Bank of Montreal v. Bail Ltée, [1992] 2 SCR 554

Bank of Montreal v. Bail Ltée, [1992] 2 S.C.R. 554

 

Bank of Montreal and Gilles Tremblay                                           Appellants

 

v.

 

Commission hydroélectrique du Québec (Hydro-Québec),

Bail Ltée, Sotrim Ltée (Bail/Sotrim), and

Travelers of Canada, Indemnity Company                                      Respondents

 

and between

 

Gilles Tremblay and Bank of Montreal                                           Appellants

 

v.

 

Commission hydroélectrique du Québec (Hydro-Québec),

Bail Ltée, Sotrim Ltée (Bail/Sotrim), and

Travelers of Canada, Indemnity Company                                      Respondents

 

Indexed as: Bank of Montreal v. Bail Ltée

 

File Nos.: 21748, 21749.

 

1992: March 6; 1992: June 25.

 

Present: Lamer C.J. and La Forest, L'Heureux-Dubé, Gonthier and Stevenson* JJ.

 

on appeal from the court of appeal for quebec

 

                   Civil responsibility -- Delictual liability -- Contract of enterprise -- Obligation to inform -- Delictual action by subcontractor against owner -- Action based on owner's breach of obligation to inform contractor -- Judgment allowing action at trial reversed by Court of Appeal -- Court of Appeal disturbing trial judge's findings and conclusions of fact -- Whether Court of Appeal's intervention justified -- Role of appellate court reviewing trial judge's assessment of the evidence -- Civil Code of Lower Canada, art. 1053.

 

                   Contracts -- Contract of enterprise -- Obligation to inform -- Main elements of obligation -- Factors having a bearing on substance of obligation in contracts of enterprise for large projects.

 

                   Prescription -- Impossibility of action -- Time at which prescription starts to run -- Owner's breach of obligation to inform contractor -- Delictual action by subcontractor against owner -- Time at which prescription starts to run pushed back to moment when subcontractor discovered facts giving rise to its right -- Civil Code of Lower Canada, art. 2232.

 

                   Damages -- Additional indemnity -- No valid reason for refusing indemnity -- Indemnity awarded -- Civil Code of Lower Canada, art. 1056c.

 

                   Damages -- Quantum -- Sum of $2,000,000 awarded by trial judge as compensation for subcontractor's financial difficulties -- Amount deducted owing to lack of evidence to justify it.

 

                   In May 1977, Hydro-Québec called for tenders for construction and engineering work on a substation.  Several documents were made available to tenderers, including a geotechnical report prepared by a firm of experts and submitted to Hydro-Québec in 1974.  In late June, on the experts' recommendation, Hydro-Québec changed the plans for the access road to the substation.  A few days later, it awarded the excavation, foundation digging and construction work to a contractor, the respondents Bail Ltée and Sotrim Ltée, for a fixed price.  The contractor in turn subcontracted part of the work to a subcontractor.  From the outset, the subcontractor complained of the poor soil conditions.  Experts sent by Hydro-Québec to the site confirmed the subcontractor's assertions by letter and proposed raising the level of the substation as a solution.  In late August Hydro-Québec accepted this proposal and agreed to alter its plans by means of an amendment or change order.   The subcontractor disagreed with the contractor, however, with respect to the method of calculating payment for the new work set out in the change order.  Neither the letter from the experts nor their new geotechnical report received by Hydro-Québec in September was disclosed to the contractor or to the subcontractor.  The subcontractor continued to experience difficulties in performing the work and new corrective measures were taken.  Hydro-Québec approved the use of well-points to drain the soil, among other things, but it was only after the contractor had waived all claims against it that Hydro-Québec agreed to assume the costs of this major amendment.  The contractor obtained a similar waiver from the subcontractor.  In both cases, the waivers were given subject to the dispute surrounding the change order.  Upon the completion of the work, only the amount pertaining to the change order remained in dispute.  In 1980, the subcontractor was put in bankruptcy and the appellant Bank of Montreal, the assignee of the subcontractor's accounts receivable, invoking the change order, commenced an action in contractual liability against the contractor and its surety, Travelers of Canada.  The contractor impleaded Hydro-Québec, as owner, in warranty.  In 1983 the subcontractor received a copy of one of the plans appended to the 1977 geotechnical report from an anonymous source.  It was alleged that it would have been able to see from this plan that there was an error in selecting the precise site of the work, which could have explained its difficulties.  The Bank then brought an action in delictual liability against Hydro-Québec.  The action in contractual liability against the contractor became subsidiary.

 

                   The Superior Court allowed the Bank's delictual action against Hydro-Québec.  The court noted that the documents provided with the call for tenders did not allow the contractor and subcontractor to foresee the difficulties in carrying out the work.  It also noted that the design described in the call for tenders and in these documents was erroneous and could not be carried out as described.  In the court's view Hydro-Québec was aware as early as the tender period that major changes would be necessary and the letter from the experts and their 1977 geotechnical report also disclosed errors committed by Hydro-Québec.  The court was of the view that the failure to disclose the information obtained in 1977 played a crucial role in the subcontractor's collapse, preventing it from seeking to have the contract renegotiated.  It accordingly found that Hydro-Québec had acted fraudulently in not informing the contractor and the subcontractor that the design set out in the call for tenders was erroneous.  The court awarded the Bank $6,438,674 in damages, and $2,000,000 for the ruin of the subcontractor, but without the additional indemnity provided for in art. 1056c C.C.L.C.  The main contract between Hydro‑Québec and the contractor, the subcontract between the contractor and the subcontractor and the waivers were set aside.  The Bank's contractual action against the contractor and the contractor's action in warranty against Hydro‑Québec were dismissed.

 

                   Hydro-Québec appealed and the Bank filed an incidental appeal with respect to the quantum and to the additional indemnity under art. 1056c. The contractor for its part filed an incidental appeal with respect to the setting aside of the contract.

 

                   The Court of Appeal dismissed the Bank's action and dismissed the other appeals.  The court concluded that Hydro-Québec had not had knowledge of possible errors in the 1974 report and in the documents concerning the call for tenders at the time the contracts were entered into.  It also concluded that Hydro-Québec had no obligation to disclose the 1977 report to the contractor since the changes provided for in the amendment had already been ordered and this report contained nothing new.

 

                   Held: The appeals should be allowed in part.

 

                   The Court of Appeal was not justified in intervening to reverse the Superior Court's judgment.  When an appellate court is of the opinion that the trial judge has drawn erroneous conclusions from the evidence, it must provide good reasons for its decision, because in so doing it is taking issue with the results of direct observation of the testimony.  It is not sufficient for the Court of Appeal to indicate its disagreement with the trial judge; it must also state its reasons.  In this case the Court of Appeal differed with the conclusions reached by the trial judge on several occasions with respect to the main issues, and to other issues of lesser importance, relating to the assessment of the facts and the credibility of the witnesses.  The court did not explain in what respect the trial judge may have been mistaken when he weighed the evidence before him, and in particular it advanced no reason why his findings as to credibility, which are at the heart of his sovereign authority, were patently erroneous.  In the absence of an explanation, one must conclude that the Court of Appeal simply disagreed with the lower court's appreciation of the facts, and so substituted its own interpretation.

 

                   Not only is there no palpable error in the interpretation of the evidence in the trial judgment, but the judgment is well founded in law.  Failure to perform a contractual obligation, as a juridical fact, may form the basis for an action in delictual liability by a third party against the contracting party who is at fault.  A party to a contract must conduct itself just as reasonably and with the same good faith toward third parties as toward the other contracting parties. A subcontractor may therefore invoke in its favour a failure by the owner to fulfil its obligation to inform the contractor, in so far as the owner failed to meet the standard of conduct of a reasonable person.  The main elements of the contractual obligation to inform are:  knowledge of the information, whether actual or presumed, by the party which owes the obligation to inform; the fact that the information in question is of decisive importance; and the fact that it is impossible for the party to whom the duty to inform is owed to inform itself, or that the creditor is legitimately relying on the debtor of the obligation.  These elements of the obligation to inform are found in contracts of enterprise relating to large projects.  In this context, however, the substance of the obligation may vary depending on the allocation of risk, the relative expertise of the parties and the continuing formation of the contract.

 

                   In this case the trial judge was correct in imposing an onerous obligation to inform on Hydro-Québec after noting that Hydro‑Québec had assumed a certain degree of liability with respect to the accuracy of the geotechnical data, that it had greater expertise than the contractor and the subcontractor in relation to the geotechnical studies, and that the number and scope of the alterations had completely changed the nature of the original contract. His conclusion that Hydro-Québec had failed to fulfil its obligation to inform as early as the pre-contractual period and that this fault continued with the non‑disclosure of the 1977 report was supported by the evidence and the Court of Appeal should not have intervened.  Hydro-Québec, which knew that its design was erroneous, refused to admit its error in order to induce the contractor and the subcontractor to complete the work without having to renegotiate the entire contract.  The Bank could therefore rely on the failure to fulfil the obligation to inform since it is indisputable that Hydro‑Québec, as the owner, had a duty to act reasonably toward subcontractors, particularly when it was a matter of informing them of errors in the tender documents.  In the context of a large project, the contractor commonly uses the services of subcontractors.  As well, this possibility was mentioned in the specifications which accompanied the call for tenders.  Not only did the obligation to inform benefit the contractor, but it was also to the advantage of the subcontractors.

 

                   The delictual action by the Bank against Hydro‑Québec for breach of its obligation to inform is not prescribed.  It was in fact impossible for the Bank to act, since it was unaware of the facts which gave rise to its right (art. 2232 C.C.L.C.).  In view of the fault committed by Hydro-Québec -- non-disclosure of the information -- the Bank could not know that Hydro‑Québec had this information and was therefore not able to exercise its rights.  The time at which the prescription started to run was thus pushed back until the moment when the subcontractor fortuitously discovered this information.

 

                   The Bank is entitled to the additional indemnity provided for in art. 1056c C.C.L.C.  This indemnity should be awarded where, as here, there is no valid reason for refusing it.  Since there is nothing in the evidence to justify the sum awarded by the trial judge as compensation for the ruin of the subcontractor, however, this sum should be deducted.

 

                   Since the Bank's contractual recourse against the contractor was brought in the alternative, the trial judge should not have ruled on the contractual action, and should not have set aside the contracts and waivers between Hydro‑Québec and the contractor and between the contractor and the subcontractor, because the parties had not asked that they be set aside.

