T-956-75
CAE Industries Ltd. and CAE Aircraft Ltd.
(Plaintiffs)
v.
The Queen (Defendant)
Trial Division, Collier J.-Winnipeg, February 19,
20, 21, 22, 25, 26, 27, 28, March 3, 4, 5, 6, 10, 11,
12, 13, 17, 18, 19, 20, April 7, 8, 9; Vancouver,
July 31, 1982.
Crown - Contracts - Ministerial authority to bind Crown
- At request of Air Canada and Crown representatives,
Northwest, subsidiary of plaintiff CAE Industries, bid to take
over Winnipeg air base facility - Reluctant to do so without
commitment from Crown to provide certain number of man-
hours of labour per year - Letter signed by Transport Minis
ter and concurred in by two other Ministers assuring plaintiff
DDP would guarantee 40,000-50,000 man-hours of labour per
year from 1971-1976 and that Government of Canada would
employ best efforts to secure additional work from other
departments and Crown corporations to meet 700,000 direct
labour man-hours target - Defendant submitting no legal
contract because according to The Queen v. Transworld Ship
ping Ltd., [1976] 1 F.C. 159 (C.A.) authority of Minister to
bind Crown must be found in statute or Order in Council, and
none existing here - Defendant also submitting letter merely
agreement to agree, and non-joinder of Northwest as plaintiff
fatal to action - Letter creating valid, enforceable contract
J. E. Verreault & Fils Ltée v. Attorney General of the Province
of Quebec, [1977] 1 S.C.R. 41 declaring proposition in
Transworld Shipping too narrow, applies - Implied or osten
sible authority for Ministers to bind Crown found in liberal,
reasonable reading of legislation setting up departments for
which Ministers responsible - Parties intending contract to be
binding and treating it as such - Letter was concluded
bargain leaving nothing to be settled by future agreement
Addition of Northwest serving no useful purpose and R. 1716
providing no action defeated by non-joinder - "Best efforts"
equivalent to "use their best endeavours" meaning "leave no
stone unturned" - Evidence that defendant did not provide
guaranteed DDP work in four of five years and did not use
best efforts to meet shortfall - Defence Production Act,
R.S.C. 1952, c. 62, ss. 14, 15(b),(d),(g), 17 - Department of
Transport Act, R.S.C. 1952, c. 79, s. 3(2) - Aeronautics Act,
R.S.C. 1952, c. 2, s. 3(d) - Department of Trade and Com
merce Act, R.S.C. 1952, c. 78, ss. 3, 5 - Federal Court Rules,
C. R. C., c. 663, R. 1716.
Practice — Parties — Defendant claiming non-joinder of
Northwest Industries as plaintiff fatal to action, agreement
having been made with Northwest and there being no legal
assignment in writing — Addition of Northwest serving no
useful purpose there being an equitable assignment — R. 1716
providing no action defeated by non-joinder — Federal Court
Rules, C.R.C., c. 663, R. 1716.
Action for damages for breach of an agreement allegedly
made with the Crown. The plaintiff CAE Industries Ltd. was
approached by Air Canada and representatives of the federal
Crown to purchase a Winnipeg air base facility, owned and
operated by Air Canada, and to continue an aircraft repair and
overhaul operation in that City to avoid the loss of 1,000 skilled
jobs. Negotiations involving CAE Industries, Air Canada, fed
eral and provincial government officials took place during
which Northwest Industries, a subsidiary of CAE Industries,
repeatedly requested commitments for a certain number of
man-hours of work per year for several years. On March 26,
1969, the plaintiff CAE Industries Ltd. received a letter from
the Minister of Transport, concurred in by two other Ministers,
stating that the Government of Canada agreed that 700,000
man-hours of direct labour per year was a realistic target for
the operation of a viable enterprise. Although DDP could only
guarantee 40,000 to 50,000 direct man-hours per year from
1971 to 1976, the Government of Canada would employ its
"best efforts" to secure the additional work required from other
government departments and Crown corporations to meet the
target level of 700,000 direct labour man-hours. Northwest and
Air Canada signed a memorandum of agreement in April. In
September, an agreement among Air Canada, Northwest and
CAE Aircraft was signed which included an assignment by
Northwest to CAE Aircraft of the April agreement. The first
major issue is whether the defendant entered into a valid and
enforceable agreement with CAE Industries. The plaintiff con
tends that lengthy negotiations led to the March 26 letter
which set out the terms of the agreement, that the parties
intended it to be binding and acted accordingly. The defendant
relied on The Queen v. Transworld Shipping Ltd., a decision of
the Federal Court of Appeal, in arguing that the Ministers had
no authority to bind the Crown, that such authority must be
found in a statute or Order in Council, neither of which existed
here. The defendant submitted that the March 26 letter was
unenforceable because critical parts concerning the provision of
man-hours of work had been left undetermined. The letter was
merely an agreement to agree. Finally, it was argued that the
letter agreement was made with Northwest and not the plain
tiffs, and therefore Northwest must be a party, there being no
legal assignment in writing. Other issues concerned the terms of
the agreement, whether the agreement was breached by the
defendant and the nature and quantum of damages.
Held, the action is allowed. The letter created a valid,
enforceable agreement between CAE Industries Ltd. and the
defendant. The evidence showed that senior civil servants,
ministers and many others treated the arrangement as a bind
ing commitment. The principle in Transworld Shipping was
considered by the Supreme Court of Canada in J. E. Verreault
& Fils Ltée v. Attorney General of the Province of Quebec and
found to be too restrictive. In that case, apparent or ostensible
authority was found in the relevant provincial legislation. Nei
ther a specific Order in Council nor a specific statutory provi
sion was required. The authority was implied. The defendant's
interpretation of the statutes setting up the departments
managed and directed by the Ministers who signed the March
26 letter is far too narrow. A liberal, reasonable reading of the
relevant sections of the Defence Production Act gives the
Minister authority to enter into a contract providing for a
commitment of so many hours of work. Paragraph 17(1)(d)
provides that any contract shall not be entered into without the
approval of the Governor in Council. The Verreault case is
applicable. There was implied or ostensible approval. A formal
Order in Council was not required. Since the Minister of
Transport had statutory authority under subsection 3(2) of the
Department of Transport Act and paragraph 3(d) of the
Aeronautics Act to contract for the repair and overhaul of
Department of Transport aircraft and equipment, he could also
agree to provide a certain amount of man-hours of work.
