T-1599-73
251798 Ontario Inc. (formerly the Jacques Car-
tier Mint Inc.) Silver Shield Mines Inc., and
255330 Ontario Limited (formerly Canadian
Smelting and Refining Corporation Inc.) (Plain-
tiffs)
v.
The Queen (Defendant)
Trial Division, Addy J.—Ottawa, February 15 and
April 20, 1977.
Crown — Contracts — Department of Regional Economic
Expansion approving grants to plaintiffs for establishment of
refinery and mint in Cobalt area — Approval withdrawn
because of alleged bribery of Crown employee involved in
approving grants — Plaintiffs alleging breach of contract or of
implied undertaking — Substantial benefit clandestinely con
ferred on defendant's agent — Whether contract in fact —
Whether, if contract valid, rescission barred by principles of
restitutio in integrum and laches — Whether defendant under
statutory obligation to pay — Canada Evidence Act, R.S.C.
1970, c. E-10, s. 30(1) — Regional Development Incentives
Act, R.S.C. 1970, c. R-3, s. 10.
The Department of Regional Economic Expansion (DREE)
approved grants to the plaintiffs, related silver mining refining
and minting companies, to assist them in establishing a silver
refinery and mint facility in the Cobalt area rather than in the
Toronto area. After the approval had been granted, it was
withdrawn by defendant because of the alleged bribery of a key
employee of DREE by the plaintiffs. Plaintiffs sued for dam
ages for breach of contract or of an implied undertaking that
the offer would not be withdrawn or cancelled. Defendant
maintained that plaintiffs' bribery of the employee entitled her
to rescind the contract, if indeed a contract was created in law
by plaintiffs' application and defendant's acceptance thereof.
Plaintiffs further claimed that defendant was under a statutory
obligation to pay, and alternatively that rescission of the con
tract was barred by the equitable principles of restitutio in
integrum and laches.
Held, the action is dismissed. Where a substantial benefit has
been clandestinely conferred by one party to a contract on the
agent of the other party, this constitutes a fraud in law. This in
itself would be sufficient to entitle the defrauded principal to
rescind the contract, regardless of the motivation of the other
principal or the effect of the bribe on the agent. However,
where an agent acting as the alter ego of his principal is bribed
he is, for the purpose of giving the consent required to create a
contract, acting not for his principal but for those who have
bribed him. Hence there was no contract at law created in this
case. As to the statutory obligation to pay, it arises only after
and conditionally upon the scheme being accepted both in fact
and at law; here, the consent and acceptance was obtained by
fraud. Even if a contract had existed, and had been rescinded,
restitutio in integrum would not lie since defendant has not yet
received the benefits for which plaintiffs expended monies.
Finally, laches is an answer in equity available only against a
party invoking an equitable remedy, such as that of rescission.
A legal remedy can only be barred by prescription or legal
limitation. In the case at bar there was no legal contract nor
any statutory obligation: the defence is a legal one and not an
equitable one and laches cannot apply to defeat it. In any event
the delay was not unreasonable and plaintiffs did not come into
Court with clean hands, so no defence of laches to a claim of
rescission would have been available to them.
Panama and South Pacific Telegraph Company v. India
Rubber, Gutta Percha, and Telegraph Works Company
(1874-75) 10 L.R. Ch. App. 515; Taylor v. Walker [1958]
1 Lloyd's Rep. 490; Shipway v. Broadwood [1899] 1 Q.B.
369 and Industries & General Mortgage Co., Ltd. v. Lewis
[1949] 2 All E.R. 573, applied. Frigidaire Corporation v.
Steedman [1932] 3 W.W.R. 544 (P.C.), distinguished.
ACTION.
COUNSEL:
C. R. Thomson, Q.C., for plaintiffs.
J. A. Scollin, Q.C., for defendant.
SOLICITORS:
Campbell, Godfrey & Lewtas, Toronto, for
plaintiffs.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
ADDY J.: The plaintiffs, all related companies,
are suing for damages for breach of contract or,
alternatively, for the breach of an implied under
taking that an offer made by the defendant would
not be withdrawn or cancelled. They allege that,
relying on undertakings of a duly authorized repre
sentative of the Department of Regional Economic
Expansion, commonly known as "DREE", they
expended considerable time, money and effort in
constructing in the Cobalt area in the Province of
Ontario rather than in the Toronto area, where it
would have been much more advantageous for
them, a facility for the refinement of silver (here-
inafter called the "refinery") to be operated by the
plaintiff Silver Shield Mines Inc. on behalf of itself
and of the plaintiff 255330 Ontario Limited and
also a facility (hereinafter referred to as "the
Mint") for the manufacture of fine silver medal
lions and collectors' items, to be operated by the
plaintiff 251798 Ontario Inc. They had applied for
DREE grants which in the case of the Mint
amounted to $617,000 and in the case of the
refinery to $119,970. Before proceeding with the
work, they were notified by the Department that
the grants had been approved.
