SUPREME COURT OF NOVA SCOTIA Citation: C&C Technologies International Inc v. McGregor Geoscience Ltd., 2016 NSSC 55

Transcription

1 SUPREME COURT OF NOVA SCOTIA Citation: C&C Technologies International Inc v. McGregor Geoscience Ltd., 2016 NSSC 55 Date: Docket: Hfx. No Registry: Halifax Between: C&C Technologies International Inc. and C&C Technologies Inc. Applicants v. McGregor Geoscience Limited and Superport Marine Services Limited Respondents LIBRARY HEADING Judge: Heard: The Honourable Justice Robert Wright October 26-29, 2015 in Halifax, Nova Scotia Written Decision: February 26, 2016 Subject: Summary: Privity of Contract Agency Unjust Enrichment In the fall of 2014, McGregor procured successive contracts with two of its clients to perform a deep water pipeline route survey off the coast of British Columbia. It then subcontracted with C&C to provide its specialized marine equipment which was to be launched by a research vessel which McGregor chartered from an affiliated company, Superport. All contract negotiations were conducted between McGregor and C&C but when the formal contract was prepared by inhouse counsel for C&C, it described the other party as McGregor and its affiliated companies (which no one turned their minds to at the time).

2 Both contracts were successfully performed and when McGregor prepared its invoices to its two clients, it included the invoices submitted to it by C&C and Superport respectively. McGregor s invoices were ultimately paid in full and along the way, McGregor paid the invoices of Superport in full. However, it paid only about half of the C&C invoices before running into financial difficulty, leaving an outstanding debt payable to C&C in the amount of $2,484,568. On the opening day of trial, McGregor filed a Proposal under the Bankruptcy and Insolvency Act which created an automatic stay of proceedings against it. It therefore remained for the court to decide whether Superport is also liable for the debt claimed, either under the law of contract or the law of unjust enrichment. Issues: The issues to be decided in this case have been framed as follows: 1. Is Superport liable for the outstanding debt as an affiliate of McGregor within the meaning and intent of the contract? 2. Is Superport bound by the contract through the agency of McGregor, either under the doctrine of implied or ostensible authority? 3. Is Superport bound by the contract through its ratification? 4. In the alternative, has Superport been unjustly enriched where it has been paid in full for its work and C&C has not? Result: Notwithstanding the template wording of the contract, Superport was not liable as an affiliated company of McGregor in light of the admissions at trial by C&C that Superport was never expected or intended to be a party to the contract. Neither was Superport bound by the contract

3 through the agency of McGregor, either under the doctrine of implied or ostensible authority, or under the doctrine of agency by ratification. C&C s alternative claim for unjust enrichment was also dismissed because the contracts in place between McGregor and C&C and Superport respectively presented a juristic reason for the enrichment of Superport. C&C was confined to its contractual claim against McGregor, having acknowledged that it was only McGregor who was expected to pay their accounts. THIS INFORMATION SHEET DOES NOT FORM PART OF THE COURT'S DECISION. QUOTES MUST BE FROM THE DECISION, NOT THIS LIBRARY SHEET.

4 SUPREME COURT OF NOVA SCOTIA Citation: C&C Technologies International Inc. v. McGregor Geoscience Ltd.,2016 NSSC 55 Date: Docket: Hfx. No Registry: Halifax Between: C&C Technologies International Inc. and C&C Technologies, Inc. Applicants v. McGregor Geoscience Limited and Superport Marine Services Limited Respondents Judge: Heard: Decision The Honourable Justice Robert Wright October 26-29, 2015 in Halifax, Nova Scotia Written Decision: February 26, 2016 Counsel: Daniela Bassan and Michelle Chai for the Applicants Ezra van Gelder and Caitlin Regan-Cottreau for the Respondent, Superport Marine Services Limited Tim Hill, Q.C. for the Respondent, McGregor Geoscience Limited

5 Page 2 Wright, J. INTRODUCTION [1] This case exemplifies the pitfalls at risk when litigants fail to explicitly identify in a written commercial contract, all the parties intended to be bound by it. [2] By way of introduction, C&C Technologies Inc. (herein referred to as C&C ) is a surveying and mapping company that provides a wide range of offshore and land based survey services. C&C promotes its proprietary technology in what is known as the Autonomous Underwater Vehicle ( AUV ) which it operates on a variety of deepwater projects worldwide. [3] C&C is the parent company of the co-applicant C&C Technologies International Inc. (herein referred to as C&C International ). Both companies were incorporated in, and are based in, the State of Louisiana. They also have multiple affiliated companies. [4] McGregor Geoscience Limited ( McGregor ) is a marine surveying company, specializing in deepwater geotechnical surveying. It is based in Halifax, Nova Scotia. [5] Superport Marine Services Limited ( Superport ) owns and operates a fleet of vessels with which it provides a wide range of marine services. It advertises that its oceanographic and research vessels are chartered for work on a worldwide basis, often with sister company McGregor. Superport is based in Port Hawkesbury, Nova Scotia.