Likewise the Department of Trade and Commerce had wide
powers which conceivably might result in the directing of
aircraft work, and therefore man-hours of labour, to the
plaintiffs.
Concerning the submission that the March 26 letter was
merely an agreement to agree, it was held that from .a strict
legal view, no further matters had to be agreed upon. The
defendant agreed to provide a guaranteed number of man-
hours and to use its best efforts to make up any shortfall
between what was realized by the plaintiffs from that and other
sources, up to 700,000 hours per year. The letter was a
concluded bargain. It left nothing to be settled by future
agreement. What was left to be determined was by the defend
ant alone: how to carry out the obligations it had undertaken.
As to the issue of contracting parties, on the evidence, there
is no doubt that there was an equitable assignment from
Northwest to CAE Aircraft of any rights Northwest had under
the March 26 letter, and there is equally no doubt all concerned
knew that CAE Aircraft was going to carry on the operation of
the Winnipeg base. The addition of Northwest would not serve
any useful purpose. Further, Rule 1716 provides that no action
shall be defeated by reason of non-joinder of any party.
The terms of the agreement were that (1) the parties agreed
that 700,000 man-hours per year of direct labour was a realistic
target for an effective operation (2) DDP guaranteed 40,000 to
50,000 direct labour man-hours in the years 1971 to 1976 as
"set aside" repair and overhaul work (3) the Government of
Canada agreed to employ its best efforts to secure additional
work from other departments and Crown corporations in
respect of any shortfall up to 700,000 hours per year for the
years 1971 to 1976. The words "will employ its best efforts"
are equivalent to "use their best endeavours" as interpreted to
mean "leave no stone unturned" in Sheffield District Railway
Company v. Great Central Railway Company. The defendant
did not provide the agreed DDP work in four of the five years
in question. It also did not, through the Government of Canada,
use its best efforts to make up any shortfall up to 700,000 hours
and accordingly breached the agreement.
CASES JUDICIALLY CONSIDERED
APPLIED:
J. E. Verreault & Fils Ltée v. Attorney General of the
Province of Quebec, [1977] 1 S.C.R. 41; May & Butcher,
Ltd. v. The King, [1934] 2 K.B. 17 (H.L.); Sheffield
District Railway Company v. Great Central Railway
Company (1911), 27 T.L.R. 451 (Rail and Canal Com.).
NOT FOLLOWED:
The Queen v. Transworld Shipping Ltd., [1976] 1 F.C.
159 (C.A.).
DISTINGUISHED:
Meates v. Attorney General, [1979] 1 NZLR 415 (S.C.).
CONSIDERED:
Diamond Developments Ltd. v. Crown Assets Disposal
Corp. (1972), 28 D.L.R. (3d) 207 (B.C.S.C.).
REFERRED TO:
Walsh Advertising Company Limited v. The Queen,
[1962] Ex.C.R. 115; Terrell v. Mabie Todd & Coy Ld.
(1952), 69 R.P.C. 234 (Q.B.D.); Randall v. Peerless
Motor Car Co., 99 N.E. 221 (1912) (S.C. Mass.); In Re
Heard (1980), 6 B.R. 876; Canada Square Corp. Ltd. v.
Versafood Services Ltd. et al. (1982), 130 D.L.R. (3d)
205 (Ont. C.A.).
COUNSEL:
L. N. Mercury, D. G. Hill and M. M. Monnin
for plaintiffs.
L. P. Chambers, Q.C., R. W. Cote and D.
Kubesh for defendant.
SOLICITORS:
Aikins, MacAulay & Thorvaldson, Win-
nipeg, for plaintiffs.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
COLLIER J.: The plaintiffs claim substantial
damages for breach of an agreement alleged to
have been made with the federal Crown.
Prior to 1967, Air Canada owned and operated
a major air base facility in Winnipeg, Manitoba.
Air Canada determined to move that base to Mon-
treal, Quebec. The plaintiff, CAE Industries Ltd.
(hereinafter "CAE"), was approached by Air
Canada and representatives of the federal Crown
to purchase the Winnipeg base, and to continue an
aircraft repair and overhaul operation in that City.
CAE alleges it asked for commitments and assur
ances, in respect of man-hours of work, for the
years 1971 to 1976 inclusive, from the "Canadian
Government"; that the defendant agreed to certain
commitments and guarantees; the defendant
breached the agreement; the plaintiffs have suf
fered loss and damage.
The plaintiffs rely heavily on a letter to CAE,
dated March 26, 1969, from the Minister of
Transport. The letter was concurred in by the
Minister of Trade and Commerce and the Minister
of Defence Production.
The monetary claim put forward is:
$2,520,000 for loss of profits
3,400,000 capital loss.
The parties agreed on a statement of issues:
1. Did the defendant enter into a valid and
enforceable agreement with the plaintiff CAE
Industries Ltd.?
2. If there was such an agreement, what were its
terms?
3. If there was such an agreement, did the
defendant breach any of its terms and, if so,
which terms?
4. If the defendant breached any of the terms of
such agreement, what were the nature and
quantum of damages flowing from such breach?
5. If there was no such agreement, did the
defendant by the letter of March 26, 1969,
make negligent misrepresentations to the plain
tiff CAE Industries and, if so:
(a) Have the plaintiffs suffered any damages
as a result and, if so,
(b) What were the nature and quantum of
such damages?
A fairly lengthy history is necessary.
In its early years the operations of Air Canada
(formerly T.C.A.) were centralized in Winnipeg.
In 1949 an operating and maintenance base was
begun in Montreal. In 1959, a large, modern over
haul base was completed in that City.
In 1962 Air Canada expressed an intention to
close its Winnipeg base. This brought strenuous
protest. The loss of up to 1,000 highly skilled jobs
in the Winnipeg area was the likely result of any
close-down. At that time the main overhaul and
maintenance work at Air Canada's Winnipeg base
was its Viscount fleet.
