Date: 20060421
Docket: T-11-02
Citation: 2006 FC 511
Ottawa, Ontario, April 21,
2006
PRESENT: The Honourable Mr. Justice Beaudry
BETWEEN:
446203 BC LTD. carrying on
business as
ISLAND SKILL DEVELOPMENT CENTRE
Plaintiff
and
HER MAJESTY THE QUEEN in Right
of the
Government of Canada Represented by
HUMAN RESOURCES DEVELOPMENT CANADA
Defendant
REASONS FOR JUDGMENT AND JUDGMENT
I. Introduction
[1]
This
is an action brought by Island Skill Development Centre (ISDC) against Human
Resources Development of Canada (HRDC) pursuant to section 17 of the Federal
Courts Act, R.S.C. 1985, c. F-7, for breach of contract.
II. Issue
[2]
Were
there any contractual obligations by HRDC beyond the terms of the May 1999
agreements (as amended) between the parties?
III. Background
[3]
ISDC
is a company incorporated pursuant to the law of the Province of British
Columbia.
The president sole shareholder and director of the corporation and its guiding
mind is Susanna Blackburn, a social worker who obtained her Master’s degree in
social work in Toronto in 1986.
[4]
In
May 1999, HRDC signed two contribution agreements with ISDC. Under one
agreement, ISDC received funding for the provision of “front-end” employment
assistance services to unemployed Canadians. Under the other agreement, ISDC received
funding for the provision of “back-end” or “assisted employment assistance
services to unemployed Canadians”.
[5]
These
agreements were made pursuant to the Employment Insurance Act, S.C.
1996, c. 23 Part II, “Employment Benefits and National Employment Service” (sections
56-65.2), and the Employment Insurance Act Regulations, (SOR/96-332), sections
58 and 59.
[6]
Before
that, in a joint venture agreement with the Province of British
Columbia (Province), HRDC issued a Request for Proposal (RFP) on
December 11, 1998, to find providers of front-end services including
independent job search services and employment assistance service. It was
understood that HRDC and the Province would enter into independent contracts
with the successful applicant.
[7]
On
January 15, 1999, HRDC issued an Invitation for Proposal (IFP) for the
provisions of “assisted services” for employment insurance clients.
[8]
ISDC
was a successful bidder with respect to both the RFP and IFP. Each bid contained
proposals for an administration fee of the contract price. Consequently, ISDC
signed two contracts with HRDC (contract no. N44655-4 (front-end) and contract
N45862-5 (back-end)) and with the Province (contract no. C2000/3713).
[9]
The
plaintiff alleges that the Proposal, if accepted, was to last for a term of
three years to be renewed annually subject to any necessary adjustments and the
following three conditions:
- project performance;
and
- available funding;
- Labour Market
Development Agreement (LMDA) outcomes.
[10]
HRDC,
the only one sued in this action, contends that the two agreements it
signed was for a term of ten months extended to 13 months (to June 30, 2000) agreed
to by amendments by both parties, with no obligation on its part to
renew each agreement. Therefore, HRDC denies that the agreements required that
it be renewed each year, on exactly the same terms if the above three
conditions were met as ISDC submits.
[11]
Prior
to June 30, 2000, the parties entered into negotiations for the front-end
services contribution agreements with HRDC and the Province for a period of 12
months commencing July 1, 2000.
[12]
ISDC
submitted to HRDC a proposal for a new front-end services contribution
agreement which was accompanied with a formal application form.
[13]
In
the proposal, a budget claiming a profit component was included as it had been
paid in the past. HRDC made an internal assessment and determined that some
administrative fees, which were profit components, had to be removed. ISDC
presented a revised budget. Finally, HRDC notified ISDC that the only budget
item that HRDC was unable to accommodate was the budget line item “Project Suprv’n
& Mgmt”, which represented $33,400 out of a budget of $741,220.
[14]
ISDC
responded that it could not operate any project without an administration fee
and ceased its operation at the end of June 2000.
[15]
ISDC
claims damages for breach of contract and alleges that HRDC had a contractual
obligation that stems from the two agreements signed in May 1999 to pay an
administration fee of 8% of the net amount of each agreement and an obligation
to renew the agreements for a second and third year with ISDC.
