Cargill Grain Ltd. v. Davie Shipbuilding Ltd., [1977] 1 SCR 659

Supreme Court of Canada

Cargill Grain Ltd. v. Davie Shipbuilding Ltd., [1977] 1 S.C.R. 659

Date: 1975-12-04

Cargill Grain Limited (Defendant) Appellant;

and

Davie Shipbuilding Limited (Plaintiff) Respondent.

1975: June 20; 1975: December 4.

Present: Ritchie, Spence, Pigeon, Beetz and de Grandpré JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR QUEBEC

Sale of goods—Calculation of weight of steel—Erroneous interpretation of contract—Inexact nature of draught displacement method—Inadmissibility of hearsay evidence—Weights and Measures Act, R.S.C. 1970,c. W-7.

A number of contracts for the construction of harbour facilities, providing inter alia for the supply of steel, were awarded by appellant to respondent. The latter obtained judgment against appellant in the Superior Court for $594,856.08, and the cross-demand was dismissed. A majority of the Court of Appeal upheld this decision. The dissenting judge would have deducted an amount of $120,800.61, that is to say the greater part of an invoice of $130,754.61 for additional steel supplied under contract No. 7. The point in dispute, on which Hyde J. in the Court of Appeal based his dissent, concerns the manner of calculating the additional steel delivered under contract No. 7, having regard to the relevant clauses. This contract stipulated a lump sum price for a certain quantity of steel, but also provided that “should the final shipping weight differ from the tonnage stated”, this price would be decreased or increased at certain rates, depending on the type of steel. In order to arrive at the sum of $130,754.61, respondent calculated the amount of additional steel supplied by using the draught displacement method. According to the trial judge, this method had been stipulated by the parties for contract No. 7, and reference therefore had to be made to it. The Court of Appeal held unanimously that this was a misinterpretation on the part of the trial judge, but the majority held that although this method had not been stipulated by the parties, it was the most appropriate one in the circumstances, and they upheld the conclusions of the Superior Court. Hence the appeal to this Court.

Held: The appeal should be allowed.

Whereas other contracts between the parties (contracts 6 and 12) stipulate a method for calculating the

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weight of the steel, the so-called C.I.C.S. method, the contract which is the subject of the dispute is silent on the matter. When the contract talks of shipping weight, it is not contemplating the draught displacement method. The trial judge accepted the submission that this method was the one intended by the parties, and therefore saw no need to consider appellant’s evidence on the accuracy of the method.

On the other hand, once it is admitted that the contract is silent on the manner of determining the weight of the steel sold and delivered, the general rules governing commercial contracts must be applied. Generally, when this type of contract speaks of the weight of merchandise to be delivered, it means the weight determined by weighing the object on scales that have been verified in accordance with the Weights and Measures Act. Even though in the case at bar the seller, Davie, had no scales on which to weigh the large pieces of steel shipped by water, it had the onus of proving that the method used was normal under such circumstances and that it was a commercially acceptable way of determining the weight of structural steel.

The witnesses all recognized that the draught displacement method was very inaccurate and that in practice it is never used to calculate the weight of steel or other expensive merchandise. This method is also incompatible with the clause in the contract providing for three, different prices for the additional steel, depending on the category.

At the trial, plaintiff Davie’s sole basis for proof of its calculations was a document prepared by one J.R. Josslyn, deceased. This was thus hearsay evidence, inadmissible unless the document came under one of the exceptions. The document did not contain facts but conclusions, and it is not possible to ascertain and verify the calculations made in order to arrive at the result recorded. This is not a situation where, owing to the sudden death of one of its employees, a business firm would be totally unable to prove a claim, since the structure erected for appellant is still there and there is nothing to prevent respondent from establishing the weight by measuring the pieces, which is the usual method in the case of structural steel.

Since the draught displacement method was not stipulated for the calculation of the weight of steel delivered, and since Josslyn’s conclusions were not admissible as evidence, there is no other evidence as to weight than that present by the witness Armstrong on appellant’s behalf. According to this witness the additional steel weight is some 21 tons, and the claim under this heading should be reduced from $130,754.61 to $5,447.60.

