Cruise Connections Charter Management 1, Lp v. Attorney General of Canada

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

__________________________________

)

CRUISE CONNECTIONS CHARTER )

MANAGEMENT 1, LP, et al., )

)

Plaintiffs, )

)

v. ) Civil Action No. 08-2054 (RMC)

)

ATTORNEY GENERAL OF )

CANADA, et al., )

)

Defendants. )

_________________________________ )

OPINION

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TABLE OF CONTENTS

I. FACTS ....................................................................................................................................... 2

A. The Parties ......................................................................................................................... 2

1. Plaintiffs ......................................................................................................................... 2

2. Defendants ..................................................................................................................... 4

B. April 2008: The RFP ......................................................................................................... 4

C. April and May: Exchanges with Cruise Lines Prior to Bid ........................................ 10

D. Late May: CCCM Prepares for Bid .............................................................................. 12

E. May 23: The CCCM Bid................................................................................................. 16

F. May 30 through June 26: CCCM Awarded Contract; Discussions About Payment

and Taxes Begin; June 3 Meeting ........................................................................................ 20

G. June 29 through July 14: Negotiations Continue; Bank Involved ............................. 27

H. July 15 and 16: Agreement on Project Services Agreement #1 .................................. 33

I. July 16 through 18: Discussions Shift to Articles of Agreement; First Draft of

Articles of Agreement and Feedback .................................................................................. 36

J. July 24 through 27: Internal CCCM Discussions Prior to RCMP Meeting ............... 39

K. July 28, 2008 Meeting and Second Draft of Articles of Agreement ........................... 41

L. July 30 and 31: Negotiations Over Second Draft of Articles of Agreement .............. 45

M. July 31: Executed Version of Articles of Agreement .................................................. 51

N. July 31 through August 19: CCCM Refocuses on Cruise Lines ................................. 56

1. Negotiations with Holland America Start Well ........................................................... 57

2. Negotiations with Carnival Stall; CCCM Considers Royal Caribbean ...................... 57

3. Holland America and Royal Caribbean Raise More Tax Concerns............................ 59

O. August 20 through 27: Bank Financing Talks Stall; RCMP Ship Tour; Tax Issues

Escalate .................................................................................................................................. 63

P. August 25 through September 5: Tax Issues Continue to Escalate ............................ 68

Q. September 5 through 8: Discussions with Canadian Revenue Agency; Financing

Approved ............................................................................................................................... 76

R. September 9 through 12: Parties’ Discussions on Canadian Taxes ........................... 82

S. September 10 through 13: Charter Agreements and Tax Terms Negotiations With

Cruise Lines; RCMP Asks to Raise Contract Amount; Holland America Proposal ..... 86

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T. September 15 through 23: CCCM Proposes Contract Clarification; Further

Involvement with CRA; CCCM’s Lawyers Involved; Negotiations with Royal

Caribbean .............................................................................................................................. 92

U. September 26 through 30: Normande Morin Replaces Kelly Meikle as RCMP

Contracting Authority; Contractual Relationship Begins to Break Down ..................... 97

V. Evening of September 30: CCCM Prepares Nomination Documents ..................... 102

1. Discussion of Nomination of Ships by Class............................................................... 103

2. September 30 E-mails Preparing Nomination Documents ......................................... 105

W. October 1: CCCM Responds to September 30 Letter & Nominates Ships ............ 113

X. October 2 through 6: RCMP Response to Nomination; Renewed Discussions with

Cruise Lines; RBC Sends Formal Conditional Credit Offer .......................................... 119

Y. October 9 through 15: Increased Urgency Leads to Frayed Relationships ............ 122

Z. October 16 through 23: Despite Resolution on Some Issues, Disputes Over Taxes

and CPA Review Continue................................................................................................. 124

AA. October 24 Meeting; RCMP States that 90% Letter of Credit Requirement Is

Reimposed, Then Re-waived .............................................................................................. 129

BB. October 28: Threatening to “Walk Away,” CCCM Demands Assurance on Three

Issues .................................................................................................................................... 137

CC. October 29 through November 7: RCMP’s Response; Final Royal Caribbean

Charter Party Agreement; Attorneys Involved; the Bank Withdraws Financing; Final

Holland America Charter Party Agreement .................................................................... 141

DD. November 10 through 17: Contract Termination ................................................... 150

EE. Late November: CCCM’s Actions Post-Termination ............................................. 155

FF. November 28 through April 2009: RCMP Issues New RFP and Contracts Directly

with Cruise Lines ................................................................................................................ 155

1. Revised RFP ............................................................................................................... 156

2. RCMP-Holland America Charter Party Agreement .................................................. 157

GG. Post Facto Issues ......................................................................................................... 158

1. The Sessions Letter of Credit ..................................................................................... 158

2. The Health Scores ...................................................................................................... 159

HH. Procedural History ..................................................................................................... 159

II. LEGAL STANDARD ......................................................................................................... 161

A. Summary Judgment ...................................................................................................... 161

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B. Application of Foreign Law.......................................................................................... 162

III. ANALYSIS......................................................................................................................... 163

A. British Columbia Law .................................................................................................. 164

1. Contract Interpretation .............................................................................................. 165

2. The “Factual Matrix” ................................................................................................. 166

3. Promissory Estoppel .................................................................................................. 168

4. Repudiation, Fundamental Breach, and Effect of Breach ......................................... 169

B. Summary of Parties’ Arguments ................................................................................. 171

C. Status of the Agreements at the Time of Breach ........................................................ 172

D. Responsibility for Taxes ............................................................................................... 172

1. Whether the Taxes Include CCCM’s Taxes ............................................................... 173

2. Parties’ Arguments .................................................................................................... 174

3. The Articles of Agreement Bound RCMP to Pay Canadian Taxes Imposed on the

Cruise Lines .................................................................................................................... 175

4. The Documents Incorporated in the Final Articles of Agreement Required RCMP to

Pay the Cruise Lines’ Canadian Taxes ........................................................................... 181

5. Promissory Estoppel .................................................................................................. 185

6. Anticipatory Repudiation by Normande Morin ......................................................... 191

7. Fundamental Breach .................................................................................................. 193

