Notable Cases

COMBINED AIR MECHANICAL SERVICES
V.
COMPUTER ROOM SERVICES CORPORATION
2015

 

CITATION: Combined Air Mechanical Services v. Computer Room Services Corporation 2015

ONSC 610
COURT FILE NO.: CV-08-367223
DATE: 20150213

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

Plaintiff
COMBINED AIR MECHANICAL SERVICES
J. Gardner Hodder and Elizabeth Roberts for the Plaintiff

-and-

Defendants
COMPUTER ROOM SERVICES CORPORATION and HYDRO ONE NETWORKS INC
Tamara Ramsey and Sarah Latimer, for the Defendant, Computer Room Services Corporation

HEARD: December 1, 2, 3, 8, 9 and 11, 2014

LEDERMAN J

Nature of Action

[1] The Plaintiff, Combined Air Mechanical Services (“Combined Air”) seeks loss of profits from the Defendant Computer Room Services Corporation (“CRSC”) as a result of CRSC’s alleged failure to honour its obligation to engage Combined Air as a sub-contractor in a design/build project of HVAC systems for the computer rooms at the Hydro One Inc. facility in Barrie, Ontario (the “Hydro Barrie Project”). Combined Air discontinued the action as against the Defendant Hydro One Networks Inc. (“Hydro”).

[2] CRSC’s position is that it had no contract with Combined Air. It states that, at most, there was an intent to work together on the Hydro Barrie Project but no agreement was ever reached; or, alternatively, if there was a contract, it was repudiated or breached by Combined Air.

Background Facts

[3] CRSC and Combined Air had been doing business with each other, in various ways, since the early 1980’s. CRSC was Combined Air’s biggest customer. The principal of CRSC is Greg Eaton (“Eaton”). One of the former principals of Combined Air is William Flesch (“Flesch”). He sold his interest to Vicken Aharonian (“Aharonian”) who acquired Combined Air in 2006. Flesch later became Operations Manager at CRSC.

[4] Eaton went into semi-retirement in 2006 and brought in Charles Mazzacato (“Mazzacato”) as General Manager and Eaton’s role in CRSC became more limited, primarily relating to financial matters. Accordingly, Aharonian’s business relationship was with Mazzacato and not Eaton.

[5] Shawn Thorne (“Thorne”) was a long standing employee of Combined Air and in 2008, was Project and Service Manager of Combined Air. He had developed a close working relationship with CRSC over the years and was responsible for that account. He was often called in by CRSC to look at possible jobs and price the mechanical scope for them. He also dealt with service contracts for CRSC.

[6] In early September, 2008, Hydro issued a request for tender (“RFT”) for the supply of labour, material and work equipment for the Hydro Barrie Project. As the project was behind schedule, tenders had to be submitted quickly by September 25, 2008.

[7] The Hydro Barrie Project involved two computer rooms, which were already constructed. For this reason, 90% of the work was mechanical as it involved principally the installation of HVAC systems.

[8] On September 2, 2008, Combined Air submitted a signed confidentiality agreement to Hydro and subsequently became an approved tenderer on the Hydro Barrie Project.

[9] CRSC also wanted to tender. The Hydro Barrie Project was the first time the two companies were considering tendering on the same project. Not knowing of Combined Air’s intention to tender on its own, CRSC’s Trevor Tan (“Tan”) contacted Thorne of Combined Air and requested that he attend Hydro’s mandatory site walkthrough on September 12, 2008 so that Combined Air could provide a price to CRSC for the HVAC work on the Hydro Barrie Project and work with CRSC on a design/build proposal.

Site Walkthrough and Subsequent Meeting

[10] Prior to September 12, 2008, Aharonian requested Thorne to attend the site walkthrough but as a representative of Combined Air to look at the technical scope of the work for the purpose of submitting its own tender. It was at this point that Aharonian learned from Thorne that CRSC was also bidding on the Hydro Barrie Project.

[11] There appeared to be a disagreement within Combined Air as to how best to get the work on the Hydro Barrie Project. Aharonian wanted to bid on its own but Thorne preferred to work cooperatively with CRSC in its bid.

[12] Thorne attended the site walkthrough and signed in as a representative of Combined Air.