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The cross-demand raises only questions of fact on which the Quebec courts agreed; their conclusions should not be disturbed.

Royal Victoria Hospital et al. v. Mary Morrow, [1974] S.C.R. 501; Ares v. Venner, [1970] S.C.R. 608, referred to.

APPEAL from a decision of the Court of Appeal for Quebec upholding a judgment of the Superior Court ordering appellant to pay respondent the sum of $594,856.08 and dismissing appellant’s cross-demand. Appeal allowed and judgment of the Superior Court altered by reducing the amount of the order by $125,307.

The judgment of the Court was delivered by

PIGEON J.—This is an appeal from a decision of the Quebec Court of Appeal which upheld the judgment of the Superior Court maintaining action by respondent Davie Shipbuilding Limited (“Davie”) for the sum of $594,856.08, and dismissing the cross-demand of appellant (“Cargill”). Hyde J.A., dissenting, would have deducted from the judgment, besides a small sum of $984.66, an amount of $120,800.61, that is to say the greater part of an invoice of $130,754.61 for additional steel.

In its factum and in its argument at the hearing, Cargill limited its appeal to two points: (1) the amount of $130,754.61; (2) the cross-demand.

With respect to the Cross-demand, which is based on alleged defects, the Court has before it concurrent findings of fact in the courts below which led to its dismissal. Cargill did not really raise any question of law in this regard or show any manifest error which would justify this Court’s intervention. There is therefore no need to dwell further on this part of the appeal.

The same cannot be said for the amount that is the subject of Hyde J.A.’s dissent. As the judges who heard the case in the Court of Appeal are unanimous in acknowledging, the trial judge misunderstood the meaning of the contract under

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which Davie claimed the amount of $130,754.61 in question. Furthermore, in order to allow this amount he relied on the result of observations and calculations made by a person who died before the trial, and whose observations and calculations were not preserved. It is therefore necessary to state the essential facts relating to this part of the case.

In the spring of 1959, Cargill decided to erect harbour facilities for the purpose of receiving and delivering grain at Baie Comeau. It awarded a number of contracts to Davie, inter alia one designated as “contract No. 7” and dated April 3, 1959 for the construction of warehouse No. 1. It stipulated a lump sum price but with provision for additional payment should the total shipping weight of the steel exceed the quantity anticipated. The two relevant clauses read as follows:

3. TONNAGES

The price tendered is based on the following shipping weights, including erection bolts, etc…

(a) Supplied by Contractor	1,247 tons
(b) Supplied by Owner	1,207 tons
TOTAL	2,454 tons

4. UNIT PRICE ADJUSTMENTS

Should the final shipping weight differ from the tonnage stated, it is agreed that the lump sum tendered will be decreased, or increased at the following unit price rates.

Plate Steel	$264.00 per ton
Structural Steel	$237.00 per ton
Miscellaneous Ironwork	$403.00 per ton

It is agreed that ton shall mean the short ton of 2,000 pounds.

Contracts Nos. 6 and 12 were not drawn up in the same way as contract No. 7. In the first there is, with respect to the structural steel only and not to the hoppers and so forth for which a set price is stipulated, the following provision:

ITEM 102—Extra or credit to Item 101 for Alterations Causing Variation from the Total Weight of Steel Submitted in Item 101.

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The quantity used for payment under Item 102 shall be the difference between the total weight quoted under Item 101 and the total weight actually supplied. Measurement for payment shall be as stipulated in C.I.S.C. technical bulletin No. 12, Part 3—Calculation of weights for pound-price bids.

There is a similar provision in contract No. 12 with respect to certain items. The so-called C.I.S.C. method of calculation involves determining the weight of the pieces from their volume, based on the density of steel fixed at 0.2833 lb per cubic inch. Volume is calculated according to the theoretical dimensions of the pieces, without deductions for trimming.