6 Page 3 [6] McGregor and Superport are under common ownership (ultimately vested in Mr. Leslie MacIntyre or entities controlled by him) which allows the two companies to easily do business together. This is a benefit not only to those two companies but also to third party contractors who are said to have a preference for one point of contact in undertaking various projects. Superport and McGregor actively promote this benefit in their marketing efforts, with McGregor touting its geoscience expertise coupled with its direct access to vessels from Superport. [7] Mr. MacIntyre is also the President and sole director of both McGregor and Superport although the latter occupies most of his time and attention. The negotiation, execution and management of all McGregor contracts is overseen by its General Manager, Rick Hunter. [8] In November, 2013 McGregor, pursuant to a head contract it had entered into with one of its clients, engaged C&C International as a subcontractor to perform deepwater survey work for a proposed pipeline route off the coast of British Columbia. McGregor also secured a time charter of a research vessel from Superport needed to carry out the project. [9] The negotiations for this subcontract were conducted between McGregor and C&C which lead to a proposal from C&C, and a corresponding letter of intent and purchase order from McGregor, directed to each other. However, when the formal contract was drafted by C&C s corporate legal counsel, it named only C&C International and McGregor as parties and signatories but defined both in the opening paragraph as including their respective parent, subsidiary and affiliated companies. As such, the Applicants position is that both McGregor and

7 Page 4 Superport are parties to the contract (as affiliated companies) and are both bound by it. [10] In February, 2014 McGregor secured a similar contract from another of its clients and similarly subcontracted with C&C International for the mapping of the pipeline survey project. It also again chartered the same research vessel from Superport. [11] On this second occasion, a formal contract was never prepared or executed. The parties simply proceeded with the work on the basis of a proposal by C&C and corresponding letter of intent and purchase order from McGregor which were in a format virtually identical to that of the first project. [12] Both projects were successfully completed in early 2014 and McGregor was ultimately paid under the head contracts with its two clients. Its invoices included the work billed by C&C International as subcontractor and the cost of the vessel charter from Superport. [13] Ultimately, McGregor paid all of the Superport charter invoices in full, but paid just under half of the C&C International invoices, leaving an outstanding balance of $2,484,568 U.S. The last partial payment was made by McGregor on June 26, [14] On the opening day of trial, McGregor filed a Notice of Intention to make a Proposal under s.50.4(1) of the Bankruptcy and Insolvency Act, naming a local trustee thereunder. That filing created an automatic stay of proceeding as against McGregor under s.69.1(1) of the Act, absent an order lifting the stay.

8 Page 5 [15] A motion for such an order was thereupon brought by the applicants before me. However, that motion was dismissed given the acknowledgment in open court by counsel for McGregor that the debt claimed by C&C and C&C International for the survey services performed was indeed due and owing by it (subject to an updated interest calculation on the overdue amounts). [16] It now remains for the court to decide whether Superport is jointly and severally liable for the debt claimed, either under the law of contract or the law of unjust enrichment. CHRONOLOGY IN REVIEW [17] In June of 2013, McGregor secured a contract for a reconnaissance pipeline route survey of certain seabeds off the coast of British Columbia which had been tendered by the Prince Rupert Gas Transmission Limited Partnership (known between the parties as Trans Canada Pipeline and herein referred to as TCPL ). This was augmented in September of 2013 by the award to McGregor of a second contract to complete a detailed high resolution route survey using AUV technology for data collection. [18] It was suggested to Rick Hunter, General Manager of McGregor, by TCPL that he contact C&C who could provide the necessary AUV technology. Mr. Hunter did so by contacting Mike Dupuis, who was Manager of Survey Support Services of C&C, to engage its services as a sub-contractor for the project. Mr. Hunter promoted the ease with which McGregor could secure an appropriate research vessel for the launching of the AUV which was available from Superport.

9 Page 6 Mr. Hunter further attested in his affidavit that he explained to Mr. Dupuis that Superport owned the vessel and that McGregor and Superport had common ownership, but were different companies. [19] This initial contact lead to further negotiations which were conducted between Mr. Hunter and Mr. Dupuis. In the course of these negotiations, Mr. Dupuis visited the websites of both McGregor and Superport to gain further information about the companies and the research vessel which was to be provided. One of the passages found on the website reads that The common ownership of McGregor Geoscience and Superport Marine offers clients a formidable combination of marine geoscience and environmental survey capability in tandem with comprehensive vessel management and operating systems procedures. [20] Contemporaneously, Mr. Hunter also spoke early on with Mr. MacIntyre to arrange for McGregor to charter from Superport its largest science vessel, known as the R/V Strait Hunter, for the proposed project. [21] These negotiations culminated in the drafting of a formal proposal by C&C which was sent to McGregor under date of September 20, A revised proposal followed under date of September 27, In the closing paragraph, C&C expressed its appreciation for the opportunity to offer the proposal to McGregor. [22] At this point in the negotiations, the Chief Financial Officer for C&C, Tom Ortego, contacted Nadine Easthouse who was the Chief Financial Officer serving in that capacity for both McGregor and Superport. As the person responsible for overseeing the financial aspects of survey projects and related commercial

