Dexter Construction Company Ltd. v. Nova Scotia (Attorney General), 2011 NSSC 441

SUPREME COURT OF NOVA SCOTIA Citation: Dexter Construction Company Ltd. v. Nova Scotia (Attorney General), 2011 NSSC 441 Date: 20111130 Docket: Hfx No. 285919 Registry: Halifax Between: Dexter Construction Company Limited Plaintiff v. The Attorney General of Nova Scotia, representing Her Majesty the Queen, in right of the Province of Nova Scotia Defendant LIBRARY HEADING Judge : The Honourable Justice C. Richard Coughlan Heard: September 6 and 7, 2011, in Halifax, Nova Scotia Written Decision: November 30, 2011 Subject: Contracts -

Interpretation - Escalator Clause

Summary: Dexter Construction entered into four contracts with the Province of Nova Scotia. All contracts were signed in 2005 and the asphalt work intended to be done in 2006. One of the ingredients of asphalt is Performance Grade Asphalt Binder (PGAB). The price of PGAB increased between the date Dexter tendered the contracts and the time the PGAB was purchased. Dexter is seeking the amount it paid for PGAB over and above the price of PGAB at the time of its bid.

The contracts contained a provision which provided for a price increase or decrease for PGAB to be considered if the supplier ’ s posted price increased or decreased subsequent to the end of the calendar year the asphalt work was initially scheduled and certain conditions satisfied. The Province refused to pay the additional amount claimed. Issue: Is Dexter entitled to the amount it paid for PGAB over the price of PGAB at the time of its bid?

Result: As the conditions set out in the contracts for a price increase for PGAB existed, the Department should have exercised its discretion to pay Dexter the amount of the increase in the price of PGAB. THIS INFORMATION SHEET DOES NOT FORM PART OF THE COURT'S DECISION. QUOTES MUST BE FROM THE DECISION, NOT THIS LIBRARY SHEET . SUPREME COURT OF NOVA SCOTIA Citation: Dexter Construction Company Ltd. v. Nova Scotia (Attorney General), 2011 NSSC 441 Date: 20111130 Docket: Hfx No. 285919 Registry: Halifax Between: Dexter Construction Company Limited Plaintiff v.

The Attorney General of Nova Scotia, representing Her Majesty the Queen, in right of the Province of Nova Scotia Defendant Judge: The Honourable Justice C. Richard Coughlan Heard: September 6 and 7, 2011, in Halifax, Nova Scotia Written Decision: November 30, 2011 Counsel: George W. MacDonald, Q.C., Michelle C. Awad, Q.C. and Danielle Kershaw, articled clerk, for the plaintiff Michael T. Pugsley and Ryan T. Brothers, for the defendant Coughlan, J. : [ 1 ] Dexter Construction Company Limited (Dexter) is a large construction company engaged in highway construction.

In 2005, it entered into four contracts with the Province of Nova Scotia: one in Halifax County, to upgrade a portion of highway 118 and construct an overpass structure and a pedestrian structure; two for repaving in Lunenburg County and one for repaving in Yarmouth County. All contracts were entered into in 2005 and it was contemplated the paving portions of the contracts would be performed in 2006. [ 2 ] One of the ingredients of asphalt is Performance Grade Asphalt Binder (PGAB). The price of PGAB increased between the date Dexter tendered the contracts and the time the PGAB was purchased.

Dexter is seeking the amount it paid for PGAB over and above the price of PGAB at the time of its bid - which Dexter used in calculating its bid. The Province refused to pay the amount, stating there was no legal obligation to do so. Dexter commenced action, claiming: (

i) special damages, including the losses suffered by the Plaintiff as a result of the Defendant’s failure to assess and compensate it for PGAB price increases in relation to the Projects; (ii) pre-judgment interest; (iii) costs; and (iv) such other relief as this Honourable Court deems just. [ 3 ] The parties agree damages are in the amount of $522,000. They also agree the following dates apply to the various

[ 3 ] The parties agree damages are in the amount of $522,000.

They also agree the following dates apply to the various contracts: LIST OF AGREED-UPON DATES Project # Date of Tender Date of Contract Completion Date 2005-067 July 15, 2005 Aug. 18, 2005 Sept. 30, 2006 2005-168 Nov. 3, 2005 Nov. 21, 2005 July 31, 2006 2005-169 Nov. 3, 2005 Nov. 21, 2005 July 31, 2006 2006-001 Nov. 4, 2005 Nov. 21, 2005 Aug. 31, 2006 [ 4 ] The issue for the Court is whether the contracts contain an escalator clause which provides Dexter is to be compensated for the increase in the price of PGAB. [ 5 ] The facts of the case are as follows: [ 6 ] The Department of Transportation and Public Works of the Province of Nova Scotia (the Department) represented the Province with regard to the contracts in issue. [ 7 ] Dexter bid on contract 2005-067 (Dartmouth Crossing).