In this regard the trial judge, before quoting the contract provisions, observed:

[TRANSLATION] The adjustment of the lump sum prices stipulated in the three contracts is to be made on two different bases. Under contracts Nos. 6 and 12, the calculation is to be made from the drawings, by finding the volume of the steel or iron used, and establishing its weight according to the so-called C.I.S.C. method, described in the contract and found in C.I.S.C. bulletin No. 12, Part 3. It is quite simple for experts to establish the weight of steel entering into any construction by using this method.

A different method was adopted in contract No. 7 for calculating the weight of steel which entered into the construction. There, the parties stipulated the draught displacement method for the vessels carrying the steel. This method involves reading the draught marks before and after loading the steel. By using this method one can determine how much lower the ship is in the water. Knowing the size of the ship and the weight of various objects on board which are not part of the shipment of steel, and which accordingly must not figure in the calculations, experts can establish the weight of steel carried in this fashion.

There is no need to discuss whether or not these methods are exact. Since the parties stipulated in the contracts that these methods were to apply, it is to these methods that reference must be made. (My italics and my underlining.)

Then, having quoted the contract provisions and rules on the claim under contracts Nos. 6 and 12 which is no longer in dispute, the trial judge added:

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[TRANSLATION] However, the situation is different for contract No. 7. As in the other contracts, a lump sum price was stipulated on the basis of an approximate estimate. The contract then goes on to state that the total weight of the steel used in the performance of this contract shall be established by the draught displacement method. The method works as follows. On the side of the vessel there is a graduated scale showing the settling of the vessel in the water. The heavier the load, the greater the settling. The scale is read before and after loading. It is a simple matter for experts to determine the weight of the load; they take into account the size of the vessel, the depth to which it has settled and the weight of the various objects placed on the vessel that were not part of the load, as for example trucks, mechanical cranes and various pieces of equipment. (My italics.)

The Court of Appeal held unanimously that this was a misinterpretation. Deschênes J.A. stated:

[TRANSLATION] At the outset, I must agree with Appellant that the trial judge misinterpreted contract No. 7 when he wrote:

(text of the two italicized passages in the above quotations).

With all due respect, as my brother Rinfret J.A. has emphasized, it should rather be said that the contract is silent as to the method of calculation to be used, while the other contracts stipulated a specific method. It was accordingly respondent’s duty to use the method most appropriate to the circumstances: given the great size of several pieces required by the contract it was decided, and rightly so, to resort to the draught displacement method. Should the Court and the parties lose the benefit of this because architect Josslyn died between the relevant events and the trial?

In my opinion, the trial judge correctly held that they should not, and I adopt his reasoning and the authorities referred to in support of it.

As may be seen, while acknowledging the fundamental error of the trial judge, the majority on appeal still upheld his conclusions. In my opinion Hyde J.A. dissenting, correctly held to the contrary:

Contract No. 7, however, is silent on the method and we have only the term “final shipping weight” as used in clause 4, above quoted, to go by. Of the total 2960 tons which Davie claims were delivered under this contract all but some 80 tons were shipped by boat from its yards

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at Lauzon to the erection site at Baie Comeau (see Ex. P-257 and supporting invoices filed en liasse as Ex. P-78).

Undoubtedly the most exact weights would have been determined by the use of scales, public or otherwise, but Davie claims that the size and shape of a number of pieces made this impractical and furthermore, strange as it may seem, Davie had no scales at its works (Veliotis 5-868). Accordingly it relied on ship draught displacement calculations. Veliotis (Davie’s Vice-President) describes the procedure followed (5-800):

From each shipment we had a shipping weight as taken by the method I described—by the additional displacement of the vessel. This all added up to a total weight, from which we deducted the weights of amounts of steel, which are invoiced separately, less an allowance for dunnage and blocking and other items that were not a part of the contract. We arrived at a weight, a net weight, of some 5,920,000 pounds, I believe.

which he said is “in accordance with the contract”. It may have been this comment which led the trial judge astray into stating, quite erroneously, that the parties had stipulated that the weights would be determined by “la méthode de tirant d’eau”.