E. RCMP’s First Breach Argument: Provision of Charter Party Agreements ........... 196

F. RCMP’s Second Breach Argument: CCCM’s Inability to Obtain Financing ........ 200

G. RCMP’s Third Breach Argument: Health Scores ..................................................... 204

H. RCMP’s Fourth Breach Argument: Canada versus United States Law in Charter

Party Agreements................................................................................................................ 206

IV. CONCLUSION .................................................................................................................. 208

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Vancouver, Canada hosted the 2010 Winter Olympic Games. To ensure available

hotel rooms for athletes, spectators, and staff, the Canadian government sought alternative

housing for the Integrated Security Unit, a multi-agency task force headed by the Royal

Canadian Mounted Police (“RCMP”). The Integrated Security Unit was responsible for ensuring

the safety of visitors, athletes, and venues during the Olympic Games. RCMP found a creative

low-cost solution to the lodging scarcity: it would house members of the Integrated Security Unit

on cruise ships docked at Vancouver’s Ballentyne Pier, using the ships as floating hotels for

approximately six weeks. Through a competitive bidding process in 2008, Plaintiff Cruise

Connections Charter Management 1, LP was selected as the broker to negotiate charters for ships

that met RCMP requirements.

Well before the 2010 Olympics, the relationship between RCMP and Cruise

Connections broke down completely. In this suit, each party blames the other for their failed

agreement. Cruise Connections contends that RCMP reneged on its promise to pay certain taxes

that Canada might impose on the cruise lines. Cruise Connections argues that RCMP’s refusal to

cover these costs made it impossible for Cruise Connections to finalize charter agreements and

bank financing. RCMP insists that it never agreed to pay the taxes in dispute and that Cruise

Connections breached its own contract obligations and missed key deadlines. Both parties now

move for summary judgment, relying on an extensive written record consisting of the parties’

written agreements, correspondence, depositions, and other (almost entirely) uncontested

materials.

For the reasons set forth below, the Court finds that RCMP agreed to pay all

Canadian taxes imposed on the cruise lines. When RCMP refused to acknowledge its

commitment and then repudiated it, it breached the agreement between the parties in a distinctly

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fundamental way. In contrast, the claims of RCMP against Cruise Connections relate to duties

that were not fundamental to the contract, were waived, or were provoked by RCMP’s breach on

tax payments. Summary judgment will be granted to Cruise Connections and denied to RCMP.

The Court will set a bench trial to determine damages.

I. FACTS

A. The Parties

1. Plaintiffs

Plaintiffs are Cruise Connections Charter Management 1, LP (a North Carolina

limited partnership) and Cruise Connections Charter Management GP, Inc. (a North Carolina

corporation). Cruise Connections Charter Management GP, Inc., is the general partner of the

limited partnership, of which the limited partners are Michael Sloane; New West Group, LLC

(an LLC organized by Mr. Tracey Kelly); and Issumavik Management Limited (an entity

organized by Susan Edwards). See CCCM Organizational Documents, RCMP Motion for

Summary Judgment [Dkt. 62] (“RCMP MSJ”), Ex. 7 [Dkt. 62-11]. 1 Plaintiffs are referred to

collectively as Cruise Connections or CCCM, 2 and references to the “CCCM partners” mean Ms.

Edwards, Mr. Kelly, and Michael Sloane. Michael Sloane is also the president of Cruise

Connections Charter Management GP, Inc., of which Mr. Kelly and Ms. Edwards are officers.

Phillip “Bud” Sloane is the Chief Financial Officer of Cruise Connections Charter Management

1, LP, but not a partner. Decl. of Phillip Sloane (“P. Sloane Decl.”), January 15, 2013, CCCM

Br. Opp’n RCMP MSJ (“CCCM Opp.”) [Dkt. 67], Ex. 3 [Dkt. 67-3] ¶ 2.

1

Individual pages of the parties’ exhibits are cited by their Bates numbers, with leading zeros

omitted.

2

In some of CCCM’s internal documents, “CCCMT” is used as an abbreviation for “Cruise

Connections Charter Management Team.”

2

The legal entities comprising CCCM were established on May 23, 2008,

immediately before CCCM submitted its bid to RCMP. See CCCM Organizational Documents

at CCCM9535 (North Carolina Secretary of State certificate dated May 23, 2008); see also

Deposition of Tracey Kelly (“Kelly Dep.”), 3 RCMP MSJ, Ex. 2 [Dkt. 62-6]; Pls. Mot. Summ. J

(“CCCM MSJ”) [Dkt. 60], Ex. 5 [Dkt. 60-5]; Defs. Opp. Pls. MSJ (“RCMP Opp.”) [Dkt. 66] Ex.

3 [Dkt. 66-5]; CCCM Opp., Ex. 9 [Dkt. 67-9]; RCMP Reply [Dkt. 69], Ex. 1 [Dkt. 69-2]; at 122–

23 (stating that the CCCM partners agreed to form CCCM on May 17, 2008 and incorporated on

May 23).

The CCCM partners’ roles for the 2010 Olympics bid were: “Susan Edwards, VP

Operations, Project Manager;” “Tracey Kelly, VP Sales and Marketing, Port and Ship

Negotiations;” and “Michael Sloane, VP Administration.” See E-mail from Sue Edwards to

CCCM Partners titled “Final ISU Bid,” with copy of CCCM Bid (“Bid”), RCMP MSJ, Ex. 17

[Dkt. 62-21], CCCM8248–8320 at CCCM8254; see also CCCM MSJ, Ex. 9 [Dkt. 65-4]

(duplicate of Bid). None of the CCCM Partners is an attorney. The Bid listed Sue Edwards’s

profession as a “Project Manager, Team Leader, Event Specialist and [ ] Administrative Law

Tribunal Member and Member Chair,” with previous experience chartering ships. Id. at

CCCM8270. Ms. Edwards was a resident of Victoria, British Columbia, Canada. Id. at

CCCM8271. A resident of Seattle, Washington, Mr. Tracey Kelly had worked in the cruise line

industry for more than 20 years, including as Vice President of Sales at Holland America Line

3

The depositions appear in the record piecemeal, with each party submitting only limited

excerpts with each brief. (For example, many pages of Michael Day’s deposition appear in

Exhibit 10 to CCCM’s Motion for Summary Judgment. Some, but not all, of those pages are

repeated as Exhibit 1 to RCMP’s Opposition. However, RCMP’s Opposition includes other

pages that were not attached to CCCM’s motion.) For simplicity, on the first citation to any

deposition, this Opinion lists all exhibits containing any portion of the deposition. Thereafter, it

cites only to the deposition generally—for example, “Day Dep. at 16.”

