Total Petroleum (North America) Ltd. et al. v. AMF Tuboscope Inc. et al., (1987) 81 A.R. 321 (QB)

• Judge: O'Leary, J.
• Court: Court of Queen's Bench of Alberta (Canada)
• Case Date: August 07, 1987
• Citations: (1987), 81 A.R. 321 (QB)

Total Petroleum Ltd. v. AMF Tuboscope (1987), 81 A.R. 321 (QB)

MLB headnote and full text

Total Petroleum (North America) Ltd., Total Petroleum (Canada) Ltd., Dome Petroleum Limited and Pancanadian Petroleum Limited v. AMF Tuboscope Inc., Petro-Line Construction Canada Ltd. and Quantel Engineering (1981) Ltd.

(Action No. 8201-05969)

Indexed As: Total Petroleum (North America) Ltd. et al. v. AMF Tuboscope Inc. et al.

Alberta Court of Queen's Bench

Judicial District of Calgary

O'Leary, J.

August 7, 1987.

Summary:

The plaintiffs jointly owned oil wells. The plaintiffs employed the defendant Quantel Engineering to design a pipeline gathering system. On Quantel's recommendation, the plaintiffs contracted with the defendant AMF to provide its Thru-Kote joint system, a system designed to seal the pipe joints. The defendant Petro-Line was employed to do the actual construction work. After partial completion, the Thru-Kote system was tested and found to be inadequate, because it failed to seal the joints. The completed work was replaced by another system, resulting in increased construction costs and a two month delay in completion. The plaintiffs sued all three defendants for the increased costs, production revenue lost or deferred and interest. The claim against AMF was for breach of an express collateral warranty as to the quality and fitness of the Thru-Kote system. Alternatively, the claim was based on a breach of various conditions and warranties under the Sale of Goods Act. The claim against Petro-Line was for improper workmanship in installing the Thru-Kote system. The claim against Quantel was for negligence in recommending the system. Quantel third partied Petro-Line and AMF. Petro-Line fourth partied AMF and Quantel. AMF counterclaimed against the plaintiffs for the agreed price of the Thru-Kote system.

The Alberta Court of Queen's Bench allowed the action in part. The court allowed the action against AMF, but dismissed it as against Quantel and Petro-Line. The court dismissed the counterclaim and the third and fourth party claims. The court awarded damages for increased construction costs and interest, but held that the claim for lost or deferred production revenue was too remote to be compensable.

Contracts - Topic 1484

Formation of contract - Collateral contracts - What constitute - The Alberta Court of Queen's Bench stated that "a party seeking to establish a collateral contract must prove strictly the essential elements of an agreement separate and distinct from the main contract. The terms of the separate contract must be certain and clear in the minds of both parties. Consideration for the seller's promise will usually be found in the buyer's agreement to enter into the main contract on the strength of that promise. Most important, the totality of the evidence surrounding the transaction must clearly show an intention by both parties to create a contractual relationship. That intention is to be determined objectively from the words used and the conduct of the parties" - See paragraph 39.

Contracts - Topic 1484

Formation of contract - Collateral contracts - What constitute - Oil companies wanted a pipeline gathering system that would ensure that transported fluid would not come in contact with base metal at the weld sites - AMF manufactured the Thru-Kote joint system - AMF's brochure represented that the system provided a complete and effective seal, preventing such contact - AMF knew of the companies' needs and did not say anything to indicate its system was not adequate for the companies' purpose - The Alberta Court of Queen's Bench held that AMF's representation by the brochure and its silence constituted a collateral contract inducing the companies to enter into the main contract to use AMF's system - The court held that AMF breached that collateral contract, where the system failed to provide a complete and effective seal - See paragraphs 34 to 44.

Damages - Topic 558

Limits of compensatory damages - Remoteness - Contracts - Damages within reasonable contemplation of parties - AMF was hired to provide a joint system for a pipeline gathering system - AMF's system was inadequate and had to be replaced, resulting in a two month construction delay - The plaintiffs claimed damages for lost or deferred production revenue - AMF knew or ought to have known that breach of the contract would delay construction - AMF did not know that a loss of production revenue would result, because there was no evidence that AMF knew the oil well could not be brought into production until the system was finished - The Alberta Court of Queen's Bench held that the plaintiffs were not entitled to damages for lost or deferred production revenue, because such loss was too remote - See paragraphs 98 to 106.