The Prime Minister of the day, in late 1963 and
early 1964, stated government policy was to keep
the Winnipeg base, in some manner, open. A
Royal Commission was established to review the
whole matter. The Commission made a number of
recommendations. But subsequent negotiations, to
work out an acceptable plan to keep the Winnipeg
base open, floundered.
In early October, 1967, Air Canada announced
its Viscount fleet would, by 1970, drop to such an
extent that the Winnipeg base would be closed.
This announcement led to meetings between the
federal Minister of Transport and the Province of
Manitoba. Three results of this meeting were (see
Ex. P. 150-151):
(1) The Minister of Transport reaffirmed the Prime Minis
ter's earlier commitment but pointed out that this did not
necessarily mean direct operation by Air Canada although it
would require substantial support by Air Canada.
(2) Air Canada was asked to review its aircraft overhaul
requirements in the light of changes in circumstances subse
quent to the completion of the Royal Commission Report.
(3) An inter-governmental working party was established to
study the various proposed solutions to the problem.
I digress to a short history of the plaintiffs. CAE
was founded in 1947 as Canadian Aviation Elec
tronics Ltd. Until about 1960 its main activities
were in defence work in respect of electronic air
craft matters. From 1960 onward it expanded. By
1966 it had seven operating divisions in various
fields.
At the date of trial CAE was, and had been,
essentially a holding and management company. It
had sixteen operating subsidiary companies. It
operated as a kind of super board of directors for
the subsidiaries.
One of CAE's subsidiaries was a company called
Northwest Industries Ltd., ("Northwest"). It had,
from some time in the 1950's, been engaged in the
repair and overhaul of aircraft, mostly military. Its
base was in Edmonton.
In 1967 the President and Chief Executive Offi
cer of CAE was C. D. Reekie. In the summer of
that year he was approached by G. T. Rayner,
Director of the Aerospace Branch, Department of
Industry. Rayner wanted to know if CAE would be
interested in some arrangement in respect of utiliz
ing the Winnipeg base, following Air Canada's
departure from it.
Reekie consulted with his subordinates. CAE
expressed interest. A "bare bones" proposal was
put forward by CAE in October, 1967. This pro
posal was to involve Northwest.
Negotiations continued from then on. There
were not just negotiations with federal officials
and departments. There were negotiations, as to a
take-over agreement, with Air Canada as well.
Throughout all this, CAE personnel, Air
Canada representatives, and others, took part in
various meetings, in 1968, of the inter-governmen
tal working party.
On February 24, 1968, Northwest submitted a
formal proposal for a "... proposed take over of
Air Canada Maintenance Base—Winnipeg" (Ex.
P. 8). Northwest stipulated, among other things,
that the Department of National Defence (DND)
assume responsibility to provide, for an agreed
number of years, not less than 300,000 direct
labour hours per year. The proposal set out the
programme to be contributed by Northwest, DND
(apart from the 300,000 hours) and Air Canada.
The latter was to leave its Viscount repair and
overhaul, until those aircraft were phased out, to
the new operators.
No written reply was received to this proposal.
There was a meeting of the federal-provincial
working party in Ottawa on May 28, 1968.
Reekie, and Northwest's President, E. L. Bun-
nell, attended a part of the meeting. They
described the Northwest proposal in some detail.
Reekie said Northwest was not interested in taking
over the base, and then, if there were insufficient
work, having to close it. He indicated Northwest
would need an assurance of at least 300,000 man-
hours of work per year, for seven years, from some
source. That was to be in addition to any work
provided by Air Canada and work generated by
Northwest itself. The Northwest people, at the
meeting, itemized work which they felt could come
from DND.
Some time later, Northwest advised Rayner that
700,000 hours of direct labour per year would be
necessary for a viable operation. The break-down
contemplated 300,000 hours per year from DND.
The federal-provincial working party's minutes
of June 27, 1968, record Rayner's view as:
... the 300,000 hours of new business to be arrived [sic] from
DND allocations in 1971 is completely unrealistic under exist
ing official federal government policies (Ex. P. 10).
But further negotiations were contemplated.
They, in fact, took place.
Air Canada drew up draft agreements for con
sideration by Northwest. Northwest continued dis
cussions with government officials. At a further
meeting of the federal-provincial working party on
July 23, 1968, the following was recorded:
Negotiations between Air Canada and NWI are proceeding
satisfactorily with respect to the ways and means by which
NWI might take over certain physical and personnel resources
from Air Canada and undertake work for Air Canada in
Winnipeg. However, prior to executing an agreement with Air
Canada, NWI has insisted upon assurance that it will receive
300,000 manhours of additional work commencing in 1971 and
over and above the 400,000 manhours which it expects to
receive from Air Canada and its own efforts.
In early January, 1969, Northwest submitted a
formal proposal to Air Canada. At page 34 of that
document, this stipulation appeared:
We must repeat again that unless and until firm commit
ments totalling 300,000 productive hours per annum until 1976
are made we will be unwilling to take over and operate the
Winnipeg Maintenance Base. It is a condition of our proposal,
therefore, that commitments be made by Air Canada and/or
the Canadian Government to provide 300,000 hours of produc
tive work annually until 1976 over and above that work gener
ated by Northwest Industries Limited. Without such a commit
ment we cannot undertake to maintain employment on existing
levels, nor can we be confident of our ability to develop a
lasting and healthy industry for the Province of Manitoba.
Next, Reekie was requested by E. L. Hewson,
the Director of Transportation Policy & Research
in the Transport Department, to set out CAE's
requests. That was done on February 28, 1969.
The reply to Reekie was the letter I have earlier
referred to, signed by the Minister of Transport
and concurred in by the two other Ministers. I set
out that letter in full:
THE MINISTER OF TRANSPORT
OTTAWA, March 26, 1969.
Mr. C.D. Reekie,
President,
CAE Industries Ltd.,
P.O. Box 6166,
Montreal 3, P.Q.