 

Cased Cited

 

                   Referred to: M. (M.E.) v. L. (P.), [1992] 1 S.C.R. 183; Lapointe v. Hôpital Le Gardeur, [1992] 1 S.C.R. 351;  Beaudoin-Daigneault v. Richard, [1984] 1 S.C.R. 2; Construction Glomar Inc. v. Cie de construction Omega Canada Ltée, J.E. 90-1656; Groupe Desjardins assurances générales v. Société de récupération, d'exploitation et de développement forestiers du Québec (Rexfor), J.E. 91-1599; Houle v. Canadian National Bank, [1990] 3 S.C.R. 122; National Bank of Canada v. Soucisse, [1981] 2 S.C.R. 339; Bank of Montreal v. Kuet Leong Ng, [1989] 2 S.C.R. 429; Boucher v. Drouin, [1959] Que. Q.B. 814; Alliance Assurance Co. v. Dominion Electric Protection Co., [1970] S.C.R. 168, aff'g [1967] Que. Q.B. 767; Ross v. Dunstall (1921), 62 S.C.R. 393; Laferrière v. Lawson, [1991] 1 S.C.R. 541; Chouinard v. Landry, [1987] R.J.Q. 1954; Gburek v. Cohen, [1988] R.J.Q. 2424; Baril v. Industrielle (L'), Compagnie d'assurances sur la vie, [1991] R.R.A. 196; Roberge v. Bolduc, [1991] 1 S.C.R. 374; Corpex (1977) Inc. v. The Queen, [1982] 2 S.C.R. 643;  Davie Shipbuilding Ltd. v. Cargill Grain Co., [1978] 1 S.C.R. 570; Cartier Building Inc. v. E. Séguin & Fils Ltée, [1985] C.A. 649; Oznaga v. Société d'exploitation des loteries et courses du Québec, [1981] 2 S.C.R. 113; Québec (Communauté urbaine) v. Services de santé du Québec, [1992] 1 S.C.R. 426; Guenette v. Prévost, [1987] R.D.J. 56; Layher v. Continental Holding Inc., C.A.P. 87C-116; Immeubles Maude Inc. v. Farazli, [1991] R.D.I. 616; Air Canada v. McDonnell Douglas Corp., [1989] 1 S.C.R. 1554; Cass. Ass. plén., July 12, 1991, Besse v. Protois, Bull. civ. 1991. Ass. plén., No. 5, J.C.P.1991.II.21743 (note G. Viney).

 

Statutes and Regulations Cited

 

Civil Code of Lower Canada, arts. 1024, 1053, 1056c, 1688, 1690, 2232.

 

Civil Code of Quebec, S.Q. 1991, c. 64 [not yet in force], arts. 1375, 1469, 1473, 2098, 2099, 2100, 2118, 2119.

 

Code of Civil Procedure, R.S.Q., c. C-25, art. 523.

 

Authors Cited

 

Durry, Georges. La distinction de la responsabilité contractuelle et de la responsabilité délictuelle.  Montréal:  Quebec Research Centre of Private and Comparative Law, 1986.

 

Ghestin, Jacques. Traité de droit civil, t. II, Les obligations -- Le contrat:  formation, 2^e éd. Paris: L.G.D.J., 1988.

 

Jobin, Pierre-Gabriel. Les contrats de distribution de biens techniques. Québec: Presses de l'Université Laval, 1975.

 

Larroumet, Christian. "L'effet relatif des contrats et la négation de l'existence d'une action en responsabilité nécessairement contractuelle dans les ensembles contractuels", J.C.P.1991.I.3531.

 

Legrand, Pierre, Jr. "Pour une théorie de l'obligation de renseignement du fabricant en droit civil canadien" (1981), 26 McGill L.J. 207.

 

Le Tourneau, Philippe. "De l'allégement de l'obligation de renseignements ou de conseil", D. 1987. Chron., p. 101.

 

Picod, Yves. Le devoir de loyauté dans l'exécution du contrat. Paris: L.G.D.J., 1989.

 

Rousseau-Houle, Thérèse. Les contrats de construction en droit public et privé. Montréal: Wilson & Lafleur/Sorej, 1982.

 

Teyssie, Bernard. Les groupes de contrats. Paris: L.G.D.J., 1975.

 

Viney, Geneviève. Traité de droit civil, t. IV, Les obligations -- La responsabilité:  conditions. Paris: L.G.D.J., 1982.

 

                   APPEALS from a judgment of the Quebec Court of Appeal, [1990] R.R.A. 3, reversing a judgment of the Superior Court**.  Appeals allowed in part.

 

                   Colin K. Irving, Daniel Ayotte and Douglas Mitchell, for the appellant the Bank of Montreal.

 

                   Séverin Lachapelle, for the appellant Tremblay.

 

                   André Simard, for the respondents Bail Ltée, Sotrim Ltée and Travelers of Canada.

 

                   Pierre Bourque, Q.C., Eugène Czolij and Paul Charbonneau, for the respondent the Commission hydroélectrique du Québec.

 

//Gonthier J.//

 

                   English version of the judgment of the Court delivered by

 

                   Gonthier J. -- These proceedings arose out of construction work done in 1977‑78 at the Abitibi Substation (hereinafter referred to as the "Substation"), located in northeastern Quebec, which is part of a transmission line serving the "James Bay" hydro‑electric power stations.  At issue are the duty of Hydro‑Québec, as the owner and principal, to disclose information in its possession concerning soil conditions to a subcontractor, and the resulting liability.  Since the dispute between the parties relates primarily to the facts and the consequences to be drawn therefrom, I shall begin with a chronological summary of the established facts, to provide the background.

 

I -‑ Facts

 

                   The established facts may be summarized as follows:

 

                                                                 1977

 

May 2Call for tenders by Hydro‑Québec for the "Construction of seven (7) buildings and related civil work to the whole substation" for the Substation.  Several documents were made available to tenderers, including a geotechnical report prepared by the Laboratoire d'Inspection et d'Essais Inc. (hereinafter referred to as "LIE"), which had been submitted to Hydro‑Québec on December 31, 1974 (hereinafter referred to as the "1974 Report").  The 1974 Report contained a description of the nature and condition of the soil on the site selected by Hydro‑Québec, as well as some recommendations for the excavation work.  The work to be performed also included constructing an access road to the Substation, for which the call for tenders specified coverage of 18 inches.

 

May 12Mandate given to LIE by Hydro‑Québec for [translation] "7 test drills at the location of proposed buildings and exploration on foot on the route of the access road to the substation and the route of the access road to the heliport and at the site of the heliport itself".

 

June 30Internal Hydro‑Québec meeting, at which LIE gave an oral report on its mandate of May 12.  Hydro‑Québec decided to change its plans for the access road, and increased the cover to 54 inches from 18 inches.  This alteration became amendment No. 1 of July 8 and the plans were changed on July 11.

 

July 5The contract was awarded to Bail Ltée and Sotrim Ltée, a joint venture (hereinafter referred to as "Bail/Sotrim").  On July 6, a letter to that effect was sent to Bail/Sotrim.

 

July 7Bail/Sotrim subcontracted the excavation work and foundation digging to Laprise Construction Limitée (hereinafter referred to as "Laprise").  There were lengthy negotiations, and a final contract, incorporating the changes made after amendment No. 10 was issued, was signed in November 1977 and backdated to July 7.

 

July 8Issuance of amendment No. 1, changing the specifications for the access roads to the Substation.

 

July 12Beginning of work on the access road to the Substation.  Work on the actual site of the Substation began in early August.

 

July 15Letter from Hydro‑Québec to Bail/Sotrim relating to the changes to the access road.

 

End of JulyComplaint by Laprise to Bail/Sotrim about difficulties encountered in doing the work.

 

August 17At a site meeting, Bail/Sotrim asked the site coordinator what Hydro‑Québec would do [translation] "if special conditions are encountered in digging foundations on the site".

 

August 19Letter from Bail/Sotrim to Hydro‑Québec, complaining of the poor soil conditions, describing certain tests done by Bail/Sotrim and suggesting that the level of the Substation be raised.

 

August 24Meeting of representatives of Bail/Sotrim and Hydro‑Québec on the site of the Substation.

 

August 25‑26Visit by LIE to the Substation site in response to a request from Hydro‑Québec to do further tests on the site to verify the facts reported by Bail/Sotrim.

 

August 29Letter from LIE to Hydro‑Québec (hereinafter referred to as the "August 29 Letter"; this letter is generally considered to be an integral part of the geotechnical report submitted on September 29).  To deal with the problems complained of by Laprise, LIE suggested raising the level of the Substation by 3 feet, and added that [translation] "[e]ven if the level of the foundations is raised, there could still be problems with some of the excavations because of unfavourable hydraulic conditions.  We are of the opinion that such situations will have to be resolved, where necessary, as they arise."  The letter then suggested some other possible solutions.  Neither the letter nor its substance was disclosed to Bail/Sotrim or to Laprise.

 

August 31Letter from Hydro‑Québec to Bail/Sotrim, in reply to the letter of August 19.  The level of the Substation was raised by 3 feet, as Bail/Sotrim had requested.  Hydro‑Québec noted that [translation] "it is possible that poor sub‑soil conditions may be encountered; in that case, corrective measures will be taken on the site."

 

September 1Issuance of amendment No. 10, concerning the raising of the level of the site.  A dispute between Bail/Sotrim and Laprise with respect to the method of calculating payment for the work performed pursuant to this amendment gave rise to these proceedings.

 

September 29LIE sent a geotechnical report dated August 1977 (hereinafter referred to as the "1977 Report") to Hydro‑Québec.  The 1977 Report was pursuant to the mandates given to LIE on May 12, 1977, as well as the mandate of August 1977.  Neither the report itself nor its content was disclosed to Bail/Sotrim or to Laprise.

 

                                                                 1978

 

February 17Letter from Bail/Sotrim to Hydro‑Québec.  Because Laprise was still experiencing difficulties in performing the work, Bail/Sotrim sought to have a meeting with Hydro‑Québec, which took place on February 22.

 

February 20Meeting of the people at Hydro‑Québec in charge of the construction of the Substation, to prepare for the meeting of February 22.  The minutes of the meeting set out a list of the problems encountered since work on the Substation started.  The site coordinator for Hydro‑Québec stated that it was [translation] "impossible to get around on the site" and "difficult [to obtain] a stable footing for the excavations", and he added that "[it is] impossible to stabilize the trench walls in soil of this quality using the information on the plans".  An expert was of the opinion that [translation] "it seems it would have been difficult to foresee the hydrostatic pressures encountered".

 

February 22Meeting of Hydro‑Québec, Bail/Sotrim and Laprise.  Hydro‑Québec agreed to the use of well‑points and to a reduction in the grade of the peripheral trench, but it refused to incur additional costs for these changes, being of the view that they were "contractual". Hydro‑Québec's position was confirmed by letter dated February 27.

 

February 27Letter from Bail/Sotrim to Hydro‑Québec, asking Hydro‑Québec to assume the additional costs relating to use of well‑points.

 

April 21Letter from Bail/Sotrim to Hydro‑Québec.  Bail/Sotrim offered to drain the land using well‑points for a lump sum of $689,000.  This proposal was accepted and became amendment No. 58 of June 28.

 

May 17Letter from Bail/Sotrim to Hydro‑Québec.  Bail/Sotrim waived all claims against Hydro‑Québec with respect to the soil conditions, subject to the dispute surrounding amendment No. 10.

 

June 28Issuance of amendment No. 58, covering the draining of the Substation site using well‑points.

 

July 12Letter from Laprise to Bail/Sotrim.  Laprise waived all claims against Bail/Sotrim with respect to soil conditions, subject to the dispute surrounding amendment No. 10.

 

NovemberCompletion of the work contracted to Laprise.

 

                                                                 1980

 

November 4Laprise was put in bankruptcy by a judicial decision retroactive to September 30.

