to be arranged" was found by the Supreme
Court of Canada to be unenforceable in that the
Court could not make the bargain that the parties
themselves had not made (Murphy v. McSorley,
[1929] S.C.R. 542).
Is the contract in question so incomplete as to be
unenforceable within these principles? In my opin
ion it is not. Unlike in the cases referred to, it does
not leave anything unsettled that was necessary to
be settled between the parties. It is in itself an
entire contract capable of standing on its own feet.
The fact that, following on its own performance,
there would need to be formed individual service
contracts for the carrying out of individual items
of aircraft repair and overhaul work did not, to my
mind, detract from its central commitment which
was to "set-aside" repair and overhaul work and to
employ "best efforts" to secure other like work for
the respondent within the context of the letter of
March 26, 1969.
The more difficult question, it seems to me, is
whether the contract is capable of being enforced
despite what I think may properly be viewed as a
certain looseness of language as, for example, the
presence of such terms as "assurances" in the first
paragraph, as well as "can guarantee", "set-aside"
and "best efforts" appearing in paragraph (c) of
the letter. As to the first of these I have no
difficulty in concluding in the circumstances that
what were described as "assurances" were, upon
acceptance by the respondent, intended to be and
did become binding commitments. That this is so
is reflected in paragraph (d) immediately follow
ing where the words "In fulfilling the commitment
set out in (c) above" appear. Clearly, the ministers
viewed paragraph (c) as a "commitment" despite
the use of the word "assurances" in the first
paragraph of the letter. I would view the term
"can guarantee" in the same light. It was intended
to convey and did convey the limit of "set-aside"
repair and overhaul work the respondent could
expect to receive if it decided to accept what by
that time had become a counter-proposal. Upon
acceptance the proposal became a binding commit
ment guaranteeing provision of "set-aside" work.
At the same time that commitment must be con
strued in a reasonable fashion in the light of the
language used, for I would agree that as a guaran
tee it had to be definite in extent. It is my view
that by the language used the parties intended that
at least 40,000 direct labour man-hours of "set-
aside" work would be provided. As both parties
conceded before us, any hours in excess of that
figure were not within the "set-side" guarantee.
The term "set-aside" was itself the subject of
evidence at trial to the effect that it consisted of
work to be directed to the respondent without
competition to be performed at full in-plant over
head rates. There was also evidence that it consist
ed simply of work done without competition and
without any contribution to overhead. The Trial
Judge, it appears, accepted that the former was
the case and rejected the latter evidence. On the
basis of that evidence he concluded (at page 638)
that the "set-aside" work was "a guarantee with
no strings attached" and that the appellant was
bound to carry out this aspect of the agreement
even if it was necessary "to take work away from
others". I am unable to disagree with his finding in
this regard or with the interpretation he placed
upon the term based upon his appreciation of the
evidence before him. In all of the circumstances
surrounding the transaction the explanation of the
appellant's witnesses as to the meaning of the term
"set-aside" is simply not a reasonable one. That, in
effect, was the conclusion which the Trial Judge
drew, perhaps not specifically but as he clearly
implies in his reasons.
Finally, I come to the term "best efforts" which
the government promised to employ to secure ad
ditional work. The appellant attacks it as so lack
ing in precision as to render it incapable of creat
ing legal rights and obligations enforceable in a
court of law. I would agree that it is a rather
general term but our task here is to discover, if we
can, what the parties intended by it. It was the
view of the learned Trial Judge that it is an
equivalent term to "best endeavours" as interpret
ed in the case of Sheffield District Railway Com
pany v. Great Central Railway Company (1911),
27 T.L.R. 451 (Rail and Canal Corn.) where A. T.
Lawrence J. (sitting as a member of the Railway
and Canal Commission) stated (at page 452) that,
subject to certain qualifications, the term, broadly
speaking, meant "leave no stone unturned". In my
view the construction of the term "best efforts"
must be approached in the light of the contract
itself, the parties to it and its overall purpose as
reflected in the language it contains. It created a
broad obligation to secure for the respondent air
craft repair and overhaul work up to the limit it
lays down.
This did not mean, and the contrary is not
suggested, that it required the government to
disregard any existing contractual obligations or,
certainly, to neglect the public interest. To the
extent that that interest required work to be done
by persons other than the respondent, there could
be no valid complaint that the contract would
thereby be breached. Indeed, this limitation seems
implicit in the language of the contract itself for
the appellant did not bind itself to provide work to
the respondent but only to employ its "best
efforts" to secure it. I am therefore unable to find
anything in the language of the contract which
purported to bind the appellant to a course of
action that would be contrary to the public
interest.
In summary, I would respectfully agree with the
conclusion arrived at by the learned Trial Judge
that this feature of the contract obliged the gov
ernment to employ its "best efforts" to secure
additional work from other departments and
crown corporations "in respect of any shortfall up
to 700,000 hours per year for the years 1971 to
1976". He put it in greater detail (at page 635) in
this way:
The agreement by the defendant was to provide a guaranteed
number of man-hours from DDP and to use its (the Crown's)
best efforts to make up any shortfall between what was realized
by the plaintiffs from that and other sources, up to 700,000
hours per annum. I have summarized the agreement in broad
terms. From a strict legal view, no further matters had to be
agreed upon. Best efforts, from the defendant's side to provide
the necessary hours, were required. How those best efforts were
to be made, when and if necessary, was up to the defendant. As
a matter of commercial and practical necessity, consultation
and negotiation as to the work, and cost of it, which would go
to any 700,000-hour shortfall, would likely have taken place. In
fact, that is what happened. But as a matter of binding legal
necessity, no further agreements, to make the March 26 letter
valid, were required.
Does the Contract Bind the Crown?
It is necessary now to consider whether the
contract in question binds the appellant. The
learned Trial Judge was of the opinion that it did
and that the respondent was entitled to damages
for its breach. In so deciding it was his view that
the action of the three Ministers who signed it was
the action of the government in that these Minis
ters either had actual authority to bind the Crown
under a number of federal statutes" or that the
Ministers had ostensible authority to do so thereby
rendering applicable the principle enunciated by
the Supreme Court of Canada in Verreault (J. E.)