Dear Mr. Reekie:
On February 28, 1969, you wrote to Mr. E.L. Hewson of the
Department of Transport asking for certain assurances in con
nection with the proposed purchase of Air Canada's Winnipeg
Maintenance Base by Northwest Industries- Ltd., a subsidiary
of CAE Industries Ltd. On the basis of an agreement having
been signed by your firm and by Air Canada, the undersigned
have been authorized to provide the following assurances in this
matter:
(a) The Government of Canada agrees with the objective
that present employment levels should be maintained and
that every possible effort should be made to assist in the
development of a viable and continuing aerospace industry in
Winnipeg.
(b) It also agrees that 700,000 manhours of direct labour per
annum is a realistic target for the operation of a viable
enterprise in these facilities and that current estimates of
future workload suggest a potential gap between actual and
minimum levels in the years 1971 to 1976 unless new repair
and overhaul work or aerospace manufacturing contracts can
be obtained.
(c) The Department of Defence Production can guarantee no
more than 40,000 to 50,000 direct labour manhours per year
in the period 1971-1976 as "set-aside" repair and overhaul
work, but the Government of Canada will employ its best
efforts to secure the additional work required from other
government departments and crown corporations to meet the
target level of 700,000 direct labour manhours.
(d) In fulfilling the commitment set out in (c) above, the
Government of Canada agrees that any additional work
allocated to the Winnipeg Maintenance Base will not be
taken from government contract work presently carried out
by Northwest Industries in Edmonton.
(e) It further agrees that the existing Air Canada lease from
the Department of Transport will be assigned to NWI under
present financial terms and conditions for a period of ten
years.
Yours sincerely,
Paul T. Hellyer
Concurred in by:
Hon. J.L. Pépin,
Minister of Trade and Commerce
Hon. D.C. Jamieson,
Minister of Defence Production
I isolate the key words relied on by the
plaintiffs:
... the Government of Canada will employ its best efforts to
secure the additional work required from other government
departments and crown corporations to meet the target level of
700,000 direct labour manhours.
Cabinet of the day had, on March 20, 1969,
authorized the three Ministers to sign the letter of
March 26.
A memorandum of agreement between North
west and Air Canada was signed on April 2, 1969.
Air Canada agreed, among other things, to provide
100,000 man-hours of work per annum for 1971
through 1975. This was in addition to the mainte
nance work on the Viscounts which were being
phased out.
The second plaintiff CAE Aircraft Ltd. ("Air-
craft") was incorporated on April 7, 1969. It was
wholly owned by CAE. It was funded, through
CAE, in the sum of $100,000.
A number of agreements between Aircraft and
Air Canada, all dated September 1, 1969, were
entered into.
One provided for Aircraft to perform mainte
nance on the Viscount fleet. There was, in addi
tion, a commitment to provide 100,000 man-hours
per annum of work for 1971 to 1975 inclusive.
Another provided for the sale, by Air Canada to
Aircraft, of certain tools and equipment. The price
was $120,000. Still another provided for the sale of
certain buildings to Aircraft at a price of $300,-
000. A fourth agreement provided for the supply,
by Air Canada to Aircraft, of certain materials in
respect of the Viscount programme.
On September 3, 1969, an agreement among
Air Canada, Northwest and Aircraft was signed.
It provided for several matters, including an
assignment by Northwest to Aircraft of North-
west's agreement of April 2, 1969. That document,
it will be recalled, provided for Viscount work, and
a further 100,000 man-hours per annum.
On September 18, 1969, certain airport land
was leased by the defendant to Aircraft.
On September 3, 1969, the take-over by the
CAE companies of the Air Canada base was com
pleted. Aircraft began actively carrying on busi
ness. Things went reasonably well for a while. But
commencing in 1971, the plaintiffs' work-load
began to diminish. The plaintiffs from then, until
this litigation was commenced in 1975, constantly
took the position the federal government was not
complying with the alleged binding commitments
in the March 26, 1969 letter. I shall later deal with
those facts in more detail.
The first major issue is whether the defendant
entered into a valid and enforceable agreement
with CAE.
The plaintiffs' position is there were lengthy
negotiations leading up to the March 26 letter;
that letter set out the terms of the agreement
reached; the parties intended it to be legally bind
ing; the parties acted upon it.
The defendant's position is the letter of March
26, 1969 did not, for a number of reasons, create
an enforceable contractual obligation on the
Crown.
It was said, first, the three Ministers had no
authority to bind the Crown to the kind of contract
alleged; the authority of any person, including
ministers, to bind the Crown must be found in a
statute, or in an Order in Council; there was, in
this case, no Order in Council; none of the relevant
statutes provided the necessary authority for the
Ministers to enter into this kind of so-called
contract.
This legal submission, a number of years later,
that there was never any binding contractual rela
tionship is, in view of all that has gone on pursuant
to the March 26 letter, somewhat startling. It
might well be almost an affront to the ordinary
citizens of this country that these Ministers could
not bind the government. If the submission is
correct, the whole exercise from 1968 to the final
breakdown between the parties, becomes a public
travesty.
The evidence before me showed that senior civil
servants involved in this matter over the years,
many ministers, and others treated the arrange
ment as a binding commitment. As examples, I
refer to the evidence of W. W. Reid and Arthur
Bailey. Reid, a senior civil servant, was closely
involved with the problem from the outset to the
end. He, from time to time, suggested certain
programmes to try and meet the commitment.
Bailey was produced as an officer of the Crown for
examination for discovery. He was, at that time,
an Assistant Deputy Minister, Corporate Manage
ment, Department of Supply and Services. In
respect of the negotiations leading to the letter of
March 26, he said both sides had interests and
motivations, "both of them coming together to a
point of decision". Further:
... obviously the government and the three ministers concerned
felt that it was in their particular interest to enter a negotiation
and come out with an agreement because they felt they were
going to get something out of it. [Q. 967: My underlining.]
But the point of no binding agreement has been
taken. I must deal with it.
The defendant relied on The Queen v.
Transworld Shipping Ltd.' as authority for the
proposition that ministerial authority to enter into
a contract on behalf of the Crown must be found
in a statute or Order in Council. Jackett C.J. said
at pages 163-164:
Before considering the questions that were so raised in this
case, it is worthwhile, in my view, to review, in a general way,
certain considerations that must be kept in mind when a
question arises as to whether there is a contract between the
Government of Canada and some other person in a field falling
' [1976] 1 F.C. 159 [C.A.].
within the domain of the Department of Transport. The points
that I have in mind are
(a) departmental authority,
(b) parliamentary control,
(c) the Government Contracts Regulations, and
(d) section 15 of the Department of Transport Act.