 

December 8The Bank of Montreal (hereinafter referred to as the "Bank"), the assignee of Laprise's accounts receivable, commenced an action in contractual liability against Bail/Sotrim and its surety Travelers of Canada (hereinafter included in Bail/Sotrim), invoking amendment No. 10.

 

                                                                 1981

 

June 25Application by Bail/Sotrim to join and implead Hydro‑Québec, as the owner, in warranty.  Application granted.

 

                                                                 1983

 

FebruaryLaprise received a copy of one of the plans appended to the 1977 Report from an anonymous source.  It was alleged that Laprise would have been able to see from this plan that there was an error in selecting the site of the Substation, which could have explained its difficulties.  The Bank obtained other documents from Hydro‑Québec.

 

April 7Intervention by Gilles Tremblay (hereinafter referred to as the "intervener"), trustee in the bankruptcy of Laprise.

 

June 8Martineau J. granted an application by the Bank to amend its declaration in order to add an action in delictual liability against Hydro‑Québec.  The action in contractual liability against Bail/Sotrim became subsidiary.

 

June 23Beginning of proof.

 

                                                                 1984

 

February 28End of proof.

 

May 15Martineau J. allowed an application by the Bank for the production of essential new documents, in order to add certain documents to the record, including the minutes of the internal Hydro‑Québec meeting of February 20, 1978.  The Hydro‑Québec site coordinator testified again.

 

August 22Close of argument.

 

                                                                 1985

 

June 14Martineau J. of the Superior Court allowed the Bank's delictual action against Hydro‑Québec with costs.  Hydro‑Québec was condemned to pay $8,438,674 in damages to Laprise.  The main contract between Hydro‑Québec and Bail/Sotrim, the subcontract between Bail/Sotrim and Laprise and the waivers dated May 17 and July 12, 1978, were set aside.  The Bank's contractual action against Bail/Sotrim and the action in warranty by Bail/Sotrim against Hydro‑Québec were dismissed without costs.

 

July 9Hydro‑Québec appealed.

 

July 16The Bank filed an incidental appeal on the issue of the quantum of the Superior Court's judgment, as well as the indemnity under art. 1056c C.C.L.C.  The intervener supported the incidental appeal of July 17.

 

July 17Bail/Sotrim filed an incidental appeal on the issue of the setting aside of the contract and on costs.

 

                                                                 1989

 

November 1The Court of Appeal (Beauregard and Vallerand JJ.A. and Richard J., ad hoc) allowed Hydro‑Québec's appeal, dismissed the Bank's action with costs and dismissed the other appeals without costs.

 

                                                                 1990

 

April 12This Court granted leave to appeal from the judgment of the Court of Appeal.

 

II -‑ Judgments Below

 

Superior Court (Montreal, No. 500‑05‑015544‑800, June 14, 1985)

 

                   After reviewing the arguments of the parties and the evidence adduced before him, Martineau J. reached the following conclusions.  First, he was of the opinion that the documents provided with the call for tenders, including, inter alia, the 1974 Report, did not allow Laprise to foresee the difficulties in carrying out the excavation work.  Martineau J. concluded that, based on the testimony given before him and in light of the numerous changes made while the work was being carried out, the design described in the call for tenders and in the accompanying documents was erroneous and could not be carried out as described.  He noted several changes which were required in order to complete the Substation, including the use of well‑points, raising the level of the Substation, changing the access roads, reducing the grade of the peripheral trench and using caisson piles.

 

                   Martineau J. considered that Hydro‑Québec was aware that changes would be necessary as early as June 1977, during the tender period, when it was established in meetings with LIE that it would be necessary to change the design of the access road.  The 1977 Report also disclosed errors committed by Hydro‑Québec, and was [translation] "not only a useful, but surely a necessary working document for any contractor engaged in work of this nature" (p. 141), in the words of Martineau J.  Although the exact cause of Laprise's problems was not identified (it might have been a combination of an error in selecting the site of the Substation, an error in the 1974 Report and an error in Hydro‑Québec's plans and specifications), the information in Hydro‑Québec's possession would have made it possible to understand the nature and significance of the problems better and to remedy them.

 

                   The failure to disclose the information obtained in 1977 played a crucial role in Laprise's collapse, according to Martineau J.  From the end of June 1977, Hydro‑Québec conducted itself in a secretive manner and failed to fulfil its duties by not informing Bail/Sotrim and Laprise that it had realized that the design set out in the call for tenders was erroneous.  Hydro‑Québec took advantage of its position of strength to induce Bail/Sotrim and Laprise to continue the work at the Substation, as a result of which Laprise suffered heavy financial losses and eventually bankruptcy.  The information that was hidden in this way would have been a deciding factor for Laprise and Bail/Sotrim in their conduct of the negotiations concerning amendments to the contract, and would probably have resulted in their demanding a complete renegotiation.  Martineau J. concluded that there had been fraud on the part of Hydro‑Québec.  He described Hydro‑Québec's attitude as a [translation] "conspiracy of silence and deception" (p. 156).

 

                   Martineau J. awarded the Bank $6,438,674, the difference between the amount collected by Laprise and the actual costs it had incurred in performing the contract, and $2,000,000 in addition for the ruin of Laprise, with interest as of May 8, 1983, the date of the judgment allowing the request to add conclusions as to delictual liability to the declaration, but without the additional indemnity provided for in art. 1056c C.C.L.C.

 

                   On the question of prescription, Martineau J. found that it was impossible for the Bank to act before the 1977 Report was brought to its attention in February 1983, as until then it had no evidence of fraud on the part of Hydro‑Québec.

 

Court of Appeal, [1990] R.R.A. 3

 

                   Beauregard J.A., for the Court of Appeal, dismissed the request by the Bank of Montreal to amend its notice of incidental appeal to include an appeal from the conclusion in the trial judgment dismissing its action against Bail/Sotrim, on the ground that the right of appeal on this supplementary issue had expired more than six months earlier.

 

                   In the light of the prescription rules, Beauregard J.A. found that there could be only two possible grounds for the Bank's delictual action against Hydro‑Québec:

 

1.Hydro‑Québec knew at the time that the contract was entered into that the work could not be carried out on the terms in the call for tenders;

 

2.Hydro‑Québec was under an obligation to disclose the 1977 Report to Bail/Sotrim.

 

He then made a detailed study of the facts.

 

                   On the first point, he found, on the available evidence, that Hydro‑Québec had not had knowledge of possible errors in the 1974 Report and in the documents concerning the call for tenders at the time the contracts for the Substation were entered into.

 

                   On the second point, he reviewed the history of the demands made by Bail/Sotrim and Laprise and the changes Hydro‑Québec had made in the project.  Amendment No. 10 was issued in response to the complaints by Bail/Sotrim.  Thus Hydro‑Québec had no obligation to provide the August 29 Letter to Bail/Sotrim or to Laprise, since they were aware of the problems and Hydro‑Québec had agreed to their demands.  Moreover, Hydro‑Québec had left the door open for future changes in its letter of August 31.  The 1977 Report, for its part, was no longer material, since the changes had been ordered earlier (amendment No. 10).  The 1977 Report contained nothing new in comparison to the 1974 Report.  Beauregard J.A. concluded that the parties had adopted a process for making "piecemeal" changes:  Hydro‑Québec studied each complaint, and Bail/Sotrim was aware that any subsequent problems would be resolved when they arose.  Finally, the waivers given in May 1978 had been given with full knowledge of the situation.

 

                   Beauregard J.A. concluded that Bail/Sotrim had not proved that if the 1977 Report had been disclosed to it, unknown facts which would have altered its subsequent conduct would have come to its attention.

 

                   Beauregard J.A. did not rule on the contractual claim, or on the delictual claims which were prescribed at the time.

 

III -‑ Issues

 

                   This appeal raises the following issues:

 

1.Was the Court of Appeal justified in intervening to reverse the trial judgment?

 

2.Was the delictual action prescribed?

 

3.Was the Bank entitled, if the issue arose, to the indemnity set out in art. 1056c C.C.L.C.?

 

4.Was the Court of Appeal correct to dismiss the Bank's request to amend its notice of incidental appeal?

 

IV -‑ Intervention by the Court of Appeal

 

                   The Court of Appeal indicated its disagreement not only with the findings of fact by Martineau J., but also with the legal structure of his argument.

 

(A)  On the Facts

 

                   This Court has often had occasion in recent years to rule on the role of an appellate court, particularly with respect to findings of fact by the trial judge.  These issues were very recently discussed in M. (M.E.) v. L. (P), [1992] 1 S.C.R. 183, and Lapointe v. Hôpital Le Gardeur, [1992] 1 S.C.R. 351.  I shall only quote the following passage from Beaudoin‑Daigneault v. Richard, [1984] 1 S.C.R. 2, at pp. 9-10, which provides a good summary of the approach that should be taken in decisions of appellate courts:

 

. . . an appellate court should not intervene unless it is certain that its difference of opinion with the trial judge is the result of an error by the latter.  As he had the benefit of seeing and hearing the witnesses, such certainty will only be possible if the appellate court can identify the reason for this difference of opinion, in order to be certain that it results from an error and not from his privileged position as the trier of fact.  If the appellate court cannot thus identify the critical error it must refrain from intervening, unless of course the finding of fact cannot be attributed to this advantage enjoyed by the trial judge, because nothing could have justified the judge's conclusion whatever he saw or heard; this latter category will be identified by the unreasonableness of the trial judge's finding . . . .

 

It is therefore not sufficient for an appellate court to indicate its disagreement with the trial judge; it must also state its reasons.  It is often said, with good reason, that the trial judge is the master of the facts.  Thus when an appellate court is of the opinion that the trial judge has drawn erroneous conclusions from the evidence, it must provide good reasons for its decision, because in so doing it is taking issue with the results of direct observation of the testimony.  The Court of Appeal also takes a deferential approach in the field of contracts of enterprise (Construction Glomar Inc. v. Cie de construction Omega Canada Ltée, C.A. Montréal, No. 500‑09‑000768‑861, November 12, 1990, J.E. 90‑1656, Groupe Desjardins assurances générales v. Société de récupération, d'exploitation et de développement forestiers du Québec (Rexfor), C.A. Québec, No. 200‑09‑000156‑882, September 17, 1991, J.E. 91‑1599).  We should now examine the Court of Appeal's judgment in light of these principles.

 

                   The Court of Appeal differed with the conclusions reached by Martineau J. on several occasions with respect to the main issues in this case.

 

                   1.The Connection Between the Substation Access Road and the Site of the Substation

 

                   With respect to the connection between the changes made to the access road in June 1977 and whether or not it was possible to carry out the work, Beauregard J.A. wrote, at p. 15:

 

                   [translation]  The trial judge did not seem to be capable of ruling on the reason why the design of the access road to the substation was changed, and I cannot blame him for it:  I read and reread the testimony and the exhibits on this point in vain, and have not been able to form a firm opinion on this point.

 

He added, at p. 16:

 

[translation]  It does not necessarily follow that because Hydro‑Québec wanted to reinforce the substation access road it was aware that its plans for construction on the substation site itself could not be carried out using conventional construction methods.  On this I am in good company since, while the trial judge noted the argument by the Bank of Montreal on this point, he did not himself state that, as a result of the tests done by L.I.E. in May, Hydro‑Québec knew that its work could not be carried out.