& Fils Ltée v. Attorney General (Quebec),
[1977] 1 S.C.R. 41. The appellant takes the posi-
13 The statutory provisions relied upon are found in the
Defence Production Act, R.S.C. 1952, c. 62 as amended, the
Aeronautics Act, R.S.C. 1952, c. 2 and the Department of
Trade and Commerce Act, R.S.C. 1952, c. 78.
tion that the Ministers' actions did not bind the
Crown to the contract because they had neither
actual nor ostensible authority. Indeed it is urged
that the appellant can only be bound in contract if
authority to do so is found under a statute or an
order in council. Actual authority of the Ministers
to bind the Crown in virtue of their statutorily
conferred powers of "management" or "direction"
of the departments they head, it is argued, does
not extend to authorize the signing of a contract of
the kind that is in issue.
In order to put the issue in perspective it is
necessary to review decided cases which preceded
that of Verreault and then to decide whether the
principle of that decision is applicable here. In a
line of decisions of the Exchequer Court of
Canada reaching back into the last century, the
view has been consistently expressed that authority
to bind the Crown in contract must be founded
either upon a statute or an order in council. It was
thus expressed by Mr. Justice Audette in The King
v. McCarthy (1919), 18 Ex.C.R. 410, at page 414:
Unless authorized by order in council or by statute, a Minister
of the Crown cannot bind his Government. 14
14 I consider the word "government" in this context to be quite
appropriate though it leaves open the principal question wheth
er the "government" or the "Crown" (whichever term be used)
is bound by a given contract. A disinclination to differentiate
between the two terms was expressed in the House of Lords by
Lord Diplock in Town Investments Ltd. v. Department of the
Environment, [1978] A.C. 359 (at p. 381):
Where, as in the instant case, we are concerned with the
legal nature of the exercise of executive powers of govern
ment, I believe that some of the more Athanasian-like fea
tures of the debate in your Lordships' House could have been
eliminated if instead of speaking of "the Crown" we were to
speak of "the government"—a term appropriate to embrace
both collectively and individually all of the ministers of the
Crown and parliamentary secretaries under whose direction
the administrative work of government is carried on by the
civil servants employed in the various government depart
ments. It is through them that the executive powers of Her
Majesty's government in the United Kingdom are exercised,
sometimes in the more important administrative matters in
Her Majesty's name, but most often under their own official
designation. Executive acts of government that are done by
any of them are acts done by "the Crown" in the fictional
sense in which that expression is now used in English public
law.
That learned Judge cited several cases in support
of this view, the earliest being The Quebec Skating
Club v. The Queen (1893), 3 Ex.C.R. 387. My
appreciation of that case is that, because of statu
tory restrictions, the lands which the petitioner had
agreed to accept in substitution for his own could
not be transferred by the Governor in Council and
that the authority of a further statute was
required. That being so, an agreement made by the
minister with the appellant in the absence of statu
tory authority lacked binding effect. Nevertheless,
the views of Mr. Justice Audette were subsequent
ly accepted as "an elementary principle" (Drew,
Aileen M. v. The Queen, [1956-1960] Ex.C.R.
339, at page 350) and "as a general proposition"
(Walsh Advertising Co. Ltd. v. The Queen, [1962]
Ex.C.R. 115, at page 123). 15 It is to be noted that
these decisions were based upon the existence of
express statutory restrictions regulating the power
to contract. 16
15 In Wood v. The Queen (1877), 7 S.C.R. 634 the Chief
Justice of Canada, Sir William B. Richards, sitting as a
member of the Exchequer Court of Canada, stated (at p. 644):
The Public Works Department in this Dominion, being a
department of state, presided over by a minister of the
Crown, responsible to Parliament for the conduct of the
business of his department, may, I have no doubt, as the
agent of or representing the Crown in all matters under the
charge of that department, make agreements and enter into
contracts which would bind the Crown, unless there is some
legislative enactment or, perhaps, Orders in Council, control
ling and limiting such power.
However, Mr. Justice Thurlow (as he then was), in giving
judgment in the Walsh Advertising case, was of the view that
certain statements in the Wood case could not prevail over
different views expressed in Drew, Aileen M. v. The Queen, The
King v. McCarthy and, possibly, Livingston vs The King
(1919), 19 Ex.C.R. 321.
16 The latest statement in this Court on the subject is contained
in the dictum of Chief Justice Jackett in R. v. Transworld
Shipping Ltd., [ 1976] 1. F.C. 159 (C.A.) where he stated (at p.
163):
With regard to departmental authority in respect of con
tracting, just as when any person contracts as agent of an
ordinary person, so, when some person contracts on behalf of
Her Majesty, there must be authority for the agent to act on
behalf of the principal; and, in the case of a government
under our system of responsible government, such authority
must ordinarily be found in or under a statute or an order in
council. In this connection, it is to be noted that ordinary
government operations in Canada are divided among
statutorily created departments each of which is presided
over by a Minister of the Crown who has, by statute, the
"management" and direction of his department. In my view,
(Continued on next page)
The decisions of the Supreme Court of Canada
in the Jacques-Cartier Bank v. The Queen (1895),
25 S.C.R. 84 and The King v. Vancouver Lumber
Co. (1914), 41 D.L.R. 617 (Ex. Ct.) [affirmed on
appeal to Supreme Court of Canada, December 4,
1914] are also cited in support of the principle
relied on in the McCarthy case. In the first of
these cases it was held that a minister lacked
authority to bind the Crown where the subject-
matter of the alleged contract (the printing of
certain material) had not been authorized by the
House which had taken some action concerning
the matter but had stopped short of authorizing
the printing. The Vancouver Lumber decision
(subsequently upheld by the Privy Council (1919),
50 D.L.R. 6) held that in the absence of a further
order in council authorizing him to do so, a minis
ter had no authority to alter a contract made
pursuant to an order in council. To the same effect
is the decision of the Privy Council in Mackay v.
Attorney-General for British Columbia, [1922] 1
A.C. 457. There, the power to enter into a contract
had been conferred by statute upon the Lieuten-
ant-Governor in Council, leading their Lordships
to conclude (at pages 461-462) that in the absence
of an order or resolution of the Lieutenant-Gover
nor in Council, "the mere assent of the ministers
of the day to the contract could not ... make the
contract a legally binding one...." See also Prov
ince of Quebec v. Province of Ontario (1909), 42
S.C.R. 161.