The plaintiffs had expended a very considerable
amount of money on both projects at the time that
they were notified that the grants would no longer
be forthcoming. The defendant alleges that the
grants were withdrawn because it was discovered
that the plaintiffs had bribed one Mr. McKendry
who, at the time, was an employee of DREE and
was one of the key persons involved in the approval
of the grants in issue.
There was no evidence whatsoever that the
plaintiffs had failed to comply with any of the
departmental requirements or any of their obliga
tions regarding the construction and establishment
of the manufacturing facilities for which the
applications were made and approved. I also find
as a fact that the proposed scheme was an
extremely favourable one for the Cobalt area and
was particularly adapted for the purposes for
which these grants were instituted and, for that
reason in all probability, would have been
approved on the merits even if Mr. McKendry had
never been involved with the grants. Put another
way, I find that even if Mr. McKendry had never
received any benefits whatsoever, both applications
probably would have been approved on their
merits. These last three findings are subject to
what I have to say later on in these reasons as to
whether they can properly be taken into consider
ation.
It was not alleged by the defendant nor was any
evidence led which might tend to show that any of
these various benefits actually influenced Mr.
McKendry in approving the grants. I shall also
deal later with whether it has to be established
that the agent was actually corrupted or even
influenced.
The benefits which Mr. McKendry is alleged to
have received from or on behalf of the plaintiffs, or
which they might have intended to grant to him,
may be classified in three categories:
1. Shares acquired by Mr. McKendry in one of
the plaintiff companies and in a company
associated with one Mr. Cooper, the person
principally interested in the plaintiff companies.
2. Four all-expense paid weekend trips to Mr.
Cooper's ranch in Florida.
3. A job offer.
As to this last item, since a job never materialized,
the proposed benefit was never in fact received.
The offer, however, was made and accepted.
Apparently it never materialized because of the
cancellation of the grants resulting in the complete
abandonment of the projects and not because the
job offer was either subsequently withdrawn or
rejected.
As to the purchase of shares, it is very improper
and reprehensible, to put it mildly, for a public
servant to gain for himself a special financial
benefit by using particular knowledge of proposed
events, where the information had been acquired
in the performance of his duties as a public servant
and where such information is not fully available
to the general public. However, the evidence clear
ly indicates that the shares were shares in a public
company, that they were purchased on the open
market through a broker and that the full market
value was paid for them. There is no evidence
whatsoever that any special benefit was conferred
on Mr. McKendry by the plaintiffs or that the
plaintiffs did anything to facilitate the purchase of
these shares other than to indicate on what stock
exchange they were listed and the name of a
stockbroker who was familiar with them. In those
circumstances, notwithstanding any improper con
duct which might be imputed to Mr. McKendry,
as a public servant, in using for his own personal
gain his knowledge of the proposed grants before
the public became aware of them, one cannot find
that the plaintiffs intended to confer or did in fact
confer any benefit to him in so far as those shares
were concerned.
As to the trips to Florida, the first two took
place previous to the approval of the grants and
the last two took place subsequently. The trips
were on the 3rd of March, the 17th of March, the
7th of April and the 5th of May. The grants were
approved on the 5th of April, that is, immediately
previous to the third trip. All trips were made to
the ranch in Florida of one Mr. Cooper. This
gentleman, who testified at the trial, was described
in both grant applications as the president of the
two applicant companies. He was a person with a
considerable financial interest in the undertakings
of the three plaintiff companies. It is clear that he
was the one person who mainly represented them
and who negotiated all matters of importance for
them.
There is no question as to Mr. Cooper's author
ity to act for and on behalf of these companies in
all the matters pertaining to the issues before this
Court. He and Mr. McKendry testified, however,
that certain of the expenditures, on which the
defendant bases an alleged right to cancel the
grants, were properly chargeable to Mr. Cooper or
to his companies and that those which were
incurred on behalf of Mr. McKendry were eventu
ally supposed to be repaid by him. It is not disput
ed, however, that Mr. McKendry has not yet paid
for any of the expenditures incurred in financing
any of the above-mentioned trips. The air tickets
were all paid for by Mr. Cooper or his companies.
The explanations given at trial by both Mr.
Cooper and Mr. McKendry as to the purpose of
and as to the ultimate financial responsibility for
the four trips might be summarized as follows:
1. The first two trips were made for the purpose
of enabling Mr. McKendry to purchase a
matched pair of quarter horses in Florida from
an acquaintance of Mr. Cooper who owned a
ranch a few miles away. On the second trip, Mr.
McKendry's wife accompanied him to Florida.
Although all of the expenses for these trips were
paid for by Mr. Cooper or his companies in the
interim, the cost of transportation was ultimate
ly to be borne by Mr. McKendry.