 

See also, to the same effect, pp. 25 and 29.

 

                   Yet Martineau J. had taken the changes made to the access road in June 1977, during the tender period, to be evidence of fraud on the part of Hydro‑Québec, given Hydro‑Québec's expertise and the proximity of the access road and the Substation site.  Martineau J. wrote, with respect to the changes to the access road, that [translation] "[i]t is therefore apparent that we have here one or more access roads the design of which is quite different from the tender documents" (p. 131).  With respect to the connection between the road and the Substation site, he stated at pp. 136‑37, dealing with the change in the grades of the trenches:

 

                   [translation]  This is quite different from the original design or the call for tenders, which called for grades of one in two.  Even if it could be argued that the five-in-one grades which were recommended in the 1977 report applied only to the access road trench, we still can only conclude that there was a radical change in the original design of the peripheral trench;

 

Martineau J. refused to separate the road and the site.  This led him to conclude, at p. 151:

 

[translation]  Even before the contract was signed by Bail/Sotrim and Laprise, Hydro‑Québec knew that its design for the civil engineering and foundation excavation work was erroneous, but it nevertheless went ahead on the basis of this design . . . .

 

And at p. 155:

 

[translation] . . . the evidence revealed an owner, Hydro‑Québec, which was, as noted earlier, an informed owner with the greatest facilities imaginable in terms of technology and expertise, and which had vouched for the geotechnical conditions, hiding studies, plans and other documents, which related to and were essential in carrying out the work it had ordered, from the contractor, which was in the grip of insurmountable problems, while Hydro‑Québec was using that same information to change its own design, during the course of the work and even during the tender process.  [Emphasis added.]

 

In Martineau J.'s view, Hydro‑Québec's fault began when Hydro‑Québec made changes to the Substation access road at the end of June 1977.  Given the close connection between the access road and the Substation site, Hydro‑Québec knew at that time that the design described in the call for tenders was erroneous, at least in part.

 

                   2.Differences Between the 1974 Report and the 1977 Report

 

                   With respect to the geotechnical reports, Martineau J. based his opinion on his assessment of the credibility of the witnesses.  This issue is of primary importance if we are to understand his reasoning clearly.  During a trial which lasted 45 days he heard numerous witnesses, including the author of the 1977 Report, Hydro‑Québec's site coordinator, the president of Bail/Sotrim, the person in charge of the site for Bail/Sotrim and the president of Laprise.  He also heard the testimony of experts for Hydro‑Québec and for the Bank.  He seriously questioned the credibility of Hydro‑Québec's experts, at p. 152:

 

                   [translation]  The Hydro‑Québec experts who testified contradicted themselves on essential issues such as the peripheral trench, the purpose of amendment 10 and the foreseeability of the hydrostatic pressures.

 

Martineau J. agreed with the testimony of Mr. Agensky, the Bank's expert, which was solid testimony setting out in detail the inaccuracies in the 1974 Report, and the differences between the 1974 and 1977 Reports.  Mr. Agensky showed how the 1974 Report indicated LIE's confidence in the soundness of the soil and led one to believe that rather favourable soil conditions could be anticipated.  He explained to the court that the 1974 Report did not allude to the quicksand phenomena which contributed greatly to Laprise's difficulties.  He then noted that the tone of the 1977 Report is much more cautious and reserved.  He pointed out inconsistencies between the two Reports, with respect to variations in the till, to quicksand (mentioned in the 1977 Report) and to drainage of the site.

 

                   Having found the Bank's experts more credible than Hydro‑Québec's, Martineau J. clearly indicated his conclusion, at pp. 154‑55:

 

[translation]  . . . this [1977] report indicates conditions which were much more difficult, in terms of the nature of the soil and generally in terms of the work to be carried out, than the first report, and also lists a series of measures which could be taken by the contractor in order to be able to drain the soil, do the necessary levelling and thus permitting [sic] the 1,200 concrete footings to be put on firm soil;

 

After reviewing the 1977 Report in detail, he stated, at p. 159:

 

                   [translation]  These were all changes of utmost importance if the excavation and other engineering work which Hydro‑Québec ordered its contractor to do were to be carried out, which changes involved not only a change in the design of the work, but also indicated conditions involving both the underground water and the fill and elevation material as well as the peripheral trench grades and the general raising of the substation, not a word of which is said in the 1974 report;

 

                   Beauregard J.A. disagreed with Martineau J.  He first stated that since the 1977 Report indicated that [translation] "[t]he materials encountered in the drill holes and bore holes are essentially the same as those identified earlier and described in our report G‑43078 (December 1974)", Hydro‑Québec had no reason to hide it (at p. 23).  He based his opinion on the testimony of Mr. Windish, of LIE, whose testimony Martineau J. had rejected (at p. 24):

 

[translation]  Nowhere in the Windish report does he write that the soil conditions he saw on the site in May or in August were different from those set out in the original geotechnical reports.  In fact, the report of October 3 mentions that there was quicksand but nowhere does it suggest that this was a condition which was not foreseen in the original geotechnical reports.

 

He went on, at p. 25:

 

[translation]  Bank of Montreal vigorously argues that although Windish wrote in his report that the soil conditions he found on the site were similar to those described in the 1974 and 1976 geotechnical reports, in reality the technical information contained in the 1977 geotechnical report contradicts Windish's assertion.  This was not discussed in detail by the expert witnesses and I had a great deal of difficulty in forming an opinion on this point.  [Emphasis added.]

 

He concluded, at p. 29:

 

[translation]  . . . I am of the opinion that formal disclosure of the report of October 3 would not have told Laprise anything new.

 

                   3.The Foreseeability of the Problems Based on the 1974 Report

 

                   Martineau J. had found the documents which accompanied the call for tenders to be inadequate (at pp. 140‑41):

 

[translation]  . . . nowhere in his argument did counsel indicate why they did not want to disclose to the contractor the true soil conditions and problems which the contractor would encounter in carrying out the work as called for by the call for tenders documents based on the first geotechnical report in 1974, when they knew perfectly well that the problems in the project were much greater than the first documents suggested . . . .

 

                   Again, Beauregard J.A. returned to the findings of Martineau J. in respect of the credibility of the expert witnesses, at p. 28:

 

[translation]  We could discuss this issue at length.  At the trial, specialists of equal competence all expressed their own different points of view.  As is often the case, the positions they took were probably too hard and fast.  On the one hand, Mr Agenski [sic] nonetheless admitted that it was possible to foresee from the 1974 and 1976 geotechnical reports that Laprise would experience problems with quicksand.  On the other hand, Hydro‑Québec's plans and specifications themselves gave the impression that Hydro‑Québec did not anticipate that the quicksand problems would be so serious.  [Emphasis added.]

 

                   4.Whether the Information Which was not Disclosed Would Have Been a Deciding Factor

 

                   Martineau J. held that Hydro‑Québec's failure to fulfil its obligation to inform was a deciding factor, because it prevented Laprise from seeking to have the contract renegotiated.  Laprise was therefore led into ruin.  He concluded as follows, at pp. 155‑56:

 

[translation]  There is overwhelming evidence that there was a complete conspiracy of silence and deception, relating to the very core of the contract which is the subject of these proceedings, and that if the contractor, Laprise, had known about it in time it would have been able to avoid the technological and financial fiasco which followed; [Emphasis added.]

 

Before Martineau J., the presidents of Laprise and Bail/Sotrim asserted that they would have demanded that the contract be renegotiated if they had received the information in question.  Martineau J. found these statements credible.

 

                   Beauregard J.A. believed, on the contrary, that even had there been a difference between the 1974 Report and the 1977 Report, it would not have been a deciding factor in carrying out the work.  He said the following, at pp. 23‑24:

 

                   [translation]  Bouthillier, Lévesque [of Bail/Sotrim] and the president, Laprise, asserted under oath that if the geotechnical report which Hydro‑Québec had just received had been disclosed to them in the days following October 3, they would immediately have terminated the work and left the site, unless Hydro‑Québec had been prepared to negotiate a whole new contract.

 

                   With respect, I am of the opinion that this was a bald statement which was not justified.

 

In making this assertion, Beauregard J.A. relied on a statement by the president of Laprise to the effect that once amendment No. 10 was issued, the contract was radically different.  Since Laprise carried out the contract nonetheless, it was doubtful that the information in Hydro‑Québec's possession would have been a deciding factor, according to Beauregard J.A.  With all due deference, it seems to me to be illogical to deduce from Laprise's consent, in the absence of information of which it was deprived by the fault of Hydro‑Québec, that that information could not have been a deciding factor.

 

                   The Court of Appeal also reversed the conclusions of Martineau J. on other issues of lesser importance, also relating to his assessment of the facts and of the credibility of the witnesses.

 

                   The Court of Appeal summarized its thinking at the end of the judgment, as follows (at p. 29):

 

                   [translation]  As may be seen, to succeed against Hydro‑Québec the Bank of Montreal must establish one of the following two situations.  The first possibility is that, less than two years before the action was brought against Hydro‑Québec, Laprise discovered for the first time that before awarding the work to Bail/Sotrim, Hydro‑Québec knew for a fact that this work could not be carried out and that having suppressed this, Hydro‑Québec committed a delict against Laprise.  I have already said that before it could be found that there was fraud on the part of Hydro‑Québec we would have to have much more solid evidence than the evidence to which we were referred by Bail/Sotrim, that is, that after the tests done by L.I.E. in May, Hydro‑Québec reinforced the access road to the substation.

 

                   The second possibility is that Hydro‑Québec should have disclosed the content of the report of October 3 to Bail/Sotrim.  For the reasons I have expressed, I am of the opinion that, in the light of all the circumstances of the case, Laprise failed on this point.  In any event, Laprise should also have convinced us that, if the content of the report of October 3 had been disclosed to it in full, it would have been in possession of facts which were otherwise unknown to it, and that once it had those facts it would not have agreed to continue the work under amendment No. 10 as amended.  For the reasons I have expressed, I am of the opinion that formal disclosure of the report of October 3 would not have told Laprise anything new.  In any event, again, Laprise should have convinced us, finally, that when it gave the waiver to Bail/Sotrim it was unaware of the facts which were known to Hydro‑Québec.  This was obviously not the case.

 

                   With due respect to the trial judge, and without questioning his assessment of the good faith of the witnesses, I am of the opinion that the facts proven through the documents filed and the testimony given by  Lévesque and Bouthillier of Bail/Sotrim and Louis Laprise themselves do not support the position of the Bank of Montreal or the trial judge's conclusion that there was a conspiracy of silence on the part of the people at Hydro‑Québec, let alone that this conspiracy caused damages of more than $8,500,000 to Laprise.