It seems to me that the decisions referred to
above support the broad proposition that where a
statute regulates the power to make contracts, a
contract binding upon the Crown does not come
into existence unless the requirements of the stat
ute are fulfilled. The decision of the Exchequer
Court of Canada in Livingston vs The King
(1919), 19 Ex.C.R. 321 appears not so qualified,
holding that a contract to bind the Crown for a
term of years required authorization by the Gover
nor in Council. The question is not otherwise
discussed in that case and there is absence of
reliance upon prior authorities. The above proposi-
(Continued from previous page)
subject to such statutory restrictions as may otherwise be
imposed, this confers on such a Minister statutory authority
to enter into contracts of a current nature in connection with
that part of the Federal Government's business that is
assigned to his department.
tion was, I think, well put by Rich J. in State of
New South Wales v. Bardolph (1933-1934), 52
C.L.R. 455 (Aust. H.C.) (at page 496):
When the administration of particular functions of Government
is regulated by statute and the regulation expressly or impliedly
touches the power of contracting, all statutory conditions must
be observed and the power no doubt is no wider than the statute
comtemplates.
This passage was cited with approval by Lord
Wilberforce in Cudgen Rutile (No. 2) Pty. Ltd. v.
Chalk, [1975] A.C. 520 (P.C.), at page 533.
In concluding that the Ministers in question had
authority to contract on behalf of the Crown, the
Trial Judge relied upon the Verreault case which
he interpreted (at page 630) as rejecting as too
restrictive "the proposition that Crown contracts
can only be valid when authorized by Order in
Council, or by a statute" and (at page 631) as
applying the doctrine of "apparent or ostensible
authority". Under ordinary principles of the law of
agency ostensible authority requires a representa
tion by the principal as to the extent of the agent's
authority. (See e.g. Attorney-General for Ceylon
v. A. D. Silva, [1953] A.C. 461 (P.C.), at page
479.)
The facts of the Verreault case were straight
forward. On June 7, 1960 the Deputy Minister of
Social Welfare for Quebec signed an agreement
with the appellant for the construction of a home
for the aged. On June 22 of that year a provincial
general election was held as a result of which a
new government took office. Two months later the
appellant was ordered by the new government to
stop work under the contract. The following month
the contract was cancelled and the work put out to
public tender. The appellant sued for loss of profit
and for damages to reputation. He succeeded at
trial but failed on appeal. The Quebec Court of
Appeal held that under section 10 of The Depart
ment of Social Welfare Act, S.Q. 1958-59, c. 27,
the Minister of Social Welfare on whose behalf the
contract was signed lacked authority to enter a
construction contract but had authority to enter
one for the purchase of land. Section 10 of the
statute reads:
10. The Lieutenant-Governor in Council may authorize the
Minister of Social Welfare, upon such conditions as he deter
mines, to organize schools and other institutions administered
by the Department of Social Welfare.
He may also authorize him to acquire, by agreement or expro
priation, lands or immovables necessary for such purposes.
It was also provided, in section 8 of the statute,
that a contract did not bind the Department unless
signed by the Minister or by the Deputy Minister.
As Pigeon J. put it (at page 46), the question in
that case was "whether, in the absence of any
statutory restriction a minister is capable of con
tracting in the name of the government." After
quoting with approval the following statement of
the law from Griffith and Street, Principles of
Administrative Law (3rd. ed., 1963, at page 269):
... a contract made by an agent of the Crown acting within the
scope of his ostensible authority is a valid contract by the
Crown; in the absence of a Parliamentary appropriation either
expressly or impliedly referable to the contract, it is
unenforceable.
and, after noting that under section 9 of The
British North America Act, 1867 [30 & 31 Vict.,
c. 3 (U.K.) [R.S.C. 1970, Appendix II, No. 5]]
(now the Constitution Act, 1867 [30 & 31 Vict., c.
3 (U.K.) [R.S.C. 1970, Appendix II, No. 5] (as
am. by Canada Act 1982, 1982, c. 11 (U.K.),
Schedule to the Constitution Act, 1982, Item 1)])
"executive authority is vested in the Queen", he
answered the question on behalf of a unanimous
Supreme Court (consisting of Laskin C.J., Pigeon,
Dickson, Beetz and de Grandpré JJ.), in this way
(at page 47):
Her Majesty is clearly a physical person, and I know of no
principle on the basis of which the general rules of mandate,
including those of apparent mandate, would not be applicable
to her. In this respect the position of ministers and other
officers of the government is fundamentally different from that
of municipal employees. In our system municipalities are the
creatures of statute, and the ultra vires doctrine must accord
ingly be applied in its full rigour.
With regard to certain earlier cases, the Supreme
Court was of the view (at page 48) that "in most
instances the opinion expressed on this point was
merely given obiter, and not as the basis for the
conclusion". Concerning the Walsh Advertising
case in particular it was observed (at page 49):
... it must be noted that the judgment was rendered after the
coming into force of the Financial Administration Act, R.S.C.
1952, c. 116. In this kind of code on the subject of government
contracts, restrictive provisions were to be found which had to
be applied, without it being really necessary to have resort to
general principles. As counsel for the appellant pointed out at
the hearing of the instant case, it was not until 1961 that the
Quebec Legislature enacted similar provisions (1960-61 (Que.),
c. 38).
In the result the Supreme Court concluded that
the contract in question was binding and that the
appellant was entitled to damages for its
cancellation.
I am satisfied that by its decision in Verreault
the Supreme Court of Canada meant to depart
from what had been regarded as conventional legal
wisdom, namely, that a minister of the Crown has
no authority to bind the Crown in contract unless
the authority to do so exists under a statute or an
order in council. I understand that case to hold
that by the general rules of mandate including
those of apparent mandate a minister of the Crown
as head of a government department has authority
to bind the Crown in contract unless that authority
is restricted by or pursuant to statute." In my view
the subject-matter of the contract with which we
are concerned fell within the general responsibili
ties of the ministers from whose departments the
work with which it is concerned would emanate or
was related. True, the letter was signed by only
three ministers but, as the learned Trial Judge
found (at page 625) the "Cabinet of the day had,
on March 20, 1969, authorized the three Ministers
to sign the letter of March 26". It seems to me
that this action by the ministers constituted by
each of them an exercise of his authority to the
extent necessary even though the letter was signed
by only three of his colleagues. The overall inten
tion, it appears, was that the government fully
intended to be bound.