2. The third trip was to enable Mr. McKendry
to introduce to Mr. Cooper a prospective
manager for the latter's farm in Florida. This
trip was always to be paid for by Mr. Cooper
personally since it was for his benefit that Mr.
McKendry went to Florida.
3. The fourth trip was to discuss and negotiate
conditions of the proposed employment of Mr.
McKendry as president of the company which
would be operating the Mint. The expenses for
this trip would, of course, be borne by that
company, that is, the plaintiff now known as
251798 Ontario Inc.
They both testified that on the occasion of their
first meeting an immediate friendship arose, based
mainly on a mutual interest in Florida and in the
breeding of horses. They also stated that the first
trip, which took place only three days following
that first meeting, was organized and was taken
solely because of Mr. McKendry's interest in pur
chasing two matched quarter horses and was not
even remotely connected with the pending applica
tion for grants. They testified further that the
proposals presented by Mr. Cooper on behalf of his
companies were without any doubt extremely
important and exciting projects for the applicant
companies as well as for the Department and that
everyone was quite enthusiastic about them. They
also stated categorically that, notwithstanding this
fact, no conversation whatsoever relating to the
applications or to the projected developments or to
the proposed grants took place between them
during either of the weekends of the 3rd of March
or of the 17th of March.
When one considers the improbability of such a
situation occurring in the light of their further
evidence to the effect that no special effort whatso
ever was made to deliberately avoid mentioning
the proposed grants, one can only conclude, at first
blush in any event, that their evidence is somewhat
out of the ordinary. When this evidence is coupled
with very lame explanations given by both these
witnesses as to why no reimbursement was in fact
made by Mr. McKendry, why no demand was
made upon him for reimbursement, why no tele
phone inquiries regarding the availability of the
horses were made previous to the trip and as to
why the horses were not ultimately purchased by
Mr. McKendry, their evidence as to their motives
for the trip becomes totally unacceptable. Indeed,
the cross-examination of both these witnesses on
their evidence regarding the purpose of these first
trips, the reason for non-payment therefor by Mr.
McKendry and the reason why no billing was
made, as well as the questions put to them pertain
ing to the subjects which were discussed during
these trips, make it abundantly clear to me that at
trial they were both engaged in a very poor and
completely unsuccessful attempt to conceal the
true purpose of those trips. I find no difficulty in
coming to the conclusion that their evidence on
this issue is not at all credible, and that the main
and governing purpose of the trips was the confer
ring of a benefit on Mr. McKendry and that the
latter never intended to reimburse Mr. Cooper or
any of his companies, who in turn conferred the
benefits without any expectation of ever being
reimbursed.
Altogether apart from the value of the hospital
ity extended to Mr. McKendry and to his wife at
Mr. Cooper's ranch in Florida during those two
weekends, the actual cost of first-class return air
fare to Florida for both these trips constitutes in
law a substantial benefit.
The law is clear that where a substantial benefit
is conferred on a responsible servant or agent who
is acting on behalf of a principal in any matter and
where the person on whose behalf the benefit is
conferred has an interest in the matter and such
interest is not identical to that of the other princi
pal and where the conferring of the benefit has not
been communicated to that principal, there is a
presumption that it was conferred for the express
purpose of influencing the agent against the inter
est of that principal in favour of the other on
whose behalf the benefit was conferred. Whether,
as has been argued, such a presumption is at law
conclusive or not is of little consequence in the
circumstances of the case at bar, for even if the
presumption is not a conclusive one but is rebut-
table, the plaintiffs have, for reasons previously
stated, failed to rebut the presumption.
On this factual issue there remains only the
question of whether the conferring of the benefit
was communicated to the defendant. Mr. McKen-
dry testified that, shortly after his trips, he had
advised his immediate superior, Mr. Smart, that
he had been to Florida. Mr. Smart confirmed this
to some extent but I find that neither Mr. McKen-
dry nor anyone on behalf of the plaintiffs ever
informed Mr. Smart or anyone else in the Depart
ment that Mr. Cooper or his companies had paid
for the trips. That fact was only discovered by the
RCMP on or about the 26th of September, 1972
and was first communicated on the 4th of October
to the Department by written confidential memo
randum addressed to Mr. Love, the Deputy Minis
ter. This report only covered the last three of the
four trips; the fact that the first trip, that is the
trip of the 3rd of March, was also made to Mr.
Cooper's ranch and was paid for by one of his
companies was only discovered some considerable
time later.
Clearly the plaintiffs would not have been en
titled to rely on Mr. McKendry who received the
benefit, informing the defendant of that fact, for it
is the legal duty of the principal granting the
benefit to the agent to ensure that the latter's
principal is informed of that fact. In any event, no
evidence was led by the plaintiffs on the question
of whether they were relying on the information
being passed on by Mr. McKendry, for the simple
reason that they maintained throughout the trial
that the trips were never intended to be at their
expense in any event.
