Court Awards $90M for Government Misconduct

Justice John O’Driscoll of the Superior Court of Justice released a judgment in Amertek Inc. et al. v. Canadian Commercial Corporation et al. on August 7, 2003, in which the plaintiffs were awarded approximately $90 million, including $600,000 for punitive damages, resulting from government misconduct.

In 1984, Canadian Commercial Corporation (CCC), entered into a contract with the U.S. Army to design and manufacture 362 military fire trucks. CCC subcontracted that work to a Quebec-based company, which soon after became insolvent. This left CCC in default of its contract with the army. In 1985, when CCC learned it was going to be terminated by the army for default and liable for the full reprocurement costs, CCC and the Department of Supply and Services, now Public Works and Government Services Canada, invited Amertek to submit a bid and to take over the work.

Amertek was told that its price was too high and the contract was “profitable” when internal government memoranda had concluded that not only was the contract underpriced, but that Amertek was not technically competent to perform the work. After two doctors were induced by more false statements to invest $2.1 million, Amertek completed the contract, but was financially ruined.

Amertek obtained a ministerial assurance that an objective and independent review of CCC’s conduct would be undertaken. Instead, CCC retained its own auditor, Deloitte & Touche, to prepare the report. The court found the report, which entirely absolved CCC, to be a “whitewash” and a “farce”. After Amertek commenced this litigation, it made a proposal to its creditors. CCC was the only creditor that voted against the proposal. It was approved by all other creditors and by the court. Subsequently, CCC brought a motion to set aside the proposal alleging fraud on Amertek’s part. CCC had no evidence of fraud and its motion was dismissed.

The judge found the government defendants liable to Amertek for the full amount of the reprocurement liability avoided by CCC to the U.S. Army in 1985 of US$26.5 million on the following grounds: deceit; breach of fiduciary duty; unjust enrichment; breach of collateral contract; and breach of the implied duty of disclosure (Doctrine of Superior Knowledge). Under the doctrine the government defendants had an obligation to disclose to Amertek prior to contract award vital information of which Amertek was unaware. He also found CCC liable for abuse of process in attempting to bankrupt Amertek the second time. Justice O’Driscoll also awarded the doctors damages to compensate them for their lost investment.

The plaintiffs were represented by Robert Taylor and Lisa Bolton of Blaney McMurtry LLP, and by John McCamus, professor, Osgoode Hall Law School. The defendants were represented by Ian Dick, Coleen Mitchell, Lois Lehmann and Valerie Anderson of the Department of Justice.