17 The Crown as a non-statutory corporation sole has power to
contract without the need for specific statutory authority,
nevertheless, as was pointed out by the learned editors of Chitty
on Contracts (25th ed., Vol. 1) (1983) para. 685, at pp.
369-370, this must be subject to any statute restricting that
power or the scope of authority of individual ministers:
(Continued on next page)
There remains a question whether in the present
circumstances the authority of the ministers in
signing or approving of the March 26, 1969 letter
was somehow restricted by statute so as to make
their actions non-binding upon the Crown. This
calls for some consideration of the relevant legisla
tion. By paragraph 3(d) of the Aeronautics Act
the duty to "control and manage all aircraft and
equipment necessary for the conduct of any of Her
Majesty's services" was placed upon the Minister
of Transport and, in any matter relating to
defence, upon the Minister of National Defence. I
can find nothing in this language restricting the
authority of either of the ministers as head of his
respective department. Nor do I find any such
restriction in the relevant language of the Depart
ment of Trade and Commerce Act. In particular I
do not read the provisions of section 5 thereof as
limiting the general authority conferred by section
3. Those two sections read:
3. The Minister of Trade and Commerce shall be a member
of the Queen's Privy Council for Canada, holds office during
pleasure and has the management and direction of the Depart
ment of Trade and Commerce.
5. The duties and powers of the Minister of Trade and
Commerce extend to the execution of laws enacted by the
Parliament of Canada, and of orders of the Governor in
Council, relating to such matters connected with the trade and
commerce generally as are not by law assigned to any other
department of the Government of Canada, as well as to the
direction of all public bodies, officers and servants employed in
the execution of such laws and orders.
(Continued from previous page)
As a non-statutory corporation sole the contracts of the
Crown are not subject to the ultra vires doctrine. In certain
cases the powers of individual ministers have been defined by
statute or statutory instruments.... These may limit the
capacity of the Crown itself (Cugden Rutile (No. 2) Ltd. v.
Chalk [1975] A.C. 520), or the scope of authority possessed
by Crown agents (Daintith 1979) 32 Current Legal Prob
lems 41, 42-45; see post, § 695). Apart from such statutory
restrictions, the Crown has the power to contract without the
need for any specific statutory authority. It has been suggest
ed that this may be the case only for contracts which are
incidental to the ordinary and well-recognized functions of
government (New South Wales v. Bardolph (1934) 52
C.L.R. 455, 474-496, 502-503, 508, 518) although there
appears to be no reason in principle for this limitation
(Verreault & Fils Ltée v. Att.-Gen. for Quebec (1975) 57
D.L.R. (3d) 403 (Sup. Ct. of Canada); Campbell (1970) 44
A.L.J. 14; Hogg, Liability of the Crown (1971), pp. 120-121;
Turpin, Government Contracts (1972), p. 19).
It is noteworthy here that the general authority of
the Minister is not in any way limited by the
provisions of section 5. Rather, as I read that
section it is, as it states by use of the words
"extend to", intended to extend the Minister's
duties and powers to the matters mentioned there
in rather than to limit them. As head of his
Department the Minister held a general mandate
of "management and direction". 18
A review of the provisions of the Defence Pro
duction Act has not convinced me that it contained
any restriction on the power of the responsible
Minister to contract in the matter. The Minister
was authorized, as section 15 made clear, to
"repair, maintain or service defence supplies" and
by section 1 thereof defence supplies included an
aircraft. Paragraph 17(1)(d) [as am. by S.C.
1967-68, c. 27, s. 1] of the statute applied with
respect to every contract entered into by the Min
ister on behalf of Her Majesty:
17. (1)
(d) no contract may be entered into by the Minister except in
accordance with such regulations under the Financial
Administration Act as apply to the contract.
18 While statutory language respecting the creation of gov
ernment departments, the appointment of the minister and his
general mandate is not uniform, (see sections 2 and 3 of the
Department of Trade and Commerce Act, sections 3 and 9 of
Defence Production Act, and section 3 of the Department of
Supply and Services Act, R.S.C. 1970, c. S-18 (that minister
on April 1, 1969 becoming the responsible minister under the
Defence Production Act, by virtue of section 103 of the Gov
ernment Organization Act, 1969, S.C. 1968-69, c. 28), and
section 3 of the Department of Transport Act, R.S.C. 1952, c.
79 (that minister being the responsible minister under the
Aeronautics Act), it seems clear that the minister, appointed by
commission under the Great Seal of Canada, presides over the
department, holds office during pleasure and has the "manage-
ment and direction" of the department. As a member of the
Queen's Privy Council (see e.g. section 3 of the Department of
Trade and Commerce Act), the minister takes an oath as such
in which, inter alia, he swears "to serve Her Majesty truly and
faithfully in the Place of Her Council in this Her Majesty's
Dominion of Canada".
However, I do not read this restriction as relevant
in view of the fact that, for our purposes, the
regulations made under that statute applied only
to a "service contract" as defined therein. 19 The
contract before us is not within that definition.
The contract letter of March 26, 1969 created
legal commitments to "set-aside" repair and over
haul work and to employ "best efforts" to secure
additional work. There remained the need, as these
commitments were met, for individual service con
tracts to be made respecting the performance of
this work from time to time over the lifetime of the
contract. Nevertheless I do not see the existence of
the Government Contracts Regulations as a barri
er to implementing the intention of the parties and,
indeed, in practice they appear not to have done
so. I have no doubt that actual performance of the
work referred to in the contract was subject to the
requirements of those regulations and that the
respondent must be taken to have known of their
existence when the contract was entered into.