[13] After the site walkthrough, Thorne and several people from CRSC (Tan, Flesch and Terry O’Sullivan) and TSH (Mark Benedet), the design engineers retained by CRSC, had an informal meeting at a nearby Tim Hortons to discuss the Hydro Barrie Project. At this meeting, CRSC agreed to work with Combined Air to develop a single design/build tender wherein CRSC would be the prime contractor/tenderer, naming Combined Air as its mechanical subcontractor. If the tender was successful, it was agreed CRSC would subcontract all mechanical work to Combined Air. CRSC submits that was on the assumption that Combined Air’s price was fair, reasonable and within industry standards.

[14] While the parties have different interpretations of the legal consequences, it is agreed that everyone at the meeting walked away with a mutual understanding that Combined Air would not shop their price and CRSC would not shop theirs.

[15] No written agreement was drawn up, nor were there any confirmatory emails as to the understanding between the parties.

Events After the September 12, 2008 Meeting

[16] On September 16 and on September 23, 2008, Aharonian attended design meetings at CRSC. CRSC submits that drawings were provided to Combined Air for the purpose of pricing the job and CRSC intended to use Combined Air as the mechanical subcontractor on the expectation that its price would be competitive.

[17] CRSC asserts, however, that when it received a quote from Combined Air on September 24, 2008, it was unacceptable to CRSC because of its feeling that Combined Air’s pricing for its elements of the project was too high and because Combined Air refused to justify its price.

[18] The “Total Price Installed” set out in Combined Air’s pricing and scope letter was $968,000.

September 24, 2008 Telephone Call

[19] On September 24, 2008, CRSC faxed Combined Air’s pricing to Benedet of TSH. Benedet prepared a “10 minute estimate” of the mechanical work on the Hydro Barrie Project in the amount of $648,913. Notably, the TAC controls (part of the required thermostat and monitor equipment) which cost $200,000 and were included in Combined Air’s estimate, were excluded from Benedet’s estimate.

[20] CRSC states that Combined Air’s price of $968,000 which would result in a gross profit margin for it of 70% on its costs was exhorbitant and contrary to the understanding that Combined Air would provide a competitive and reasonable price.

[21] At approximately 6:00 p.m., that day, CRSC representatives and Benedet phoned Aharonian. During this call, they discussed Combined Air’s pricing and its various components. Aharonian was asked to go over Combined Air’s pricing, which he did. From their viewpoint, they testified that they told Aharonian or clearly implied that the price was too high.

[22] Aharonian believed that during this call, he satisfied all team members that Combined Air’s quote of $968,000 was reasonable. No one specifically asked Aharonian (verbally or in writing) that Combined Air lower its price during or after the call. In any event, the call ended with Aharonian remaining firm on the quoted price. Charles Mazzacato, Vice President of CRSC, confirmed CRSC’s intent to use Combined Air’s quote in a telephone conversation with Aharonian the next morning.

[23] No one suggested (verbally or in writing) at any time whatsoever that Combined Air would be excluded from the team because of its pricing or for any other reason.

[24] Afterwards, Combined Air declined to tender in its own name on the Hydro Barrie Project and withdrew as a tenderer.

Exclusion of Combined Air From the Hydro Barrie Project Bid

[25] CRSC President, Greg Eaton, who had been away and had not previously participated in the discussions, became involved in the bid process on September 24th. He says he decided to exclude Combined Air on September 25, 2008, the very day that the Hydro Barrie Project proposal had to be submitted.

[26] CRSC believed that the Hydro Barrie Project could be done for $1,500,000 and with Combined Air’s price, there would be no margin left for CRSC.

[27] CRSC submits that there was not enough time to get a new one from another subcontractor.

[28] Nonetheless, on the morning of September 25, 2008, Eaton instructed Tan to insert Combined Air’s number of $968,000, without marking it up for mechanical trades and to submit it as part of its bid to Hydro.

[29] Part of the bid requirements for the Hydro Barrie Project was that tenderers demonstrate experience and proof of ability, and in particular, provide the qualifications of people who were going to be assigned the work. CRSC included Thorne’s profile in its bid for the Hydro Barrie Project on September 25, 2008, despite having no intention to use Combined Air as its subcontractor. CRSC included Thorne’s profile in its bid to Hydro as proof of its ability to perform. CRSC represented that Thorne was to be “project manager.”

[30] CRSC’s view at the time was that if it got the job, it would find a cheaper mechanical subcontractor than Combined Air, and would re-price it. The dil1erence between Combined Air’s price and the price CRSC would end up getting the mechanical work for, would then be CRSC’ s markup.