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and Regional Vice President of Sales at Carnival Cruise Lines. Id. at CCCM8276. Michael

Sloane owned Cruise Connections, Inc., a travel agency in Winston-Salem, N.C., id. at

CCCM8279, that had focused “primarily on full ship charters” for the five years preceding

CCCM’s 2008 Olympic bid. Id. at CCCM8278.

2. Defendants

Defendants are Her Majesty the Queen in Right of Canada, the Attorney General

of Canada, and RCMP (collectively, “RCMP”). The three RCMP personnel most important to

the case are Kelly Meikle, Michael Day, and Normande Morin. Ms. Meikle was the Contracting

Authority and CCCM’s primary contact throughout contract formation; her job title was

Manager of Contracting, RCMP “E” Division, Vancouver 2010 Integrated Security Unit

(“ISU”). See E-mail from Kelly Meikle titled “Use of the Port at Ballentyne Pier & Request for

Proposal,” Solicitation No. 2008-00147-ISU, RCMP MSJ, Ex. 9 [Dkt. 62-13]; see also CCCM

MSJ, Ex. 3 [Dkt. 65-1] (duplicate of RFP). Michael Day was the Director of Procurement and

Contracting for the ISU and Ms. Meikle’s supervisor. See Deposition of Michael Day (“Day

Dep.”), CCCM MSJ, Ex. 10 [Dkt. 60-10]; RCMP Opp., Ex. 1 [Dkt. 66-3]; CCCM Opp., Ex. 6

[Dkt. 67-6]; CCCM Reply, Ex. 2 [Dkt. 70-2] at 16-17. Ms. Meikle and Mr. Day were both

stationed in Vancouver. The contract in dispute was the largest on which Mr. Day had ever

worked and was among the largest he handled in connection with the 2010 Olympics. Day Dep.

at 95–96. Normande Morin was the Director of Strategic Procurement for RCMP at RCMP’s

headquarters in Ottawa, Ontario. Letter from Normande Morin to CCCM, CCCM MSJ, Ex. 32

[Dkt. 65-22]. Ms. Morin became involved only in late September 2008.

B. April 2008: The RFP

RCMP issued a formal Request For Proposal (“RFP”) in April 2008, for a broker

to negotiate shipboard accommodations for the Integrated Security Unit (“ISU”) during the

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Vancouver Olympics. See RFP, RCMP MSJ, Ex. 9; see also CCCM MSJ, Ex. 3 (duplicate).

The RFP contained several annexes in addition to its main text and is the first of several

documents that formed the parties’ overall agreement. Its details are described here only as

needed to understand the dispute and the contentions of the parties.

Prefatory Section: The RFP contained a prefatory section titled “Statement of

Work:”

[RCMP] has been assigned the responsibility to plan and manage

policing, security operations and services for the protection of the

Vancouver 2010 Winter Olympics and Paralympic Games (the

Games). This task will necessitate the deployment of vessels to the

Vancouver area in order to provide temporary accommodation of

security force personnel for the period of the Games. . . . [T]he

RCMP Vancouver 2010 Integrated Security Unit (ISU) intends to

charter a vessel or vessels for its exclusive use in Vancouver,

British Columbia for approximately five (5) to six (6) weeks

during the period January 2010 to March 2010. It should be noted

that all Sections of Annex A, Statement of Work are mandatory

requirements.

RFP § 1.2; see also id., Annex A § 1.2 (“All components contained in this statement of work are

considered mandatory unless otherwise indicated.”).

RCMP Contracting Authority: Ms. Meikle was identified as RCMP’s

Contracting Authority, with responsibility for “management of the Contract” and authorizing

changes to the contract. Id. § 5.1.

Incorporation of Standard Contracting Terms and RFP Terms into Contract:

The RFP incorporated its own terms into any resulting contract. Id. § 2.1. It also incorporated

by reference various standard Canadian government contracting clauses. See id. §§ 4.3, 4.3.1

(“All clauses and conditions identified in the title, number and date are set out in the Standard

Acquisition Clauses and Conditions Manual issued by Public Works and Government Services

Canada (‘PWGSC’). . . . 9676 (2007/11/30) General Conditions–Services apply to and form part

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of the contract.”). The interpretation and applicability of one of the standard clauses from the

“9676 General Conditions” are a focal point of the instant dispute.

Choice of Law: As pertinent to CCCM, the RFP required that the law of British

Columbia apply. Id. § 2.4; see also id. § 4.8 (“The Contract must be interpreted and governed,

and the relations between the parties determined, by the laws in force in British Columbia.”).

General Requirements for Submitted Bids: The RFP set forth extensive

requirements for bids. See RFP § 3.1.I. Annex A detailed services requirements and Annex B

detailed financial requirements. As particularly relevant to the matters in dispute, the text of the

RFP stated:

Financial Bid. The Bidder must submit its financial bid in

accordance with Annex ‘B’, Basis of Payment. The total amount

of Goods and Services Tax (GST) or Harmonized Sales Tax (HST)

is to be shown separately, if applicable.

Certifications with the Bid: The following certifications must be

completed and submitted with the bid: Annex B-(Basis of

Payment) Irrevocable Letter of Credit[;] . . . Health Canada Cruise

[S]hip Inspection score of no less than 95% for the year 2006 and

2007. . . . The bid will be declared non-responsive if it is

determined that any certification made by the Bidder is untrue,

whether made knowingly or unknowingly.

Mandatory Requirements: The bidder MUST demonstrate in its

bid that the vessels and services proposed meet those indicated in

Annex A, Statement of Work. These shall include . . . all the

requirements of the Solicitation[;] [and] . . . the financial

capabilities to perform the requirement.