However, it is abundantly clear, even though a
breach of contract is alleged, that the appellant did
in fact direct a significant quantity of work to the
respondent in accordance with its commitments
under the contract. We were not referred to evi
dence showing that any problem had arisen in this
regard and that somehow the existence of those
regulations had prevented the respondent from
securing some such work. This may perhaps be
explained by the fact that the Government Con
tracts Regulations themselves, as they pertain to
"service contracts", contain a degree of flexibility
that would have enabled the government through
its ministers and, if necessary, the Treasury Board
to direct the work referred to in the contract
without the necessity for tenders or regard to
19 The regulations are the Government Contracts Regula
tions, SOR/64-390 as amended, made pursuant to section 39 of
the Financial Administration Act, R.S.C. 1952, c. 116. Sub-
paragraph 2(1)(c)(iii) thereof defines the term as "a contract
for the furnishing ... of a service of any kind".
monetary limits. 20
I have concluded from my analysis of the cir
cumstances of this case that the appellant is bound
by the contract in question. In view of that conclu
sion I wottl f d refrain from discussing the respond
ent's alternative argument that it also had a good
cause of action in tort based upon alleged negli
gent misstatement. This is particularly desirable in
view of the fact that a case upon which the appel
lant relies for the proposition that no such cause of
action exists, (Meates y Attorney-General, [1979]
1 NZLR 415 (S.C.)) was later reversed on appeal
((1983) NZLR 308 (C.A.)).
Was the Contract Breached?
The answer given to this question by the Judge
below is that both with respect to "set-aside" work
and to "best efforts" work, the contract had been
breached. Only in the 1972-1973 fiscal year, he
found, was the "set-aside" obligation met. He also
found that in none of the years of the contract
period except in the 1971-1972 fiscal year was the
"best efforts" commitment fulfilled. In reaching
these conclusions he showed a clear preference for
the evidence of the respondent's witnesses particu
larly that of Mr. D. A. Race, Executive Vice-
President of CAE Aircraft Ltd., whose credibility
he obviously accepted for he described him in his
reasons as "an excellent witness". Mr. Race had
kept detailed memoranda of discussions and con
versations with cabinet ministers and senior civil
servants concerned with the matter. Of his evi
dence, touching upon the respondent's own efforts
20 Thus by section 14 of those Regulations the appropriate
minister, as "the contracting authority", was authorized to
except from the tendering requirements thereof "such cases or
classes of cases as the contracting authority considers the
invitation of tenders not to be in the public interest" and
limitation of a minister's authority to enter a service contract
according to the amount payable thereunder as well as the need
for tenders under certain circumstances, applied only where a
minister acted "without the approval of the Treasury Board."
No evidence was drawn to our attention establishing that the
approval of the Treasury Board which it could give under
section 6 of the Regulations (if, indeed, it was required) was
not in fact given. Some evidence of Treasury Board approval in
the matter may be found in the record of the trial. (See
Evidence, p. 532, 11. 19-24; p. 2191, 11. 19-26; p. 2848, 11.
17-31;p. 3055, 11. 10-21).
to secure work from the government and of profits
lost due to the breach, he wrote at pages 30-31 of
the unreported portion of his reasons for judgment:
I accept his evidence as to his constant endeavors in pressing
the defendant, through ministers and their subordinates, to
provide work to make up the 700,000 hours; his suggestions and
plans as to work that could have been allotted to Aircraft. I
accept as well, his evidence, and that of L. H. Prokop, as to the
calculation of the plaintiffs' loss of profits ....
During the early part of the contract period the
respondent actually enjoyed considerable growth
in the level of work at the Winnipeg base. But with
the loss of two valuable contracts, this was short-
lived. A contract for repair and overhaul of a
number of United States military aircraft called
the "T-39" had been secured by Northwest Indus
tries Ltd. from the prime contractor, Canadian
Commercial Corporation, in 1969 and it was later
turned over to CAE Aircraft Ltd. It was cancelled
effective as at the end of 1971. Its cancellation, in
the view of the learned Trial Judge, dealt a "severe
blow to the fortunes" of the respondent. Coupled
with it was the phasing out of the repair and
overhaul work on Air Canada's fleet of Viscount
aircraft at the end of the 1970-1971 fiscal year.
The Judge below was satisfied with the steps taken
by the respondent to counteract these setbacks for,
at page 33 of the unreported portion of his reasons
for judgment, he stated:
Following these setbacks, Aircraft, through Race and
Reekie, put continuous pressure on the defendant and various
departments of government. Race dealt with Ministers and
other officials endeavouring to obtain work commitments in
respect of the March 26, 1969 agreement. A great deal of
evidence, documentary and oral, in respect of those matters,
was adduced on behalf of the plaintiffs.
That evidence can be summarized quite briefly. Aside from
what might be termed token commitments, there was no signifi
cant direction of work to Aircraft to meet the undertakings
given.
It seems unnecessary to discuss in detail the
evidence upon which the learned Trial Judge relied
in concluding that the contract had been breached.
It was agreed that certain work programmes had
met the "set-aside" obligations under the contract.
The appellant claims that other programmes
should have been so treated but the Trial Judge
disagreed. Nor would he agree that several pro
grammes had met the "best efforts" commitment.
On the other hand, it was his view that the
individual programmes contained in a workload
proposal (Ex. P-150(19) dated April 23, 1971)
prepared by the Director of the Aerospace Branch,
Department of Supply and Services shortly after it
became known that the T-39 work programme
would be cancelled, would have constituted "best
efforts" work had they been made available to the
respondent. In my view as there was ample evi
dence to support his findings I propose not to
disturb them and would agree with the overall
conclusion he reached.
It was also the opinion of the Trial Judge that
failure of the appellant to fulfil its commitments of
March 26, 1969 was influenced by a view that
they were not legally binding. Some support for
that opinion may be found in evidence of reaction
from within the Department of Supply and Ser
vices to a proposal by CAE Aircraft Ltd. to estab
lish a jet aircraft maintenance centre at Winnipeg.
In a memorandum dated November 29, 1973 from
the Director of the Aerospace Branch to another
official of that Branch it was stated that the
proposal was "in conflict with the present depart
mental position" which was "to phase out this
company and meet the Government's commitment
to Winnipeg by redirection of Government work
load throughout the Winnipeg A/S industry". At
all events, the Trial Judge clearly regarded the
treatment by the government of an attempt by
CAE Aircraft Ltd. to secure repair and overhaul
work of the Department of National Defence's
fleet of Boeing 707s as particularly telling. During
the contract period this work became available to
be done in the private sector. CAE Aircraft Ltd.
had received an oral promise of it from the respon
sible cabinet minister as well as confirmation from
a cabinet colleague. The Trial Judge found that
the company had relied heavily on the promise as
it was a key in its plan to establish a jet aircraft
maintenance centre at Winnipeg. In the fall of
1974 both the Department of Supply and Services
and the Treasury Board approved the company for
the work but that approval was soon afterward
reversed and the work was awarded to a competi
tor, Transair. The Trial Judge commented on this
turn of events at pages 42-43 of the unreported
portion of his reasons for judgment:
The decision understandably appalled Aircraft, as well as
Race and Reekie. Reekie met with Mr. Goyer, then the Minis
ter of Supply and Services, on December 23, 1974. The Deputy
Minister of the Department was present as well. Goyer told
Reekie of the decision to award the 707 work to Transair.