The tender closed July 15, 2005. By fax dated July 20, 2005, Dexter provided the Department with a proposed construction

schedule for the project which set out the asphalt work would be done in August and September, 2006. The contract concerning the project was entered into August 18, 2005, with a completion date of September 30, 2006. [ 8 ] Project 2005-168 (Newburne Road) was a repaving job in Lunenburg County. Tenders closed November 3, 2005. Dexter entered into a contract for the project November 21, 2005, with a scheduled completion date of July 31, 2006. [ 9 ] Project 2005-169 (Saunders Road) was a repaving job in Yarmouth County. Tenders closed November 3, 2005.

Dexter entered into a contract for the project November 21, 2005, with a scheduled completion date of July 31, 2006. [ 10 ] Project 2006-001 (North River Road) was a repaving job in Lunenburg County. Tenders closed November 4, 2005. Dexter entered into a contract for the project November 21, 2005, with a scheduled completion date of August 31, 2006. [ 11 ] In the case of all contracts it was understood the asphalt paving would take place in 2006. At the time all contracts were bid, the posted rack price of PGAB was $345 per metric tonne. Dexter used that price in preparing its bids.

At the time the PGAB was purchased for the projects, its price was $510 per metric tonne. [ 12 ] The paving season in Nova Scotia is generally from mid-May to the end of October each year. [ 13 ] All of the contracts contained a clause that there was no implied contract as follows: 2.0 NO IMPLIED CONTRACT. It is hereby understood and agreed between the Parties hereto that no implied contract of any kind

2.0 NO IMPLIED CONTRACT. It is hereby understood and agreed between the Parties hereto that no implied contract of any kind whatsoever, by or on behalf of the Minister, shall arise or be implied from anything contained in this Contract, or from any position or situation of the Parties at any time. It is further agreed that this contract made by the Minister is and shall be the only Contract, upon which any rights against him are to be founded. [ 14 ] All contracts also incorporated in the contract “Standard Specification Highway Construction and Maintenance”. At the time the contracts were entered into in 2005,

section 2 of division 4 of the Standard Specification which dealt with PGAB provided in 3.0: 3.0 SUBMISSIONS AND DESIGN REQUIREMENTS 3.1 Notice of Supply. Bidders shall nominate their source of PGAB and provide a Statement of Supplier’s price for PGAB as a supplement to the tender. On the form “Statement of PGAB, Liquid Asphalt-Primer and Emulsified Asphalt-Tack”, Bidders shall: • Submit with their tender a statement as to the source of PGAB. The Bidder shall only nominate one source of supply of PGAB.

The Supplier must be on the Department’s list of approved supplier’s. • Indicate the Supplier’s Posted Rack Price for PGAB FOB refinery (excluding taxes). For confirmation, the Bidder shall attach the written price quotation from the Supplier, which price shall be effective at time of award of contract and shall remain in effect until the end of the current calendar year. No tender shall be considered that does not include the above information. 3.2 Contracts Completed in Calendar Year.

In the event that the Contractor wishes to change the source of supply during the progress of the contract, the Contractor shall apply for approval, in writing, to the District Director. Approval in writing must be given by the District Director before the source of supply is changed. The Contractor shall not be compensated for any increase in the cost of PGAB in the calendar year in which the asphalt work was initially intended to be done. 3.3 Contracts Carried Over To The Next Calendar Year.

In the event the Supplier’s Posted Rack Price increases or decreases subsequent to the end of the calendar year in which the asphalt work was initially scheduled and one of the following conditions is satisfied, then a price increase or decrease will be considered: • In the opinion of the Department, a delay caused by another Contractor working on the contract site adversely affects the start-up date of the Contract, resulting in the completion of paving being delayed until the following year; or • In the opinion of the Department, the lateness in tender call makes it unreasonable for the Contractor to finish asphalt work that year.

This will be noted in the Special Provisions of the contract; or • In the opinion of the Department, for reason(

s) beyond the control of the Contractor, the work could not be completed before the end of the calendar year in which the work was initially intended to be completed. If the request for a price increase or decrease is approved by the District Director the Contractor will be assessed an increase or decrease for an amount equal to the actual dollar difference between the Supplier’s original Posted Rack Price quotation and the Supplier’s new Posted Rack Price for PGAB.

In all cases the Supplier’s Posted Rack Price quotation for the price of PGAB for the next calendar year shall be submitted to the Engineer before the Contractor will be paid for any PGAB used that year. Any claim for a price difference by the Contractor shall be supported by the Supplier’s invoice.