That this is an error of some consequence may be appreciated by the judge’s statement following his description of this method of weighing:

[TRANSLATION] There is no need to discuss whether or not these methods are exact. Since the parties stipulated in the contracts that these methods were to apply, it is to these methods that reference must be made.

The passage quoted shows that the trial judge simply refused to consider the evidence presented by Cargill on the inexact nature of the draught displacement method. He accepted Davie’s submission that this was the method stipulated in the contract. It is now agreed that this was wrong. The contract did not state how the quantity of steel delivered was to be measured. It referred only to the “shipping weight”.

Generally, when a commercial contract speaks of the weight of merchandise to be delivered, it means the weight determined by weighing the object on scales that have been verified in accord-

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ance with the Weights and Measures Act. (R.S.C.c. W-7). Therefore, even in the case of merchandise worth only a few dollars per ton, such as sand or crushed rock, the seller always provides the buyer with a certificate of weight for each delivery. In this case, however, Davie had no scales to weigh the large pieces that it shipped by water from Lauzon to Baie Comeau. Under such conditions, Davie assumed that it could determine the weight of the merchandise shipped by the method known as draught displacement. It seems clear to me that, since Davie was the plaintiff in the action, it had the onus of proving that this was a normal method under such circumstances. This it did not do. It adopted the mistaken attitude that such were the provisions of the contract and the trial judge erroneously accepted this submission.

On appeal the error was unanimously acknowledged, but the majority, as we have seen, still adopted the conclusion of the trial judge. Essentially the reasoning of Rinfret J.A. on the point is as follows:

[TRANSLATION] Pieces of large dimensions were involved, which it proved impossible to weigh after assembly, and which had to be transported by boat: this was obviously the most practical and economical means of transport for both the shipper Davie and the consignee at Baie Comeau, since both had excellent harbour facilities. Furthermore, there was nothing in the contract to exclude water transport.

Under such circumstances, it seemed simpler and more practical to weigh the steel shipments using the method known as draught displacement.

I find no fault with the explanation given by the trial judge:

(passage following the italicized part of the second quotation above).

In its simplest form, the method involved measuring the weight of the cargo using the difference between the weight of the boat when empty and its weight once loaded.

On the question of the validity of the draught displacement method, defendant-appellant called four witnesses, Messrs Kuscher, Armstrong, Simard and Perry.

Some dismissed it out of hand as completely ineffective; others, less adamant, admitted that under certain conditions, as for example in the case of relatively

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inexpensive bulk freight, it could be used in weighing within close to one per cent of the exact weight.

Like the trial judge, I am surprised that a distinction was made between freight having a greater or less value; if the weight is accurate within one per cent in one case why would it be different in the other? The financial value is not a consideration here.

With respect, such reasoning seems faulty to me. The trial judge dismissed the question of value, because he believed that the contract stipulated the draught displacement method. However, once it is admitted that the contract did not stipulate this, then it becomes clear that the value of the merchandise is an important factor in determining whether a particular method of measurement is accurate enough to be acceptable. Davie made no attempt to prove that the draught displacement method was accepted business practice in determining the weight of structural steel.

The witness who stated that the draught displacement method is sometimes stipulated for bulk merchandise was Captain Kuscher, who has considerable expertise in the field. He produced the form which he uses to determine with acceptable accuracy the weight of bulk freight by the draught displacement method. This form completely fills a legal-size page and requires another sheet for stores and ballast. When he was shown the exhibits that Davie purportedly used to determine the weight of the steel delivered to Cargill, he stated categorically that, under such conditions, it would be totally impossible to reach an acceptable degree of accuracy. In his opinion, the margin of error for certain cargoes was greater than the weight calculated for contract No. 7.

The witness Armstrong gave the following answers:

Q. Now, wouldn’t shipping draughts be another way of determining the shipping weight of steel?

A. To my mind, it would be quite impossible to arrive at even a vaguely accurate weight. There are so many variables.

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Q. In your long experience did you have occasion to meet cases where the weight of steel was determined by the draught of a ship?