With regard to departmental authority in respect of contract
ing, just as when any person contracts as agent of an ordinary
person, so, when some person contracts on behalf of Her
Majesty, there must be authority for the agent to act on behalf
of the principal; and, in the case of a government under our
system of responsible government, such authority must ordinar
ily be found in or under a statute or an order in council. In this
connection, it is to be noted that ordinary government opera
tions in Canada are divided among statutorily created depart
ments each of which is presided over by a Minister of the
Crown who has, by statute, the "management" and direction of
his department. In my view, subject to such statutory restric
tions as may be otherwise imposed, this confers on such a
Minister statutory authority to enter into contracts of a current
nature in connection with that part of the Federal Govern
ment's business that is assigned to his department. In the case
of the Department of Transport the relevant provision is section
3 of the Department of Transport Act, which reads as follows:
3. (1) There shall be a department of the Government of
Canada called the Department of Transport over which the
Minister of Transport appointed by commission under the
Great Seal shall preside.
(2) The Minister has the management and direction of the
Department and holds office during pleasure.
Once it appears that the Minister has prima facie statutory
authority to enter into contracts within his department's
domain, it follows, in my view, subject to any inconsistent
statutory provision, that his power can, and will, in the ordinary
course of events, be exercised by the officers of his department.
[My underlining.]
A similar statement to that made by Jackett
C.J. had been made by Thurlow J. (now C.J.) in
Walsh Advertising Company Limited v. The
Queen. 2 The proposition came, for consideration,
before the Supreme Court of Canada in J. E.
Verreault & Fils Ltée v. Attorney General of the
Province of Quebec. 3 In that case, an Order in
Council, signed by the Lieutenant Governor of
Quebec, authorized the Minister of Social Welfare
to sign a contract for the purchase of a piece of
land. It was contemplated the land would be used
for the erection of a home for the aged. The
Minister then signed a contract with the appellant
2 [1962] Ex.C.R. 115.
3 [1977] 1 S.C.R. 41. There is some discussion by Davison
C.J., of actual and ostensible authority of Crown officers, in
Meates v. Attorney-General, [1979] 1 NZLR 415 [S.C.]. The
facts in that case were quite different from the facts in this case
and the Verreault case.
for the construction of the home. On a change of
government, the Province purported to cancel the
construction contract. It was argued no enforce
able contract had been entered into because the
Order in Council had authorized only the purchase
of land, not the construction contract. Pigeon J.,
giving the judgment of the Court, held the con
tract had been validly made pursuant to legislation
creating a Department of Social Welfare (1958-59
(Que.), c. 27). Section 8 of that statute provided
no contract or document should be binding on the
department unless signed by the Minister or his
Deputy. Section 10 provided the Lieutenant Gov
ernor in Council could authorize the Minister to
organize schools and other institutions adminis
tered by his department; and could authorize him
to:
... acquire, by agreement or expropriation, lands or immove-
ables necessary for such purposes.
At pages 45-49, Pigeon J. said:
Can it be concluded from these provisions that, under the
laws in force on June 7, 1960, the Minister of Social Welfare
could not award a contract for a building intended for use as a
home for the aged without an authorization from the Lieuten
ant Governor in Council? I think not. Firstly, it must be borne
in mind that s. 10 is not in restrictive form. Like c. 6, it is an
enabling statute. It may have a restrictive effect only to the
extent that, under general principles, a legislative authorization
is required. Such is the case for expropriation: the right to
expropriate is exceptional, and it accordingly exists only by
virtue of an express provision.
With regard to the organization of social welfare institutions,
the situation is different because an affirmative enactment of
limited application does not, as a rule, have the effect of
excluding the application of a general principle.
It is therefore necessary to consider whether, in the absence
of any statutory restriction, a minister is capable of contracting
in the name of the government. Counsel for the respondent
quoted the following passage from Mr. René Dussault's recent
book, Traité de Droit administratif canadien et québécois (p.
888):
[TRANSLATION] ... an agent who seeks to enter into a
contract on behalf of the government must be specifically
empowered to do so: the law which is the source of the
government's powers also establishes the boundaries beyond
which it may not venture. As was pointed out by Thurlow J.,
in the Exchequer Court of Canada (Walsh Advertising Co.
Ltd. v. R. [1962] Ex. C.R. 115, 123-124):
It appears to be established as a general proposition that a
minister of the Crown has no authority, to enter into
contracts on behalf of the Crown unless he has been
authorized by a statute or by order in council to do so.
With respect, I feel that the correct principle is stated in the
following passages from Griffith and Street, Principles of
Administrative Law (3rd ed., 1963, pp. 269-271):
The United States is not liable on a contract made by its
agent unless he has express statutory authority to make it or
there is an appropriation adequate to its fulfilment. In Eng-
land, on the other hand, the ordinary principles of agency
apply to public officers. They are not required to have
express authority in order to bind their principals, and they
are not themselves liable on contracts unless they have
contracted personally.
... It is usually stated that Crown contracts are invalid if
Parliament has not made an express appropriation for the
purposes of the contract. This is a misreading of the authori
ties, as an Australian decision has recognised. It rests chiefly
on an obiter dictum of one judge in Churchward v. Reg.,
(1865, 1 Q.B. 173, p. 209 per Shee J.), which has been
considerably modified by several decisions in this century in
which Viscount Haldane played a prominent part. It is
submitted that the law is as follows: a contract made by an
agent of the Crown acting within the scope of his ostensible
authority is a valid contract by the Crown; in the absence of
a Parliamentary appropriation either expressly or impliedly
referable to the contract, it is unenforceable.
Her Majesty is clearly a physical person, and I know of no
principle on the basis of which the general rules of mandate,
including those of apparent mandate, would not be applicable
to her. In this respect the position of ministers and other
officers of the government is fundamentally different from that
of municipal employees. In our system municipalities are the
creatures of statute, and the ultra vires doctrine must accord
ingly be applied in its full rigor.