[15]

Section 3.3 was added to the Standard Specification at the latest February 1, 2003. Almost certainly it was contained inspecific provisions of contracts for a period prior to being incorporated into the Standard Conditions. [16] In giving the Court’s judgment in Eli Lilly & Co. v. Novopharm Ltd., (SCC), [1998] 2 S.C.R. 129,Iacobucci, J. addressed the manner in which a court should interpret a contract, stating at paras. 54-56: The trial judge appeared to take Consolidated-Bathurst to stand for the proposition that the ultimate goal of contractual

interpretationshould be to ascertain the true intent of the parties at the time of entry into the contract, and that, in undertaking this inquiry, it is open tothe trier of fact to admit extrinsic evidence as to the subjective intentions of the parties at that time. In my view, this approach is notquite accurate. The contractual intent of the parties is to be determined by reference to the words they used in drafting the document,possibly read in light of the surrounding circumstances which were prevalent at the time. Evidence of one party’s subjective intentionhas no independent place in this determination.

Indeed, it is unnecessary to consider any extrinsic evidence at all when the document is clear and unambiguous on its face. In the wordsof Lord Atkinson in Lampson v.

City of Quebec (1920), (UK JCPC), 54 D.L.R. 344 (P.C.), at p. 350: ... the intention by which the deed is to be construed is that of the parties as revealed by the language they have chosen to use in the deeditself .... [I]f the meaning of the deed, reading its words in their ordinary sense, be plain and unambiguous it is not permissible for theparties to it, while it stands unreformed, to come into a Court of justice and say: “Our intention was wholly different from that which thelanguage of our deed expresses. ...

When there is no ambiguity in the wording of the document, the notion in Consolidated-Bathurst that the

interpretation which produces a“fair result” or a “sensible commercial result” should be adopted is not determinative. Admittedly, it would be absurd to adopt aninterpretation which is clearly inconsistent with the commercial interests of the parties, if the goal is to ascertain their true contractualintent. However, to interpret a plainly worded document in accordance with the true contractual intent of the parties is not difficult, if itis presumed that the parties intended the legal consequences of their words. This is consistent with the following dictum of this Court, inJoy Oil Co. v.

The King, (SCC), [1951] S.C.R. 624, at p. 641: ... in construing a written document, the question is not as to the meaning of the words alone, nor the meaning of the writer alone, but themeaning of the words as used by the writer. [17] I will now review the relevant provisions of

section 2 of division 4 of the Standard Specifications which dealt with PGAB. [18] Clause 3.1 requires the bidder to name its supplier of PGAB, who must be on the Department’s list of approved suppliers. The bidder must attach the written price quotation from the supplier, which price shall be effective at the time of the award of contractand remain in effect until the end of the current calendar year. Clause 3.1 applies to all contracts, whether completed in the calendar year or carried over to the next calendar year.

It is intended theprice quotation for PGAB was to be in effect until the end of the calendar year in which the contract was executed. [19] The contracts which are the subject of this proceeding are contracts carried over to the next calendar year. Each of thecontracts were entered into in 2005 and the work was to be performed in 2006. Clause 3.3 deals with such contracts.

The clauseprovides a price increase or decrease will be considered if the supplier’s posted rack price increases or decreases subsequent to the end ofthe calendar year the asphalt work was initially scheduled and certain conditions are satisfied. [20] The supplier’s posted rack price for PGAB increased from $345.00 per metric tonne in 2005 to $510.00 per metric tonne in2006.

[ 21 ] The Attorney General submits the work was originally scheduled for 2006 - the year the paving was contemplated to be performed. [ 22 ] In the Shorter Oxford English Dictionary , fifth edition, “scheduled” is defined as: “Entered on a

schedule or list, included in a schedule”. Even though the work was to be performed in 2006, the work was “scheduled” in 2005. The posted rack price of PGAB did increase subsequent to the end of the calendar year the work was initially scheduled. [ 23 ] The conditions which must be satisfied for the Department to consider a price adjustment are set out in clause 3.3. The only condition which applies is the second condition: • In the opinion of the Department, the lateness in tender call makes it unreasonable for the Contractor to finish asphalt work that year.

This will be noted in the Special Provisions of the contract; [ 24 ] The evidence is the paving season is typically from mid-May to the end of October. The contract for Project 2005-067 (Dartmouth Crossing) was entered into on August 18, 2005 and the construction

schedule provided the asphalt work would be done in August and September, 2006. The other three contracts were executed on November 21, 2005 subsequent to the paving season. The lateness of the tender calls made it unreasonable for Dexter to finish the asphalt work in 2005. The evidence is the parties always intended the asphalt work to be performed in 2006. The fact the Department considered the lateness in the tender call made it unreasonable for the contractor to finish the asphalt work that year was to be noted in the special provisions of the contract.

