T-814-83
W. & R. Plumbing & Heating Ltd. (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Addy J.—Calgary, January 20, 21;
Vancouver, February 3, 1986.
INDEXED AS: W. & R. PLUMBING & HEATING LTD. V. R.
Estoppel — Promissory estoppel — Construction contract
between Crown and general contractor — Plaintiff supplying
labour and equipment — General contractor not paying plain
tiff — General policy of defendant to seek undertakings from
contractors to pay suppliers and sub-contractors — Crown
contracts usually providing for holdbacks to ensure discharge
of undertakings — Policy not followed — Defendant paying
general contractor in full without holdback — Whether
defendant's previous practice amounting to promissory estop-
pel — Only one of six basic conditions for promissory estoppel
met — If action could be founded on promissory estoppel, it
was not specifically pleaded — Action dismissed.
Crown — Contracts — Crown contracting for construction
work — Plaintiff sub-contracting to supply labour and equip
ment — Defendant paying general contractor in full without
holdback contrary to usual practice — Failure by general
contractor to pay plaintiff — Plaintiff arguing unjust enrich
ment and promissory estoppel — No unjust enrichment of
defendant — Conditions for successful plea of promissory
estoppel not met — Action dismissed.
The defendant entered into a contract with Dimack Con
struction Co. for construction work on a building. The plaintiff
company, pursuant to a contract with Dimack, agreed to supply
labour, materials and equipment for the plumbing and
mechanical systems. Dimack failed to pay the plaintiff the sum
of $19,100 due on completion of the work. No contract, either
oral or written, exists between the parties in the present action.
The plaintiff bases its claim on promissory estoppel and unjust
enrichment.
Held, the action should be dismissed.
It is the general policy of the defendant, in the case of
construction contracts, to insist that general contractors under
take to pay all suppliers and sub-contractors. To ensure that
such undertakings are carried out, the defendant withholds
certain amounts until acceptable evidence is furnished that
payment has been made. In the case at bar, that policy was not
followed. The defendant paid Dimack in full, without any
holdbacks, after the contract had been substantially completed
but before deficiencies were corrected.
The issue is whether the defendant's conduct in the present
case, having regard to its previous practice, constitutes promis
sory estoppel. Judicial opinions are divided as to whether
promissory estoppel can be invoked to support a claim or used
only as a defence. The weight of authorities appears to indicate
that promissory estoppel can be invoked only as a means of
opposing a claim. In any event, the circumstances herein did
not satisfy all of the basic conditions necessary to a successful
plea of promissory estoppel: (1) a promise by the person against
whom the principle is invoked; (2) the promise must be clear
and unequivocal; (3) the promisee must have changed his
position as a result of the promise (most authorities maintain
that the change must be to the detriment of the promisee;
others, that it is sufficient if the promisee acts as a result of the
promise); (4) a real legal relationship between the parties
which is in existence, has recently been in existence or is in the
course of being created; (5) the legal relationship must be
affected by the promise to which the estoppel relates; (6) an
intention of the promisor to affect the legal relationship with
the promisee. The third condition had been met, there being
evidence that the plaintiff would not have tendered on any
contract with Dimack had it not been aware of the existence in
the main contract of holdback provisions. None of the other
requirements was fulfilled.
If an action can be founded on promissory estoppel, it would
have to be specifically pleaded in the statement of claim. In the
case at bar, not only was it not specifically pleaded but there
was no pleading of any past, present or future legal relationship
to which any promise could relate.
With respect to the question of unjust enrichment, the evi
dence clearly established that the defendant had paid Dimack
in full for the work performed. The only entity unjustly
enriched was Dimack Construction, which had been paid for
work it did not perform. There was therefore no question of
unjust enrichment of the defendant.
CASES JUDICIALLY CONSIDERED
CONSIDERED:
Pettkus v. Becker, [1980] 2 S.C.R. 834; Re Union Con
struction Ltd. and Nova Scotia Power Corp. Ltd. et al.
(1980), 111 D.L.R. (3d) 728 (N.S.C.A.); Burrows (John)
Limited v. Subsurface Surveys Ltd. et al., [1968] S.C.R.
607.
REFERRED TO:
Crown Lumber Co. Ltd. v. Smythe et al., [1923] 3
D.L.R. 933 (Alta. CA.); Re Bodner Road Construction
Ltd., [1963] 43 W.W.R. 641 (Man. Q.B.); Re Tudale
Explorations Ltd. and Bruce et al. (1978), 88 D.L.R.
(3d) 584 (Ont. H.C.).