[31] On September 25, 2008, Eaton told the team at CRSC that if CRSC was awarded the Hydro Barrie Project, then it would have a mechanical contractor named Carmichael Engineering Ltd. (“Carmichael”) put together the mechanical aspects.

[32] CRSC made no effort on the morning of September 25, 2008, to communicate this, or any concern, to Combined Air. In fact, that morning, CRSC Vice-President Charles Mazzacato and Aharonian discussed Combined Air’s objection to certain paragraphs of the Hydro labour requirements. Mazzacato requested that Combined Air remove its objections, which it did. Subsequently, Mazzacato informed Aharonian that Eaton “reserves the right to renegotiate the price” with Combined Air and Aharonian confirmed that this was acceptable. This led Aharonian to believe that everything was fine.

[33] On September 25, 2008, CRSC submitted its bid for the Hydro Barrie Project. The bid included a price for “mechanical trades” of $1,005,720, which was comprised of Combined Air’s price of $968,000, commissioning in the amount of $18,000 and contingencies in the amount of $19,720.

[34] CRSC did not provide a copy of the tender to Combined Air, and it did not disclose that it had added Carmichael as a second mechanical subcontractor listed in the tender despite the fact that Carmichael had not even been contacted and didn’t know about it.

[35] On October 15,2008, Hydro accepted CRSC’s bid.

[36] On October 24, 2008, CRSC received a quote from Carmichael, as requested, for a budget price proposal of $444,000 for mechanical work related to the Hydro Barrie Project (excluding TAC controls). This occurred behind Combined Air’s back.

[37] After CRSC received Carmichael’s quote, it did not attempt to renegotiate the price with Combined Air. CRSC subcontracted the mechanical services of the Hydro Barrie Project to Carmichael because it could make more money.

[38] On November 7, 2008, CRSC told Combined Air for the first time that CRSC had no intention of giving Combined Air the purchase order.

Nature of the Arrangement made at the September 12, 2008 meeting

[39] A formal admission was made by CRSC in its Statement of Defence at paragraph 13 as follows:

“All that CRSC agreed to with Combined Air was that:

(i) they would work together in an effort to develop a design/build bid, and

(ii) CRSC would not be asking other mechanical contractors for pricing for the purpose of the bid.”

[40] The representatives of CRSC and Combined Air who attended at the September 12 site visit and meeting had ostensible authority to enter into this arrangement. Although the parties at the meeting had different views of the legal consequences of the arrangement, it is clear that everyone at the meeting walked away with a mutual understanding that Combined Air would not shop their price and CRSC would not shop theirs. Rather, the parties agreed that Combined Air would submit a price for mechanical work to CRSC and CRSC would prepare pricing for a different aspect of the bid and CRSC would carry Combined Air’s price in its bid to Hydro.

[41] At the subsequent two design meetings, there was further confirmation that Combined Air would be the mechanical sub-contractor on the Hydro Barrie Project if CRSC’s tender was successful.

Position of Combined Air

[42] Combined Air submits that it is clear that, on September 12, 2008, CRSC and Combined Air agreed that they would work together in an effort to develop a design/build bid and CRSC would not be asking other mechanical contractors for pricing for the purposes of the bid. The intention of the parties on September 12th was to initiate contractual relations. Ultimately, Combined Air’s quote was submitted as part of the tender to Hydro. Combined Air submits that the fact that CRSC did not call for a tender for sub-trades on the Hydro Barrie Project is irrelevant to the formation of the preliminary Contract A as described later in these Reasons. CRSC chose to work exclusively with Combined Air for the purposes of responding to the Hydro RFT.

[43] Counsel for Combined Air points out that CRSC did not inform Combined Air that its quote was unacceptable. It implied that it was high. However, CRSC incorporated it as part of its bid to Hydro thereby forming Contract A.

[44] CRSC involved Combined Air throughout the month of September in assembling the bid to assist in the pricing of its own tender to Hydro. However, the instant that CRSC no longer needed Combined Air’s assistance, it resolved on September 25, 2008 to reject Combined Air and shop the mechanical trades for a lower price.