Id. §§ 3.1.II–.III, 3.2.3 (all emphases in original).

Basis of Payment: Bidders were instructed to provide a per-person, per-day

(“PPPD”) rate that would cover the bidder’s costs for ship charters that would satisfy all

requirements. The RFP noted that certain costs would be passed through to RCMP for payment

and should not be included in the daily passenger rate.

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Specifically, Section 4.6.1 of the RFP provided:

The Contractor shall be paid for services rendered and accepted in

accordance with the contract an [sic] all inclusive daily charter rate

in CDN dollars $ ______. The all inclusive price per bed per day

means all costs associated with providing the vessels and all

services as indicated in Annex A at the Port of Vancouver

Ballentyne Pier: All port fees, negotiates [sic] costs for federal

departments, businesses, or other persons providing port services;

licenses; port taxes; fuel for power; water; engine oil;, [sic] port

pilots; crew; meals; non-alcoholic beverages (see Annex A) or any

other applicable fee or cost; required in consideration of the

Contractor satisfactorily completing all of its obligations under the

Contract, the Contractor shall be paid a firm price, Goods and

Services Tax or Harmonized Sales Tax extra, if applicable.

Id. § 4.6.1. Two sections later, the RFP stated:

All prices and amounts of money in the Contract are exclusive of

Goods and Services Tax (GST) as applicable, unless otherwise

indicated. The GST is extra to the price herein and will be paid by

the RCMP. The RCMP is exempt from Provincial Sales Tax

(PST) under exemption number R005521.

The GST shall be extended and incorporated into all invoices and

progress claims and must be shown as a separate item on invoices

and progress claims. All items that are zero-rated, exempt or to

which the GST does not apply, are to be identified as such on all

invoices. The Contractor agrees to remit to Canada Customs and

Revenue Agency any amounts of GST paid or due.

Id. § 4.6.3.

Financial Security & Payment: Bidders were required to “provide security in the

form of [an] irrevocable Letter of Credit from a registered financial institution drawn in favour of

the Receiver General for Canada in the amount of ten (10%) percent of the bid value [with its

bid], and a second security deposit of ninety (90%) percent of the bid value, on or before April 1,

2009 if a the [sic] bid is successful and contract is awarded.” Id., Annex B § 1. The successful

bidder would be paid as follows:

A deposit of seventy-five (75%) of the Contract value shall be

payable to the Contractor, after April 1, 2009, providing the

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contract financial security, in the amount of one-hundred (100%)

of the contract value has been received by the ISU. The form of

the required security will be as previously indicated in this [RFP].

The balance of the amount payable will be paid in accordance with

the payment provisions of the Contract upon completion of

delivery and acceptance by Canada of all Work performed in

accordance with the Contract and a final claim in the form of an

invoice is submitted to the attention of the Contracting Officer.

Id. § 4.6.2.

Contractor’s Obligation to Nominate and Secure Vessels: The RFP allowed

only ten days from contract award for a successful bidder to identify and “secure” the ship(s) to

house the ISU, and it allowed just twenty days to submit proof to RCMP that the bidder had paid

the relevant cruise line(s) 75% of the cost of the charter(s) to guarantee the ship(s)’ presence in

Vancouver. Id., Annex A § 4.1. Those deadlines provided little occasion for a bidder to involve

RCMP in the selection of ships, but other portions of the RFP show that RCMP clearly intended

to have such a role. A few subsections later, Annex A required the successful bidder to:

provide the following information at the time of vessel nomination:

Name of the Vessel; Official number, Class, year built, Flag,

length, beam, displacement, passenger capacity, proof of Health

Canada inspection of no less than 95% in the last two years, proof

of Canadian Insurance and permission from the Cruise Ship line

Insurance Carrier for multi-ship inventory to be docked at one

location for an extended period of time.

Id., Annex A § 4.7 (emphasis added). 4 The text of the RFP also required the successful bidder to

“provide the RCMP with a Standard Cruise Ship Charter party agreement for review and

comments.” Id. § 4.18.1. 5 Nothing in the RFP reconciled the differing requirements in Annex A

4

See also id., Annex A § 4.5 (“The contractor shall ensure the vessel or vessels nominated must

in all respects meet the specification standards of the RFP document. The ISU will confirm

acceptance of the vessels within forty-eight (48) hours of receipt of the vessel nomination.”

(emphasis added)).

5

This provision further required “[t]he Charter Party agreement [between the successful bidder

and the cruise line(s) to] confirm all terms and conditions of the Agreement between [RCMP and

8

§§ 4.1, 4.5 and 4.18.1; defined the terms “secure” or “nominate;” or explained its short timeline,

a full two years before the Vancouver Olympics. It bears emphasis that the RFP appeared to

require the successful bidder to negotiate terms (or execute a contract) for one or more

acceptable ships within 10 days of contract award and to pay 75% of the charter cost to the cruise

line(s) within twenty days of contract award, without allowance for the mandated review and

input from RCMP on charter contracts and specific ships. Moreover, the RFP was silent as to

how the parties would proceed if RCMP, during its review of “nominated” ships, were to reject

them or ask for additional information.

Notwithstanding this set of conflicting provisions, the RFP specified that any:

“[f]ailure by the Contractor to nominate and secure the ships within the time required will

constitute a breach under the agreement and the ISU will take whatever measure at its disposition

to resolve the issue.” Id., Annex A § 4.6. Annex B contained similar language that covered a

broader scope of requirements. See id., Annex B § 2.

The difficulties posed by these various provisions explain, at least in part, the

post-award discussions between RCMP and CCCM.

Requirements for Vessels: The main text of the RFP and Annex A contained

both mandatory and optional specifications for the ships. The instant dispute only involves these

specifications in respect to the ships’ health scores. In relevant part, the RFP stated:

There is a requirement in the [RFP] for the bidder to provide a

Health Canada Cruise ship Inspection score of no less than 95%

for the year [sic] 2006 and 2007. In addition to this requirement,

the contractor shall provide to the Contracting Authority, within

ten (10) days of the vessel receiving, the Inspection scores for the

years 2008 and 2009. It is the responsibility of the contractor to

the bidder] within 10 days of the Contractors [sic] confirmation of acceptance of the ship

nominated.” Id.