10 Page 7 transactions, Mr. Ortego was tasked with performing credit checks on companies it was to do business with. [23] Accordingly, on October 4 th, Mr. Ortego ed Ms. Easthouse asking for trade and bank references after stating that C&C had been asked to perform survey work for Superport. Ms. Easthouse promptly sent a reply that same day clarifying that the proposed survey work was to be performed for McGregor and not Superport. The text of her reads as follows: The survey work C&C has been asked to perform will be for McGregor Geoscience Limited not Superport Marine Services. The two companies are related, but McGregor Geoscience is an independent company and it is not a parent/sub relationship between the companies. McGregor is also a private company and as such we do not release our financial statements publicly. I can put together a credit information sheet on McGregor to send to you on Monday. [24] On October 7, Mr. Ortego made a further inquiry by asking Ms. Easthouse to elaborate more on the McGregor and Superport relationship, seeking as well credit information on McGregor. Ms. Easthouse sent a reply the following day, October 8 th, the relevant part of which reads as follows: McGregor and Superport are related companies, they have common ownership but no cross ownership. They are privately held by the MacIntyre family. Les MacIntyre is the president and principle owner of both companies. Attached is a credit sheet with banking information, and some of our larger subs from past jobs as well as a client reference. As discussed below, C&C is being contracted by McGregor for the survey work, but the end client is TransCanada Pipeline Limited... [25] In his affidavit, Mr. Ortego confirmed that he forwarded this from Ms. Easthouse on the same date to Mr. Dupuis as well as to two Vice Presidents and general counsel of C&C. He further stated in his affidavit that he wanted to pass along the information from Ms. Easthouse to those individuals at C&C and

11 Page 8 C&C International who he knew would be involved in negotiating or signing a contract for the project. He further made reference in his forwarding that if lien rights were kept, they would have more leverage (in getting paid for their work). [26] Shortly thereafter, Ms. Easthouse sent to Mr. Ortego a Confidential Credit Information sheet which pertained to McGregor only. [27] In response to the revised proposal, McGregor sent a letter of intent to C&C under date of October 15, 2013 confirming that McGregor was committed to contract for the supply of AUV equipment and personnel services from C&C for the work on the terms and conditions set out in that document (which was accompanied by a purchase order from McGregor to C&C). Under those terms and conditions, C&C was to be paid approximately $2.7 million dollars U.S. for its services. The letter of intent also contained a brief reference that the R/V Strait Hunter would be the designated survey vessel for the work. The document was signed for and on behalf of McGregor by Mr. Hunter. [28] It was also on October 15 th that C&C dispatched Tom Richards to travel to Port Hawkesbury to inspect the vessel Strait Hunter docked at the Superport Marine facility to assess whether it could fit and handle C&C s AUV equipment. Mr. Richards met briefly there with Mr. MacIntyre who provided him with his two business cards for McGregor and Superport respectively during a general discussion about the marine survey business. Mr. Richards also on that occasion spoke with Mr. McLaughlin of McGregor and two Superport employees in the course of his inspection which was followed by an exchange of s about the

12 Page 9 equipment on the vessel. It appears that nothing was said at the time about the ownership of the vessel. [29] After the letter of intent was received, Mr. Dupuis became involved in finalizing a proposed contract to be sent to Mr. Hunter at McGregor for his review and comments. There was no evidence at trial surrounding the drafting or language of the contract because of an apparent claim for solicitor-client privilege. All that is known from the evidence is Mr. Dupuis comment that they had a standard industry contract being handled by their corporate legal counsel. [30] Once the contract was prepared, it was signed on November 6 th by Jeff Sides, VP of C&C International, and sent with the approval of Mr. Dupuis to Mr. Hunter. Of particular note in the contract is the manner in which the parties to it were described in the first paragraph. It reads as follows: This agreement is made on the 6 th day of November, 2013, by and between McGregor Geoscience Limited, a limited company incorporated in accordance with the laws of Canada, and its parent, subsidiary and affiliated companies (collectively McGregor ); and C&C Technologies International Inc., a company incorporated in accordance with the laws of the State of Louisiana, United States of America, and its parent, subsidiary and affiliated companies (collectively C&C ); collectively the Parties or individually a Party. (underlining mine) [31] Throughout the contract, the rights and obligations of the parties are stipulated to be those of C&C and McGregor respectively. Nowhere in the contract is Superport actually named or identified, nor is there any reference whatsoever to its role in the project. Indeed, the contract document itself does not even mention the R/V Strait Hunter which was being provided by Superport. The only cursory reference to this vessel is found once in each of C&C s proposal and McGregor s letter of intent which were attached as an exhibit to the contract. In the proposal, the reference is to the customer supplied vessel R/V Strait Hunter

13 Page 10 while the reference in the letter of intent is that the Strait Hunter would be the designated survey vessel for this work. [32] By this time, Superport and McGregor had entered into an oral time charter of this vessel for the project on terms and conditions negotiated between Mr. Hunter and Mr. MacIntyre respectively. Most of the charters of this vessel, since its acquisition by Superport in 2011, were conducted between these companies in this fashion. [33] At all events, when Mr. Hunter received the proposed contract from Mr. Dupuis, he forwarded it on November 12 th to Mr. MacIntyre attached to an which simply asked Mr. MacIntyre to have a look to see if he saw anything they needed to be aware of or to change. Mr. Hunter followed up with two more e- mails to Mr. MacIntyre on November 18 th, the first one attaching the C&C proposal which was to serve as Exhibit 1 in the contract, and the second to indicate that C&C was getting anxious to get the contract signed. [34] Mr. MacIntyre testified that his main concern at that time focused on getting the vessel properly outfitted for the project and dealing with the associated finance requirements. He recalls speaking with Mr. Hunter after receipt of the contract about the stern controls needed on the vessel to handle the AUV equipment but acknowledges he made no comment or had any discussion with Mr. Hunter about the description of the parties in the contract. [35] Mr. Hunter, on the other hand, generally recalls speaking with Mr. MacIntyre as a result of which he was satisfied to sign the contract for McGregor and send it back to C&C. Mr. Hunter also acknowledged that he raised no questions or made any comments about the form of the contract with either Mr.