A. No.

The witness Simard saw the last steel cargo for contract No. 7 shipped by Davie to Baie Comeau. He said he had never used the draught displacement method, and added that at the time of the last shipment, there were no marks on the ship that could have been used for this purpose because it was navigating through ice. The bill of lading shows 42.6 tons, while the tabulation used as the basis of the claim shows 69 tons.

Finally, the witness Perry stated:

…for billing it is unthinkable frankly for structural steel. I can’t imagine using the draught of a ship except for a full bulk cargo of a basically cheap material.

It must therefore be said that there is absolutely no evidence that the draught displacement method is commercially acceptable for establishing the weight of structural steel shipped by water. With respect, I find a clear error in the statement that, since some witnesses admit that the method is sometimes used for inexpensive merchandise, it must be considered acceptable for expensive merchandise. The witnesses are unanimous in saying exactly the opposite.

Moreover, it appears to me that the contract implicitly excluded any use of the draught displacement method when it stipulated not just one price for the additional quantity of steel, but three different prices, depending on whether plate steel, structural steel or other ironwork was involved. Through the stipulation of three different prices it was obviously intended that the additional price be determined according to the additional weight for each of the three categories. In the draught displacement method, no such distinctions are possible: it provides a total figure for the weight of the cargo. Because this method was used, it was impossible to make the calculation in the manner provided in the contract and an average had to be taken. In this regard, Rinfret J.A. said:

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[TRANSLATION] Appellant objects to the rate charged being an average rate of $258.18 per additional ton and submits that the lowest rate of $237.00 should be adopted.

I see no merit in this submission: the figure of $258.18 appears to be the result of a calculation based on the proportion of each type of steel transported: “stepped siding, 34%; loose structural steel, 17% and arch pipes, 49% of the total weight”.

With respect, this appears illogical. How were the proportions of types of steel transported determined if not by calculating the weight from the quantities and dimensions, as was done, moreover, for the steel used in contracts Nos. 6 and 12. In actual fact, Davie did not make up its invoice according to the draught displacement method. It only resorted to that method in order to establish the total weight. To determine the price in terms of the various categories stipulated in the contract, it was obliged to use another method.

Furthermore, the greater part of the steel pieces supplied in accordance with contracts Nos. 6 and 12 was shipped by water in loads which also contained pieces pertaining to contract No. 7. Since the draught displacement method only gives a total weight, it was necessary to substract the weight of the pieces pertaining to the other contracts in order to arrive at a figure for those pertaining to contract No. 7. The weight of these other pieces was established using the stipulated method, namely by multiplying the volume by the density of the steel. The use of this procedure meant that, in actual fact, the weight of the whole was determined by the draught displacement method. It is true that invoices for two contracts were established according to the calculation based on the volume of the pieces, but because the rest was charged to contract No. 7, in the end the amount claimed for everything delivered by water was based on the weight as established by the draught displacement method.

It should be emphasized that the bills of lading for shipments by water only give a total figure for

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the steel pieces. The attached lists do not indicate which contract they refer to. This may possibly be deduced from the number assigned to the pieces, but there is nothing to indicate this or to establish the connection. In any event, the position taken by Cargill at the trial was that the bills of lading were not the basis of its claim. Cargill’s sole basis for everything shipped by water was a document entitled “Tabulated shipments to Baie Comeau up to date as of 31st December 1959”, prepared by one J.R. Josslyn, a naval architect in its employ at the time. This document indicates in tons the quantity of steel that was shipped on each voyage and billed to each of the three contracts. It does not show how this result was reached. At the trial, Davie stated that it was unable to supply the data used or the calculations made in order to arrive at these figures. These calculations are obviously complex. One only has to have to look at the document produced by the witness Kuscher to realize this. Notwithstanding this fact, the trial judge and the majority on appeal accepted the evidence based on this document.