Damages - Topic 1042

Mitigation - In contract - Reasonable remedial measures - What constitute - Oil companies contracted for a pipeline joint system that would provide a complete and effective seal - AMF represented that its system was adequate - After partial completion, it was discovered that AMF's system did not provide a complete seal - The oil companies decided to replace the AMF system with an alternate system, resulting in increased construction costs and delays - The Alberta Court of Queen's Bench held that AMF failed to prove that the oil companies acted unreasonably in the steps taken to mitigate their loss - See paragraphs 90 to 97.

Interest - Topic 5302.1

As damages - Interest on payment of money or debt withheld - "Just debt" - Requirement of - A plaintiff claimed damages for increased construction costs caused by the defendant's breach of contract - The Alberta Court of Queen's Bench held that interest was not recoverable under s. 15(1) of the Judicature Act, because the damages claimed were not a "just debt" under s. 15(1) - See paragraphs 108 to 110.

Professional Occupations - Topic 3304

Engineers - Negligence - Advising client - An engineering firm was hired to design a pipeline gathering system for several oil companies - A complete and effective joint seal was required - The engineer recommended use of AMF's system, which was represented to provide the required seal - The AMF system was inadequate - The Alberta Court of Queen's Bench held that the engineer did not breach the standard of care of a reasonably competent and diligent professional engineer in recommending the system, because it was justified in relying on AMF's representation - See paragraphs 74 to 80.

Sale of Goods - Topic 4062

Conditions and warranties - Express warranty as to quality - AMF represented that its Thru-Kote joint system would provide a complete seal in the joints of the oil companies' pipeline gathering system - The Alberta Court of Queen's Bench held that the representations were terms of the contract to the extent that they described the attributes of the system - The representations were assertions of fact as to the character and quality of the system - The court held that the system's failure to meet the required standards constituted a breach of the express and material terms of the contract - See paragraphs 45 to 46.

Sale of Goods - Topic 4106

Conditions and warranties - Implied or statutory terms as to quality or fitness - Fitness or suitability of goods - The plaintiffs purchased a patented system for sealing pipeline joints - The plaintiffs claimed the system was not reasonably fit for the purpose under s. 17(2) of the Sale of Goods Act - Section 17(3) provided that there was no implied condition of fitness where the buyer purchased a product under its patent or trade name - The Alberta Court of Queen's Bench held that the system breached the implied condition of fitness under s. 17(2) - The court held that s. 17(3) did not apply where the purchaser relied on the seller's skill and judgment; it would apply only if the plaintiff had determined on its own that the patented system was adequate - See paragraphs 61 to 68.

Sale of Goods - Topic 4223

Conditions and warranties - Sale by sample - What constitutes - Oil companies purchased AMF's Thru-Kote joint system for use in their pipeline gathering system - The oil companies were shown a sample of a joint using the system, but the brief casual examination was insufficient to determine whether the system was adequate - The sample was of little or no importance in inducing the companies to contract - The Alberta Court of Queen's Bench held that there was no sale by sample within the meaning of s. 18 of the Sale of Goods Act - See paragraphs 69 to 73.

Sale of Goods - Topic 4343

Conditions and warranties - Sale by description - What constitutes - The Alberta Court of Queen's Bench held that in order to constitute a sale by description under s. 16 of the Sale of Goods Act the description must be contained in the contract - The description is confined to words identifying the kind of goods sold, as opposed to their quality - However, statements bearing on the quality of goods may form part of their identifying description in some cases - Where the contract makes no reference to the quality or attributes of the purchased goods, and the purchasers received the goods described, there was no failure to comply with the description under s. 16 - See paragraphs 51 to 56.

Sale of Goods - Topic 4346

Conditions and warranties - Sale by description - Failure to comply with description - [See Sale of Goods - Topic 4343 above].