As to the third trip, I cannot accept the explana
tion that it was made solely because Mr. McKen-
dry wished to introduce Mr. Cooper to a gentle
man who lived in Florida and who might be well
qualified to act as a manager of Mr. Cooper's
ranch there or that this constituted the justifica
tion for the trip being considered as an expenditure
properly payable by Mr. Cooper and not as a
benefit conferred on Mr. McKendry. It would
have been much simpler, more expedient and
much more economical for Mr. McKendry to tele
phone the prospective manager who was allegedly
a friend of his, rather than to travel all the way to
Florida merely to effect an introduction. It is
difficult to conceive that an astute businessman
such as Mr. Cooper would have adopted the latter
course without some additional motivation.
Having regard to the unlikelihood of the alleged
motive for the trip being a true one, and having
regard to my complete rejection of their evidence
regarding the first two trips, I reject the explana
tions offered by Mr. Cooper and Mr. McKendry
and find that the third trip was but another benefit
conferred on Mr. McKendry. I find also, for the
reasons expressed regarding the first two trips,
that the benefit was never communicated by either
the plaintiffs or by Mr. McKendry to the defend
ant and, therefore, constitutes a bribe clandestine
ly paid the defendant's agent.
As to this third trip, however, although it took
place but two days after the approval of the
applications, there is no evidence that arrange
ments had been made for it or that the trip had
been promised to the witness McKendry before the
date of the approvals. The importance of this fact
cannot be ignored because of the issue of whether
that particular benefit had any bearing on the
approvals and also because Mr. McKendry had a
comparatively minor role to play following the
approval of DREE grants as opposed to his respon
sibilities previous to and including actual approval.
As to the fourth and final trip to Florida where
Mr. McKendry was also again accompanied by his
wife, the explanation to the effect that it was for
the purpose of discussing the conditions of a pro
posed job offer seems to be a reasonable one,
having regard to the fact that some six weeks later
the defendant was formally advised in writing of
the job offer. For that reason, I am prepared to
give some credence to the explanation offered and,
subject to what I have to say later as to whether
the job offer itself constitutes a benefit, I find that
Mr. Cooper's main motive in requesting Mr.
McKendry to attend with his wife at his ranch on
that particular weekend was to discuss the condi
tions of the possible employment of Mr. McKen-
dry by him. It is, of course, both normal and
reasonable for a prospective employer in such cir
cumstances to pay for the travelling expenses of a
prospective employee.
As to the first three trips I therefore conclude
that they constitute a benefit and that the benefit
in each case was conferred clandestinely without
the defendant being aware of the benefit and
without any of the plaintiffs ever having the inten
tion of informing the defendant of the benefits so
conferred. The fourth trip being intrinsically con
nected with the question of the job offer, its rele
vancy to the defence pleaded will depend largely
on whether the job offer itself constituted a bribe.
I find that an offer of a job to Mr. McKendry as
president of the Mint at an annual salary of some
$60,000 plus certain fringe benefits was made by
Mr. Cooper. The job in fact never materialized
because of the withdrawal of the proposed grants
by the defendant and the resulting abandonment
of the project by the plaintiffs. The job offer was
first communicated by the plaintiffs on or about
the 12th of June, 1972, when a letter was
addressed to Mr. McKendry setting out formally
the conditions of the offer, with copies of that
letter addressed to Mr. McKendry's superiors. Mr.
Cooper testified that he first began considering
Mr. McKendry as a possible president of the Mint
on the 28th of April, 1972 and that the first
discussion concerning the job took place on or
about the 5th of May, 1972, during the fourth visit
to Florida to which I have referred above.
With regard to the date when a position was
actually offered to Mr. McKendry, the defendant
produced at trial a document which was marked
D-7 and which purported to be a copy of an
application for lease allegedly signed by Mr.
McKendry on the 17th of April, 1974, wherein he
described himself as an employee of Newton
Industries Ltd., a holding company belonging to
Mr. Cooper. The document was apparently seized
by the RCMP and without further proof as to its
authenticity it was tendered pursuant to section
30(1) of the Canada Evidence Act'. I reserved as
to this admissibility at trial and now find that the
said document is not admissible under that section.
It has not been established that it was prepared in
the ordinary course of business and, furthermore,
it is not a "record" nor is it a document "on or in
which information is written, recorded, stored or
reproduced" as defined in section 30(12) of that
Act.
Although I might entertain some strong suspi
cions that the job offer might very well have been
made by Mr. Cooper and accepted by Mr.
McKendry long before the 12th of June, 1972,
there is no admissible evidence to that effect and
the defendant has therefore failed to establish that
there was an offer of a benefit that was not
communicated to the defendant at the time that it
was made or immediately thereafter. Had it been
established that the offer was made and accepted
some time before the 12th of June, 1972, I would
have considered this at law to be the conferring of
a benefit, notwithstanding that Mr. McKendry
was not actually employed. A promise coupled
with an acceptance regarding employment under
specific and enforceable conditions does, in my
view, constitute the conferring of a benefit.