Turning again to the Walsh Advertising case, it must be
noted that the judgment was rendered after the coming into
force of the Financial Administration Act, R.S.C. 1952, c. 116.
In this kind of code on the subject of government contracts,
restrictive provisions were to be found which had to be applied,
without it being really necessary to have resort to general
principles. As counsel for the appellant pointed out at the
hearing of the instant case, it was not until 1961 that the
Quebec Legislature enacted similar provisions (1960-61 (Que.),
c. 38).
As I read the Verreault decision, the Supreme
Court had indicated the proposition that Crown
contracts can only be valid when authorized by
Order in Council, or by a statute, is too restrictive.
Counsel for the defendant sought to explain the
language used in the Verreault case, as saying, in
reality, no more than what the Transworld and
earlier cases had said.
I cannot subscribe to that analysis.
The Supreme Court found, in my opinion,
apparent or ostensible authority in the relevant
Quebec legislation. Neither a specific Order in
Council, nor a specific statute, nor a specific statu
tory provision was required. The authority was
there by implication.
Counsel then went to the particular statutes
setting up the departments managed and directed
by the three Ministers who signed the March 26
letter. The contention was that in none of those
statutes was there authority to enter into a con
tract to provide man-hours of work over a future
period of time.
That interpretation of the statutes is, to my
mind, far too narrow.
Section 15 of the Defence Production Act,
R.S.C. 1952, c. 62, as amended, empowered the
Minister to, among other things:
15. ...
(b) manufacture or otherwise produce, finish, assemble, pro
cess, develop, repair, maintain or service defence sup
plies or manage and operate facilities therefor;
(d) arrange for the performance of professional or commer
cial services;
(g) do all such things as appear to the Minister to be
incidental to or necessary or expedient to the matters
mentioned in the foregoing provisions of this section or
as may be authorized by the Governor in Council with
respect to the procurement, construction or disposal of
defence supplies or defence projects.
Section 17 of the legislation authorized the Minis
ter to enter into contracts for the carrying out of
anything he was authorized to do under sections
14 or 15.
When the relevant sections of the Defence Pro
duction Act are read liberally and reasonably, I
conclude the Minister was authorized to enter into
a contract providing for the matters set out in
paragraph 15(b), including a commitment of so
many hours of work. What the Minister did, in the
March 26 letter, was to agree to provide work in
respect of "defence supplies", including aircraft
and aircraft facilities. Instead of specifying precise
work projects, a general commitment of work, in
terms of hours, was given. On a generous reading
of paragraph 15(b), authority for the March 26
letter can, in my opinion, be found.
My conclusions on this point, cover not only the
guarantee of 40,000 to 50,000 direct labour man-
hours as "set-aside" repair and overhaul work
from DDP, but any additional work available from
that Department contributing to the target level of
700,000 hours.
I have not overlooked paragraph 17(1)(d) which
provides that any contract shall not be entered into
without the approval of the Governor in Council.
The Verreault case is applicable. There was here,
as I see it, implied or ostensible approval. A formal
Order in Council was not required.
I turn now to the Department of Transport Act,
R.S.C. 1952, c. 79, as amended. The statute did
not deal with aircraft. The powers of the Minister
came from the Aeronautics Act, R.S.C. 1952, c. 2,
as amended. Subsection 3(2) of the Department of
Transport Act, gave the management and direc
tion of the Department to the Minister. Paragraph
3(d) of the Aeronautics Act imposed the duty on
the Minister:
3. ...
(d) to control and manage all aircraft and equipment neces
sary for the conduct of any of Her Majesty's services;
Counsel for the defendant conceded there was
statutory authority in those provisions for the Min
ister to contract for the repair and overhaul of
Department of Transport aircraft and equipment.
But he again put the restrictive submission: that
authority did not include entering into a contract
to provide so many man-hours of work to a third
party. Again, as with the submission in respect of
the Defence Production Act, the distinction is, as I
see it, too fine. If the Minister could contract for
the repair and overhaul of Transport aircraft, I fail
to see why he could not agree to provide a certain
amount of man-hours of work. The work would
obviously arise in respect of aircraft owned by the
Department, or other aircraft within the Minister's
direction or control.
Lastly, there is the Department of Trade and
Commerce Act, R.S.C. 1952, c. 78. By section 3,
the Minister had the management and direction of
the Department. Section 5 provided:
5. The duties and powers of the Minister of Trade and
Commerce extend to the execution of laws enacted by the
Parliament of Canada, and of orders of the Governor in
Council, relating to such matters connected with trade and
commerce generally as are not by law assigned to any other
department of the Government of Canada, as well as to the
direction of all public bodies, officers and servants employed in
the execution of such laws and orders.
The defendant submitted authorization for the
March 26 letter could not be found in these statu
tory provisions.
I do not agree.
The arrangements in the Ministers' letter are, in
my view, quite capable of falling within the broad
head of trade and commerce. That Department
had no aircraft of its own. It had an aerospace
branch. The Department had wide powers which
conceivably might result in the directing of air
craft work, and therefore man-hours of labour, to
the plaintiffs.
The defendant, on the basis of there being no
actual or implied authority to be found in the three
statutes discussed, contended that the only way in
which the March 26 document could validly have
sprung was (a) from a specific Order in Council or
(b) from a special statute authorizing that particu
lar contract. The submission went even further:
there was no statute of any kind in existence in
1969, on which an Order in Council could have
been based.
For all of the reasons I have given, I reject the
defendant's submissions. The letter, if otherwise
meeting the requirements of the law of contract,
created a valid enforceable agreement between
CAE and the defendant.
The defendant then says:
... the agreement which allegedly came into existence as a
result of the letter was not an agreement in the contractual
sense, but merely an expression of an intention to enter into
contractual relations in the future ("contractual uncertainty");
A number of cases, several well-known, were cited
in support of the proposition that an agreement, in
which some critical part, or parts, are left undeter-
mined, is no contract at all: parties cannot validly
agree they will, in the future, agree upon a vital
matter, or matters, that have not yet been
determined.