None of the contracts in issue here had any such notation in the special provisions. The evidence is it was not the practice of the Department to make such a notation in any contract. However, Allan MacRae, Executive Director of Highway Construction 1997-2008, testified and I accept the special provisions of all contracts the Department entered into, including the contracts in issue here, contained the completion date of each project. In each of the contracts, the completion date for the project as set out in the special provisions was in 2006.

Therefore, it was noted in the special provisions the work was not to be done in the year scheduled (2005), but rather in the next year (2006). [ 25 ] I find the preconditions existed for the Department to consider whether a price increase or decrease would be granted. Consequently, the Department was under a duty to consider whether a price change for the PGAB should be made. [ 26 ] The posted rack price of PGAB increased from 2005 to 2006 when it was purchased by Dexter from $345.00 to $510.00. PGAB is part of the refining process of oil. Its price fluctuates with the price of oil.

At the time the contracts in question were bid, both parties knew the price of PGAB was volatile. The Department wanted a healthy contracting community so that it would receive competitive bids. It wanted contractors to stay in business. In mid to late November, 2005, the Department took steps to protect bidders from price fluctuations. On cross-examination, Mr. MacRae, agreed healthy competitive bidding was more likely with price adjustment clauses. [ 27 ] The issue of price fluctuations in PGAB was discussed in relation to these contracts.

On November 2, 2005, Greg Vail, an engineer employed by the Department, emailed Tom Gouthro, Manager of Technical Services for the Department, stating: Tom: We are presently tendering projects for completion August 31, 2006. We are stating in the Special Provisions that the Projects are 2006 projects and that payment for work on the Contract will not be approved for payment until after April 1, 2006. Department Specification, Division 4

Section 2 - Performance graded Asphalt Binder, subsection 3.2 (Contracts Completed In The Calendar Year) states that: “The Contractor shall not be compensated for any increase in the cost of the PGAB in the calendar year in which the asphalt work was initially intended to be done.” Subsection 3.3 (Contracts Carried Over To The Next Calendar Year) somewhat allows for a price increase or decrease in the price for

binder (note that this price is hidden in EPS contracts), with the following: “In the opinion of the Department, the lateness in tender call makes it unreasonable for the Contractor to finish asphalt work that year.

This will be noted in the Special Provisions of the Contract; or ....” During the present construction season and in 2004 we have been experiencing numerous changes (increases and decreases) in the price for binder, Contractors have been asking about the Department paying for increases in binder costs for tenders on projects being advertized now, for next construction season, suppliers are not guaranteeing prices for binder. Greg [ 28 ] Mr. Gouthro, the same day, emailed Mr.

MacRae and Bruce Fitzner, Acting Executive, Director of Highway Operations for the Department, asking: Bruce/Al: Are we going to supply the asphalt binder price escalation/de-escalation clause to projects tendered this fall/winter with paving specified for 2006? Please advise Thanks, Tom [ 29 ] Mr. Fitzner responded: I would say yes as the contractors do not know where the prices will be next year, but they have to bid the job now. [ 30 ] Mr. MacRae responded: This is a real tough question. The problem in the past was why would we single out liquid asphalt and not steel or some of the other products.

The other problem in the past was we seem to get the escalation part of it all right with the contractors but never got the de- escalation part. That said, I would be in favour of the escalation, de-escalation clause for fall tender calls. I assume that the escalation, de-escalation would be based upon the rack price at the time of award compared to the rack price at a certain date next summer. I also assume from Tom’s e-mail that once we were into the paving season we would drop this clause.

I am not strong on this position and could be persuaded otherwise if I’m the only one that thinks this way. [ 31 ] In these contracts, the Department established a regime which provided for changes in the price contractors could receive for PGAB in projects scheduled one year and carried out in a subsequent calendar year. As the conditions set out in clause 3.3 existed, the Department should have considered whether a price increase for PGAB was justified.

The posted rack price for PGAB having increased from $345.00 per metric tonne in 2005 to $510.00 per metric tonne when the PGAB was purchased in 2006, the Department should have exercised its discretion to allow Dexter to charge the price it paid for PGAB when it purchased the PGAB for these contracts in 2006. [ 32 ] The parties agreed damages are in the amount of $522,000.00. The defendant will pay Dexter Construction Company Limited the sum of $522,000.00.

[ 33 ] The parties agreed prejudgment interest will be paid at the rate of five per cent per annum. The defendant will pay Dexter prejudgment interest at the rate of five per cent per annum. [ 34 ] If the parties are not able to agree, I will hear them on the issue of costs. ______________________________ Coughlan, J.