14 Page 11 MacIntyre or anyone at C&C. He simply added his signature as General Manager for the signatory McGregor Geoscience Limited under date of November 19, [36] We are therefore left with a contract, prepared by C&C s legal counsel, where it appears that neither Mr. Dupuis or Mr. Ortego on the one hand, nor Mr. Hunter or Mr. MacIntyre on the other hand, ever turned their minds to the wording used to describe the parties therein. Indeed, both Mr. Ortego and Mr. Dupuis confirmed that after the receipt of Ms. Easthouse s earlier s of October 4 and 8, 2013, neither of them asserted in reply that C&C required Superport to be bound to the contract, nor did either of them ever ask about Superport s liability again (until this litigation resulted). [37] With the signing of the contract, the work on the TCPL project got under way in late November and was successfully completed in January, [38] As the first project reached completion, McGregor was also asked in January of 2014 to bid on another pipeline route survey by Spectra Energy/BG Group ( Spectra ) in the same general area. McGregor was successful in doing so whereupon Mr. Hunter again undertook negotiations with C&C and Superport for the provision of AUV equipment and research vessel services respectively. [39] Those negotiations resulted in a further proposal prepared by C&C which was sent to McGregor under date of February 25, Similarly, that was followed by a letter of intent prepared by McGregor and sent to C&C bearing the same date. Both of these documents followed the same template as the proposal and letter of intent for the first project with the exception of one change from the name of C&C to C&C International. Again, this proposal was stated to be offered to McGregor without any reference to its affiliates.

15 Page 12 [40] As it turned out, this proposal and corresponding letter of intent formed the contract between the parties for the second project. The work for the second project was to get underway immediately and McGregor and C&C never did finalize or execute a contract for this second project as they had for the first one. As it were, they were also in discussions for the drafting of a Master Services Agreement but that did not come to fruition either. [41] The survey work for the Spectra project was completed sometime in April, 2014 and the required reports for McGregor s clients were prepared in the usual course to complete the projects. [42] Mr. Hunter and Mr. Dupuis also engaged in further discussions in late March and April about the possibility of working on further projects together to build on the success of these first two projects. In mid April, C&C prepared a proposed press release touting these successes and noting that C&C and McGregor had completed two AUV route surveys in harsh winter conditions onboard the R/V Strait Hunter which was owned and operated by Superport. [43] Those ambitions fizzled, however, when C&C started to become concerned about its unpaid invoices to McGregor. The first series of its invoices were issued on March 31, 2014 while the last invoice was issued on August 7, 2014 in the aggregate amount of $4,874,270. [44] The last payment that McGregor made in respect of these invoices was in the amount of $270,000 U.S. on June 26, At that point, C&C had invoiced McGregor a combined total of $4,874,270 for both projects but had been paid only a total amount of $2,389,702. That left a principal balance outstanding of

16 Page 13 $2,484,568 plus interest at the contractual rate of 1.5% per month for arrears over thirty days. [45] Along the way, and dating back to December of 2013, Superport began issuing invoices to McGregor for monies owing under the charter of R/V Strait Hunter. Between December 4, 2013 and May 2, 2014 Superport billed McGregor for $2,716,359 in respect of the first project and a further $1,278,901 in respect of the second project, for a grand total of $3,995,260. All of these invoices were paid by McGregor to Superport, with the last payment falling on June 17, [46] In turn, McGregor prepared its own invoices to TCPL and Spectra respectively containing three components, namely, the cost of the vessel charter from Superport, the amount billed by C&C as subcontractor with a 10% markup, and, of course, the value of its own geotechnical work. Ultimately, McGregor s invoices to both clients were all sorted out and final settlement of its accounts was achieved. [47] One of the complications in making payment of C&C s invoices was the attraction of a 15% withholding tax payable to Canada Revenue Agency for services performed in Canada. According to the evidence of Ms. Easthouse, McGregor could not make payments to C&C (even at the 85% level) without triggering the withholding tax obligation in respect of which waivers had been applied for (which was to the benefit of their clients). Those tax waivers ultimately came through from Canada Revenue Agency on March 21 st (for the first project) and June 27 th (for the second project) respectively. [48] In her capacity as CFO for both McGregor and Superport, Ms. Easthouse was responsible, without any signing authority limit, for the processing and

17 Page 14 payment of all invoicing associated with both projects. It was she who authorized and paid Superport s invoices to McGregor and the partial payments of C&C s invoices. She acknowledged, however, that when the CRA waivers finally materialized as stated, no further payments to C&C were ever made. [49] By the month of June, if not before, Mr. Dupuis began pressing Mr. Hunter about the unpaid C&C invoices and wanted to put a specific payment schedule in place. An unsatisfactory response lead to a conference call being held on August 7 th participated in by Messrs. Dupuis and Ortego on behalf of C&C and Mr. MacIntyre and Ms. Easthouse for McGregor and Superport. [50] Mr. MacIntyre attested in his affidavit that he explained during this conference call that McGregor s bank had called the company s project credit line and taken funds from its account to pay down the bank debt. Mr. MacIntyre was clearly bitter about that in his evidence at trial but obviously was left without the cash flow to satisfy C&C s outstanding accounts. [51] He further attested that while nobody asked for financial assurances about Superport, Mr. Ortego did ask if Superport owned McGregor. He said that he explained that Superport and McGregor were independent companies and reiterated that C&C s contract had never been with Superport. He added that neither Mr. Ortego nor Mr. Dupuis expressed any surprise at that explanation, or said that they had ever understood anything different. [52] Mr. Ortego, on the other hand, attested in his affidavit that during this call, he requested financial assurances of the ability of McGregor and Superport to pay the accounts. He further said he was shocked to hear Mr. MacIntyre s statement that Superport was not involved and had nothing to do with it, given his

18 Page 15 understanding that they were closely related companies and based on their prior dealings with both company representatives. [53] Mr. Dupuis affidavit evidence was to the same effect. Neither of them, however, referred to the description of the parties in the contract as including Superport. At all events, this evidence must be considered in light of the acknowledgements they both made in cross-examination at trial which will be scrutinized in the next segment of this decision. [54] Shortly thereafter, on August 21 st, Mr. Dupuis was informed by Mr. Hunter that McGregor had already paid Superport in full for the charter of the Strait Hunter on both projects. About a week later, this proceeding was commenced in this court along with a parallel action in the Federal Court against the owners and all others interested in the ship Strait Hunter. Both actions plead a claim for judgment in the amount of $2,484, U.S. plus interest on arrears. ISSUES [55] The issues to be decided in this case have been framed as follows: 1. Is Superport liable for the outstanding debt as an affiliate of McGregor within the meaning and intent of the contract? 2. Is Superport bound by the contract through the agency of McGregor, either under the doctrine of implied or ostensible authority? 3. Is Superport bound by the contract through its ratification? 4. In the alternative, has Superport been unjustly enriched where it has been paid in full for its work and C&C has not?

19 Page 16 FIRST ISSUE Whether Superport is bound by the Contract as an affiliate of McGregor. [56] While the Nova Scotia Companies Act has no direct application in this case, it is useful to consider its Interpretation section at the outset. There, s.2(2) states that a company shall be deemed to be an affiliate of another company if one of them is the subsidiary of the other or if both are subsidiaries of the same company or if each of them is controlled by the same person. While neither McGregor nor Superport is the subsidiary of the other, and are not subsidiaries of the same company, they are both controlled by the same person, namely, Mr. MacIntyre. [57] Another useful reference is the definition of affiliate in Black s Law Dictionary (10 th ed.) which reads A corporation that is related to another corporation by shareholdings or other means of control; a subsidiary, parent, or sibling corporation (cited with approval in Harbert v. Calpine, 2005 NSSC 211). [58] The evidence before the Court conclusively establishes that McGregor and Superport are affiliated companies. Although Mr. MacIntyre stressed that the two companies treat each other as independent contractors and operate as separate entities, the fact remains that both were under his common ownership and control and complemented each other. [59] The closeness of the relationship between the two companies is verified by numerous references in their respective financial statements for the year end November 30, I need not recite every instance of that association but in various notes to the financial statements, the companies are recited to be closely related by their common ownership and whose financial affairs were intertwined in

20 Page 17 terms of intercompany loans and cross guarantees of bank debt. Indeed, Mr. MacIntyre acknowledged that the reference to affiliates in the definition of tangible net worth for McGregor would include Superport for bank purposes. [60] Even more telling is a Resolution of Directors of McGregor certified by Mr. MacIntyre as Secretary on April 1, 2010 in which the company resolved to guarantee a project credit line borrowed from the Bank of Montreal by affiliated company, Superport Marine Services Limited. [61] The fact that McGregor and Superport are affiliated companies is not, however, the end of the analysis of this issue. The question remains whether the parties negotiating the successive contracts for deepwater survey services intended to create a privity of contract between Superport and C&C International. [62] Both counsel have referred me to the recent decision of the Supreme Court of Canada in Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53. At paragraph 46 of that decision, the court noted the adoption of the modern day approach to contractual interpretation which directs courts to have regard for the surrounding circumstances of the contract based on objective evidence often referred to as the factual matrix when interpreting a written contract. The court then went on to say that the interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction and that the overriding concern is to determine the intent of the parties and the scope of their understanding. To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract.