IV. Submission of the parties
A. The Plaintiff
[16]
HRDC
has an obligation to renew its contracts as agreed in May 1999. HRDC has no
discretion as to whether or not to renew the contracts and HRDC is not free to
stipulate new conditions to the renewal that it deemed desirable, as long as
the following three conditions are met:
·
project
performance;
·
available
funding;
·
Labour
Market Development Agreement (LMDA) outcomes.
Since HRDC admitted that all three
conditions had been met, it must enter into new contracts for further terms, to
a maximum of 36 months in total. In other words, HRDC has the obligation to
enter into two new one-year contracts with ISDC, one for the period of July 1,
2000 to June 30, 2001 and one for July 1, 2001 to June 30, 2002.
[17]
Relying
on the testimonies of Susanna Blackburn, Marsha Weaver, Peter Davey and a memo
to file dated March 31, 2000 (exhibit P-3A, tab 42) from Mr. J.A. Brown, HRDC’s
director at that time, ISDC submits that the term of the contract was for a
period of three years, making small necessary adjustments to each contract
annually.
[18]
The
plaintiff alleges that the (front-end) contract does not include discretion in
favour of the defendant to renew as it is stipulated in the RFP. Therefore,
HRDC had the obligation to renew if the three conditions were met.
[19]
ISDC
urges that if the contract is ambiguous, it must be interpreted in favour of
the plaintiff in accordance with the contra proferentem rule.
[20]
During
the existence of the 13 month contracts, HRDC paid the 8% administration fee
without disputing it.
[21]
During
the year 2000 negotiations period, ISDC submitted eight budgets to fulfill
HRDC’s demands. Nevertheless, HRDC refused to pay an administration fee, which
the plaintiff states HRDC was obligated to pay. All major changes to the
proposed budgets were directed by an HRDC representative.
[22]
ISDC
claims $1,000,000 from the defendant for loss of earnings, building occupancy
costs, loss of capital investments, and other losses detailed in the Amended Amended
Statement of Claim at paragraphs 32, 33 and 34. Details of some of the losses
are found in Mr. Selman’s written expert opinion and testimonial evidence.
[23]
ISDC
refers the Court to The Law of Contract in Canada by G.H.L. Fridman, Fourth
Edition. The plaintiff also cites Manulife Bank of Canada v. Conlin, [1996]
3 S.C.R. 415.
B. The Defendant
[24]
HRDC
denies that there was a breach of contract. The contract documents are
unambiguous and there is no obligation to renew.
[25]
Under
the agreements signed between the parties, HRDC agreed to pay a profit
component in the form of an administration fee to ISDC. HRDC states that this
was contrary to Treasury Board policy and the associated HRDC Terms and
Conditions approved by Treasury Board. It also alleges that at the time, the
policy was not strictly applied by HRDC.
[26]
In
January 2000, an audit report was made public finding problems with the
management of grants and contributions at HRDC. It became apparent during the
review of the agreements that allowing an 8% administration fee profit to ISDC
was a mistake.
[27]
The
contracts with HRDC ended on June 30, 2000 and this was known to the plaintiff.
During the negotiations for a new contract from July 2000 to June 2001, ISDC
was made aware that no profit component would be paid by HRDC.
[28]
HRDC
objects to extrinsic evidence for the interpretation of the contracts signed by
both parties because the terms of the contracts are unambiguous. The Court
heard the extrinsic evidence under reserve and comments are found under
the title Analysis. The defendant says that in the event that the contract
documents are ambiguous, proper extrinsic evidence establishes that there is no
obligation to renew.
[29]
HRDC
adds that if damages are to be awarded to the plaintiff, it should be limited
to two months as stipulated in the termination clause in the contract. In a
further alternative, if the Court does not find the termination clause
applicable in this case, then damages must be limited to two years based on Mr.
McKay’s expert written opinion and testimony.
[30]
HRDC
files case law to support its submissions.
V. Analysis
Were there
any contractual obligations by HRDC beyond the terms of the May 1999 agreements
(as amended) between the parties?
A. What is the period or duration
of the agreements signed between the parties in May 1999?
[31]
HRDC
entered into two contribution agreements with ISDC in May 1999. In both “front-end”
and “back-end” agreements, the plaintiff received funding for employment
assistance services to unemployed Canadians (exhibit P-3A, tabs 3 and 6).
[32]
The
“front-end” agreement with HRDC was funded in the proportion of 55/45 by HRDC
and the Province respectively with a common budget. The Province signed a separate
“front-end” agreement with ISDC (exhibit P-3A, tab 9).