COUNSEL:
J. K. Megaffin for plaintiff.
Ian Donahoe for defendant.
SOLICITORS:
Megaffin, Wong, Calgary, for plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
ADDY J.: The facts in this case are quite simple.
The defendant entered into a contract with
Dimack Construction Company (hereinafter called
"Dimack") for construction work on a building
situated on lands of the defendant. The plaintiff
entered into a contract with Dimack to supply
labour, materials and equipment for the plumbing
and mechanical systems as detailed in the first-
mentioned contract. The plaintiff performed all of
its work under the contract with Dimack but the
latter has failed to pay it $19,100, being the
balance legally due and payable to the plaintiff as
of the date of completion.
Dimack, although not formally in bankruptcy, is
actually in a state of insolvency and is apparently
unable to pay. The plaintiff has in fact obtained
judgment in the Supreme Court of Alberta against
Dimack for $19,100, plus an amount adjudged to
be payable for interest.
There exists no contract, either oral or written,
between the parties to the present action. The
plaintiff, however, in its statement of claim
requests from the defendant payment of the afore
said amount of $19,100 plus interest on the basis
of the alleged unjust enrichment of the defendant.
After the original pleadings were exchanged, a
motion for dismissal that the claim did not reveal a
cause of action was dismissed and a concurrent
motion to amend the statement of claim was
granted. A new motion to dismiss was made at the
opening of the trial on the grounds that the facts in
the amended statement of claim still did not reveal
a legal basis for unjust enrichment as there was no
allegation that the defendant had really received
anything for which it had not paid.
I might have been inclined to grant this motion
but, in view of the fact that the parties were ready
to proceed to trial forthwith, that the defendant
did not intend to call any evidence, and that the
plaintiff would be calling only two witnesses
requiring only three or four hours of trial time, I
decided to reserve my decision on the motion and
hear the evidence on the off-chance that something
in the testimony might form a basis for recovery,
subject, perhaps, to possible further amendment of
the pleadings if required.
In the case of Pettkus v. Becker, [1980] 2
S.C.R. 834, Dickson J., as he then was, stated at
page 848:
In Rathwell I ventured to suggest there are three requirements
to be satisfied before an unjust enrichment can be said to exist:
an enrichment, a corresponding deprivation and absence of any
juristic reason for the enrichment. This approach, it seems to
me, is supported by general principles of equity that have been
fashioned by the courts for centuries, though, admittedly, not in
the context of matrimonial property controversies.
At trial it was clearly established that the
defendant had in fact not only paid Dimack in full
for the work performed but had, in all probability
overpaid the latter as there remained many uncor-
rected deficiencies under the main contract. It is
quite obvious, therefore, that there can be no
question of unjust enrichment of the defendant
and the action from the standpoint seems to have
been misconceived from the very beginning. The
only person unjustly enriched was Dimack, having
been paid for work which in fact it did not perform
but which was performed by the plaintiff.
During the trial, however, although there was no
allegation to that effect in the amended statement
of claim, counsel for the plaintiff maintained that
the claim was also based on the equitable doctrine
of promissory estoppel.
It was established that it is in fact the general
policy of the defendant in the case of construction
contracts to insist that the general contractors
undertake to pay all suppliers and sub-contractors
and that the agents of the defendant generally
attempt to ensure that such undertakings are in
fact carried out by withholding certain amounts
until some acceptable evidence is furnished, estab
lishing that the sub-contractors and suppliers have
in fact been paid. The evidence required by the
defendant from its contractors is usually in the
form of statutory declarations furnished from time
to time by some agent or representative of the
main contractor. The contract also contains gener
al provisions to that effect. An example of the
general form of contract is made part and parcel
of the package of tender documents for the con
tract and is made available on request to any
person wishing to tender on a sub-contract with
the general contractor. In the present case, a rep
resentative of the plaintiff examined a copy of the
proposed contract documents before tendering on
its own contract with Dimack.
It has also been established that on several
previous occasions the plaintiff tendered as a sub
contractor with general contractors who were
taking on government construction works. On each
such occasion a representative of the plaintiff
examined the tender package for the main contrac
tor. The principal reasons for doing so were, of
course, to verify the plans, specifications and other
conditions pertaining to the portion of the work
which it would be called upon to carry out for the
general contractor, and to examine other require
ments such as completion dates for the various
phases and sub-trades, the quality of the work
required to be executed, and the nature and extent
of any guarantees required by the owner. There
was, however, evidence which I accept to the effect
that the plaintiff would not have tendered on the
sub-contract with Dimack had it not been aware of
the general policy of the defendant to attempt to
protect the sub-contractors and suppliers as previ
ously mentioned. On four previous occasions the
plaintiff was in fact successful in obtaining work as
a sub-contractor on government construction
projects and, on one of those occasions, after
experiencing difficulty in being paid by the general
contractor, it finally obtained its money because
the defendant held back on the monies due the
general contractor until the plaintiff's claim was
satisfied.