 

                   With due respect to the Court of Appeal, the first two paragraphs of this passage deal with matters that are within the province of the trial judge.  In my opinion, the court has failed to justify its rejection of the findings made by Martineau J., based on the credibility of the witnesses.  It does not explain in what respect Martineau J. may have been mistaken when he weighed the evidence before him, and in particular it advances no reason why his findings as to credibility, which are at the heart of his sovereign authority, were patently erroneous.  The reasons of this Court in Lapointe v. Hôpital Le Gardeur, supra, at p. 373, apply in the case at bar as well:

 

                   It is clear that the reversal of the trial judge's findings . . . did not stem from a disagreement on the proper standard of liability . . . .  Nor is it apparent that the majority found a palpable and overriding error in law or in the trial judge's findings and conclusions of fact.  One must conclude, then, that the appellate court simply disagreed with the lower court's appreciation of the facts, and so substituted its own interpretation.

 

The Court of Appeal was therefore not justified in disturbing the trial judge's findings of fact.

 

(B)  In Law

 

                   Before examining the legal problems raised by this case, it is appropriate to outline the applicable law.

 

                   1.The Law Applicable to the Relationship Between Laprise and Hydro‑Québec

 

                   There is no direct contractual relationship between Laprise, the subcontractor, and Hydro‑Québec, the owner.  We must therefore first examine how Laprise can establish a legal relationship with Hydro‑Québec, and then determine the possible substance of this legal relationship.

 

                   (a)The Legal Relationship Between Laprise and Hydro‑Québec

 

                   Given that there is no direct contractual relationship, the Bank's action must be based on Hydro‑Québec's delictual liability.  I note the trend in French civil law, where the legal authors, using the concept of a [translation] "group of contracts", have forged contractual links between the subcontractor and the owner (see B. Teyssie, Les groupes de contrats (1975)).  The courts have exhibited greater reserve in their judgments (Cass. Ass. plén., July 12, 1991, Besse v. Protois, Bull. civ. 1991. Ass. plén., No. 5, J.C.P.1991.II.21743 (see note G. Viney),  and C. Larroumet, "L'effet relatif des contrats et la négation de l'existence d'une action en responsabilité nécessairement contractuelle dans les ensembles contractuels", J.C.P.1991.I.3531).  It is not necessary for me to consider this question here, because this case may be decided on a delictual basis.

 

                   In Houle v. Canadian National Bank, [1990] 3 S.C.R. 122, this Court had occasion to consider the possibility that a failure to perform a contractual obligation may also entail delictual liability to a third party.  L'Heureux‑Dubé J., speaking for the Court, summarized Quebec law as follows, at p. 167:

 

                   In summary, although contractual and delictual liability may coexist even in the context of a contract, delictual liability must arise independently of contractual obligations and all the elements required to give rise to such liability must be found.

 

While this statement was made in the context of a discussion of choice of recourse, it applies as well when the issue is the relationship between contractors and third parties.

 

                   It remains for us to determine in what cases the actions of a party in the context of a contractual relationship may make it liable in delict to third parties.  At the outset, we must reject the argument by analogy, as this Court did in Houle, supra, at p. 182.   That argument, which according to G. Viney, Traité de droit civil, vol. IV, Les obligations ‑‑ La responsabilité:  conditions (1982), at pp. 255‑57, reflects the state of French positive law, holds that when a failure to perform a contractual obligation causes damage to a third party this may give rise to delictual liability to the third party.

 

                   For a third party, both the existence of a contractual obligation and the failure to perform that obligation are juridical facts, which do not, as such, entitle it to assert any claim.  These juridical facts must further fulfil the conditions of delictual liability, in the circumstances, in order that such liability may be asserted against the contracting party which has failed to perform its contractual duties.  Of these conditions, it is the failure to perform a duty to the third party which may create analytical difficulties here, more so than causality or damages.

 

                   The contractual relationship, the obligations contained in the contract and the failure to perform the contractual obligations are all relevant circumstances in assessing delictual fault.  It is necessary to determine whether the party whom it is sought to make liable behaved like a reasonable person toward the third parties, or in other words what the conduct of a reasonable contracting party would have been toward the third parties.

 

                   In a contractual context, the general duty imposed by art. 1053 C.C.L.C. is expressed as a duty to act reasonably toward third parties.  A general duty of good faith in contractual relationships, which derives from art. 1024 C.C.L.C., has been recognized by the courts (as in the decisions of this Court in National Bank of Canada v. Soucisse, [1981] 2 S.C.R. 339, Bank of Montreal v. Kuet Leong Ng, [1989] 2 S.C.R. 429, and Houle, supra) and by legal authors.  It is also set out in art. 1375 of the new Civil Code of Quebec, S.Q. 1991, c. 64 (not yet in force).  This duty of good faith derives from the same source as the general duty of good conduct set out in art. 1053 C.C.L.C., and it goes without saying that a party to a contract must conduct itself just as reasonably and with the same good faith toward third parties as toward the other contracting parties.

 

                   The opinion of Pratte J.A. in Boucher v. Drouin, [1959] Que. Q.B. 814, is apposite.  He wrote, at p. 822:

 

                   [translation]  The rule according to which contracts have effect only between the contracting parties . . . is no impediment to a third party, who is relying on the failure to perform a contract purely as a fact which has caused it damage, bringing a delictual action against the defaulting party, if the fact complained of is not simply a failure to perform a contractual obligation, but is in itself a fault.  In that case, the third party is not seeking to appropriate to itself the benefit of an obligation which is not stipulated in its favour, but is seeking compensation for the damage caused to it by the delictual act of the contracting party; the third party is asserting a right based not on the contract, but on the fault for which the contract simply provided the occasion.

 

                   In the case at bar, it was clear from the evidence that the defendant did not simply fail to perform the contract, but that he also was guilty of a delictual fault, by creating a fact situation which he should have foreseen could easily have caused damage to third parties.  [Emphasis added.]

 

                   I would even go further than Pratte J.A.  If we put ourselves in the position of the third party, in fact, it is entirely possible that the performance of a contract may be the basis for an action in delictual liability against a contracting party, even in the absence of contractual fault and without regard to the obligations set out in the contract in question, if that party failed in its general duty to act reasonably.  By way of illustration of this general principle, we may refer to the decision in Houle, supra.  While this Court was of the opinion that the defendant bank in that case had abused its contractual rights, the debtor company which had taken out the loan was not a party to the proceedings.  In assessing the delictual liability of the bank to the plaintiff shareholders, who were third parties, this Court concluded, at p. 185, that "the appellant bank's impulsive and detrimental repossession and sale of the company's assets after such a short and unreasonable delay, while fully aware of the respondent's imminent sale of their shares, was a fault".  The bank had failed in its general duty to act in good faith and in a reasonable manner, by causing damage to a third party when a reasonable person would have avoided such consequences.  As this Court noted at pp. 184‑85, that is the effect of art. 1053 C.C.L.C., in the circumstances of the case, regardless of the content of the loan contract.

 

                   The parties to a contract are therefore delictually liable for the damage which they may cause to third parties in the context of their contractual relationship, by their failure to meet the standard of reasonable conduct in the circumstances of that relationship.

 

                   While a contracting party may fail to meet its general duty to act in good faith and in a reasonable manner, notwithstanding the content of the contract and the party's conduct in terms of its contractual obligations, it is nonetheless indisputable that those two factors have an influence in assessing the delictual fault.  The task of a third party who wishes to take action against a contracting party may be greatly facilitated if there is also a failure to meet a contractual obligation.  Two typical cases arise.

 

                   First, when the obligations set out in the contract entail definite benefits for third parties, be they express or implied, the contracting party must of course avoid causing damage to those third parties.  This was the situation in Boucher v. Drouin, supra.  The duty to maintain provincial roads in winter not only bound the contractor to the government, which had awarded the maintenance contract, but also conferred an obvious benefit on individuals using the road.  The contractor had to conduct itself like a reasonable person in fulfilling its contract, by avoiding causing damage to users of the road as a result of its poor maintenance.  There was therefore a basis for delictual liability.

 

                   On the other hand, some contractual obligations are stipulated for the exclusive benefit of the other contracting party, and it is then more difficult to imagine how the conduct of the contracting parties could make them liable to third parties, although this would not be impossible.  In Alliance Assurance Co. v. Dominion Electric Protection Co., [1970] S.C.R. 168, for example, the contractual obligation which the third party insurer invoked in support of its action bound the respondent company to the victim.  The contract provided that the respondent company would notify the firefighters if the alarm sounded on the victim's premises.  This obligation was beyond any extra‑contractual obligation of the respondent company, and benefited only the other party to the contract.  As the Court of Appeal noted, [translation] "a citizen who knows, by some means, that a sprinkler system has been activated in two buildings is under no civil obligation to call the firemen and to go and check one building instead of the other" ([1967] Que. Q.B. 767, at p. 769).  This Court further wrote, at p. 173:

 

The respondent is not a public service charged with the duty of watching over a whole district generally, it is a private enterprise which assumes the obligation of surveillance of an establishment through an electrical system only towards those who subscribe to its service.  The duty it is blamed for not performing and by reason of which it is alleged to have committed a fault involving liability is not one which falls on everybody; on the contrary, it is solely a contractual obligation.

 

                   Without wishing to rule on the validity of the theories which have been advanced to explain the Quebec decisions (see G. Durry, La distinction de la responsabilité contractuelle et de la responsabilité délictuelle (1986), at pp. 66‑79), it seems to me that the foregoing paragraphs provide the best account of the cases in which failure to perform a contractual obligation, as a juridical fact, may form the basis for an action in delictual liability by a third party against the contracting party who is at fault.

 

(b)The Obligation to Inform in the Context of a Contract of Enterprise

 

                   In the case at bar, the Bank is invoking Hydro‑Québec's obligation to inform, as set out in the contract between Hydro‑Québec and Bail/Sotrim, as a basis for its action in delictual liability.  We should therefore consider this obligation in the context of the contract of enterprise in order to determine its scope.

 

(i)The Obligation to Inform in Quebec Law

 

                   The obligation to inform is now well established in Quebec law.  Durry, supra, at pp. 135‑40, describes the various situations in which it applies.  The obligation to inform that a manufacturer must fulfil toward the users of its product has already been discussed in several decisions of this Court, including Ross v. Dunstall (1921), 62 S.C.R. 393, and Air Canada v. McDonnell Douglas Corp., [1989] 1 S.C.R. 1554 (see also P.‑G. Jobin, Les contrats de distribution de biens techniques (1975), at pp. 216 et seq., and P. Legrand Jr., "Pour une théorie de l'obligation de renseignement du fabricant en droit civil canadien" (1981), 26 McGill L.J. 207), and is probably the area in which this obligation is most highly developed.  It is also recognized in the new Civil Code of Quebec, in arts. 1469 and 1473.  Moreover, the obligation of a doctor to inform his or her patient is also firmly established (Laferrière v. Lawson, [1991] 1 S.C.R. 541, Chouinard v. Landry, [1987] R.J.Q. 1954 (C.A.), and Gburek v. Cohen, [1988] R.J.Q. 2424 (C.A.)).  The courts have also considered the obligation of banks towards sureties to provide them with information (National Bank of Canada v. Soucisse, supra) and the obligation of insurers to their insured (Baril v. Industrielle (L'), Compagnie d'assurances sur la vie, [1991] R.R.A. 196 (C.A.)).  These are only a few of the best known examples of the manner in which the obligation to inform is applied

 

                   We should then ask whether we may generalize from all these individual cases.  I believe that it is possible to outline a general theory of the obligation to inform, based on the duty of good faith in the realm of contracts, which was mentioned above (see Y. Picod, Le devoir de loyauté dans l'exécution du contrat (1989), at pp. 112‑16).  J. Ghestin, Traité de droit civil, vol. II, Les obligations ‑‑ Le contrat:  formation (2nd ed. 1988), concludes a lengthy study of the obligation to inform by proposing the following definition, at p. 566:

 

                   [translation]  Finally, the party who knows or ought to know, especially by reason of his or her professional qualifications, a fact he or she knows to be of decisive importance to the other party is bound to inform that party of the fact from the moment when it becomes impossible for that party to obtain  information on his or her own, or when he or she might legitimately have relied on the co‑contracting party, by reason of the nature of the contract, the capacity of the parties, or inaccurate information which had been supplied by that party.

 

Without necessarily adopting that statement, I am of the opinion that Ghestin has correctly stated the nature and parameters of the obligation to inform.  He describes the main elements of the obligation as follows:

 

-‑knowledge of the information, whether actual or presumed, by the party which owes the obligation to inform;

 

-‑the fact that the information in question is of decisive importance;

 

‑-the fact that it is impossible for the party to whom the duty to inform is owed to inform itself, or that the creditor is legitimately relying on the debtor of the obligation.

 

In my opinion, these elements are found in all cases where there is an obligation to inform.  For example, a manufacturer knows or is presumed to know the risks and dangers created by its product, as well as any manufacturing defects from which it may suffer.  This information will have a definite influence on the consumer's decisions as to whether to purchase and use such products.  Most often, the consumer relies on the manufacturer for this, or finds it impossible to obtain this information.  The same is true for other examples of the obligation to inform.

 

                   The advent of the obligation to inform is related to a certain shift that has been taking place in the civil law.  While previously it was acceptable to leave it to the individual to obtain information before acting, the civil law is now more attentive to inequalities in terms of information, and imposes a positive obligation to provide information in cases where one party is in a vulnerable position as regards information, from which damages may result.  The obligation to inform and the duty not to give false information may be seen as two sides of the same coin.  As I noted in Laferrière v. Lawson, supra, both acts and omissions may amount to fault, and the civil law does not make a distinction between them.  Like P. Le Tourneau, "De l'allégement de l'obligation de renseignements ou de conseil", D. 1987. Chron., p. 101, however, I would add that the obligation to inform must not be defined so broadly as to obviate the fundamental obligation which rests on everyone to obtain information and to take care in conducting his or her affairs.

 

                   We must avoid confusing the obligation to inform, which remains a secondary obligation, with the obligation to counsel, the main obligation in many contracts, including mandates given to notaries and lawyers (see Roberge v. Bolduc, [1991] 1 S.C.R. 374).  As the main obligation, the obligation to counsel is subject to different terms and conditions, which I shall not go into here.

 

                   Similarly, the general nature of my comments on the obligation to inform must not obscure the fact that significant differences may arise among the various situations in which this obligation is present.

 

                   First, the foregoing remarks apply primarily to the contractual obligation to inform, but a duty to inform may also arise independently of any contractual relationship.  That issue exceeds the scope of this case, however, because even in the absence of a direct contractual relationship between Laprise and Hydro‑Québec, any delictual fault which the Bank might raise against Hydro‑Québec will be based largely on Hydro‑Québec's contractual obligations to Bail/Sotrim, as we shall see.

 

                   Moreover, the authors are divided as to whether pre‑contractual and contractual obligations to inform may be considered comparable.  Ghestin, supra, at pp. 504‑6, emphasizes the distinction between these two obligations, on the primary ground that a violation of a pre‑contractual obligation to inform gives rise to delictual, not contractual, liability.  Confusing the two obligations strips the pre‑contractual obligation of its specificity.  Here, in any event, from Laprise's standpoint, Hydro‑Québec's liability can only be delictual.  Moreover, the same criteria will not be used to determine whether the information is a deciding factor in the pre‑contractual phase as are used in the contractual phase.  In the case at bar, for reasons which will become apparent later, I do not believe that we must strictly distinguish between the pre‑contractual and contractual phases of the relationship between Bail/Sotrim and Hydro‑Québec.  In any event, Ghestin admits that it is extremely difficult in practice to draw the distinction between these two obligations and, like Le Tourneau, supra, he agrees that they should be dealt with together.

 

                   We shall now consider how the particular features of the contract of enterprise may affect these comments.

 

                   (ii) The Contract of Enterprise

 

                   The essence of the contract of enterprise is found in arts. 2098 to 2100 of the new Civil Code of Quebec:

 

                   2098.  A contract of enterprise or for services is a contract by which a person, the contractor or the provider of services, as the case may be, undertakes to carry out physical or intellectual work for another person, the client or to provide a service, for a price which the client binds himself to pay.

 

                   2099.  The contractor or the provider of services is free to choose the means of performing the contract and no relationship of subordination exists between the contractor or the provider of services and the client in respect of such performance.

 

                   2100.  The contractor and the provider of services are bound to act in the best interests of their client, with prudence and diligence.  Depending on the nature of the work to be carried out or the service to be provided, they are also bound to act in accordance with usual practice and the rules of art, and, where applicable, to ensure that the work done or service provided is in conformity with the contract.

 

  Where they are bound to produce results, they may not be relieved from liability except by proving superior force.

 

                   A contract of enterprise is a contract of fairly general scope which covers a sizeable number of legal situations among which there are nonetheless significant differences.  I shall deal here with contracts of enterprise relating to large projects of considerable value.  The following comments are not necessarily applicable to contracts of enterprise as a whole.

 

                   The main elements of the duty to inform, which are set out above, are found in the rules governing contracts of enterprise.  It is easy to imagine that certain decisive information might be in the possession of one party, while the other party cannot obtain the information or legitimately relies on the first party.  In fact, each of the two parties has an obligation to inform the other in certain respects.  I note in passing that Bail/Sotrim and Laprise fulfilled their obligation to Hydro‑Québec to inform it, by bringing to its attention the errors they believed they had discerned in the original design.  Three factors which are unique to contracts of enterprise have a bearing on the substance of the obligation to inform:  the allocation of risk, the relative expertise of the parties and the continuing formation of the contract (see the three categories of criteria set out by Picod, supra, at p. 116).

 

(iii) Allocation of Risk

 

                   Contracts of enterprise are characterized first by the parties' knowledge of the object of the contract.  In such situations, not only the contractor but also the owner have a degree of expertise.  Thus it is easy to assess the allocation of risk in these contracts, because it is likely that the parties have considered the issue.  The risk is generally assumed by the contractor, which is in a position to assess the risk during the tender process.  As LeBel J.A. wrote for the Court of Appeal in Groupe Desjardins assurances générales v. Société de récupération, d'exploitation et de développement forestiers du Québec (Rexfor), supra, at pp. 34‑35 of his opinion:

 

[translation]  In a liberal economy, we still have the concept of commercial risk.  Under the clauses for checking the site and the situation, the tenderer, which is often the specialist in the field, assumes an obligation to check the substance of and problems involved in its commitment, and the conditions in which it is to be carried out.  This obligation enables it to measure its risk of loss and, as well, its opportunity for profit.  Its effect may be vitiated in some situations as a result of fraud or bad faith on the part of the co‑contractor.  That was not the case here, on the facts established.  It is regrettable that an experienced and undoubtedly excellent contractor has suffered such a catastrophe.  It was the victim of an error which is always possible in evaluating its commitment and the risks it involves.  Such risks are inherent in the system of awarding contracts.  They must be borne by the tenderer, unless fraud, withholding or bad faith on the part of the co‑contracting party, so as to vitiate the operation of the otherwise well‑honed process of awarding public or sometimes even private contracts, or the breach of obligations which rested on the party giving the order, is specifically established.

 

I entirely concur with this statement of the risk assumed by the contractor.  It is recognized that one of the components of this risk is that the contractor is responsible for the nature and conditions of the soil (see art. 1688 C.C.L.C.; Corpex (1977) Inc. v. The Queen, [1982] 2 S.C.R. 643, at pp. 662‑66; T. Rousseau‑Houle, Les contrats de construction en droit public et privé (1982), at p. 265, as well as arts. 2118 and 2119 of the new Civil Code of Quebec).

 

                   The obligation to inform is an immediate corollary of the allocation of risk.  The party assuming the risk has a duty to become informed about it, as this Court held in Corpex, supra, at pp. 663‑64.  However, the other party must not, by action or inaction, contribute to distorting the evaluation of the risk by the party who assumes that risk.  In the paragraph set out above, LeBel J.A. moreover expressly excepted cases where the owner contributed to the contractor's error.  Similarly, in Corpex, Beetz J. tempered the stringency of the duty of the contractor to become informed when the contract contains warranties in respect of the representations made by the owner.  The relationship between the risk assumed by the contractor and the owner's obligation to inform the contractor, particularly when the information in question is contained in the call for tenders documents, is very close indeed.

 

(iv)The Relative Expertise of the Parties

 

                   Second, in the context of contracts of enterprise for large projects, the obligation to inform may vary depending on the expertise of the parties.  The importance of expertise, taken in the broad sense of the parties' expectations of each other in terms of the knowledge resulting from their respective qualifications, may be seen in the foregoing discussion of the obligation to inform in general.

 

                   A small‑scale contract of enterprise, for the construction of a single‑family home, for example, will be awarded by an individual who is a novice in the field to an experienced contractor.  There is then justification for practically relieving the owner of any obligation to inform.  For large projects, however, the owner generally has not insignificant expertise in the field, which it uses in preparing the plans and specifications, inter alia.  This Court has recognized the influence of the relative expertise of the parties on the obligations contained in a contract of enterprise, in Davie Shipbuilding Ltd. v. Cargill Grain Co., [1978] 1 S.C.R. 570.  De Grandpré J. wrote, with respect to liability under art. 1688 C.C.L.C., at p. 577:

 

The point of departure is the liability of the specialists; they are liable if the evidence does not establish a cause of exoneration resulting from the owner's action to the satisfaction of the Court.  If he has great expertise in the field, clearly surpassing that of the persons who performed the work, the latter will completely escape liability.  If, however, the owner's expertise is approximately equivalent to that of the specialists, their liability will only be mitigated.

 

More specifically regarding the influence of the expertise of the owner on the contractor's obligation to check, he added, at p. 583:

 

It must not be forgotten that the duties of the engineer and the contractor are different, the former being a specialist to whom the design and preparation of plans and specifications are normally entrusted, and the second merely carrying out the work.  If the second is required to do the checking which the judgment appealed from would impose on him [that is, the duty to verify the information provided by the expert owner], the presence of the engineer is no longer useful, for all practical purposes.

 

The owner's obligation to inform increases with its expertise relative to the contractor's, particularly when it provides information to the contractor which falls within its field of expertise, and that information is incorrect.  Although the contractor must check the information provided to it by the owner, it need not necessarily redo in detail the work done by the owner's experts.