[45] Combined Air argues that CRSC thereby breached the terms of Contract A and subsequently bid-shopped the mechanical sub-contract to obtain a better margin for itself

[46] Combined Air relies on Clow Darling Limited v. Detra Builders Inc., [2007] 0.J. No. 198 (SCJ) wherein it was held that the defendant’s purpose in soliciting a quote for mechanical work from the plaintiffs sub-contractor to assist in the pricing of its own bid, and not carrying the subcontractor’s quote into the bid for a general contract is “a procedure akin to bid shopping, which runs contrary to the bidding procedures which attempt to ensure all parties in the process are treated equally and fairly.” (at paragraph 9).

[47] Alternatively, counsel for Combined Air submits that under ordinary common law principles, the agreement not to bid shop was supported by consideration flowing from Combined Air to CRSC and amounted to an enforceable contract which CRSC was under a duty to perform honestly.

Position of CRSC

[48] CRSC submits that it did nothing more than ask Combined Air, as a preferred supplier, for a price, and the request to provide a price was akin to a non-binding invitation to treat. Thorne understood that CRSC reserved the right to review and reject Combined Air’s price before any contract could be formed.

[49] CRSC submits that at its highest, CRSC agreed that it would not be asking other mechanical contractors for pricing for the purposes of putting together its bid. However, this arrangement was conditional on Combined Air’s price being fair, reasonable and competitive. All that CRSC was doing, to Combined Air’s knowledge, was nothing more than offering it preferential treatment. More specifically, Combined Air had the opportunity to provide a price without any direct competition but that there would be no enforceable agreement until the parties agreed upon the price.

[50] As there never was acceptance by CRSC of the price, an essential term of the proposed contract was never agreed upon. Counsel for CRSC submits that the principles that apply to tendering are inapplicable in this case as there was no formal tendering process. It submits that the determinative factor in this case is the absence of any request for tenders from CRSC. The parties were not engaged in a formal bidding process. It was only after CRSC determined that Combined Air’s price was high that it asked Carmichael for a price.

[51] Therefore, CRSC submits that after giving Combined Air a chance to explain its price, CRSC did what it could to try to salvage the tender opportunity: it listed another potential mechanical contractor in its tender and reduced the price for the mechanical trades by leaving out its own 20% mark-up.

[52] Further, CRSC submits that it did not provide Carmichael with any information about Combined Air’s price or about an acceptable price range. Accordingly, there were no attempts by CRSC to use Combined Air’s price as a negotiating tool. Nor were there any attempts by CRSC to use Carmichael’s price to negotiate a lower price from Combined Air. In other words, CRSC did not shop Combined Air’s price to Carmichael; nor did it shop Carmichael’s price to Combined Air. Accordingly, there was no bid shopping or conduct akin to bid shopping.

[53] CRSC states that it was always understood that Combined Air would not be submitting its own bid to Hydro for otherwise it would not have shared its designs with Combined Air. Furthermore, CRSC submits that, for a number of reasons, Combined Air was not capable of submitting its own independent bid, including the fact that it could not supply the performance bond within the two weeks required by Hydro in the event that Hydro requested a bond as required by the RFT.

[54] Alternatively, CRSC submits that even if there had been a contract, Combined Air repudiated it by:

(i) submitting a price with a 70% mark-up that was significantly in excess of historical margins; and

(ii) continuing to take steps to pursue its own tender to Hydro, despite the alleged agreement that it would not; and

(iii) Combined Air provided an unreasonable and uncompetitive price that was entirely inconsistent with its historic profit margins and thereby breached an implied term that Combined Air would provide a competitive or reasonable price. In addition, CRSC argues that such conduct is in breach of the common law duty of honesty and contractual performance.

Analysis

[55] Combined Air relies on the principles set out in R. v. Ron Engineering and Construction (Eastern) Ltd. 1981 1 SCR 111, which held that a tender call itself constitutes an offer that is accepted by the submission of a bid, thereby creating a unilateral contract, known as Contract A. The corollary term of Contract A is that if the tender is accepted, then both parties are obligated to enter into the construction contract, known as Contract B. These principles apply as between a prime contractor and a sub-contractor as well as between an owner and general contractor. Specifically, Contract A arises when a sub-contractor submits a bid to a prime contractor and the prime contractor incorporates that bid as part of its tender to the owner.

[56] Whether Contract A arises depends on whether the parties intended to initiate contractual relations by the submission of a bid in response to an invitation to tender.