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oversee compliance with the cruise ship with respect to all aspects

of this Statement of Work, including maintaining a minimum score

of 95%. The applicable documentation ensuring remedial action

has taken place for a score less than 100% shall also be provided to

the contracting officer within ten days of receipt by the cruise ship

line.

Id., Annex A §§ 5.1, 5.4.

The RFP allowed the cruise lines to substitute one ship for another as long as “the

Contractor and the ISU [are] afforded the opportunity to inspect the proposed substituted vessel

at the cruise lines [sic] expense” and approve the substitution. Id. § 4.11. Notwithstanding this

allowance, the RFP specified that it would be “imperative [that] the Contractor make[] every

attempt to provide the vessels as stated in the contract nomination . . . .” Id.

Priority of Documents: Forecasting conflict among the provisions of a resulting

agreement, the RFP established a priority list of documents:

If there is a discrepancy between the wordings of any documents,

which appear on the list, the wording of the document, which first

appears on the list, has priority over the wording of any document,

which subsequently appears on the list. (a) the Articles of

Agreement; (b) 2003 (200711/30 [sic] Standard Conditions; (c)

9676 (2007/11/30) General Conditions-Services[;] (c) [sic] All

annexes in alphabetical order; (d) The Contractor’s bid dated

______.

Id. § 4.9.

C. April and May: Exchanges with Cruise Lines Prior to Bid

As noted above, the RFP was issued in April 2008, and CCCM was not formed as

a legal entity until May 23, 2008. Sometime during late April or early May, the CCCM partners

began working together to collect cost quotes from cruise lines. Holland America Line

(occasionally “HAL”) submitted a quote of $145 PPPD for the ms Statendam on May 21, 2008,

specifying that “[a]ll passenger-based taxes” and “[a]ll additional taxes” were not included and

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would be the responsibility of the charterer, CCCM. HAL Quote, CCCM MSJ, Ex. 6 [Dkt. 65-2]

at CCCM8491. Holland America also stipulated:

ADDITIONAL TAXES: The quoted CHARTER HIRE makes no

provision for income taxes, gross receipts taxes, branch profits

taxes, withholding taxes, capital taxes, stamp taxes, luxury or

consumption taxes, gross receipts taxes, sales taxes, value added

taxes, goods and services taxes or similar taxes or levies on any

sum payable by CHARTERER imposed by Canada or any political

subdivision thereof.

Id. at CCCM8491–92. A May 22, 2008 quote from Carnival Cruise Lines contained similar

language, stating that it did not include “[a]ny government taxes and fees including docking

charges in ports for the duration of the charter” and omitting any kind of taxes from the list of

costs included in the cost estimate. Carnival Quote, CCCM MSJ, Ex. 7 [Dkt. 65-3] at CCCM53–

57.

Cherie Weinstein of Carnival warned Tracey Kelly by email dated May 23, 2008,

that a lengthy duration in port in Vancouver might raise tax issues for the cruise lines and/or

CCCM. Ms. Weinstein wrote:

Please note that we have uncovered some major unanticipated tax

issues around this charter. From my taxation dept. . . .

“There are a host of Canadian taxes that may be applicable to this

Vancouver dockside charter. These include the following potential

taxes:

1. Customs duty on 25% on a prorated value of the vessel.

2. GST tax of 5% on a prorated value of the vessel.

3. GST tax of 5% on the Charter hire.

4. Canadian payroll taxes on the shipboard crew working in

Vancouver—These include:

a) social security type taxes on the employee at 5.5% and the

employer portion at 6.5%.

b) individual income tax withholding at 15%.

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5. Corporate Income and Branch Profits Tax at a combined

effective rate of approximately 51% on the net profits of the

charter.

6. Hotel Taxes-10% of the ‘Hotel fee.’[”]

The above is just a list of the potential taxes that I have been

advised that could apply to a Canadian full ship dockside charter.

...

I believe you have anticipated the GST tax and the potential hotel

tax. Although you can see there is potential to be double-taxed on

the GST.

As far as Canadian Payroll taxes and Corporate income/branch

profits tax (at 51%!) these are big issues for us because as an

offshore company, we do not pay any of these taxes in our normal

course of business. Had I known this, I would have had to factor

these into the cost of the charter.

Our corporate taxation dept will consult with a Canadian tax

attorney for some counsel on this. If it is determined that these

taxes will apply, we will withdraw and reprice our quote to ensure

that these additional costs are covered in the charter contract rate.

I will be consulting with my counterparts at Holland America and

Princess to inquire as to how (or if) they have treated these matters.

Apologies for this hiccup.

E-mail Among Tracey Kelly & Cherie Weinstein, et al., RCMP Opp., Ex. 97 [Dkt. 66-99] at

CCCM8–9 (emphasis added). After submitting CCCM’s bid to RCMP, Mr. Kelly forwarded

Ms. Weinstein’s e-mail to the CCCM partners, advising, “Just an FYI . . . Noted that we already

addressed these concerns in our Reply to RFP, and they would be vetted out during

negotiations.” Id. at CCCM8.

D. Late May: CCCM Prepares for Bid

CCCM made final preparations for submitting its bid to RCMP in late May 2008.

However, a problem arose at the eleventh hour. CCCM’s private financial arrangements for a

letter of credit for 10% of the bid value, as required by the RFP, fell apart when its financier

12

abruptly withdrew on May 6, 2008. 6 See P. Sloane Decl. ¶ 5; Kelly Dep. at 122–23. At that

point, CCCM was, in Phillip Sloane’s words, “out of time and out of options” and “had no other

viable alternatives for getting the letter of credit before [the] bid was due.” P. Sloane Decl. ¶ 5.

CCCM was not yet a formal business entity, Kelly Dep. at 122–23, and had no cash collateral to

secure a letter of credit, Deposition of Phillip Sloane (“P. Sloane Dep.”), RCMP MSJ, Ex. 4

[Dkt. 62-8]; CCCM Opp., Ex. 39 [Dkt. 67-39]; CCCM Reply, Ex. 5 [Dkt. 70-5]; RCMP Reply,

Ex. 6 [Dkt. 69-7] at 112.

At almost the last minute, CCCM approached John Sessions, a North Carolina

businessman, for help. Although none of the CCCM partners knew Mr. Sessions personally, he

had been suggested “[b]y someone else who was interested in being a backer.” Kelly Dep. at

128. With very limited time—Michael Sloane “had to be in Charlotte in an hour and 45 minutes

to be on an airplane” to meet the bid deadline in Seattle 7—CCCM signed a Letter of Intent with

Mr. Sessions and received a document purporting to be a Standby Letter of Credit. According to

Phillip Sloane, Mr. Sessions “took advantage of the situation, repeatedly raising the price for

providing the letter of credit until he eventually demanded a price equal to the amount of the

letter of credit ($5,057,500.00),” to which CCCM agreed only because it had no options.

P. Sloane Decl. ¶ 5; see also M. Sloane Dep. at 144 (“At the last minute, he went to that dollar

6

Anticipated funding was to have come from Dennis Laliberte, a resident of Canada, who had

been collaborating with one or more of the CCCM Partners since June 2007. M. Sloane Dep. at

28. Messrs. Sloane and Kelly and Ms. Edwards sued Mr. Laliberte in the United States District

Court for the Middle District of North Carolina, but the case was dismissed for lack of personal

jurisdiction over Mr. Laliberte. Sloane v. Laliberte, No. 1:08-cv-00381-CCE-LPA (M.D.N.C.

July 19, 2011) (memo. op. & recommendation of magistrate judge that case be dismissed due to

lack of personal jurisdiction over Laliberte) at *9, adopted in full by district judge (Sept. 15,

2011).

7

P. Sloane Dep. at 66–67; Deposition of Michael Sloane, July 18, 2012 (“M. Sloane Dep.”),

RCMP MSJ Ex. 3 [Dkt. 62-7]; CCCM Opp., Ex. 11 [Dkt. 67-11]; CCCM Reply, Ex. 4 [Dkt. 70-

4]; RCMP Reply, Ex. 7 [Dkt. 69-8]; at 36–38.

13

for dollar.”), P. Sloane Dep. at 66–67 (“[Mr. Sessions] was to get a dollar for dollar for every

dollar he put up, including the letter of credit.”).

The Letter of Intent was a four-page document executed by Mr. Sessions and

each of the CCCM partners. See E-mail & Letter of Credit (“LOC”), RCMP MSJ, Ex. 67 [Dkt.

62-71]; CCCM Opp., Ex. 36 [Dkt. 67-36] (duplicate); Sessions Letter of Intent, RCMP Opp., Ex.

75 [Dkt. 66-77]. Because the Sessions Letter of Intent figures prominently in RCMP’s defense

to this suit, its relevant provisions are quoted in full:

This Letter of Intent is offered by John Sessions (“Sessions”) to

identify the terms upon which he is willing to enter into a business

relationship with both of you and your company, “Cruise

Connections Charter Management 1, LP” (the “Partnership”), in

order to provide certain accommodation to assist you in submitting

a response to Solicitation Number 2008-00147-ISU issued by the

Royal Canadian Mounted Police, Vancouver, 2010ISU11411 No. 5

Road, Richmond, B.C.V7A4E8. The definitive arrangement

between Mr. Sessions and/or his nominee and yourselves shall

include but not necessarily be limited, at the discretion of Mr.

Sessions, to the following:

In exchange for providing an unredeemable, non payable Letter of

Credit in the amount of $5,057,500.00, Mr. Sessions shall be

granted assignable rights to receive Warrants at no cost to him for

special limited partnership interest in the Partnership which he or

his assignee solely at their election may either cause the

Partnership to redeem or convert to special limited partnership

interests.

If the Partnership is the successful bidder and enters into a contract

providing services for the Royal Canadian Mounted Police (the

“RCMP Contract”), and if Sessions or his assignee elects to

exercise his right to receive a special limited partnership interest in

the Partnership or demand that the Partnership redeem the

Warrants, Sessions or his assignee shall receive allocations and

distributions from the Partnership in an amount equal to the sum of

(i) $5,057,500.00 plus (ii) two (2) times the amount of additional

capital advanced, loaned, or provided by Mr. Sessions or

advanced, loaned, invested or provided with the assistance of Mr.

Sessions or his nominee together with the principal amount so

advanced, loaned, or provided with his assistance. . . .

14

If the Partnership is the successful bidder and enters into the

contract contemplated herein, the Partnership shall pay Sessions’

choice of either the redemption for special limited partnership

interest or if the Warrants are exercised allocations and

distributions of the amounts described above within 10 days after

the Partnership receives its initial payment from the Royal

Canadian Mounted Police or Government of Canada or the

contracting authority whomever that should be (currently expected

to be 75% of the total project fee) (the “Initial Fee Installment”).

This Letter of Intent is offered upon your express representations

that the parties will work in good faith toward the preparation and

execution of a definitive Limited Partnership Agreement with

Warrants as described herein that reflects the terms set forth in this

Letter of Intent; that the Partnership will be duly formed as a North

Carolina limited partnership; that there are not now and will not in

the future be any outstanding warrants, or options, or liens or

encumbrances of any kind, which would prevent the issuance of

warrants for special limited partnership interest to Sessions free of

all claims and assessments.

...

The terms of the Letter of Credit to which Sessions agrees are

attached hereto . . . . It is specifically understood that Sessions is

making no commitment to provide any further accommodation,

letter of credit or loan, and, at this time, is only arranging for the

issuance of the initial Letter of Credit pursuant to the terms

attached hereto. In the event the contract is awarded to agent or

owner or other entity which pays any of the parties to this

agreement a fee of any kind, that party shall pay to Sessions 35%

(thirty-five percent) of the fee any party receives within 10 days of

receipt.

Sessions Letter of Intent at CCCM15132–33.