 

(v)               Continuous Formation of the Contract

 

                   Finally, the obligation to inform is influenced by a third characteristic of contracts of enterprise for large projects:  the process of continuing change during execution of the contract.  Here we must distinguish between contracts of enterprise for a fixed price, on the one hand, and contracts for a variable price or which comprise another method of calculating payment, on the other.  In a contract for a fixed price, [translation] "the owner has not reserved the right or privilege of changing the plans and specifications during the course of the work" (Cartier Building Inc. v. E. Séguin & Fils Ltée, [1985] C.A. 649, at p. 652).  Article 1690 C.C.L.C. provides that in such cases changes must be agreed upon between the owner and the contractor.  Contracts of enterprise relating to large projects are usually contracts for a variable price, in which the owner reserves the right to make changes along the way.  This is the case here:  clause 39 of the General Clauses provides that Hydro‑Québec may change the work set out in the call for tenders by issuing change orders (or amendments).  These contracts are truly, for both the owner and the contractor, a voyage onto unknown soil, if I may use that expression.  Both parties were very much aware that there are always unforeseen events in the course of execution of a contract, and that some changes, whether large or small, would probably have to be made throughout the carrying out of the project.

 

                   Certain problems arise in analyzing contracts of enterprise for a variable price.  It may be difficult to apply the traditional distinction between formation and execution of the contract to them.  Without intending here to discard this distinction, which is nonetheless quite useful and fertile, I would characterize contracts of enterprise for a variable price, particularly when change orders are issued, as contracts in continuing formation.  The issuance of change orders, which alter the substance of the contract, cannot be considered to be a simple side effect of execution.  Although most contracts, including the contract in this case, take no account of the will of the contractor when a change order is issued, the contractor retains the right to claim additional sums when the changes imposed by the owner exceed a certain threshold.  As Rousseau‑Houle, supra, says at p. 253:

 

                   [translation]  However, the power to make unilateral changes is not absolute. . . . [T]he owner may only make changes of secondary importance.  It may not impose changes that affect the very substance of the contract to such a point as in fact to give the contract a different object than had been contemplated in the common intention of the parties.

 

The issuance of change orders may lie on the borderline between formation and execution of contracts.  Since, in any event, the changes to the contract are no longer within the unilateral will of the owner when they transform the object of the contract, the contractor must at least receive sufficient information to gauge the significance of the changes requested.  Accordingly, there is always a certain element of the pre‑contractual obligation to inform present when change orders are issued.

 

                   This is why I indicated earlier that the distinction between pre‑contractual and contractual obligations to inform was of lesser significance in this case.  The obligation to inform therefore retains, throughout the term of a contract for a major project with multiple amendments, the characteristics of the pre‑contractual obligation to inform.  Thus a relatively high degree of disclosure is required, because the validity of the consent of the debtor of the obligation to inform must more or less constantly be assured while the initial project evolves as change orders are issued.

 

                   In summary, the obligation to inform in contracts of enterprise dealing with large projects is characterized by the allocation of risk between the parties, the relative expertise of the parties and the continuing formation of the contract, even during execution of the contract.

 

2.                Conclusions of Martineau J.

 

                   Martineau J. drew the following conclusions from the evidence presented to him:

 

1.Hydro‑Québec had assumed a certain degree of liability with respect to the accuracy of the geotechnical data.  The contractor assessed the risk on the basis of those data.  I would add that clause 14 of the General Clauses (similar to clause 12 in Corpex, supra), which dealt with the consequences of discrepancies between the data and the actual ground, supports this conclusion.

 

2.Hydro‑Québec had greater expertise than Laprise in relation to the geotechnical studies.  While Hydro‑Québec had used LIE's experts to prepare the 1974 and 1977 Reports, Laprise and Bail/Sotrim had only their practical knowledge as contractors.

 

3.The number and scope of the change orders issued completely changed the nature of the original contract.  Thus, the logical consequence of this observation is that it was a contract in continuing formation.

 

On the basis of these observations, Martineau J. was correct in imposing an onerous obligation to inform on Hydro‑Québec.

 

                   With respect to whether the Bank, on behalf of Laprise, could rely on a failure to fulfil this obligation, it seems to be indisputable that Hydro‑Québec, as the owner, had a duty to act reasonably toward subcontractors, particularly when it was a matter of informing them of errors in the tender documents.  In the context of a large project such as the Substation, the contractor commonly uses the services of subcontractors like Laprise.  As well, this possibility was mentioned in the specifications which accompanied the call for tenders (see clauses 1(f) and 7 of the General Clauses).  Not only did the obligation to inform benefit Bail/Sotrim, but it was also to the advantage of the subcontractor, Laprise, which may therefore invoke in its favour a failure by Hydro‑Québec to fulfil its obligation to inform the contractor, in so far as Hydro‑Québec failed to meet the standard of conduct of a reasonable person.

 

                   Thus Martineau J. found that Hydro‑Québec had failed to fulfil its obligation to inform.  According to him, when Hydro‑Québec changed its requirements with respect to the access road at the end of June 1977 following discussions with LIE's experts, it suspected that there might have been errors in its design for the Substation.  According to Martineau J., it should then have disclosed this information to the tenderers, because the contract had not yet been awarded.  Moreover, Martineau J. considered that Hydro‑Québec was fully aware of the defects in its design after receiving the 1977 Report, which completed the mandates given to LIE in May and August 1977.  Hydro‑Québec then deliberately hid its error from Bail/Sotrim and Laprise, in order to induce them to complete the work on time, even though the work had to be changed extensively.  Martineau J. saw this as a serious breach of Hydro‑Québec's obligation to inform, which led him to conclude as follows, at pp. 155‑56:

 

                   [translation]  In the case at bar, the evidence revealed an owner, Hydro‑Québec, which was, as noted earlier, an informed owner with the greatest facilities imaginable in terms of technology and expertise, and which had vouched for the geotechnical conditions, hiding studies, plans and other documents, which related to and were essential in carrying out the work it had ordered, from the contractor, which was in the grip of insurmountable problems, while Hydro‑Québec was using that same information to change its own design, during the course of the work and even during the tender process.  This camouflage, which continued over such a long period of time, is at the very heart of the contractor's difficulties.  There is overwhelming evidence that there was a complete conspiracy of silence and deception, relating to the very core of the contract which is the subject of these proceedings, and that if the contractor, Laprise, had known about it in time it would have been able to avoid the technological and financial fiasco which followed;

 

3.                Conclusions of the Court of Appeal

 

                   At the outset, at p. 14, the Court of Appeal divided the issue of liability into two sub‑issues:  fraud at the time the contract was formed and failure to fulfil the obligation to disclose the 1977 Report.  While this division was undoubtedly practical because it casts the analysis in the familiar categories of the formation and execution of contracts, it to some extent masks the true nature of this contract which was, as discussed above, a contract of enterprise in continuing formation.

 

                   On the issue of fraud, the Court of Appeal seems to have faulted Martineau J. for misunderstanding the dates.  It analyzed the facts and concluded that Hydro‑Québec was acting in good faith at each stage of the process.  The Court of Appeal attached little importance to LIE's study on the access road, which was done in the middle of the tender period, stating that [translation] "the fact that Hydro‑Québec took this approach is surprising but that is not the issue in these proceedings" (p. 14).

 

                   However, in the paragraph quoted earlier, when Martineau J. was discussing the changes made by Hydro‑Québec [translation] "during the course of the work and even during the tender process", he was fully aware of the dates of the various documents.  However, basing his conclusion on Hydro‑Québec's expertise in the field and on the close connection between the access road and the Substation site, Martineau J. concluded that there had been fault on the part of Hydro‑Québec starting in the pre‑contractual period.  This fault continued with the non‑disclosure of the 1977 Report.  This conclusion is supported by the evidence.  Considering the continuity of the fault on the part of Hydro‑Québec, Martineau J. passed judgment on the overall situation.

 

                   The theory adopted by the Court of Appeal as to disclosure of the 1977 Report may be summarized as follows.  Laprise and Bail/Sotrim were perfectly aware of the soil conditions, from their presence on the site.  Documents which would only have confirmed their own observations, including the August 29 Letter and the 1977 Report, would have been of no use at all to them.  Bail/Sotrim and Laprise agreed to all the changes to the contract with full knowledge of the situation.  They cannot fault Hydro‑Québec for not disclosing information to them which they already had (at p. 25).  With respect to amendment No. 10, the Court of Appeal wrote, at pp. 22‑23:

 

[translation]  However, Bail/Sotrim and Laprise could have exercised their rights under clause 14 otherwise than by consenting to amendment No. 10 and consenting to leave it until later to solve further problems which might arise.

 

The court continued, with respect to the changes which had been made in September 1977, at p. 23:

 

[translation]  Here again, Bail/Sotrim and Laprise had the choice of accepting or not accepting the changes to the work and the adjustment to the price.  The same facts were known to everyone.

 

With respect to the clause set out in the letter of August 31, 1977 from Hydro‑Québec to Bail/Sotrim, the Court of Appeal stated at p. 25 (see other passages to the same effect at pp. 27 and 28):

 

[translation]  Bail/Sotrim and Laprise agreed, with full knowledge of the situation, that solutions to the problems which were anticipated would be found as they arose.

 

                   The Court of Appeal summarized its thinking at p. 26, with the following comments on the letter of February 17, 1978 from Bail/Sotrim to Hydro‑Québec, in which Bail/Sotrim requested that the contract and its execution be reviewed:

 

                   [translation]  In my humble opinion, this letter was a logical result of the situation.  From the outset of work on the site, Laprise found that the subsoil on the site was very soft.  Hydro‑Québec asserted that Laprise and Bail/Sotrim should have known that from the geotechnical reports.  Regardless of the parties' arguments, it was thought that the problem could be largely solved by raising the substation, but since a number of foundations had to be installed very deep in the till, it was obvious to everyone that the problem would resurface while the work was being carried out.  The two parties agreed to resolve any difficulties as they arose.  [Emphasis added.]

 

The Court of Appeal reiterated these ideas in dealing with the waivers of May and July 1978, at p. 29:

 

                   [translation]  In my humble opinion, when Bail/Sotrim gave its waiver to Hydro‑Québec and when Laprise gave its waiver to Bail/Sotrim, all the facts were known.  Laprise and Bail/Sotrim had always claimed, from the time work began on the site, that the soil conditions on the site had not been set out in the call for tenders.  Although it maintained the contrary, Hydro‑Québec at first agreed to make a significant change to its plans, at its own expense.  The parties knew, however, that it was possible that other corrective measures would become necessary during the course of the work and they agreed to continue the work subject to reaching an agreement on potential corrective measures.  [Emphasis added.]

 

                   The Court of Appeal therefore placed considerable weight on the consent of the parties, taking it for granted that Laprise and Bail/Sotrim had knowledge of the site which was equal or equivalent to that of Hydro‑Québec, contrary to the findings of fact made by Martineau J.  It rejected the possibility that there may have been a difference between the knowledge of someone carrying out a contract, which is gleaned from visits to and work on the site, and the knowledge of soil experts, based on test drills and a scientific study of the soil, although the trial judge had recognized this difference.

 

                   Thus Beauregard J.A. wrote at p. 14:

 

[translation]  It is not a fault for a party which is negotiating with another party not to disclose its feelings on a fact situation which is known to the other party.