In the present case, the defendant paid Dimack
in full after the contract was substantially com
pleted but before many of the deficiencies had
been corrected. There was also evidence to the
effect that the work on other parts of the main
contract had not been satisfactorily executed. Pay
ment in full in such circumstances was apparently
quite contrary to the normal policy of the defend
ant. The reason for doing so in this case appears to
be because the fiscal year of the defendant was
ending and there still remained in the hands of
what was termed the "client department", namely,
the Department of Agriculture in this particular
case, an unexpended balance from the current
year's appropriations. In other words, the Depart
ment followed the usual wasteful practice
employed by various government departments of
expending as quickly as possible all monies allocat
ed for any given fiscal year in order to ensure that
as much money as possible will be made available
for the following year.
It is also of interest to note that, in lieu of
awarding one contract to the general contractor,
the work, although relatively minor and quite
simple, was divided into three phases and a sepa
rate contract was awarded to Dimack for each of
the three phases, thereby bringing the amount of
each contract within the authorized spending
powers of the Department concerned without it
being obliged to seek approval for the expenditure
from higher authority as would have been the case
had only one contract been awarded to Dimack for
the work. In addition, contrary to the usual proce
dure of making progress payments with holdbacks
following periodical inspections as the work pro
gressed, all three contracts were paid in full, with
out any holdbacks, at the same time immediately
before the fiscal year ended. The comprehensive
list of deficiencies was only prepared and made
available two months later.
The Minister of Public Works, in seeking to
explain to the plaintiff why the usual procedures
were not followed, attributed the cause to an
"administrative error" of the Department. A much
stronger term would undoubtedly have been more
appropriate. However, no matter how much one
might be attempted to criticize the manner in
which responsible departmental authorities, having
regard to their duties as public servants, handled
the entire situation, that issue is not before this
Court: the issue is simply whether the conduct of
the defendant in the present case, having regard to
its previous practice and conduct, can constitute
promissory estoppel, or some other legal basis, on
which the plaintiff can found its claim.
A sub-contractor cannot rely as a basis for
recovery against the owner on the fact that the
prime contract contains provisions obliging the
main contractor to pay its sub-contractors'
accounts. (See: Crown Lumber Co. Ltd. v. Smythe
et al., [1923] 3 D.L.R. 933 (Alta. C.A.); Re
Bodner Road Construction Ltd., [1963] 43
W.W.R. 641 (Man. Q.B.).) This principle also
applies even where the main contract has a provi
sion permitting the owner to pay sub-contractors
directly, although this is obviously not the case
here.
In the case of Re Union Construction Ltd. and
Nova Scotia Power Corp. Ltd. et al. (1980), 111
D.L.R. (3d) 728 (N.S.C.A.), the Trial Judge held
that the provisions for holdback in the main con
tract constituted an inducement to the sub-con
tractors and therefore consideration which created
a constructive trust in favour of the sub-contrac
tors. On appeal this concept was completely reject
ed. Cooper J.A., in delivering judgment orally on
behalf of the Court, stated at page 747 of the
above-mentioned report:
The central point in this appeal is whether the learned trial
Judge, Mr. Justice Burchell, was in error in finding that Nova
Scotia Power Corporation is holding the sum of $213,843.70 as
a holdback under the terms of the contract between it and
Lundrigans Limited for the construction of the corporation's
generating station at Lingan as constructive trustee and that
the beneficiaries of that trust are persons variously referred to
as sub-contractors, job creditors or third party claimants.
We are unanimously of the opinion that, with respect, the
learned trial Judge was in error in finding such a trust. This is
not a situation in which the concept of constructive trust
applies.
As to the question of promissory estoppel, it
seems that courts, generally speaking, have refused
to even consider the possibility of promissory
estoppel being capable of supporting a claim and
have only recognized it as a means of opposing
one. It has very often been stated that promissory
estoppel can only be used as a shield and not as a
sword. Certain pronouncements of Lord Denning,
however, threw some doubt on whether the doc
trine of promissory estoppel should be applied in so
strict a fashion. On that question Ritchie J., speak
ing on behalf of the Supreme Court of Canada in
the case of Burrows (John) Limited v. Subsurface
Surveys Ltd. et al., [1968] S.C.R. 607, stated at
pages 614-615:
Since the decision of the present Lord Denning in the case of
Central London Property Trust Ltd. v. High Trees House Ltd.