21 Page 18 [63] I have also been referred to the decision of the Ontario Court of Appeal in Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205. That decision also reviews the broad principles of contractual interpretation that were applicable to that case (at para. 24) and further contains the following passage (at para. 45): Contracts are not made in a vacuum, and there is no dispute that the surrounding circumstances in which a contract is negotiated are relevant considerations in interpreting contracts... "[w]hile the task of interpretation must begin with the words of the document and their ordinary meaning, the general context that gave birth to the document or its 'factual matrix' will also provide the court with useful assistance." [64] The present case is different from most of the reported cases on contractual interpretation because we are not here dealing with the interpretation or meaning of an operative part of a contract defining the rights and/or obligations of the parties. Rather, the word affiliates in the heading of the document has to be interpreted to reflect the intention of the parties negotiating the contract as to what entities were to be bound by it, using the aforesaid approach. [65] Furthermore, in my view, the broad use of the words affiliated companies in describing the parties to the contract creates an ambiguity or uncertainty, since they are not named or identified and given the fact that both McGregor and C&C International had multiple affiliated companies. This ambiguity enables the Court to look at the extrinsic evidence surrounding the formation of the contract to ascertain the mutual intent of the negotiators as to the parties to be bound by it. [66] One can readily understand why C&C was treated as a party to the contracts as it was the operational parent company of C&C International. It was C&C who issued the two proposals to McGregor and who actually performed the AUV mapping services. Indeed, it was confirmed in the evidence of Mr. Dupuis that it

22 Page 19 was C&C employees and equipment which performed all the work and that C&C International did not employ anyone. This would seem to explain the template language of the contract in describing C&C International and its parent/subsidiary and affiliated companies as parties. There was obviously no intent or expectation to include any other affiliated companies of C&C International as parties to these contracts. [67] The situation with respect to Superport is different altogether. [68] Quite apart from the fact that Superport is not named or even mentioned in any way in any of the contract documents (including the antecedent C&C proposal and McGregor letter of intent which formed the basis of the contracts), both Messrs. Ortego and Dupuis were very candid in their cross-examinations at trial on who the contracting parties were thought to be. [69] At first, Mr. Ortego thought that C&C had been asked to perform survey work for Superport. He therefore sent an to Ms. Easthouse on October 4, 2013 requesting the usual credit check information. Her reply on the same day, recited earlier in this decision, was that the survey work was to be for McGregor and not Superport. In a further exchange of s on October 8 th, Ms. Easthouse further clarified that C&C was being contracted by McGregor to perform the survey work and sent Mr. Ortego credit check information with respect to McGregor only. As noted earlier, Mr. Ortego circulated these s to other executives and corporate counsel at C&C involved with the contract. [70] Mr. Ortego acknowledged at trial that upon receipt of these two s from Ms. Easthouse, he knew that:

23 Page 20 McGregor was the prime contractor meaning that McGregor was the company to be invoiced and who they would be paid by; There were no other prime contractors involved and more specifically, the acknowledgement was made that at no time was Superport considered to be a prime contractor; The contract for the performance of the AUV services was to be with McGregor and that Superport was not to be a party to the contract. [71] Mr. Ortego also acknowledged that he never revisited his initial inquiry with anyone at Superport at any time since. [72] Mr. Dupuis acknowledged that he was the prime negotiator on behalf of both C&C companies, albeit on the operational side and not the legal side. He acknowledged that his counterpart, Mr. Hunter, told him he was with McGregor. [73] Initially, Mr. Dupuis also expected that both McGregor and Superport would be parties to the contract and accordingly, asked Mr. Ortego to do a credit check on both companies. Once he saw Ms. Easthouse s two s above referred to, however, he acknowledged at trial that: He then understood that Superport was not to be a party to the contract; He didn t speak with anyone else at Superport about Ms. Easthouse s e- mails and the topic never entered his mind again;

24 Page 21 Although he had received credit check information on McGregor only, he felt that there would be lien rights available that would a sufficient assurance of payment, even though Superport was not to be a party to the contract; It therefore didn t matter to him that Superport was not to be a party; It didn t matter to him if Mr. Hunter could also speak for Superport and he therefore never asked the question of Mr. Hunter; [74] Mr. Dupuis further acknowledged that he didn t ask Mr. Hunter at any time who the affiliated companies of McGregor were, nor did he tell Mr. Hunter he expected any affiliates to be bound by the contract. He also confirmed that he did not ever discuss with Mr. Hunter the definition of the parties in the contract. [75] When asked about the second proposal for the Spectra project, Mr. Dupuis acknowledged that he again understood that Superport s obligation was to supply the vessel and crew and that was it. He further acknowledged in respect of both projects that he expected McGregor alone to pay C&C International s invoices; that all the invoices were accordingly sent to McGregor only and that s who we expected to pay them. [76] Clearly, there was no intent or expectation on the part of anyone in the C&C camp that Superport was also to be a party to its contract with McGregor under either project. All four parties to this legal proceeding engaged in the performance and completion of both projects with the intent and expectation that it was McGregor, and not Superport, who would be responsible for the payment obligations under those contracts. All invoicing by C&C International was directed to McGregor only, as stipulated.