[57] Combined Air relies on the decision in Naylor Group Inc. v. Ellis-Don Construction Limited[1999] OJ No. 913 (C.A.) (varied as to damages by the SCC, [2001] 2 S.C.R. 943), wherein the court observed that the entire bidding process was dependent on sub-contractors being bound by their bids “once they have been incorporated into a prime contractor’s tender and the tender has become irrevocable.” (S.C. C. at para. 29).

[58] The court in Ellis-Don indicated that the integrity of the bidding process requires that the reasonable expectation of the parties be given effect and that unless the successful prime contractor has a reasonable objection to this sub-contractor it has proposed, the prime contractor must accept the sub-contractor’s bid. (C.A. at para. 42).

[59] In this case, Combined Air submits that on September 12, 2008, it and CRSC agreed that they would work together in an effort to develop a design/build bid and CRSC would not be asking other mechanical contractors for pricing for the purposes of the bid. The intention of the parties on September 12, 2008 was to initiate contractual terms.

[60] As Combined Air’s quote ultimately was submitted (even though without CRSC’s usual mark up) as part of the tender to Hydro, CRSC thereby chose to work exclusively with Combined Air for the purposes of responding to the Hydro RFT.

[61] Unlike other cases which have dealt with the principles of a tender call, here CRSC did not call for a tender for sub-trades on the Hydro Barrie Project. However, in these circumstances, the absence of a formal tender call is irrelevant to the formation of Contract A. In Clow Darling Ltd. supra, the court held that the defendant’s purpose in soliciting a quote for mechanical work from the plaintiffs sub-contractor to assist in the pricing of its own bid and not carrying the sub-contractor’s quote into the bid ran contrary to the bidding procedures which attempt to ensure all parties in the process are treated equally and fairly.

[62] In the case at bar, CRSC basically iced Combined Air from submitting its own competitive bid. Further, CRSC involved Combined Air throughout the month of September in assembling the bid to assist in the pricing of its own bid to Hydro. It appeared that the person in charge up to this point in time at CRSC was Mazzacato and he did not appear to have any difficulty with the price submitted by Combined Air. Rather, it was CRSC President, Eaton, who says that he decided to exclude Combined Air on September 25, 2008, the very day that the Hydro Barrie Project proposal had to be submitted.

[63] It was Eaton’s involvement in the process late in the day and Eaton’s dislike of Combined Air’s new ownership that resulted in the rejection of Combined Air as the mechanical subcontractor of choice. It was not so much the quantum of Combined Air’s quote that disturbed Eaton. Rather, he knew that Combined Air’s pricing had been increasing in recent years; he had met and did not particularly trust Aharonian as he thought Combined Air would cause cost overruns; and he generally disapproved of Aharonian’s reputation. As Eaton put it, “there was no commonality” and “they had different attitudes about business in general.” Earlier, in August, 2008, Eaton had written to Flesch to ask that business dealings with Combined Air be phased out. However, he did not communicate that message to the other CRSC representatives who attended the September I2th meeting.

[64] Eaton testified that he should have sent this message to the others at CRSC because, if had done so, it would have avoided getting involved with Combined Air in the Hydro Barrie Project altogether.

[65] In light of that, it truly must have come as a surprise to Eaton to learn of the arrangement that had been entered into between his company and Combined Air and now it appeared that they were going to do business together on the Hydro Barrie Project. Eaton appeared to reject the Combined Air quote without even reading it.

[66] Eaton testified that there was a moment that he thought CRSC would not get the job because the price was too high but then made a quick decision to submit it anyway.

[67] Eaton then made a decision to go with the Combined Air quote although he wanted to use another sub-contractor. Out of an abundance of caution, he inserted in the tender the name of Carmichael as well as Combined Air without ever having spoken to Carmichael in advance. Also, the RFT called for profiles of the project managers who would be assigned to the work and Eaton inserted the name of Thorne of Combined Air and his profile as follows:

Mr. Shawn Thorne has worked in the mechanical industry for 18 years including 15 years on the tools with extensive experience in the construction and service/maintenance of computer rooms and similar mission critical environments. Mr. Thorne is factory trained and certified to work on Liebert computer room cooling equipment. Mr. Thorne ensures the seamless completion of all projects. Mr. Thorne is also a licensed Refrigeration Mechanic and holds Oil Burner and G-1 gas filter licenses.

[68] Alan Aspilla, who was the Project Manager for the Hydro Barrie Project including the HVAC part, testified that, in choosing the successful bidder, in addition to price, Hydro was interested in the personnel of the bidder, their credentials and resumes to see if they had the depth and knowledge to deliver as a team what was required.