1 R.S.C. 1970, c. E-10.
To summarize my factual findings on the
defences raised, I therefore wish to state that the
defendant has established that the first three trips
constituted bribes, that is, substantial benefits
clandestinely conferred by or on behalf of the
plaintiffs to Mr. McKendry, but has failed to
establish that either the fourth trip, the job offer
or the purchase of shares fall within that category.
Once it has been established that benefit has
been conferred, that it was done so clandestinely,
that is, without the principal being informed and
that it was a substantial one, not only is it pre
sumed that it was conferred for the purpose of one
principal inducing the other principal's agent to
act against the latter's interest in favour of the
former, but such a surreptitious dealing constitutes
a fraud at law against the latter which fraud must
be taken into account by the Court. This principle
seems to have been first clearly enunciated by Sir
William M. James L.J. in the oft-quoted case of
Panama and South Pacific Telegraph Company v.
India Rubber, Gutta Percha, and Telegraph
Works Company 2 , where he stated at page 526 of
the report:
According to my view of the law of this Court, I take it to be
clear that any surreptitious dealing between one principal and
the agent of the other principal is a fraud on such other
principal cognizable in this Court. That I take to be a clear
proposition and I take it, according to my view, to be equally
clear that the defrauded principal, if he comes in time, is
entitled, at his option, to have the contract rescinded, or, if he
elects not to have it rescinded, to have such other adequate
relief as the Court may think right to give him.
It is said that there is no authority and no dictum to that
effect. The clearer a thing is, the more difficult it is to find any
express authority or any dictum exactly to the point. I doubt
whether there could be found any authority or any dictum
exactly laying down the first of the two propositions which I
have mentioned, and which nobody has in the course of the
argument ventured to dispute—that is, that any surreptitious
dealing between one principal and the agent for the other
principal is a fraud on such other principal cognizable in this
Court. The other proposition as to the relief may perhaps not be
found stated in so many terms in any case or in any dictum, but
many cases may be suggested which probably will be equally
without any authority, either in decision or dictum. If a man
hired a vetturino to take him from one place to another, and
found that the vetturino, after he had accepted the hiring, had
conspired with his servant to rob him on the way, he would be
entitled to get rid both of the vetturino and the servant. So, if a
man sits down in a tavern or osteria to play at cards or dice
2 (1874-75) 10 L.R. Ch. App. 515.
with another man for a stake, and finds that his opponent has
provided himself with cogged dice or marked cards, the man
would be immediately entitled to leave the table, and would not
be obliged to procure proper cards or honest dice. [The under
lining is mine.]
The case was applied on several occasions since
then. See especially the four following cases: Alex-
ander v. Webber 3 ; Hitchcock v. Sykes 4 ; Murray v.
Smiths; and Rowland v. Chapman 6 .
A very useful case on the questions of whether
one must establish the effect payment might have
had on the mind of the agent and of whether
corruptness must be established, is that of Taylor
v. Walker' where Havers J. makes a fairly exten
sive review of jurisprudence in England on the
matter.
In particular he quotes from the judgment of
Chitty L.J. in Shipway v. Broadwood$ where at
page 373 the latter states:
Directly it is established that money was paid or promised to
the agent of the other party, it is quite unnecessary to go
further and see what effect that had on the mind of the person
to whom it was paid or to be paid. The plaintiff placed Pinkett
in a position in which his duty conflicted with his interest. In
Thompson v. Havelock (1808) 1 Camp. 527, Lord Ellenbor-
ough said, "No man should be allowed to have an interest
against his duty." That great principle has been applied in cases
innumerable, and it has never been held to be a proper subject
of inquiry what was the effect on the mind of the recipient of
the bribe. [The underlining is mine.]
He also quotes from the judgment of Slade J. in
the case of Industries & General Mortgage Co.,
Ltd. v. Lewis 9 wherein the latter is quoted as
saying at page 575:
I hold that proof of corruptness or corrupt motive is unneces
sary in a civil action, and my authority is the decision of the
Court of Appeal in Hovenden and Sons v. Millhoff (1900) 83
L.T. 41 .... [The underlining is mine.]
After reviewing several cases on the subject and
quoting with approval from the judgment of Scrut-
3 [1922] 1 K.B. 642 at p. 644.
4 [1913] 29 O.L.R. 6 at pp. 14, 23 and 24.
5 (1905) 14 M.R. 125 at p. 133.
6 (1900-1) 17 T.L.R. 669 at pp. 670 and 671.
' [1958] 1 Lloyd's Rep. 490.
8 [1899] 1 Q.B. 369.