Reekie bluntly took the position this seemed against the com
mitments in the March 26, 1969, letter. Goyer told Reekie that
as far as he (Goyer) was concerned, there were no obligations
to Aircraft under the March letter; it was not worth anything;
he had no intention of doing anything in respect of it.
Reekie told Goyer the Company had no choice but to take
legal action. Goyer's reply was, according to Reekie:
Mr. Goyer then informed me that—he told me that wouldn't
be very wise, that if our company took legal action against
the government on this March 26th, 1969 letter that he
would destroy me and destroy my company. Those are his
words.
Q. And what did you say to Mr. Goyer?
A. My words to Mr. Goyer were that he should do whatever
he felt he need (sic) to do because we certainly intended
to do what we needed to do and with that, I got up and
left the office.
And at page 44 he continued:
Race's evidence continued:
MR. D.G. HILL:
Q. In addition to those contracts, what further did you
discuss with Mr. Goyer?
A. Well, Mr. Goyer very explicitely (sic) stated to me that,
to use his words, if I would choose to "tear up the bloody
letter" he felt that perhaps this might improve relations
between the Federal Government and CAE and, in par
ticular, between D.S.S and CAE.
The "bloody letter" was the letter of March 26, 1969.
The above evidence indicates the then Minister of Supply
and Services viewed the 1969 letter as not binding. His actions
indicate anything but "best efforts" from his department of
government.
A review of the matter leads me to agree with
the opinion of the Trial Judge that the contract
was breached by the appellant. That being so, it
becomes necessary to address the various conten
tions and cross-contentions urged by the parties
that the damages awarded were assessed either at
too high or too low a level. This also requires
consideration of the appellant's contention that
damages for loss of capital ought not to have been
allowed in any event.
Damages
The respondent claimed damages of $2,520,000
for loss of profits and $3,400,000 for loss of capi
tal. The Trial Judge assessed the damages for loss
of profits at $1,900,000 and for loss of capital at
$2,400,000. In doing so he thought the claims for
loss of profit as well as for loss of capital should be
reduced, the first by approximately one-quarter
and the other by approximately one-third. Other
wise the respondent's evidence was accepted. The
appellant argues that the claim for loss of capital
is not recoverable as being too remote and uncer
tain. Both sides led opinion evidence touching upon
the calculation of the damages claimed under that
head. The appellant asserts, in any event, that the
awards are excessive having regard to the evi
dence. The respondent claims that the reductions
made by the learned Trial Judge in the damages
otherwise calculated should be restored.
It is not, of course, for this Court sitting in
appeal to assess the damages, for to do so would be
to remove the function from the hands of the Trial
Judge where it properly belongs. It has been stated
many times over that an appellate court ought not
to reverse a finding of a Trial Judge as to the
amount of damages merely because it thinks that,
had it tried the case in the first instance, it would
have awarded a lesser or greater sum. In order to
justify reversing a Trial Judge on his assessment of
damages it must be demonstrated that he acted on
a wrong principle. (See e.g. Guerin et al. v. The
Queen et al., [1984] 2 S.C.R. 335; (1985), 55
N.R. 161, per Dickson J. at pages 390-391 S.C.R.;
178 N.R.; and per Wilson J. at page 364 S.C.R.;
191 N.R.; Nance v. British Columbia Electric Ry.
Co. Ld., [1951] A.C. 601 (P.C.), at page 613;
Flint v. Lovell, [1935] 1 K.B. 354 (C.A.), per
Greer L.J. at page 360.)
With these principles in mind I wish now to
address the contentions that the damages claimed,
under both heads, were allowed in too little or too
great a sum and also that the claim for loss of
capital ought not to have been allowed at all.
(a) Loss of Profits
I have not been persuaded that the Trial Judge
erred in principle in assessing these damages. Nor
am I persuaded that he so erred in reducing the
damages awarded. He was careful to explain the
reasons which led him to reduce them and the fact
that, due to the absence of evidence, it may have
been difficult to accurately calculate the reduction
is not a reason for rejecting it as having been made
in error. It was his view that the damages could
not, or ought not, to "be assessed on a purely
mathematical basis". Despite the difficulty, the
respondent was entitled "to be placed, as far as
money could do it, in as good a position as if the
contract had been performed" (per Viscount Hal-
dane L.C. in British Westinghouse Electric and
Manufacturing Company v. Underground Electric
Railways Company of London, [ 1912] A.C. 673
(H.L.), at page 689, as quoted by Spence J. in
Penvidic Contracting Co. Ltd. v. International
Nickel Co. of Canada Ltd., [1976] 1 S.C.R. 267,
at page 278). It is my view that the observations of
Davies J. in Wood v. Grand Valley Railway Co. et
al. (1915), 51 S.C.R. 283, at page 289, comment
ing on the case of Chaplin v. Hicks, [1911] 2. K.B.
786 (C.A.), are applicable here as well:
It was clearly impossible under the facts of that case to
estimate with anything approaching to mathematical accuracy
the damages sustained by the plaintiffs, but it seems to me to
be clearly laid down there by the learned judges that such an
impossibility cannot "relieve the wrongdoer of the necessity of
paying damages for his breach of contract" and that on the
other hand the tribunal to estimate them whether jury or judge
must under such circumstances do "the best it can" and its
conclusion will not be set aside even if the amount of the verdict is
a matter of guess work.
Those observations were unanimously adopted by
the Supreme Court of Canada in the Penvidic
case, at page 279.
I would therefore dismiss the appeal as well as
the cross-appeal on this aspect of the case.
(b) Loss of Capital
The attacks on the award of damages made
under this head were threefold. It was asserted by
the appellant that an error was made in calculat
ing the amount of these damages. Secondly, the
respondent submits that the Trial Judge erred in
reducing the damages otherwise calculated to the
amount allowed. Finally, the appellant takes the
position that no damages of the nature claimed
under this head ought to have been allowed in any
event. In view of the conclusion I am about to state
on the third point of attack it becomes unnecessary
to consider the other two points.