In Royal Victoria Hospital and Estate of the late Ewen Cameron v. Mary Morrow[1], this Court held that, as a rule, hearsay evidence is inadmissible in Quebec. The document in question, as well as those based on data it contained, could accordingly only be admitted under an exception. As Hyde J.A. pointed out, the case at bar is not of the same kind as the one dealt with by this Court in Ares v. Venner[2], a British Columbia case. In the latter, the documents held admissible were records in which facts observed by an employee in the performance of his duties were recorded immediately. Here, however, we have no document in which the facts noted by Josslyn—namely, the draught at the beginning and end of each loading and other data necessary for calculating the weight of the steel when loaded—were recorded. By the same token, the calculations made in order to arrive at the result recorded in the document

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produced were not filed. We are therefore dealing here, not with facts, but with conclusions. In short, if the document prepared by Josslyn is admitted, it means that Davie’s employee has settled the point at issue by calculating the quantity of steel shipped, without it being possible to verify such quantity.

In any event, I do not think that the contract in the case at bar allowed Davie to claim a weight established by the draught displacement method. It is not enough that a representative of the firm of consulting engineers responsible for supervising the performance of the contract on Cargill’s behalf did not object to the draught displacement method when it was first mentioned to him. The fact is that this firm never agreed to approve invoices made up on that basis. It has been said that they were given ample documentation, but it does not appear that they were ever given the detailed data and calculations from which Josslyn made up the claim. The Court was told that there were a great many documents, and that a large commercial undertaking cannot keep everything for an indefinite period. In my view, this argument cannot be sustained. In the case at bar, it was well known that litigation would ensue, since the consulting engineers refused to approve the invoice when it was presented to them, and persisted in their refusal.

This case cannot be viewed as a situation where, owing to the sudden death of one of its employees, a business firm would be totally unable to prove a claim. The structure erected for Cargill is still there, as are the plans and shop drawings. There was nothing to prevent Davie from establishing the weight by measuring the pieces, which is the usual method when dealing with structural steel. Davie did not do this. Even if Josslyn’s documents were complete, the question would arise whether they would have been admissible as evidence, in view of the existence of this other simple, practical method. In such case, the question would require further consideration. Since the draught displacement method was not stipulated for the calculation at the weight of steel delivered, and since Josslyn’s conclusions were not admissible as evidence, there

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is no other evidence as to weight than that presented by the witness Armstrong on Cargill’s behalf. The latter did not follow the C.I.S.C. method exactly. Owing to the shipping weight stipulation, he believed that he should deduct the trimmings in calculating the volume of the pieces in order to come as close as possible to the weight that would have been indicated by scales.

Under such circumstances, I believe that Hyde J.A. was right in maintaining that the weight calculated in this manner should be taken. However, he erred in holding that the price must be set at the lowest figure provided by the agreement, namely $237 per ton. Once the procedure for determining the weight by measuring the pieces is held to be acceptable, the average of $258.18 established by Davie on that same basis, should be accepted. In fact, this average is not an arithmetical average but a weighted average established according to the proportion of each category of steel in the structure as a whole. On the other hand, the additional weight as established by Car-gill’s expert is not 42 tons, but 42,209 lbs. or 21.1 tons, or, at $258.18 per ton, $5,447.60. I must accordingly conclude that the sum of $130,754.61 awarded to Davie for additional steel weight on contract No. 7 should be reduced to the above amount; this means a reduction of $125,307.

Everything considered, it does not appear to me that costs should be awarded on appeal or in this Court.

For these reasons, I am of the opinion that the appeal should be allowed, the judgment of the Court of Appeal set aside and the judgment of the Superior Court varied by reducing the amount of the judgment by $125,307, without costs in this Court or in the Court of Appeal.

Appeal allowed.

Solicitors for the appellant: Ahern, de Brabant, Nuss & Drymer, Montreal and P. Casgrain, Montreal.

Solicitors for the respondent: Langlois, Drouin & Laflamme, Quebec, and H. Hansard, Montreal.