Tulsa Heaters Inc Court Case Study

Tulsa Heaters Inc. v. Syncrude Canada Ltd.

Between

Tulsa Heaters Inc., Respondent (Plaintiff), and

Syncrude Canada Ltd., Appellant (Defendant)

[2009] A.J. No. 1368

2009 ABCA 414

86 C.L.R. (3d) 245

17 Alta. L.R. (5th) 231

2009 CarswellAlta 2021

Docket: 0901-0062-AC

Registry: Calgary

Alberta Court of Appeal

Calgary, Alberta

C.M. Conrad, M.S. Paperny and C.D. O'Brien JJ.A.

Heard: December 2, 2009.

Judgment: December 2, 2009.

Released: December 14, 2009.

________________________________________

Memorandum of Judgment

The following judgment was delivered by

THE COURT:--

Introduction

1 Following oral argument, this Court dismissed the appeal with reasons to follow. These are the reasons.

2 The appellant, Syncrude Canada Ltd. (Syncrude), appeals a judgment of $587,170.00 (U.S.) awarded to Tulsa Heaters Inc. (Tulsa) for additional costs expended by Tulsa to obtain both welded and seamless pipe for the fabrication of a large industrial fired vacuum heater it was building for Syncrude. Ultimately, the welded pipe was not used. The issue in its simplest form is whether Syncrude authorized Tulsa to use the welded pipe and, thereby, obligated itself to compensate Tulsa for the additional expense when Syncrude decided to proceed with seamless pipe.

Factual Background

3 The facts are described in detail in the lengthy Reasons for Judgment, 2008 ABQB 774, 2 Alta. L.R. (5th) 296. It is not necessary to repeat all of the details, although some of the particular findings of fact will be dealt with in the analysis portion of this judgment. It is suffice for present purposes to briefly outline the background to the dispute.

4 On May 15, 2001, Syncrude issued a Request for Quotation (RFQ) for the design and installation of a fired heater for its Upgrader Expansion Project. The RFQ exceeded 200 pages and included terms, conditions, and specifications. A footnote specified that the pipes for the heater were to be made of Incoloy 825, a specialty alloy the unique properties of which were suited for those portions of the heater where fluid would be travelling at a high rate of speed.

5 The heater, as designed by Tulsa, included radiant tubes of 10 or more inches in diameter, which dimensions were contemplated by the RFQ. One of Syncrude's specifications was that all tubes would be seamless. The common evidence was that seamless pipe is typically preferred, and that it was Tulsa's usual practice to use seamless pipe in smaller dimensions.

6 Syncrude's RFQ also stipulated that materials should be obtained from a list of approved pipe suppliers. The list, referred to as the Approved Manufacturers List (AML), did not include any manufacturers capable of supplying seamless Incoloy 825 pipe of the dimensions in question. When Tulsa could not find a manufacturer of seamless pipe of the required size, it proceeded on the basis that welded pipe would be used for the radiant portion of the heater.

7 On January 2, 2002, Tulsa ordered the materials for the heater, including welded pipe for the radiant portions. On January 7, 2002, Syncrude issued a purchase order for the heater, effective as of November 9, 2001. The delivery date for the destination point was September 13, 2002.

8 Tulsa informed Syncrude, at the end of January 2002, that the pipe had been ordered and that the Incoloy 825 would be provided by Bristol Metals L.P. (Bristol). Tulsa did not at that time specifically point out to Syncrude that Bristol would be supplying welded, as distinct from seamless, pipe. Tulsa was pressed by Syncrude to maintain the heater schedule. Tulsa continued with the job over the next number of months on the basis that the radiant pipe would be welded pipe supplied by Bristol.

9 In the summer of 2002, the Upgrader's timelines were relaxed. On August 7, 2002, Syncrude advised Tulsa that Kaiser Electroprecision Rollmet (Kaiser) might be able to fabricate seamless Incoloy pipe in the required dimensions. Kaiser was not on Syncrude's AML.

10 On August 30, 2002, Syncrude requested that seamless pipe from Kaiser be used in the heater. Tulsa, in turn, sought to have Kaiser added to the AML. In early September 2002, Syncrude requested that Tulsa proceed to order the seamless pipe from Kaiser, notwithstanding that Kaiser had not yet been added to the AML. Tulsa submitted a purchase order to Kaiser on September 5, 2002.

11 Tulsa subsequently submitted a formal request for the approval of Kaiser, which was rejected by Syncrude because the request provided that Syncrude would pay for the additional cost of the seamless pipe, which now was to replace the welded pipe in the radiant portion of the heater.

12 On December 4, 2002, the parties met to discuss the dispute. Syncrude informed Tulsa that the cost of the welded pipe would be determined at a later date. Tulsa proceeded under specific protest for the additional cost of the seamless pipe, and ultimately, on October 3, 2003, issued a formal invoice to Syncrude for the extra pipe. The invoice was rejected. The action was commenced in 2004.

Trial Judgment

13 The trial judge found liability on a number of alternate grounds, including ambiguity in the specifications as to whether seamless pipe was a requirement for the large diameter pipe, as distinct from a preference; amendment of the contract to accept welded pipe, followed by a second amendment to revert to seamless pipe; conduct of Syncrude including elements both of promissory estoppel and waiver; and finally, quantum meruit.

Grounds of Appeal and Standard of Review

14 Syncrude challenges each basis of liability. In particular, it submits:

* (i)

the contract was never amended to allow the supply of welded pipe;

* (ii)

the specifications were not