[33]
The
“front-end” and “back-end” agreements between HRDC and ISDC had a ten month period
ending March 31, 2000. The parties entered into two separate amended agreements
to extend these agreements to June 30, 2000. There were also two separate
amended agreements that did not concern the duration of the agreements.
[34]
The
defendant admits that under the two signed agreements (“front-end” and “back-end”),
HRDC agreed to pay ISDC as part of the budget line item “project coordination
fee”, a profit component (an administration fee of 8% of the net amount of the
contract). It also agreed to pay ISDC under the budget line items “Equipment
Fee” and “Computer Lab Fee” rental fees for the use of ISDC's existing equipment.
These fees were included in the “net amount of the contract” used to calculate
the 8% administration fee.
[35]
The
duration of the “front-end” extended agreement can be seen at exhibit P-3A, tab
5, page 1 (box 100: file number N44655-4, boxes: 23 and 24 “from 1999-06-01
to 2000-06-30”). As to the “back-end” extended agreement, it can be found
at exhibit P-3A, tab 8 (box 100: file number N45862-5, boxes 23 and 24 “from
1999-06-01 to 2000-06-30”).
[36]
In
the presence of such clear indication in the contract documents, the
Court has no alternative but to determine that the duration of the contracts is
as indicated in the previous paragraph and it ended on June 30, 2000.
B. Are there any legal
obligations by HRDC towards ISDC beyond the period of June 30, 2000?
[37]
To
answer this question, the Court must examine the written agreements and
the factual context in which they were written. What was the evidence of the
background known to the parties at or before the date of the contract? (Delisle
v. Bulman Group Ltd. (1991), 54 B.C.L.R. (2d) 343).
[38]
At
page 345 of the Delisle decision, Justice Ryan wrote at paragraph 2:
In examining the factual matrix the Court
ought not to look at the prior negotiations of the parties as an aid to the
construction of the written contract. Viva voce evidence as to what the
parties intended is inadmissible in interpreting a written contract. […]
[39]
In
the present case, HRDC and the Province issued a Request for Proposal (RFP) on
December 11, 1998 (exhibit P-3A, tab 1), to find providers of front-end
services. It was understood that they would enter into independent contracts
with the successful applicant. On January 15, 1999, HRDC issued an Invitation
for Proposal (IFP) for the provision of “assistance services” or “back-end
contract”. ISDC was a successful bidder with respect to both RFP and IFP. Three
contracts were signed afterwards (see [8] above).
[40]
The
plaintiff submits that the May 1999 agreements included an obligation for HRDC to
renew each agreement for further terms up to 36 months in total – in other
words, two future one-year contracts: one for a second year and
one for a third year, a contractual obligation therefore going beyond the
agreement ending June 30, 2000.
[41]
This
contention is inconsistent with the knowledge that the plaintiff admitted to
have known at the time of the May 1999 agreements and the terms of the contracts.
[42]
The
evidence shows that the plaintiff knew that HRDC’s policy provided that it
could enter into employment assistance services contracts for no more than 52
weeks (Marsha Weaver’s testimony on direct examination).
[43]
As
to the terms of the “front-end” contract (exhibit P-3A, tabs 3 and 5), not only
is the duration set to the end on June 30, 2000, but in Schedule A - Attachment,
which forms part of the contract, under the title II PROPOSAL INTEGRAL
TO THE AGREEMENT/ REFERENCES ON FILE, paragraph B also provides as follows:
B. All references presented in
this Schedule A and the Schedule D making up part of this agreement include the
following documents are available on the file of the agreement:
∙ R2 REQUEST FOR PROPOSALS –
FRONT END SERVICES […]
Under the title III TRANSITIONAL MODEL –
LABOR MARKET DEVELOPMENT AGREEMENT (LMDA), paragraph C reads:
C. AGREEMENT IN PRINCIPLE
As stated in the RFP (R2) HRDC agrees in
principle to fund this project up to three years, however, agreements are only
signed for one year at a time and renewal is subject to project
performance, available funding, and LMDA outcomes. [emphasis added]
[44]
The
Court understands that this document refers to the RFP (exhibit P-3A, tab 1,
page 3, EXECUTIVE SUMMARY). The last paragraph of 1. SUMMARY OF THE
REQUIREMENT stipulates:
The expected terms of the Contracts will
be for one year with an anticipated start no later than June 1, 1999. At its
sole discretion, the Province may offer renewal of its Contract for further
terms, to a maximum of 36 months in total, subject to sufficient appropriation and
satisfactory performance of the Contractor. At its sole discretion, the
Commission may offer renewal of its Contract for further terms, to a maximum of
36 months in total, subject to sufficient appropriation in satisfactory
performance of the Coordinator. [in this case, “Commission” refers to HRDC]
[emphasis added]
[45]
With
such clear and convincing evidence in the contract and in the RFP, the Court is
convinced that HRDC had no contractual obligations towards ISDC beyond June 30,
2000. The words "at its sole discretion" is in contradiction with the
plaintiff’s submission that HRDC was bound to renew for further terms up to 36
months. Similar clauses as mentioned above are also found in the
"back-end" contract.