9 [1949] 2 All E.R. 573.
ton L.J. in the case of In re A Debtor 10 Havers J.
further states at page 512 of the Taylor case:
These cases satisfy me that, in a civil case, it is not necessary
for the plaintiff to prove corruptness or corrupt motive on the
part of the person who made the payment to the agent. [The
underlining is mine.]
I agree with this jurisprudence and find that it is
equally applicable here.
Considerable argument was addressed to the
Court on the following legal issues:
1. Whether the acceptance by or on behalf of
the defendant of the plaintiffs' application con
stituted a binding contract at law.
2. Alternatively, whether until completion of
the work, there existed but an offer by the
defendant and whether the acceptance by the
plaintiffs could only be effected by completion
of the work and full compliance with the terms
imposed by the defendant.
3. Alternatively, whether, if there was no
enforceable contract at the time of the accept
ance of the application, then, upon the plaintiffs
embarking upon the construction of the facili
ties, the defendant was no longer entitled to
withdraw, by reason of an implied term to that
effect or else a collateral contract implied by
law to that effect.
4. Whether the legal nature of the relationship
created was but a unilateral contract.
5. Finally, the plaintiffs also argued that section
10 of the Regional Development Incentives
Act" created a statutory obligation to pay.
The relevant portion of section 10(2) * of the
Regional Development Incentives Act reads as
follows:
(2) When the Minister is satisfied that a facility for the
establishment of which a primary development incentive and a
secondary development incentive have been authorized has
been brought into commercial production ... the Minister shall
pay to the applicant an amount ... .
•
Although it might be argued that because the
plaintiffs are guilty of civil fraud they should fail
'° [1927] 2 Ch. 367.
" R.S.C. 1970, c. R-3.
* See amendment to same effect in R.S.C. 1970 (2nd Supp.),
c. 25, s. 5.
in their action on the grounds that a court will
refuse to give any relief under a contract to the
guilty party, the correct view is that a party to a
valid contract, although party to a fraud involving
that contract, is normally entitled to recourse
before the courts to have its terms enforced. This
right of enforcement would be subject, however, to
the right of the other party to have the contract
rescinded or to claim damages, whichever recourse
the latter party may elect and whatever the Court
may deem just under the circumstances, having
regard to the equitable principles of restitutio in
integrum and laches.
If at the time of withdrawal of the grants there
was a contract in effect, the plaintiffs allege that
even if fraud did exist it does not create a right to
rescind in the circumstances of the present case, as
the defendant has failed to establish and could not
in fact establish that, following rescission, there
would be restitutio in integrum, as they had
already spent on their proposed plants in Cobalt
the greater amount of the monies they would be
required to spend pursuant to the alleged contract.
They relied, of course, on the well-established
equitable principle to that effect and more particu
larly on the case of Frigidaire Corporation v.
Steedman 12 wherein Lord MacMillan, when deliv
ering the recommendation of the Judicial Commit
tee of the Privy Council, stated at page 548:
Their Lordships are of opinion that the Appellate Division
were right in refusing the appellant's claim to rescind the
contract. In such a case, however reprehensible may be the
briber's conduct, the injured party is not entitled to the equita
ble remedy of rescission unless he can establish (the onus being
on him) that it is possible to restore the position to what it was
before the contract. He must be in a position to offer restitutio
in integrum, and must formally tender such restitution: West
ern Bank of Scotland v. Addie (1867) L.R. 1 H.L. (Sc.) 145;
Boyd & Forrest v. Glasgow & S.W. Ry. Co. [1915] S.C. (H.L.)
20, 52 Sc. L.R. 205. The appellant has entirely failed to do so.
The evidence, scanty as it is, is consistent only with the
appellant having exercised or authorized acts of ownership and
use in relation to at least a large part of the equipment
installed, by letting it out to be operated by his tenants. He
cannot give it back as he got it.
It is to be noted in the above case and in many
other cases that there had been some considerable
benefit accruing to the party claiming rescission
12 [1932] 3 W.W.R. 544 (P.C.).
before rescission was claimed. In fact, there was no
question of the contract being a unilateral one or
of there not being a contract in the first place. In
the Frigidaire case (supra) many of the stalls
which were the subject of the financial arrange
ments in issue had been accepted by the appellant
and had been let to third parties.
In the case at bar the defendant had not yet
received any of the benefits for which the grants
were to be made, namely the employment of the
local population in operating the plants and in
addition, all of the assets for which the plaintiffs
had expended monies were still in the latter's
hands.
A useful case as to whether rescission may be
available to a party claiming it notwithstanding
that complete restitutio in integrum cannot be
effected and where the principle of substantial
restitution is discussed, is the decision of Kupchak
v. Dayson Holdings Co. Ltd. 13
In any event, if the argument of counsel for the
plaintiffs is applicable to its logical conclusion, in
the circumstances of the case at bar, once the
plaintiffs had commenced to spend any money
whatsoever on the construction of the Mint and
the refinery then, notwithstanding what fraud or
frauds might have been perpetrated on the defend
ant or who among her servants or agents or how
many of them might have been bribed in order to
have the scheme approved, or at what period the
bribery might have been discovered and objected
to by the defendant, the latter would have no
option but to allow the work to continue and
eventually pay the full amount of the grants, rely
ing solely on any remedy which might be available
in damages, provided only that the plaintiffs had
adhered throughout to the conditions laid down in
the scheme itself. If no actual damages could be
proven then, of course, the defendant would in
effect have no remedy whatsoever.
But regardless of whether restitutio in integrum
can be a bar to rescission in circumstances such as
these, the more fundamental question here is
whether there has ever been a contract created or
whether there has ever at any time existed any
obligation contractual or statutory on the defend
ant's part to pay the grants.
13 [1966] 53 D.L.R. (2d) 482.
From a contractual standpoint where there has
been bribery of an agent, previous to any consen
sus having been arrived at and any formal docu
ments being exchanged between the parties, the
agent may have been acting in one of two distinct
capacities:
1. He may have been concerned merely with
some collateral matter in the negotiation of the
contract or in recommending or reporting to his
principal regarding some aspect of the matter,
when the bribe was paid. A classic example and
probably the most frequent one is that of a
salesman who accepts a secret commission from
the other party. There are also the cases of
bribery of experts whose duties involve giving an
opinion or of employees whose duties are to
report on certain matters to their principal. In
such cases, there generally always is a contract
created because there is a consensus ad idem
between the two principals, although in certain
circumstances where the matter with which the
agent is concerned is so vital and important, the
consent of the principal may be completely
vitiated or, where there was a consent, a right of
rescission might arise. In other circumstances,
there might conceivably exist only a right to
damages and to recovery of the bribe or secret
commission paid.
2. On the other hand, the agent may have been
empowered to act throughout as the alter ego of
his principal. He may be the person solely
charged with or essentially and fundamentally
involved in both the making of the decision in
the place of his principal and in the creation of a
legal obligation on the part of the principal by
that decision. The classic example of an agent of
this category is one who acts under a general
power of attorney granted by his principal.
Mr. McKendry in the exercise of his powers
up to and including approval of the applications
for grants, falls squarely within this second cate
gory. There was a clear delegation of such
powers to him within the decision-making struc
ture of DREE. Where an agent is to the extent
just described, the alter ego of his principal and
has been bribed, the principal cannot as between
himself and the person on whose behalf the
bribe has been paid, be deemed to have given
any consent whatsoever. Since Mr. McKendry
has been bribed, he is conclusively deemed at
law to have been influenced against the interest
of the defendant in arriving at the decision and
also one is furthermore precluded from speculat
ing as to what effect the bribe might have had
on the decision or conversely whether the same
decision might have resulted even if there had
been no bribe. As a result, my previously
expressed findings of fact to the effect that the
claim if not cancelled would have been benefi
cial to the defendant or my finding that the
scheme might probably have been approved in
any event, cannot be taken into account.
Put very simply, the defendant never undertook
or consented to anything: there was no contract at
law. One might even say that, for the purpose of
giving the consent required to create a contract,
Mr. McKendry was no longer acting for the
defendant but was in fact acting for the plaintiffs
who had bribed him. In any event, the consent or
undertaking purported to be given on behalf of the
defendant was fundamentally, essentially and
knowingly corrupted and vitiated by the plaintiffs
who now request that this Court enforce rights
which could only be based on it or on some statu
tory obligation to pay arising out of the Regional
Development Incentives Act which I have quoted
above.
As to any statutory obligation to pay, I cannot
conceive that Parliament by that Act intended
public monies to be paid mandatorily where the
consent and acceptance given on behalf of the
Minister was obtained by fraud and more specifi
cally was given in whole or in part by a person who
was a party to the fraud against the Department
involved. The statutory obligation arises only after
and conditionally upon the scheme being accepted
both in fact and at law.
The plaintiffs invoke laches against the defend
ant's claim that she was entitled to withhold the
grants. A court of equity "refuses its aid to stale
demands, where the plaintiff has slept upon his
right and acquiesced for a great length of time."
Whether laches applies depends on whether the
party against whom the principle is invoked has
acquiesced and also whether the party invoking it
has changed his position. It is unjust to grant a
party an equitable remedy where by his conduct he
impliedly waived it. The chief element of laches is,
however, acquiescence; lapse of time is evidence as
to whether acquiescence or assent existed. (Refer
16 Halsbury's Laws of England, 4th ed., paras.
1476, 1477, 1478 and cases therein referred to.)