Wilson C.J.S.C. [British Columbia], in Dia
mond Developments Ltd. v. Crown Assets Dispos
al Corp., 4 set out the law as stated in the leading
authorities:
I want first to cite a rule stated by Lord Dunedin in May &
Butcher, Ltd. v. The King, [1934] 2 K.B. 17, approved by Lord
Wright in G. Scammell & Nephew, Ltd. v. Ouston, [1941]
A.C. 251 at p. 269:
To be a good contract there must be a concluded bargain and
a concluded contract is one which settles everything that is
necessary to be settled and leaves nothing to be settled by
agreement between the parties. Of course it may leave
something which has still to be determined but then that
determination must be a determination which does not
depend upon the agreement between the parties.
The proposition to be considered is neatly stated by Parker,
J., in Von Hatzfeldt-Wildenburg v. Alexander, [1921] 1 Ch.
284, cited and approved by Judson, J., in Calvan Consolidated
Oil & Gas Co. Ltd. v. Manning (1959), 17 D.L.R. (2d) 1 at p.
6, [1959] S.C.R. 253, and again by Bull, J.A., in Block Bros.
Realty Ltd. v. Occidental Hotel Ltd. (1971), 19 D.L.R. (3d)
194 at p. 198, [1971] 3 W.W.R. 51:
It appears to be well settled by the authorities that if the
documents or letters relied on as constituting a contract
contemplate the execution of a further contract between the
parties, it is a question of construction whether the execution
of the further contract is a condition or term of the bargain,
or whether it is a mere expression of the desire of the parties
as to the manner in which the transaction already agreed to
will in fact go through. In the former case there is no
enforceable contract either because the condition is unful
filled or because the law does not recognise a contract to
enter into a contract. In the latter case there is a binding
contract and the reference to the more formal document may
be ignored.
The defendant contends the providing of man-
hours of work could only be done by way of future
contracts in respect of specific aircraft. Those
contracts, the submission runs, would have to be
negotiated as to price; decisions would have to be
reached as to whether the plaintiffs had the capa
bility of carrying out the work; potential work
programmes were unknown in 1969; they would
4 (1972), 28 D.L.R. (3d) 207 [B.C.S.C.], at p. 212. See also
Canada Square Corp. Ltd. v. Versafood Services Ltd. et al.
(1982), 130 D.L.R. (3d) 205 [Ont. C.A.].
have to be determined in the future. All those
things, it is said, make the March 26 letter no
contract at all, or put another way, unenforceable.
Once more, I do not agree.
The agreement by the defendant was to provide
a guaranteed number of man-hours from DDP and
to use its (the Crown's) best efforts to make up
any shortfall between what was realized by the
plaintiffs from that and other sources, up to
700,000 hours per annum. I have summarized the
agreement in broad terms. From a strict legal
view, no further matters had to be agreed upon.
Best efforts, from the defendant's side to provide
the necessary hours, were required. How those best
efforts were to be made, when and if necessary,
was up to the defendant. As a matter of commer
cial and practical necessity, consultation and
negotiation as to the work, and cost of it, which
would go to any 700,000-hour shortfall, would
likely have taken place. In fact, that is what
happened. But as a matter of binding legal necessi
ty, no further agreements, to make the March 26
letter valid, were required.
The letter falls, to my mind, within the words
quoted above from May & Butcher, Ltd. v. The
King, [[1934] 2 K.B. 17 (H.L.)]. It was a conclud
ed bargain. It left nothing to be settled by future
agreement. What was left to be determined, was
by the defendant alone: how to carry out the
obligations it had undertaken. That determination
was not dependant upon the March agreement.
Next, the defendant raises technical arguments.
Who, on the plaintiffs' side, was the contracting
party? From there the submission proceeds to the
hoary law in respect of assignments, legal and
equitable, of contractual rights, the right to sue,
and the necessary parties.
This submission is based on the premise that the
Ministers' letter agreement was made with North
west, not CAE, and not Aircraft.
The initial approach by Rayner, the Director of
the Aerospace Branch of the Department of Indus
try, had been to Bunnell of Northwest. But CAE,
through Reekie, became immediately involved. It
is true that it was originally contemplated North-
west would be the vehicle to take over the Air
Canada Winnipeg base. The proposal to Air
Canada came from Northwest. The April 2, 1969
agreement was with Northwest. That agreement
had this clause:
Until such time as this Agreement has been superseded in
whole or in part by other agreements of a more formal and
specific nature, this Agreement shall generally express the
nature and extent of the overall program and the spirit and
intent with which both parties shall enter into related agree
ments. (Ex. P. 18: p. 1).
I accept, however, Reekie's evidence to the
effect that those on the government side knew,
before March 26, 1969, it might be some CAE
subsidiary other than Northwest which might be
used.
But the key document, the March 26 letter, is
directed to CAE. In my view, CAE and Northwest
became parties to the contract set out in the letter.
The other party was the defendant.
The formal agreements, made to carry out the
whole transaction, were, as recounted, all dated
September 1, 1969. They were with Aircraft. CAE
was a guarantor in two of them. Two days later,
again as earlier set out in these reasons, Northwest
assigned all its interest in the Air Canada agree
ments to Aircraft. CAE was a party to that
transaction.
Reekie's letter of February 28, 1969, to Hewson
was really the basis for the Ministers' letter of
March 26. In Reekie's letter, paragraph 7
proposed:
The government would agree to assign existing land leases to
Northwest Industries as per our proposal to Air Canada.
The Ministers' letter in reply, as to this, stated that
the existing lease from Transport to Air Canada
would be assigned to Northwest for 10 years at the
then existing financial terms. On September 18,
1969, the defendant leased certain airport land,
not to Northwest, but to Aircraft. While the evi
dence is not too clear, this lease seems to be in
compliance with the leasing arrangement. It sup
ports the view that the parties were dealing with
CAE and Aircraft. Northwest was out of the
picture.
There is no doubt in my mind that there was, at
the least, an equitable assignment from Northwest
to Aircraft of any rights Northwest had under the
March 26 contract. And there is equally no doubt
all concerned knew that Aircraft was going to
carry on the operation of the Winnipeg base.
The defendant's position is that Northwest must
be a party plaintiff in the action; there was no
legal assignment in writing, even if there were an
equitable assignment, that does not do away with
the necessity of Northwest being a party. Refer
ence was made to certain statements in the 9th
edition of Cheshire and Fifoot's Law of Contract.