[46]
Therefore,
the Court has no alternative and must sustain the defendant’s objection
to the extrinsic evidence adduced by the plaintiff by way of Mrs.
Blackburn’s and Mrs. Weaver’s testimony on the interpretation of the contract
documents.
[47]
In
the event that the Court is wrong on this and even if it had to consider such
extrinsic evidence, the Court is of the opinion that the extrinsic evidence
does not support the plaintiff's interpretation that the May 1999 contract
documents give rise to an obligation on the part of HRDC towards ISDC beyond
June 30, 2000.
[48]
The
Court has to mention that it appreciated the straightforwardness and frankness
of Mrs. Blackburn and Mrs. Weaver. Mrs. Blackburn testified that at the
mandatory proponents meeting following the issuance of the RFP, someone said
that it was a three-year contract. She was not sure who made that
statement but she believed it was Mr. Davey. Mrs. Weaver also heard the same thing
from an HRDC's representative but was unable to remember who it was.
[49]
The
Court read and reread the transcript of Mr. Davey’s testimony and does
not agree with ISDC’s representative that Mr. Davey corroborated
the statements of Mrs. Blackburn and Mrs. Weaver on this point.
[50]
As
well, the Court cannot infer from the "Note to File" dated March 31,
2000, by J.A. Brown (exhibit P-3A, tab 42) that HRDC had a three-year
obligation towards ISDC. The second paragraph explains the context in which
this memo was written:
Since January 21, 2000 this office has
faced an unprecedented workload brought on by the need to review and attested
(sic) to all active files. De facto this took staff away from the task of
making adjustments to future year contracts as they instead dedicated their
time to reviewing and “cleaning up” current contracts.
It is obvious that the memo was written in
the context of an amendment to extend the front-end contract with ISDC
by three months to June 30, 2000. The words in the first
paragraph “… and a 3 year approach” and “… This extensive contracting process
is to be repeated every 3rd year” are consistent with the words in the
AGREEMENT IN PRINCIPLE (see [43] above) “… HRDC agrees in principle to fund
this project up to three years” and the words in the SUMMARY OF THE REQUIREMENT
(see [44] above) “to a maximum of 36 months in total”. It is not a confirmation
of a three-year contract as the plaintiff contends.
[51]
Therefore,
the Court considers that the contract documents are clear and unambiguous. HRDC's
contractual obligations ended June 30, 2000.
[52]
Assuming
that during the negotiations between HRDC and ISDC before the end of June 2000,
one of HRDC's representative directed ISDC to hide an administration fee
or a profit component in certain lines of the proposed budgets, this cannot in
itself impose an obligation on HRDC to renew the contract that ended on June
30, 2000.
[53]
HRDC
submitted alternatively that if the Court did not agree with its interpretation
of the contract, ISDC could not be paid more than the two months mentioned in
the Termination Clause inserted in the contract documents. The Court does not
agree as no such notice was given to ISDC.
[54]
In
view of the Court's conclusion on the interpretation of the contract
documents, the plaintiff is not entitled to damages. On the other hand, if the
Court had accepted the interpretation submitted by ISDC's representative, it
would have granted damages at $362,446 and would have followed Mr. McKay's
written expert opinion (exhibit D-3, Schedule 3, amended at trial). The Court
found the defendant’s expert more reliable. His explanations were more credible
than ISDC’s expert.
JUDGMENT
THE COURT
ORDERS that the action is dismissed, with costs to the defendant.
“Michel
Beaudry”
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