[69] To somewhat moderate the quote, Eaton submitted the Combined Air price without CRSC’s usual mark-up of 20%.

[70] Eaton’s intent was to utilize Combined Air’s price in the hope of getting the award from Hydro and if that turned out to be the case, he would seek a lower price from Carmichael and thereby augment CRSC’s profit margin. What CRSC may have foregone by not tacking on 20% to Combined Air’s price would be more than made up with the profit to be earned by going ahead with Carmichael.

[71] In this way, CRSC kept Combined Air on a string. If CRSC was able to get the job from Hydro it could hopefully negotiate a lower price with Carmichael, but failing that it could compel Combined Air to perform in accordance with its price.

[72] In this context, Combined Air was not simply responding to an invitation to supply a price to CRSC. There was an agreement not to bid shop between the parties and there was consideration for such an agreement, namely:

(a) Combined Air removed itself as a competitor for the bid and Eaton admitted that one less bidder was an advantage to CRSC;

(b) Combined Air did not shop its bid, that is, it did not work with another general contractor who in turn would make a bid to Hydro;

(c) CRSC made use of Thorne’s profile on the “proof of abilities” section in the CRSC bid and was part of the “quality of solution” that ultimately was responsible for winning the bid;

(d) there was a tight deadline and Combined Air was able to provide a quick response in attending design meetings to assemble the bid in a situation where the walk-through was September 12th and the bid due September 25th and where the bid was difficult and uncertain of success;

(e) CRSC benefited from the involvement of Combined Air as a sub-contractor with whom it had a long-standing established business and good working relationship between Thorne (of Combined Air) and Tan (of CRSC);

(f) Combined Air supplied a quote and CRSC knew it could use it as a safety net in the event that its bid was successful and it was unable to obtain a lower price elsewhere.

[73] Furthermore, even if there was an implied term that a price submitted by Combined Air was to be reasonable and competitive, the facts would seem to indicate that was the case:

(a) CRSC in the end used Combined Air’s price and it was ultimately accepted by Hydro;

(b) CRSC did not adduce any expert evidence to demonstrate that Combined Air’s quote was commercially unreasonable. It is insufficient to lead evidence of certain individuals that they were surprised at the number and believed it was too high;

(c) Aharonian was prepared to re-negotiate his price if he got the job. He testified that he might give up $25,000 – $30,000 in exchange for more prompt payment terms but no one meaningfully attempted to communicate with him or suggested a lower price prior to the submission of the bid on September 25th;

(d) Combined Air’s quote included a higher than usual margin because as Aharonian stated;

(i) the Hydro Barrie Project was a “mission critical project” with a tight timeline for completion;

(ii) this was a design/build scope without clear specifications which involved greater uncertainty;

(iii) there was a reduced likelihood of extras which would otherwise provide an opportunity to recoup unexpected costs;

(iv) there would be difficulties in coordinating access to the building which would create added complications;

(v) although it was agreed that Combined Air would not carry the cost of Liebert Equipment in its price, the expectation was that Combined Air would provide the warranty and labour to repair the Liebert Equipment and so some of the mark-up properly belonged to Combined Air;

(vi) CRSC’s own vice-president Mazzacato thought the quote was reasonable and was content to adopt it with a mark-up.

[74] Accordingly, I find that the preliminary Contract A arose when CRSC incorporated Combined Air’s bid as part of its tender for Hydro Barrie Project.

[75] As the Supreme Court of Canada has recently pointed out, there is a common law duty of honesty between commercial parties in contractual performance. In Bhasin v. Hrynew, 2014 SCC at para. 60, the Supreme Court of Canada stated as follows:

Commercial parties reasonably expect a basic level of honesty and good faith in contractual dealings. While they remain at arm’s length and are not subject to the duties of a fiduciary, a basic level of honest conduct is necessary to the proper functioning of commerce. The growth of longer term, relational contracts that depend on an element of trust and cooperation clearly call for a basic element of honesty in performance, but, even in transactional exchanges, misleading or deceitful conduct will fly in the face of the expectations of the patties. Simply, parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract.

[76] In this case, CRSC breached its duty of honesty by including information about Combined Air in the bid such as Thorne’s profile, to impress Hydro and it made use of Combined Air’s quote knowing that it had no intention of using Combined Air as the mechanical sub-contractor; but yet, its intention was to keep Combined Air in reserve to do the work if it was unable to find another mechanical sub-contractor at a lower price. In the end, Combined Air lost out on the contract (“Contract B“) because of conduct on the part of CRSC.

Damages

[77] Combined Air is entitled to its lost profit. The experts called by both sides indicated that the most appropriate method to calculate Combined Air’s lost profits would be Approach Number One used by Patricia Harris of Fuller Landau so long as there was reliable costing data available. Such data is available in this case as Richard Donnelly, the Operations Manager of Carmichael, confirmed that Carmichael’s profit on the Hydro Barrie Project was 18% of $444,000. Therefore, Carmichael’s actual expenses in performing the mechanical sub-contract on the Hydro Barrie Project was $364,080 (being $444,000 less profit of $79,920).

[78] Combined Air’s quote was $968,000. It is not disputed that this quote included the TAC Controls. It is also not disputed that the quote Combined Air received from TAC for $98,500 was for the same work performed by TAC on the Hydro Barrie Project and detailed in TAC’s invoice to CRSC for $188,000.

[79] Combined Air’s lost profit is therefore $505,420 being its quote of $968,000 minus $364,080 (Carmichael’s actual expenses) minus $98,500 (TAC Controls), plus HST.

[80] A number of change orders arose out of the Hydro Barrie Project which totaled approximately $119,000. Aharonian identified that of the change orders invoiced to CRSC by Carmichael, approximately $98,800 in items that were included in Carmichael’s invoice were not included in Combined Air’s quote of $968,000. These change orders would have therefore been incurred by Combined Air, if not for CRSC’s breach of contract.

[81] Carmichael’s evidence was that it had received an approximate gross profit margin of 18% on the change orders arising out of the Hydro Barrie Project. Combined Air is therefore entitled to an additional $17,784 in lost profits which represents an 18% gross profit margin of $98,800 for a total of $523,204 plus HST in lost profits.

[82] There is no substantive evidence that Combined Air was able to mitigate its loss. Its business is elastic. It seems to be able to do whatever work comes in because Combined Air can readily sub-contract out much of that work. It could have performed the mechanical work on the Hydro Barrie Project additionally to any other work that it was able to otherwise attract. As indicated in Schedule “4” of Patricia Harris’s report, approximately $240,000 of Combined Air’s costs of $290,000 were to be outsourced. Aharonian confirmed that if Combined Air had been awarded the sub-contract for the Hydro Barrie Project, it would not have had to refuse any work in late 2008 and 2009.

Conclusion

[83] For these reasons, Combined Air will have judgment as against CRSC for $523,204 plus HST, plus pre-judgment interest in accordance with the Courts of Justice Act, R.S.O. 1990, c. C.43, calculated from November 10, 2008, the date on which CRSC advised Combined Air that it would not be the subcontractor on the Hydro Barrie Project.

[84] If the parties cannot otherwise agree, costs are to be addressed in writing within 30 days.

Lederman J.

Released: February 13, 2015

CITATION: Combined Air Mechanical Services v. Computer Room Services Corporation 2015

ONSC 610
COURT FILE NO.: CV-08-367223
DATE: 20150213

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

COMBINED AIR MECHANICAL SERVICES

Plaintiff

-and-

COMPUTER ROOM SERVICES CORPORATION and HYDRO ONE NETWORKS INC.

Defendants

REASONS FOR JUDGMENT

Lederman .I.

Released: February 13, 2015

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  • Lila v. Lila (1986), 3 R.F.L. 226 (Ont.C.A.) – This was a family matter decided by the Ontario Court of Appeal. It was included for many years in the Bar Admission Course materials on Family Law for the proposition it established concerning entitlement to interim support where there is an allegation of a fundamental repudiation of the marriage.

  • Caleb v. Potts [1986] O.J. No. 1125 – A Real Estate agent’s liability case.

  • Siduak (c.o.b. P.M. Industries) v. Mironovich (c.o.b. Fashion Gem Imports) [1986] O.J. No. 1953 DRS 94-01126 – Breach of Contract.

  • Jewell v. Zorkin (1986), 4 W.D.C.P. 49 (Ont.Master) – This case concerned an interesting point of pleading in the area of libel law.

  • R. v. Albino, Oct. 16, 1987, Ontario Lawyers’ Weekly – This case concerned an interesting point of criminal procedure asserting an accused’s right of election with respect to indictable offences.

 

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