 

He added in concluding his reasons at p. 30:

 

                   [translation]  Even if Laprise had reason to be so persuaded, this does not establish that Laprise consented to the various amendments to its contract with Bail/Sotrim, and to the waiver which it gave the latter, as a result of an error of fact, much less that Hydro‑Québec was responsible for such an error.  Once a contractor has agreed to an amendment of its contract . . ., it cannot, at the end of the work, challenge the transaction on the ground that when it was entered into the contractor was absolutely right and the other party knew that its legal position was precarious.

 

With due respect, the documents provided to Hydro‑Québec between June and October 1977 were not expert reports produced in preparation for litigation.  They were the findings of Hydro‑Québec's experts with respect to the problems encountered on the Substation site.  These documents establish that the design of the Substation was wrong, and propose certain remedies.  They were to form the basis for the parties' negotiations on the execution and revision of the contract.  Hydro‑Québec was required to disclose them to Bail/Sotrim and Laprise.

 

4.                Changes in Hydro‑Québec's Position

 

                   At this point I would note that Hydro‑Québec's position has changed before the successive courts which have heard this case.  Before this Court, Hydro‑Québec concentrated on the dates of the various documents and on the parties' knowledge of the condition of the site, somewhat along the line of the thinking of the Court of Appeal.  Before the Superior Court, however, Hydro‑Québec presented an entirely different theory, which reflected its attitude during the execution of the contract.

 

                   We need only quote a few paragraphs from Hydro‑Québec's statement of defence to have an idea of the climate which prevailed in 1977 and 1978:

 

[translation] 19.  The defendant denies paragraph 18.1 of the amended declaration as it is worded, and adds that the soil conditions encountered by Laprise Construction Ltée (Laprise) were what it should have expected, and that if the methods of work and equipment it planned to use had to be changed, this was the sole responsibility of Laprise, which had misestimated the work required;

 

                                                                   . . .

 

53.13  The defendant denies paragraph 50.19 of the second amended declaration as it is worded, and adds that Hydro‑Québec at all times negotiated in good faith and that if Hydro‑Québec was required to change certain aspects of the civil engineering work, most often at the express request of the general contractor, this was due only to the inability of Laprise to fulfil its obligations and apply proper construction methods to lower the water level and carry out the work set out in the call for tenders, because it failed to foresee the problem of the water level;

 

53.14  The defendant denies paragraph 50.20 of the second amended declaration as it is worded, and adds that the difference between the original amount of the contract and the actual cost cannot support the conclusion that this increase resulted from a lack of precision and accuracy in the call for tenders, and on the contrary, the defendant Hydro‑Québec submits that this increase was a result of the fact that Laprise did not properly assess the problems it would have to deal with at the Abitibi Substation, that is, a high water table very close to the surface, and the real cost is primarily due to the fact that Laprise did not properly assess the conditions and difficulties to be dealt with, so that it proceeded with equipment and construction methods which were not productive and which ultimately had to be changed, with the result that Laprise suffered losses in productivity and high costs entirely out of proportion to the cost of solving the problems if they had been anticipated at the outset;

 

                                                                   . . .

 

73.  The difficulties and problems encountered by Laprise in building the Abitibi Substation resulted solely from its own fault in that it made a poor choice of construction methods, these methods being the responsibility of the contractor;

 

                   In 1977 and 1978, when Laprise was experiencing difficulties on the project, Laprise and Bail/Sotrim went to Hydro‑Québec, suggesting that the documents that Hydro‑Québec had provided to them were inaccurate.  Hydro‑Québec responded and has always responded that these problems arose not from errors in the documents provided to Bail/Sotrim, but from Laprise's incompetence.  Nonetheless, Hydro‑Québec issued change order after change order to alleviate Laprise's difficulties, but still on the pretext of being magnanimous, given the urgency of completing the work.  The incident of the well‑points is a good example.  Despite the fact that the minutes of an internal meeting held on February 20, 1978 showed that Hydro‑Québec knew that its design was wrong, Hydro‑Québec initially refused to assume the additional costs relating to the use of well‑points, at the meeting with Bail/Sotrim on February 22, 1978.  It was not until June 1978, having demanded a waiver and not having acknowledged that the additional costs were caused by its own error, that Hydro‑Québec agreed to pay for this work.  Hydro‑Québec interpreted its actions as follows, in its statement of defence:

 

[translation]  89.  Thus, in order not to delay the construction work and cause additional delays, Hydro‑Québec agreed to raise the substation by 3 feet and to pay the cost thereof, and also to absorb the cost of using well‑points;

 

90.  Hydro‑Québec had to expend additional money in order to have the construction done within the time set out in the contract, although it was entitled to have the work delivered for the initial fixed price of $10,693,000 and to apply the penalty clauses set out in the contract if Bail/Sotrim did not deliver the work within the time specified;

 

                   By leaving Bail/Sotrim and Laprise completely in the dark about the quality of the information it had provided to them, by constantly shifting the blame onto the subcontractor's shoulders and by arguing urgency and its goodwill in agreeing to the changes to the work, Hydro‑Québec was literally able to induce Bail/Sotrim and Laprise to carry out a design for which they had not tendered.  The costs of doing the excavation nearly quintupled in relation to Laprise's original tender.

 

                   Hydro‑Québec knew that its design was erroneous.  Nonetheless, it refused to admit this because the balance of power between the parties would have been radically altered, and it would probably have had to renegotiate the entire contract.  It was this attitude on the part of Hydro‑Québec, this refusal to yield to the claims of Laprise and Bail/Sotrim, when it knew that they were right and that it had an obligation to inform them, that so struck Martineau J. and that led him to describe the operation as a "conspiracy of silence".  While I have no wish to raise the ante on adjectives, I in fact find such an attitude to be shocking, particularly on the part of a major public body such as Hydro‑Québec.

 

                   There is no palpable error in the interpretation of the evidence in the judgment of Martineau J., and it is well founded in law.  There was therefore no ground for intervening.

 

V -‑ Prescription

 

                   The trial judge and the Court of Appeal were correct in finding Hydro‑Québec liable only in respect of its failure to fulfil its obligation to inform Laprise.  The other grounds listed by the Court of Appeal at p. 13 ‑‑ the error in the design of the Substation or in the 1974 Report, the error in selecting the site, the numerous changes made during the execution of the contract, inter alia ‑‑ are all prescribed.

 

                   With respect to the obligation to inform, it was in fact impossible for the Bank to act, since it was unaware of the facts which gave rise to its right because of the fault of the debtor, as set out in art. 2232 C.C.L.C. and Oznaga v. Société d'exploitation des loteries et courses du Québec, [1981] 2 S.C.R. 113, at p. 126.  Here, the fault of Hydro‑Québec, which lies in the failure to disclose information, actually prevented the Bank from knowing that Hydro‑Québec had this information, and from being able to exercise its rights.  The time at which the prescription starts to run was thus pushed back until February 1983, the moment when Laprise fortuitously discovered a plan which had accompanied the 1977 Report.  The delictual action by the Bank against Hydro‑Québec for breach of the obligation to inform is not prescribed.

 

VI -‑ Indemnity Under Art. 1056c C.C.L.C. and the Quantum of Damages

 

                   Martineau J. denied the Bank this indemnity.  Since his judgment, this Court has held, in Houle, supra, at pp. 188‑90, that this indemnity should not be refused unless there are specific reasons for doing so.  Since neither Martineau J. nor Hydro‑Québec invoked any reason for refusing it, the Bank is entitled to this indemnity.  Moreover, in addition to the losses of $6,438,674 suffered in executing the contract, Martineau J. added $2,000,000 to the damages as compensation for the [translation] "ruin of Laprise".  While such a head of damages is allowable in principle, there is no evidence in the record which would justify this amount.  I would therefore not award any compensation under this head.

 

VII ‑ The Incidental Appeal and the Action in Contractual Liability

 

                   On the ground that art. 523 of the Code of Civil Procedure, R.S.Q., c. C-25, left it no discretion after six months following the judgment a quo, the Court of Appeal dismissed the Bank's motion to amend its notice of incidental appeal to add conclusions with respect to the contractual action against Bail/Sotrim, which action had been dismissed by Martineau J.  Since the Court of Appeal's decision, this Court has rendered judgment in Québec (Communauté urbaine) v. Services de santé du Québec, [1992] 1 S.C.R. 426.  That decision removed the foundation on which the decision of the Court of Appeal in this case rested.

 

                   However, as the Bank's contractual recourse against Bail/Sotrim was brought in the alternative, we need not decide this question.  Martineau J. should not have ruled on the contractual action, and should not have set aside the contracts and waivers between Hydro‑Québec and Bail/Sotrim and between Bail/Sotrim and Laprise, because the parties had not asked that they be set aside.

 

                   There will be no costs awarded to Bail Ltée and Sotrim  Ltée, because this Court makes no finding as to the Bank's conclusions on the issue of contractual liability.  The outcome of this case leaves Bail Ltée and Sotrim Ltée in a position similar to that of a defendant in warranty when the main action is dismissed.  The main action is res inter alios acta in respect of such a defendant, and it cannot recover its costs against the main plaintiff (Guenette v. Prévost, [1987] R.D.J. 56 (C.A.); Layher v. Continental Holding Inc., C.A. Montréal, No. 500‑09‑001385‑822, March 17, 1987, C.A.P. 87C‑116; and Immeubles Maude Inc. v. Farazli, [1991] R.D.I. 616 (C.A.)).

 

                   With respect to Travelers of Canada, it appears from the record that the Bank of Montreal did not give the notice specified in the contract of surety between Bail/Sotrim and Travelers of Canada.  However, Travelers of Canada did not make this argument before the trial judge, either as a preliminary objection or in argument.  Its costs should therefore be limited to the costs on a motion in the Superior Court.

 

VIII -‑ Conclusion

 

                   The appeals are allowed in part and judgment is rendered as follows.  The Court:

 

Doth DISMISS the action of the plaintiff Bank of Montreal against Bail Ltée and Sotrim Ltée without costs;

 

Doth ALLOW the action of the said plaintiff against the defendant Commission Hydroélectrique du Québec (Hydro‑Québec) in part;

 

Doth CONDEMN the said defendant to pay to the plaintiff the sum of $6,438,674, the whole with interest at the legal rate and the additional indemnity provided in art. 1056c of the Civil Code of Lower Canada both from June 8, 1983, and the plaintiff's costs of the action against said defendant in all courts;

 

Doth CONDEMN the said defendant to pay the costs of the intervener Gilles Tremblay on the said action in all courts;

 

Doth CONDEMN the plaintiff to pay the costs of the defendant Travelers of Canada, Indemnity Company, such costs being fixed at the costs on a motion in the Superior Court.

 

                   Appeals allowed in part.

 

                   Solicitors for the appellant the Bank of Montreal: McMaster Meighen, Montréal.

 

                   Solicitors for the appellant Tremblay: Tremblay Bois Mignault & Associés, Ste-Foy.

 

                   Solicitors for the respondents Bail Ltée, Sotrim Ltée and Travelers of Canada: Guy & Gilbert, Montréal.

 

                   Solicitors for the respondent the Commission hydroélectrique du Québec: Desjardins Ducharme, Montréal.