([1947] K.B. 130), there has been a great deal of discussion,
both academic and judicial, on the question of whether that
decision extended the doctrine of estoppel beyond the limits
which had been theretofore fixed, but in this Court in the case
of Conwest Exploration Co. Ltd. et al. v. Letain ([1964]
S.C.R. 20 at 28), Mr. Justice Judson, speaking for the majority
of the Court, expressed the view that Lord Denning's statement
had not done anything more than restate the principle
expressed by Lord Cairns in Hughes v. Metropolitan Railway
Co. ((1877), 2 App. Cas. 439) in the following terms:
It is the first principle upon which all courts of equity
proceed, that if parties, who have entered into definite and
distinct terms, involving certain legal results—certain penal
ties or legal forfeiture—afterwards by their own act or with
their own consent, enter upon a course of negotiation which
has the effect of leading one of the parties to suppose that the
strict rights arising under the contract will not be enforced,
or will be kept in suspense, or held in abeyance, the person
who otherwise might have enforced those rights will not be
allowed to enforce them where it would be inequitable,
having regard to the dealings which have thus taken place
between the parties.
In the case of Combe v. Combe ([1951] 1 All E.R. 767),
Lord Denning recognized the fact that some people had treated
his decision in the High Trees case as having extended the
principle stated by Lord Cairns and he was careful to restate
the matter in the following terms:
The principle, as I understand it, is that where one party
has, by his words or conduct, made to the other a promise or
assurance which was intended to affect the legal relations
between them and to be acted on accordingly, then, once the
other party has taken him at his word and acted on it, the
one who gave the promise or assurance cannot afterwards be
allowed to revert to the previous legal relations as if no such
promise or assurance had been made by him, but he must
accept their legal relations subject to the qualification which
he himself has so introduced, even though it is not supported
in point of law by any consideration, but only by his word.
The principle that promissory estoppel could be
invoked by a plaintiff in support of a claim was
also advanced by Grange J. in Re Tudale
Explorations Ltd. and Bruce et al. (1978), 88
D.L.R. (3d) 584 (Ont. H.C.).
The weight of authority, however, still seems to
indicate that promissory estoppel can only be
invoked as a defence. Regardless of whether or not
it can serve to found a claim, it is certain that, in
order to rely on promissory estoppel, as distin
guished from proprietary estoppel, certain basic
conditions must all be fulfilled. Among them are
the following:
1. There must be a promise by the person
against whom the principle is invoked.
2. The promise must be clear and unequivocal.
3. The promisee must have changed his position
as a result of the promise. Most authorities main
tain that the change must be to the detriment of
the promisee, although some authorities, including
Lord Denning seem to say that it is sufficient if the
promisee acts as a result of the promise.
4. There must be a real legal relationship be
tween the parties which is in existence or possibly,
according to dicta in some cases, was recently in
existence or is in the course of being created.
5. The legal relationship must be affected by the
promise to which the estoppel relates.
6. There must have been an intention of the
promisor to affect the legal relationship with the
promisee.
The plaintiff has fulfilled the third above men
tioned condition, as there has been evidence which
I accept, that it would not have tendered on any
contract with Dimack and thus would not have
been deprived of the $19,100 which it now claims,
had it not been aware of the existence in the main
contract of the defendant of the provisions regard-
ing holdbacks, etc., to which I have already
referred. None of the other five requirements for
promissory estoppel, however, have even remotely
been met. The claim must therefore be dismissed.
Although the action must fail on the merits, it is
of some importance to note that, if an action can
in law be founded on promissory estoppel (and I
refrain from stating any opinion on this issue) then
it would seem axiomatic that for an action to be
based on any such novel principle, it would have to
be specifically pleaded in the statement of claim.
At trial, counsel for the defendant quite rightly
objected to the case being argued on the basis of
promissory estoppel as the issue had never been
raised in the pleadings. The plaintiff was invited
by the Court to request an amendment to the
statement of claim but declined to do so. Not only
was promissory estoppel not specifically pleaded as
the basis for the claim, but there was no pleading
whatsoever as to any specific promise having been
made by the defendant to the plaintiff at any time
nor, of course, as to any particulars of any such
promise. There was no pleading of any past,
present or future legal relationship to which any
promise might relate.
The action will be dismissed with costs.
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