Sale of Goods - Topic 4348

Conditions and warranties - Sale by description - Implied condition of merchantable quality - Oil companies purchased AMF's Thru-Kote joint system for use in their pipeline gathering system - The system did not provide a complete and efficient joint seal, as represented - The oil companies claimed AMF breached the condition in s. 17(4) of the Sale of Goods Act that the system was of merchantable quality - The Alberta Court of Queen's Bench held that the system would not be of merchantable quality if it was of "no use for any purpose for which such goods would normally be used" - The description of the goods was general and did not indicate that it was usable for one purpose only - There was evidence that the same system might be used by a knowledgable buyer notwithstanding the incomplete seal - The court held that since it was not proved that no reasonable buyer would utilize the system, it was not proved that the system was not of merchantable quality - See paragraphs 57 to 60.

Cases Noticed:

Heilbut, Symons & Co. v. Buckleton, [1913] A.C. 30, consd. [para. 38].

Bakker v. Bowness Auto Parts Co. Ltd. (1976), 68 D.L.R.(3d) 173, refd to. [para. 53].

Chris Hill Ltd. v. Ashington Piggeries Ltd. et al., [1971] A.C. 441, refd to. [para. 54].

Kendall & Sons v. William Lillico & Sons et al., [1968] 2 All E.R. 444, refd to. [para. 57].

Cammell Laird Co. Ltd. v. Manganese Bronze and Brass Co. Ltd., [1934] A.C. 402; [1934] All E.R. 1, refd to. [para. 57].

Baldry v. Marshall, [1925] 1 K.B. 260, refd to. [para. 66].

Red Deer College v. Michaels et al. (1975), 5 N.R. 99; 57 D.L.R.(3d) 386 (S.C.C.), consd. [para. 94].

British Westinghouse Electric & Manufacturing Co. Ltd. v. Underground Electric Railway Co. of London Ltd., [1912] A.C. 673, refd to. [para. 94].

Banco de Portugal v. Waterlow & Sons Ltd. et al., [1932] A.C. 452, refd to. [para. 95].

Hadley v. Baxendale (1848), 9 Exch. 341; 156 E.R. 148, consd. [para. 99].

Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd., [1949] 2 K.B. 528, refd to. [para. 101].

Koufos v. Czarnikow Ltd., [1969] 1 A.C. 350, refd to. [para. 102].

Aruna Mills Ltd. v. Dhanrajmal Gobindram, [1968] 1 Q.B. 665, refd to. [para. 102].

Continental Oil Co. v. SS Electra (1970), 431 F. 2d 391, dist. [para. 105].

Eyben v. K.R. Ranches (1970) Ltd., [1982] 5 W.W.R. 269; 38 A.R. 336 (C.A.), appld. [para. 110].

Thomas Fuller Const. Co. v. Continental Ins. Co. (1973), 36 D.L.R.(3d) 336, refd to. [para. 113].

Bausch & Lomb Optical Co. Ltd. v. Maislin tpt. Ltd. (1976), 10 O.R.(2d) 533, refd to. [113].

Sanderson v. Blyth Theatre Co., [1903] 2 K.B. 333, refd to. [para. 122].

Hornburg v. Toole, Peet & Co. Ltd. et al. (1981), 28 A.R. 546, refd to. [para. 122].

Statutes Noticed:

Sale of Goods Act, R.S.A. 1980, c. S-2, sect. 16 [para. 51]; sect. 17(2), sect. 17(3) [para. 61]; sect. 17(4) [para. 52]; sect. 18(1), sect. 18(2)(c) [para. 69].

Judgment Interest Act, R.S.A. 1980, c. J-0.5, generally [para. 89].

Judicature Act, R.S.A. 1980, c. J-1, sect. 15 [para. 109].

Authors and Works Noticed:

Fridman, Sale of Goods in Canada (2nd Ed.), pp. 177 [para. 37]; 232 [para. 71].

Fridman, The Law of Contract (2nd Ed.), p. 656 [para. 100].

Trasher, R.J., Recovery of Interest as Damages (1984), 22 Alta. Law Rev. 154, p. 166 [para. 112].

Counsel:

J.J. Marshall, Q.C., and S.B. Chisholm, for the plaintiffs;

J. Franklin and L. Diane Dean, for the defendant, AMF Tuboscope Inc.;

F.A. Mason, for the defendant, Quantel Engineering (1981) Ltd.;

L.W. Olesen, for the defendant, Petro-Line Construction Canada Ltd.

This action was heard before O'Leary, J., of the Alberta Court of Queen's Bench, Judicial District of Calgary, who delivered the following judgment on August 7, 1987: