Prince Albert Pulp Co. Ltd. et al. v. The Foundation Company of Canada, Ltd.

Whether the award of $200,000 on the counterclaim of P & W Pulpmills should have been made.

Whether the Court of Appeal had erred in failing to award Foundation interest at its borrowing rates instead of the 6 per cent which had been allowed.

On the latter point, the trial judgment allowed interest at the rate of 6 per cent on the holdback of $796,117 and at 5 per cent on the balance of Foundation’s net recovery of $1,797,749.61, i.e., on $1,001,632.61. This was varied by the Court of Appeal by allowing 6 per cent interest overall.

The provision for interest on the holdback is found in the contract in art. 4.2 dealing with “Cost of the Work”, for which Foundation was entitled to be paid. Clause L includes in “Cost of the Work”:

Interest on the amount of all holdbacks from the date that such holdbacks reach a figure of Can. $250,000 to the date of payment calculated at the rate of six per cent (6%) per annum;

The contract provided for the withholding of 5 per cent of the progress payments to which Foun-

[Page 206] dation became entitled from time to time in respect of the cost of the work.

I will deal first with the matter of the $200,000 amount which the trial judge awarded to P & W Pulpmills on its counterclaim.

Counsel for Foundation contended:

1. That the appellants were precluded from advancing this claim by virtue of the final certificate given under art. XXXVI, which article has been previously quoted.

2. That P & W Pulpmills had abandoned its claim for damages for the cost of correcting construction defects.

That the evidence did not establish a basis for awarding $200,000 on the counterclaim.

The certificate was in the form of a letter agreement between P & W Pulpmills and Foundation, signed, on behalf of the former, by its resident manager J.D. Rhodes. The relevant portions of this letter are as follows:

We are writing to confirm our recent discussions wherein it was mutually agreed that since your work as Contractor on the above Pulp Mill has been substantially completed, it now becomes economical for us to take over ourselves and complete all outstanding work with our own labour forces, rather than have you complete the same with your forces under the provisions of the Construction Contract.

May we therefore confirm our mutual agreement on the following points:

1) Effective July 12th, 1968, we will assume the responsibility for completing all outstanding work on the above project, and thereafter you shall merely provide such technical advisers or assistants as we may reasonaly require chargeable to us as a cost of the work.

2) We hereby accept the work, quote, “as is” unquote, (on July 12th, 1968) and hereby certify that the work required under the Construction Contract has been completed by you, and is hereby accepted under the terms and conditions thereof.

3) It is understood and agreed that the above certificate of completion signed by us at the bottom hereof,

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shall be considered to be as valid and effective as if signed by the engineer, pursuant to the conditions of Article XXXVI of the Construction Contract.

This certificate establishes that the work required to be done by Foundation under its contract with P & W Pulpmills had been performed and completed. In my opinion it does not preclude P & W Pulpmills from contending that the cost of the work was excessive and that P & W Pulpmills had sustained damage by being required to pay for work which had not been performed with due diligence.

With respect to the second point, P & W Pulpmills had initially claimed, by its counterclaim, damages in the amount of $675,000 for expense which it had incurred for doing work omitted to be done by Foundation and for correction of major construction defects. This claim was abandoned prior to trial. However, the $200,000 awarded in respect of the counterclaim was not in respect of expense incurred by P & W Pulpmills to correct errors, but was, essentially, compensation for excess costs incurred by Foundation in the performance of its contract. P & W Pulpmills was permitted to set this off as against the total contract price awarded to Foundation.

Foundation’s contention in respect of the third point is that, in respect of the items of negligence listed by the trial judge, the evidence does not establish damage in anything like the amount of $200,000.

The learned trial judge said:

The plaintiff was negligent and/or did not exercise due diligence in the following particulars:

1. Employing incompetent engineers who made incorrect surveys and wrongly located piles,

2. Incorrectly built the chip silo and other parts of the mill contrary to the plans,

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3. Employing surplus supervisory personnel on occasion and being deficient of supervisory personnel after January, 1968,

In installing the weigh scale,

In fabricating some of the fibre pipe,

In completing some cement work.