I prefer, and adopt, the view expressed in Chitty
on Contracts (24th ed., Vol. 1) paragraph 1169:
1169 Enforcement of legal chose in action equitably assigned.
Before the Judicature Act 1873, an assignment of a legal
chose in action could not usually have been enforced except
in the name of the assignor because a legal chose in action
had to be enforced in the common law courts, which would
only recognise the assignor as entitled to sue. After the
passing of the Judicature Act, it was held that, although
assignments of legal choses not complying with the statute
remained valid in equity, it also remained the position that
both assignor and assignee must be made parties to the
proceedings. Where the assignment fails to be statutory
because the assignor has not wholly disposed of his interest
(e.g. where it is by way of charge only, or is of part of a debt
only), this rule generally serves a useful purpose since it
ensures that all parties with an interest in the chose are
brought before the court. But where the assignor retains no
interest in the chose in action and the assignment only fails
to be statutory, e.g. because it was not in writing, the
requirement that the assignor be made a party to the pro
ceedings seems no longer to serve any such purpose, if the
view stated above as to the effect of equitable assignments is
accepted.
However, it is to be noted that the debtor may waive the
requirement that the assignor be joined, and in any event the
Rules of the Supreme Court now provide that no cause of
action is to be defeated for nonjoinder of a party, though the
court may direct that he be made a party to the case.
The addition of Northwest as a party plaintiff
would not, in my view, serve any useful purpose.
Further, the Rules of this Court [Federal Court
Rules, C.R.C., c. 663] provide:
Rule 1716. (1) No action shall be defeated by reason of the
misjoinder or nonjoinder of any party; and the Court may in
any action determine the issues or questions in dispute so far as
they affect the rights and interests of the persons who are
parties to the action.
I shall, therefore, determine the issues in dispute
so far as they affect the rights and interests of the
present parties.
I turn now to the second main issue: what were
the terms of the agreement?
They are to be found in the March 26 letter. I
shall summarize:
(1) The parties agreed that 700,000 man-hours
per annum of direct labour was a realistic target
for an effective operation, and one which would
maintain 1969 employment levels.
(2) DDP guaranteed 40,000 to 50,000 direct
labour man-hours in the years 1971 through
1976 as "set aside" repair and overhaul work. I
add these comments. This was a guarantee with
no strings attached. If DDP, in order to carry
out its obligation, had to take work away from
others, that was its concern; there was no stipu
lation, in the March agreement, to the contrary.
(3) The Government of Canada (in this case the
defendant) agreed to employ its best efforts to
secure additional work from other departments
and Crown corporations in respect of any short
fall up to 700,000 hours per year for the years
1971 to 1976.
It is not necessary to summarize paragraphs (d)
and (e) of the Ministers' letter.
Before going to the issue as to breach of con
tract, I shall deal with the key obligation "will
employ its best efforts".
An equivalent term, "use their best
endeavours", was interpreted by A. T. Lawrence
J., sitting on the Railway and Canal Commission,
in Sheffield District Railway Company v. Great
Central Railway Company':
5 (1911), 27 T.L.R. 451 [Rail. and Canal Corn.] at p. 452.
See also: Terrell v. Mabie Todd & Coy Ld. (1952), 69 R.P.C.
234 [Q.B.D.] at p. 237; Randall v. Peerless Motor Car Co., 99
N.E. 221 (1912) [S.C. Mass.] at p. 226 ("best energies"); In
Re Heard (1980), 6 B.R. 876 at pp. 883-884 ("best effort").
The respondents sought to rely upon cases decided in this
Court upon other words used under different circumstances.
We think that nothing is more misleading than this use of
precedent. We think "best endeavours" means what the words
say; they do not mean second-best endeavours. We quite agree
with the argument of Mr. Balfour Browne that they cannot be
construed to mean that the Great Central must give half or any
specific proportion of its trade to the Sheffield District. They
do not mean that the Great Central must so conduct its
business as to offend its traders and drive them to competing
routes. They do not mean that the limits of reason must be
overstepped with regard to the cost of the service; but short of
these qualifications the words mean that the Great Central
Company must, broadly speaking, leave no stone unturned to
develop traffic on the Sheffield District line.
The next main issue is: did the defendant breach
the agreement? Put in terms of the Sheffield case:
did the defendant use less than "best efforts"
(second-best efforts), or did it léave reasonable
stones unturned, in endeavouring to provide to the
plaintiffs any shortfalls up to 700,000 direct man-
hours per year.
The evidence clearly establishes two things: the
DDP guarantee of 40,000-50,000 direct hours
was met only in the 1972-1973 year. The best
efforts undertaking did not come into play in the
1971-1972 year. Aircraft reached the 700,000
hour target from other sources. But there was a
shortfall in the remaining four years.
I have concluded the defendant did not, as
outlined in the previous paragraph, provide the
agreed DDP work in four of the five years in
question. In respect of the 700,000 hours commit
ment, I have also concluded the defendant did not,
through the Government of Canada, use its best
efforts to make up any shortfall up to 700,000
hours.
[Editor's note: The Editor has made a determina
tion that substantial portions of the reasons for
judgment herein should not be published in view of
the amount of space they would occupy in the
Reports and the fact that they add nothing to the
precedential value of this case. The portions of the
judgment omitted are those which consist in a
review of the evidence supporting the conclusion
that the Government did not use its best efforts to
make up the shortfall of work at the Winnipeg
facility and the calculation of damages. The
awards of damages totalled $4,300,000.]
In the statement of issues agreed to by the
parties, an alternative was stated. It was dependent
on a finding there was no valid and enforceable
agreement between CAE and the defendant. If so,
then the plaintiffs based their cause of action on
"negligent misrepresentations" by the defendant.
In view of my finding there was a valid and
enforceable agreement, and breach of it, it is not
necessary to deal with that issue of "negligent
misrepresentations".
The plaintiffs are entitled to the costs of this
action.
I direct counsel for the plaintiffs to prepare the
formal pronouncement; then to submit it to coun
sel for the defendant for approval. But if agree
ment as to its form cannot be reached, I will settle
the formal pronouncement.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.