Dated May 22, 2008, the Sessions Letter of Credit was titled “Irrevocable Standby

Letter of Credit.” LOC at CCCM12394. It listed the Southern Community Bank and Trust

“We” Credit Administration Department, Winston Salem, NC as the “advising” bank; Canada as

the Beneficiary; CCCM as the “Applicant;” and Carolina Shores Leasing, LLC, as the “co-

15

applicant.” 8 Id. The face amount of the Sessions Letter of Credit was $5,057,500.00 and its

“Expiry date” was July 1, 2008. Id. It further stated:

We hereby issue our Standby Letter of Credit in favour of the

Crown, in the amount of Five million fifty-seven thousand five

hundred dollars and zero center ($5,057,500.00), subject to the

following terms: This Letter of Credit may not be drawn upon

under any circumstances, and is provided only to show that

applicant has the ability to provide a Letter of Credit.

Notwithstanding the foregoing, for greater clarity, this Letter of

Credit shall not be drawn upon even if the applicant is the

successful bidder in the above referenced RFP.

Id.

The legal effect of the Sessions Letter of Intent is put at issue by RCMP, which

argues that the Sessions Letter of Intent created a definitive debt obligation that CCCM wrongly

did not disclose when it sought financing from the Royal Bank of Canada and, had it done so,

CCCM would have received no financing to meet contract requirements. See infra § III.F.

E. May 23: The CCCM Bid

The CCCM Bid (“Bid”), submitted on May 23, 2008, is reproduced in the record

as Exhibit 17 to RCMP’s Motion for Summary Judgment, Dkt. 62-21, and as Exhibit 9 to

CCCM’s Motion for Summary Judgment, Dkt. 65-4. 9 The Bid identified Victoria, British

Columbia, as CCCM’s location. Bid at CCCM8249. In its “Acceptance of Statement of Work,”

CCCM responded to each clause of the RFP—i.e., either agreement or a request for a change.

As an “Overview,” CCCM indicated:

8

Carolina Shores Leasing, LLC is not otherwise identified in the record or known to Ms.

Edwards or Phillip Sloane. Deposition of Susan Edwards, July 21, 2012 (“I Edwards Dep.”),

RCMP MSJ, Ex. 1 [Dkt. 62-5]; CCCM MSJ, Ex. 19 [Dkt. 60-19]; RCMP Opp., Ex. 2 [Dkt. 66-

4]; CCCM Opp., Ex. 12 [Dkt. 67-12]; RCMP Reply, Ex. 4 [Dkt. 69-5]; at 22, P. Sloane Dep. at

69.

9

The opinion cites to the CCCM Bates numbers as contained in RCMP MSJ Exhibit 17.

16

We agree with and/or support the intent of every clause in the

Statement of Work as required. We have identified those Clauses

that are, in our interpretation, in conflict with the primary focus of

this RFP, which is to deliver the lowest daily cost per bed with all

required Operational and Service levels met.

To the Clauses that we support the intent of, but do interpret them

as conflicting to the primary focus, we have offered alternatives

that are consistent with the Charter Cruise Ship Industry and that

also illustrate our commitment to providing the lowest price per

bed with all required Services on the most appropriate ship.

CCCM8260. CCCM proposed that “during Contract Negotiations, it would be our responsibility

to negotiate in turn with the Cruise Line to add in any specific Clauses that the ISU may wish to

have included in the [Charter Party Agreement] on this issue.” Id. at CCCM8265.

The Bid offered RCMP two price options, each giving a fee of “Per person

Charter Hire per bed per day” plus “Per person per day (estimate) Firm Price pass through

Service Provider Costs, Taxes (GST.50 per person per day)—invoices will be given directly to

RCMP for payment.” Id. at CCCM8252. Option 2 proposed to use one Holland America ship

with a capacity of 1,258 passengers and two Carnival ships with a capacity of 2,052 passengers

each, for a total of 5,362 passengers. Id. at CCCM8262–63, CCCM8298–300.

Basis of Payment: The Bid responded to the RFP’s payment clauses, RFP § 4.6,

in a section of the Bid labeled “Part 6” and “Part 6.3” at CCCM8302. CCCM proposed that:

(1) Port Fees would be “a direct pass through cost” paid by RCMP; (2) Government Fees, Taxes

and docking fees would also be a direct pass through cost, id.; (3) the two taxes identified by the

ISU, Goods and Services Tax (GST) and Harmonized Sales Tax (HST), would be paid by RCMP

and no Provincial Sales Tax (PST) would be paid because RCMP is exempt; (4) “Any additional

taxes identified by the Cruise Lines are questionable, and a tax lawyer will be consulted on these

issues after the Bid Award;” and, finally, (5) “In any case, all taxes are not the responsibility of

the Charterer, they are additional and a pass through cost to the Government of Canada.” Bid

17

at CCCM8302 (emphasis added). The final clause was “specific language” CCCM put into its

Bid as a response to the “consistent feedback and concerns voiced by the cruise lines” about “the

potential that Canadian government taxes would be assessed against the cruise lines, due to the

fact that the ships would be docked in a Canadian port for an extended period of time.” Kelly

Dep. at 213–15; Declaration of Tracey Kelly, November 29, 2012 (“I Kelly Decl.”), CCCM

MSJ, Ex. 8 [Dkt. 60-8] ¶¶ 4, 6. The cruise lines “informed [CCCM] that whatever Canadian

government taxes were imposed against them as a result of the charter, in whatever amount,

would be additional to the charter fare.” I Kelly Decl. ¶ 7. “[T]he cruise lines did not know

which specific taxes would ultimately be assessed, and did not know how much those taxes

would be,” so CCCM “could not include a specific amount in its bid price to cover the amount of

the taxes” and instead “included a provision in its bid stating that the RCMP would be

responsible for paying any such taxes as a pass-through cost to the RCMP.” Id. ¶¶ 6, 8. Mr.

Kelly explained the cruise lines’ concerns as follows:

In the cruise industry, cruise lines are structured to avoid paying

corporate taxes. They sail foreign flagged ships and normally are

in port for less than 24 hours. These conditions help the cruise

lines avoid taxes. However, after Hurricane Katrina, one cruise line

inserted ships in Gulf coast ports for an extended period of time, to

house rescue workers and others. The cruise line was subsequently

charged a substantial amount in taxes by the United States

government. After that experience, the cruise lines were generally

unwilling to charter ships for extended stays in port without

assurance that they would not be responsible for resulting taxes.