The third point was argued at some length and
requires consideration. The appellant argues that
the claim is too remote and uncertain to be com
pensated for in damages for breach of contract.
The classic statement of the principles governing
recovery of damages flowing from a breach of
contract is found in the judgment of the Court of
Exchequer in Hadley v. Baxendale (1854), 9 Ex.
341; 156 E.R. 145 where Baron Alderson stated
(at pages 354-355 Ex.; 151 E.R.):
Now we think the proper rule in such a case as the present is
this:—Where two parties have made a contract which one of
them has broken, the damages which the other party ought to
receive in respect of such breach of contract should be such as
may fairly and reasonably be considered either arising natural
ly, i.e., according to the usual course of things, from such
breach of contract itself, or such as may reasonably be sup
posed to have been in the contemplation of both parties, at the
time they made the contract, as the probable result of the
breach of it. Now, if the special circumstances under which the
contract was actually made were communicated by the plain
tiffs to the defendants, and thus known to both parties, the
damages resulting from the breach of such a contract, which
they would reasonably contemplate, would be the amount of
injury which would ordinarily follow from a breach of contract
under these special circumstances so known and communicated.
But, on the other hand, if these special circumstances were
wholly unknown to the party breaking the contract, he, at the
most, could only be supposed to have had in his contemplation
the amount of injury which would arise generally, and in the
great multitude of cases not affected by any special circum
stances, from such a breach of contract. For, had the special
circumstances been known, the parties might have specially
provided for the breach of contract by special terms as to the
damages in that case; and of this advantage it would be very
unjust to deprive them. Now the above principles are those by
which we think the jury ought to be guided in estimating the
damages arising out of any breach of contract.
That rule has been applied and re-applied on
numerous occasions in Canada. It was restated by
the English Court of Appeal in Victoria Laundry
(Windsor), Ld. v. Newman Industries Ld., Coulson
& Co., Ld. (Third Parties), [1949] 2 K.B. 528
which in turn was qualified by the House of Lords
in Czarnikow (C.) Ltd. v. Koufos, [ 1969] 1 A.C.
350. In the latter case a majority of the Lawlords
generally supported the sixth proposition (relied on
by the respondent) propounded by Asquith L.J. in
the Victoria Laundry case (at page 540):
(6.) Nor, finally, to make a particular loss recoverable, need
it be proved that upon a given state of knowledge the defendant
could, as a reasonable man, foresee that a breach must neces
sarily result in that loss. It is enough if he could foresee it was
likely so to result. It is indeed enough ... if the loss (or some
factor without which it would not have occurred) is a "serious
possibility" or a "real danger." For short, we have used the
word "liable" to result.
The appellant says that the claim for loss of
capital falls outside these principles and should
have been rejected at trial. In this, particular
reliance was placed upon the case of Freedhoff v.
Pomalift Industries Ltd. et al., [1971] 2 O.R. 773
(C.A.). In that case the plaintiff sought to recover
a claim for loss of property arising from the breach
of a contract for the sale and installation of a
ski-tow. The Trial Judge agreed that a fundamen
tal breach of the contract had occurred and that
the claim for loss of property as well as for other
losses were recoverable. However, the Court of
Appeal decided that the damages for loss of prop
erty were too remote to be recoverable in the
circumstances of the transaction.
I do not find it necessary to express an opinion
on whether the claim for loss of capital is recover
able under the principles of remoteness referred to
above. The respondent's valuation evidence came
from an expert, one Kent, and it is clear that the
Trial Judge accepted his evidence in preference to
that of the appellant's expert. It was to the effect
that had the contract been performed the max
imum going concern value of CAE Aircraft Ltd.
as of March 31, 1976 (being also the end of the
contract period) would have been $3,600,000
whereas it had an actual going concern value as of
that date of $200,000, resulting in a capital loss of
$3,400,000. The Trial Judge concluded at page 56
of the unreported portion of his reasons for judg
ment that while "Kent's methods and basic
assumptions are correct" it was necessary for the
reasons he gave to reduce the damages for loss of
capital to $2,400,000.
With respect, it seems to me that there is force
to the appellant's argument that the determination
that damages for loss of capital are recoverable
here involved an error in principle on the part of
the learned Trial Judge. The error, I think, lay in
the quality of the proof tendered as going to
support certain underlying assumptions made by
Mr. Kent in expressing his opinion. These assump
tions, to which his opinion was expressly made
subject, are set out in Ex. P-151 which appears at
pages 5917-5918 of the Case on Appeal:
Selection of Capitalization Rate and Underlying Assumptions
We have selected the aforementioned capitalization rates of
11.1% to 14.3% for the valuation of the business operations of
the contemplated Company as at March 31, 1976 based on our
review of the prevailing economic, stock and money market
conditions in Canada as at March 31, 1976 (see Appendix E).
It was also necessary to make certain assumptions as to the
conditions which would likely have affected this contemplated
Company at the valuation date, and therefore would affect the
selection of an appropriate capitalization rate.
In this regard, it was necessary to assume that the Company
would continue, after the valuation date, to garner suitable
work, from both the public and private sectors, in sufficient
quantity to maintain operating levels equal to or greater than
those considered to be attained during 1971 to 1976, inclusive.
It would seem reasonable to assume that the Company would
have established a reputation as a successful operation over the
1971 to 1976 period and this reputation would form the basis
for acquiring new work in future years. In addition, we
assumed that this new work would be of a type compatible with
the Company's facilities. If sufficient compatible work had not
existed, we were advised by management that the funds neces-
sary for conversion to facilities suitable for the work available
could have been readily obtained provided that a viable opera
tion was in place.
Our discussions with management regarding the likely competi
tive situation suggested that few, if any, other companies in
Canada would have the same capacity, capabilities and hangar
facilities as CAE Aircraft Ltd. Given that the Company's plant
facilities are extensive and unique to the industry, the Company
was capable of performing all necessary overhaul and mainte
nance work on turbo prop and piston engine aircraft and small
to medium size military and civil jet aircraft. The likelihood of
other companies becoming serious competitors in this field was
remote, as the cost and effort to duplicate such facilities would
have been formidable, and hence the risk to the Company of
losing business to new competitors appeared to be low.