25 Page 22 [77] It appears that it never entered anyone s mind otherwise until McGregor s payment obligations became overdue which lead to the August 7 th conference call above mentioned. Even then, Mr. Ortego s follow up on August 14 th asked Ms. Easthouse and Mr. Weir for financial information about McGregor only and not about Superport. Indeed, the first time the claim against Superport was advanced was in the pleadings of this lawsuit. [78] In light of these admissions, the applicants are unable to prove privity of contract with Superport, i.e., that they are both parties to the same contract. The underlying factual matrix informs the correct interpretation of the template wording used in the description of the parties in the contract. Substance must prevail over form. The Applicants claim against Superport therefore cannot succeed on the basis of this first issue. SECOND ISSUE -Whether Superport bound by the Contract through the agency of McGregor under either doctrine of Implied or Ostensible Authority? [79] There are three forms of legal authority which will permit an agent s conduct to bind the principal, namely, actual express authority, actual implied authority, and ostensible or apparent authority. The applicants here submit that McGregor had implied or ostensible authority to bind Superport to the contract made with C&C International. [80] There is a convenient summary of these different forms of legal authority set out in the Agency segment of Halsbury s Laws of Canada, First Edition at HAY- 32 which reads as follows:

26 Page 23 Actual "implied authority" arises when the principal places another (the agent) in such a situation that, according to ordinary usage, that person would understand him or herself to have the principal's authority to act on the principal's behalf, or where the principal's words or conduct, coming to the knowledge of the agent, are such as to lead to the reasonable inference that the principal wishes or consents to the agent acting as so inferred. Where the principal's conduct leads to such an inference, the principal has effectively consented to the agent having authority to act as he or she did. Implied authority may exist where the course of dealing between the agent and principal shows that, with the knowledge and consent (express or implied) of the principal, the agent has been exercising the authority he or she assumed was granted. Both the existence and scope of implied authority are discoverable by reference to the conduct of the parties. In contrast, an "apparent" or "ostensible" authority is a legal relationship between the principal and the third party. It is created by an interpretation placed by the law on the relationship and dealings of the two parties as a consequence of a representation, made by the principal to the third party. Such representation must be intended to be and in fact acted on by that third party, to the effect that the agent has authority to enter on behalf of the principal into a contract of a kind that falls within the scope of the "apparent" authority, so as to render the principal liable to perform any obligations imposed by such contract. The agent is a stranger to this relationship. The agent need not be (although he or she generally is) aware of the existence of the representation. The representation, when acted on by the third party by entering into a contract with the agent operates as an estoppel, preventing the principal from asserting that he or she is not bound by the contract. It is irrelevant whether the agent had actual authority to enter into the contract." [81] The evidence relied on by the applicants in support of this argument centres on the interaction between Mr. Hunter and Mr. MacIntyre after the draft contract was received from Mr. Dupuis on or about November 12 th. As recited in paras of this decision, Mr. Hunter forwarded the draft contract to Mr. MacIntyre with a request that he have a look to see if he saw anything they needed to be aware of or to change. Mr. MacIntyre had no comments to make on the draft contract apart from speaking with Mr. Hunter about the stern controls needed on the vessel to handle the AUV equipment. Mr. Hunter recalls only a general discussion with Mr. MacIntyre at the time, as a result of which he was satisfied to sign the contract for McGregor.

27 Page 24 [82] It is contended on behalf of the applicants that this course of dealing suggests that Mr. MacIntyre consented to Mr. Hunter s acting as an agent on behalf of Superport such that McGregor had the implied authority to bind Superport to the contract. That argument, in my view, is unsustainable. [83] The purpose in forwarding the draft contract to Mr. MacIntyre for his review would have been twofold. First, he was the head person at McGregor as its president, sole director and ultimate owner. Secondly, he stated his main concern at the time to be focused on getting the vessel properly outfitted for the project and dealing with the associated finance requirements. The forwarding of this draft contract to Mr. MacIntyre was not made in the context of any principal-agency relationship. Indeed, Mr. Hunter attested that he has never been authorized to make contracts on behalf of Superport, nor has he ever been an employee of Superport. [84] There is no evidence in this case that Superport ever placed Mr. Hunter in a situation such that he would understand himself to have Superport s authority to act on its behalf; nor can any reasonable inference be taken from the evidence that Superport wished, or consented to, having Mr. Hunter act on its behalf. Mr. Hunter clearly had no actual authority to do so, nor does the course of conduct here described support a finding of actual implied authority. [85] I turn now to the doctrine of ostensible authority. It is established in the case law that in order for this doctrine to arise, three requirements must exist (see, for example, Boyle v. Maritime Travel Inc., 2014 NSCA 44 at para. 23). [86] As there stated, first there must be a representation or holding out by the principal by way of a statement or conduct indicating the agent s authority to act for him or her; second, there must be a reliance on the representation by the third