It is important, however, to remember that
laches is an answer in equity available only against
a party invoking an equitable remedy such as that
of rescission. A legal right can only be barred by
prescription or legal limitation. In the case at bar,
I have held that in essence what is involved is not
rescission of a legal contract, there being no legal
contract in effect nor any statutory obligation to
pay: the defence is a legal one and not an equitable
one and laches cannot apply to defeat it. The shoe
is rather on the other foot: since the plaintiffs have
no legal right to payment, any remedy afforded
them would have to be of an equitable nature and
any claim for relief of that nature would be denied
them in any court of equity by reason of their
fraud. The legal cliché to the effect that one must
come into a court of equity with clean hands would
most assuredly apply in this case and the issue of
laches therefore would not arise.
However, even if laches were available to bar a
legal defence or if I should be wrong in my conclu
sions flowing from my application of the law to the
factual situation and that, contrary to my findings,
a true legal obligation has been created and that,
as a result, the defence raised to the effect that the
cancellation was justified, can only be founded on
a claim for rescission of a legal contract, the
plaintiff, in any event, has failed to establish laches
on the evidence adduced at trial.
The notice that the grants would not be forth
coming was sent to the plaintiffs on the 8th of
November. As previously stated, it was on the 4th
of October, that is, five weeks earlier that the
defendant first became aware that the last three
trips were paid for by Mr. Cooper. The defendant
only became aware of that fact regarding the first
trip at a much later date.
From the 4th of October the only important trip
of which the defendant had relevant knowledge
was therefore the second one, that is the trip of the
17th of March, since the grants were approved
following that trip and previous to the next one
and since Mr. McKendry, after the approvals were
communicated, was no longer primarily involved
with the project, as the administration and supervi
sion of the project once approved was the prime
responsibility of another section of the Department
and Mr. McKendry was only required to report
thereafter on certain specific aspects when special
circumstances arose requiring his expertise.
It is one thing to know that a trip to Florida
taken by Mr. McKendry on the 17th of March had
been paid for by the plaintiffs and quite another to
determine whether there was no subsequent reim
bursement or whether the payment was not made
for some valid reason other than the granting of a
secret benefit to that employee.
Another important matter to determine at that
time was whether sufficient legal proof existed by
means of which the clandestine payment of the
benefits could be established in court, the onus as
to that issue being of course on the defendant. The
matter was still under active investigation by the
RCMP and by the firm of Price, Waterhouse who
also had been retained to investigate and report to
the defendant. The legal problems were complex
as has been amply illustrated by the arguments
advanced at trial. Responsible legal advice could
not at that time be given except after serious and
thorough examination of the factual situation, the
financial implications for all parties and possible
legal results flowing therefrom. Even at that early
stage, it must also have been apparent that the end
result would, in all probability, depend largely on a
question of credibility. The defendant also had
knowledge at that time of the stock purchase, of
the job offer and of the fourth trip but could not
have been too certain of the circumstances which
led up to these events. As it turned out at trial, the
evidence of all these matters did not and does not
now justify the action taken. At the time, however,
these matters were of necessity actively being con
sidered and investigated.
Considering the position of the parties in the
weeks immediately following the 4th of October, it
is also of some importance that the situation had
been further complicated by a previous investiga
tion by the Ontario Securities Commission a few
months earlier. Compulsory suspension had also
occurred in public trading of certain stocks in Mr.
Cooper's companies. Mr. McKendry and his
immediate superior had also been suspended
during the investigation although the latter was
subsequently reinstated while Mr. McKendry, on
the other hand, was discharged from his employ
ment.
Finally, the projects were very important ones
for the inhabitants of the Cobalt area which was
considered a depressed area at the time due to
high unemployment, and any cancellation would
necessarily involve very serious political consider
ations and obviously require a ministerial decision,
if not cabinet consideration, based on policy con
siderations as well as legal recommendations.
In such circumstances, were I considering the
question of laches, I would not have hesitated to
conclude that a delay of five weeks before positive
action was taken did not by any means constitute a
delay for a length of time which would establish
acquiescence on the part of the defendant, having
regard also to the manner in which responsibility
for and administration of such matters must of
necessity be decentralized and delegated by the
defendant.
As to the interim change of position of the
plaintiffs, that is, the expenditures which they
continued to incur between the 4th of October and
the actual date of notice of cancellation, it is most
difficult for me to appreciate how a party who has
been guilty of fraud and deception and who per
sists in concealing the true state of affairs from the
aggrieved party can legitimately complain about
the length of time that the latter might have taken
in trying to determine the true state of affairs. No
mala fides by the defendant has been established
or even suggested. The plaintiffs were still, during
that whole period, attempting to conceal the true
state of affairs since they have continued to do so
up until the present time. Had they divulged the
facts on the 4th of October or at any time around
that period it does not require much imagination
to realize that the cancellation of the grants would
have followed forthwith.
For these reasons I conclude that no defence of
laches to a claim of rescission would have been
available to the plaintiffs in any event.
The action is dismissed with costs.
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.