Further, it was necessary to assume that the Company's plant
facilities would be of sufficient capacity to operate at a 700,000
annual manhour level. In 1970/71 the Company demonstrated
that it could attain an operating level of over 900,000 man-
hours, in the equivalent basic facilities as existed throughout
the 1971-1976 period and continued to exist after the valuation
date.
We have also assumed that the Company would not encounter
substantial difficulties in obtaining the labour and materials
necessary to operate at the 700,000 manhour level. Our discus
sions with management suggested that the Company would
maintain the amicable relations with the International Associa
tion of Machinists and Aerospace Workers, Astro Lodge 2397,
it had enjoyed in the early years of its operations. We have
further assumed that the Company would be able to obtain
aircraft parts and other materials from various reliable sources.
The term "the contemplated Company" is
described as follows elsewhere in the same section
of the opinion:
For the purpose of this section, the contemplated Company is
deemed to be the actual Company, CAE Aircraft Ltd., under
the supposition that it had realized a demonstrated level of
earnings for the period April I, 1971 to March 31, 1976 as a
result of operating at an annual level of 700,000 direct man-
hours of aircraft related work which would have satisfied the
alleged government commitment as well as continuing various
non-aircraft type work which had been carried on since the
inception of the Company.
The respondent called our attention to some
evidence which it claims as supporting these
underlying assumptions. But, on the whole, it is I
think of entirely too tenuous and speculative a
nature to be accepted as establishing a factual
underpinning of assumptions made by the valua-
tor. This is especially so, for example, of the
assumptions of future operating levels of work and
of maintainable earnings of the company after the
contract ended on March 31, 1976. I am quite
unable to see from this evidence that the factual
bases of these important assumptions were satis
factorily established so as to make the valuator's
opinion reliable as evidence in a court of law.
I have concluded that the appeal should succeed
on this point and that the damages awarded at
trial should be reduced accordingly.
Interest and Costs
The appellant attacks the rates at which interest
was allowed by the learned Trial Judge on his
judgment rendered July 31, 1982. At page 9 of his
reasons for judgment delivered on November 18,
1983 upon an application brought by the respond
ent for special directions in respect of taxable costs
and the fees of expert witnesses, as well as for an
increase in the rate of interest on the basis of this
Court's decision in Domestic Converters Corpora
tion v. Arctic Steamship Line, [1984] 1 F.C. 211;
(1983), 46 N.R. 195 (C.A.), he stated:
The Domestic Converters case allows me to vary the post-
judgment interest rate from 5%. At my request, counsel for the
plaintiffs has provided me with Bank of Canada rates for a
number of years up to and including April 1983. I have
obtained the rates from May to July of this year.
The weekly rates from August 1983 (sic) to the end of July
1983 range from 15.60% to 9.27%. The average weekly rate is
approximately 10.9%.
There will be direction that the post-judgment interest from
July 31, 1982 to July 30, 1983 will be 10.9%.
The per annum rate after July 31, 1983 will be the average
of the Bank of Canada rate in succeeding years, or 5%,
whichever is higher, until the date of satisfaction of the
judgment.
The 5% interest rate referred to is, of course, the
rate provided for under section 3 of the Interest
Act, R.S.C. 1970, c. I-18.
The appellant contends, in effect, that the
Domestic Converters case was wrongly decided
and that we should review it. I am unable to accept
this contention. It dealt with the power of the
Court under section 40 of the Federal Court Act:
40. Unless otherwise ordered by the Court, a judgment,
including a judgment against the Crown, bears interest from
the time of giving the judgment at the rate prescribed by
section 3 of the Interest Act.
and held that the section allows the Court, in the
words of Mr. Justice Pratte (at page 229 F.C.; at
page 208 N.R.), "to order a judgment to bear or
not to bear interest, and in the first case, to set the
rate of such interest and the time after the judg
ment from which it will begin to run." Mr. Justice
Le Dain and Mr. Justice Lalande, who also sat on
that case, agreed. In my opinion the Trial Judge,
in fixing the rates of interest for the periods subse
quent to the judgment, acted within the authority
conferred. I am unable to accept the appellant's
contention that the authority is limited to directing
that a judgment shall bear or not bear interest and
that it did not empower the Court to fix a rate of
interest beyond that provided under section 3 of
the Interest Act. In so far as this Court is con
cerned, that issue was settled by the Domestic
Converters case. I would therefore dismiss this
aspect of the appeal.
In his decision of November 18, 1983 the Trial
Judge refused to increase the party-and-party costs
at trial beyond that provided in Tariff B of the
Federal Court Rules [C.R.C., c. 663]. The trial
had extended over many days and it was exceed
ingly expensive. By the respondent's own reckon
ing almost $650,000 in legal fees alone were
incurred. By comparison, he projected that recov
erable party and party costs, on the basis of the
tariff, would be in the neighbourhood of $11,000-
$12,000 plus disbursements. Perhaps in a superior
court of a province such as Ontario, for example,
the respondent might have been able to recoup
party and party costs in greater measure than may
be possible under ,the Rules of the Court. But the
Trial Judge had to apply our Rules and by those
Rules, subject to a discretion, the Tariff governs
(Rule 344).
The Trial Judge, in my view, properly addressed
the issue in exercising his discretion. He referred
to two earlier decisions of this Court and to his
own decision in Midway Mfg. Co. v. Bernstein,
[1983] 1 F.C. 510 (T.D.), at page 519, where he
said:
My personal position has always been, that while I had
sympathy for the criticism of low tariffs, I have never yet
increased, in any case, the tariffs.... I take the view any
increase should rarely be made. I find support in two court of
appeal cases.... I agree the tariffs are extremely low. But it is
my view the remedy is to change the rules setting out the
tariffs, rather than for judges to get around the tariffs by, in a
particular case, increasing them.
Even while sharing his "sympathy" in this case as
well, I am unable to say that he exercised his
discretion improperly when he would not consider
this case an exception to his usual practice. I
would therefore dismiss this aspect of the
cross-appeal.
In the result I would dismiss all aspects of the
appeal as well as the cross-appeal save for the
appeal against the award of damages for loss of
capital which I would allow. As success has been
fairly evenly divided I would make no order as to
costs in this Court.
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.