28 Page 25 party; and third, there must have been an alteration to the third party s position as a result of the reliance. [87] Another useful summary of the requirements for ostensible authority can be found in the Fridman text on Canadian Agency Law (Second Edition). The following passages are quoted from pages of that text: Unlike the previous kinds of authority discussed, an agent s apparent or ostensible authority is not an actual or real authority. It does not result, as do express and implied authority, from the express or implied consent on the part of the principal that the agent should have any authority, or the kind of authority the agent has purported to exercise. Apparent or ostensible authority is the product of the principal s conduct, a representation that the person acting as an agent is authorized to act on his or her behalf. It is an authority which apparently exists, having regard to the conduct of the parties. In fact, it does not exist; but as a matter of law, arising out of the factual position, the agent is said to have authority.... The representation, when acted upon by the contractor by entering into a contract with the agent, operates as an estoppel, preventing the principal from asserting that he is not bound by the contract. However, no agency by estoppel can be derived from apparent authority if the agent contracted in his own name, not in the name of a principal. [88] The submission of the applicants is that the evidence of ostensible authority overlaps with the objective evidence of affiliation between McGregor and Superport and how they presented themselves to the applicants as earlier described in this decision. [89] What the court must look for more specifically, however, is whether a clear representation was ever made on behalf of Superport (by statement or conduct) to the effect that McGregor had authority to enter on behalf of Superport into a contract of the kind here, and whether any such representation was intended to be

29 Page 26 and in fact acted upon by C&C so as to render Superport liable to perform any obligations imposed by such contract. [90] I have already recounted the evidence about how McGregor and Superport cross promoted their respective businesses in their marketing efforts as affiliated companies which enabled third party contractors to have one point of contact in undertaking various projects. Beyond that, however, the only personal interaction of Mr. MacIntyre on behalf of Superport (from whom the required representation must come) with anyone from the C&C side was his handing out two business cards to C&C s ship inspector, Mr. Richards, one as president of Superport and one as president of McGregor. None of this evidence, in my view, is sufficient to constitute a clear representation from which ostensible authority could be inferred. [91] The onus is on the applicants here to establish that Superport intentionally held out McGregor as its agent in their dealings with C&C. Such a conclusion cannot be drawn in this case where there is no evidence that anyone at Superport did or said anything that could have reasonably been interpreted by C&C as giving Mr. Hunter authority to act as its agent. [92] To the contrary, and fatal to the applicants submission in this regard, are the admissions made by Messrs. Dupuis and Ortego above recited. Both acknowledged that they understood from Ms. Easthouse s s that Superport was not to be a party to the contract and that McGregor alone was to be responsible for the payment obligations thereunder. Mr. Dupuis specifically acknowledged that Mr. Hunter had told him that he was with McGregor. At no time did Mr. MacIntyre or anyone else on behalf of Superport direct, or represent to, C&C that Superport matters could be negotiated with Mr. Hunter. Indeed, Mr. Dupuis

30 Page 27 acknowledged in his evidence at trial that it didn t matter to him if Mr. Hunter could also speak for Superport and he therefore never asked that question of Mr. Hunter or anyone else. [93] Once informed by the s from Ms. Easthouse in early October that the contract was to be with McGregor and not Superport, no one at C&C ever disputed or followed up on that express disclaimer of Superport s contractual involvement. C&C thereupon abandoned its request for credit check information on Superport and appears to have been satisfied to rely on McGregor s credit references and lien rights which were perceived at the time to be available. Indeed, Mr. Dupuis expressly acknowledged in cross-examination that given the lien rights C&C thought it had, it did not matter that Superport was not to be party to the contract. That position did not change until the August 7 th conference call when the claim against Superport was first advanced. [94] Even when the second project was negotiated in February, 2014 there was no change in the contractual arrangements made and understood by the applicants. Mr. Dupuis again acknowledged in his evidence that Superport was never asked to be added as a party thereto and that its only obligation was to supply the vessel and crew needed for the project. [95] In summary, the applicants are unable to discharge the onus of proving that Superport intentionally, by words or conduct, represented or held out McGregor as its agent in dealing with these two projects. Neither can it be said that the applicants placed reliance on any representation made by Superport or in any way altered its position arising therefrom. In the result, the applicants claim against Superport cannot succeed on the basis of either implied or ostensible authority.

31 Page 28 THIRD ISSUE Whether Superport bound by the contract through Agency by Ratification. [96] The applicants further contend, in the alternative to implied or ostensible authority, that Superport is bound by the contract made with McGregor as a result of express or implied ratification. It is argued that Superport has ratified the contract by (a) obtaining benefits or profits thereunder and/or (b) failing to repudiate the contract within a reasonable period of time after learning that McGregor had purported to enter into the contract on Superport s behalf. [97] The meaning and nature of ratification is well described in the following passage from the Fridman text on Canadian Agency Law at pg. 41: The agent acts on behalf of the principal at a time when the relationship of principal and agent does not exist. In fact, the agent has no authority to do what is done at the time it is done. Subsequently, however, the principal on whose behalf but without whose authority the agent acted accepts and adopts the agent s act, exactly as if there had been prior authorization by the principal of the agent to do what has been done. Ratification by the principal means that the principal agrees with the performance of the action undertaken by the previously unauthorized agent. When this occurs, the ratification relates back, and the previously unappointed agent is treated as having been authorized at the time the act in question was performed. [98] Another useful reference setting out the requirements for agency by ratification is found in Halsbury Laws of Canada, supra, at Agency HAY-22 which reads as follows: "Three Conditions. Actions by a principal after the agent has purported to act on the principal's behalf may amount to creation of agency by ratification. For this to occur, three conditions must be satisfied. First, the agent whose act is sought to be ratified must have purported to act for the principal; second, at the time the act was done the agent must have had a competent principal; and third, at the time of the ratification the principal must be legally capable of doing the act himself.