Id. ¶ 5.

CCCM Bid § 4.6.3, in response to RFP § 4.6.3, is one of the centerpieces of the

parties’ dispute about allocation of tax responsibilities.

Payment and Security: CCCM proposed an alternative to the RFP requirement

that “proof of payment to the vessel provider (minimum 75%)” had to be received by RCMP

18

twenty days after contract award. RFP Annex A § 4.1. CCCM first noted that a successful

bidder would need approximately $CDN100M of available funds, on which interest alone would

raise the daily passenger rate charged to RCMP by more than $150.00. It then proposed a

resolution:

Strategy: In addition to irrevocable contractual agreements with the

Cruise lines we will also establish a separate Trust for

Receivership Fund to add further security on both the payments

made by the ISU and the payments received by the Cruise Lines as

per the Charter Cruise Ship Industry standards and practices, and

this meets the focus of not creating additional costs to the ISU as

outlined above ($171.43) as we interpret these added costs to be in

conflict with the lowest rate requirement. We accept, based on the

following interpretation, that Contract Award is the execution of

signatures between the Contractor and the ISU. The Contractor

shall identify and secure the vessel or vessel(s) with ten (10) days

of contract award.

Proof of security of the vessel will be provided within ten (10)

days of contact award.

Proof of payment to the vessel provider to be received by the ISU

Contracting Authority is agreed. [However,] [p]roof of payment

timeline in the Charter Cruise Ship Industry is set via the Cruise

Line’s Charter Party Agreement (CPA) which has yet to be

executed. That document will dictate the payment schedule to the

Contractor. The Contractor is under obligation to the contractual

agreements of the CPA. We wish to further discuss the reasoning

behind this Clause by the ISU so that we may create and

implement a solution to that reasoning that also complies with the

Cruise Line requirements.

Bid at CCCM8307–08 (emphasis added). CCCM also indicated that it accepted RFP Annex A

§ 4.5 (RCMP would “confirm acceptance of the vessels within forty-eight (48) hours of receipt

of the vessel nomination”) and Annex A § 4.7 (contractor would provide detailed “information at

the time of vessel nomination”). Id. at CCCM8308.

Provision of Charter Party Agreement: In response to the RFP obligation to

provide “a Standard Cruise Ship Charter party agreement for review and comments,” RFP

19

§ 4.18.1, the Bid proposed: “Our interpretation of this Clause is that the RCMP will be provided

with the Terms and Conditions of the Charter Party Agreement between the contractor and the

cruise lines.” Bid at CCCM8304.

Requirements for Vessels: CCCM agreed to RFP Annex A § 5.4, which required

the contractor to “provide a Health Canada Cruise ship Inspection score of no less than 95% for

the year [sic] 2006 and 2007,” and added that it had provided “Health Inspection Scores . . . for

all cruise ships currently under consideration” in an appendix to the Bid. Bid at CCCM8309.

Priority of Documents: CCCM proposed a materially different priority order for

documents than the RFP. The Bid placed the Bid first, listing controlling documents as follows:

“a) The Contractor’s bid, dated, May 23, 2008; b) The Cruise Lines Charter Party Agreement; c)

The Articles of Agreement; d) All annexes in alphabetical order; e) 2003 (200711/30) Standard

Conditions; f) 9676 (200711130) General Conditions- Services[;] g) Services for Charterer to

provide Vessel Accommodation for RCMP 2010 Integrated Security Unit, Solicitation No 2008-

00147-ISU, and all Annexes.” Bid at CCCM8303.

F. May 30 through June 26: CCCM Awarded Contract; Discussions About

Payment and Taxes Begin; June 3 Meeting

CCCM was awarded the contract on May 30, 2008, by e-mail from Ms. Meikle to

Ms. Edwards. E-mail from Kelly Meikle to Susan Edwards, RCMP Opp., Ex. 41 [Dkt. 66-43] at

CAN3188 (“Hi Susan, Congratulations, you are the successful bidder! I am happy to award you

the contract for Charterer services for cruise ships to be provided for security personnel for the

2010 Vancouver Integrated Security Unit. The Ships (Carnival) will be required from January

31, 2010 to March 2, 2010, with an option to extend on or before June 15, 2008.”). Ms. Meikle

had read the Bid “from cover to cover” before accepting it. Deposition of Kelly Meikle, May 16,

20

2012 (“Meikle Dep.”), CCCM MSJ Ex. 4 [Dkt. 60-4]; RCMP Opp., Ex. 4 [Dkt. 66-6]; CCCM

Opp., Ex. 4 [Dkt. 67-4]; CCCM Reply, Ex. 1 [Dkt. 70-1]; at 124.

CCCM (in the persons of Ms. Edwards and Mr. Kelly) and RCMP (in the persons

of Ms. Meikle, Mr. Day and RCMP Inspector Donna Kaluza 10) met on June 3, 2008, to discuss

unresolved issues. CCCM was most interested in how it could provide adequate financial

security to RCMP and receive payment from RCMP. Representatives for RCMP provide very

limited information about the meeting. Mr. Day could not recall any details and remembered

only that he was there for “less than half an hour,” Day Dep. at 96; the record contains no

statements from Ms. Meikle concerning the meeting; and Inspector Kaluza’s handwritten notes

provide only sketchy information about topics, not the content of the discussion. See Notes of

CCCM/RCMP Meeting by Donna Kaluza, RCMP Opp., Ex. 13 [Dkt. 66-15]. Mr. Kelly and

Ms. Edwards provide similar detail in declarations that are not contested by RCMP. See Second

Declaration of Tracey Kelly (“II Kelly Decl.”), January 15, 2013, CCCM Opp., Ex. 1 [Dkt. 67-1]

& Second Declaration of Susan Edwards, January 14, 2013 (“II Edwards Decl.”), CCCM Opp.,

Ex. 2 [Dkt. 67-2] ¶ 4. For simplicity’s sake, Mr. Kelly is cited.

Mr. Kelly declares that “a goal of this meeting was to agree to a schedule for

payment to Cruise Connections as well as to address the RCMP’s financial security concerns.”

II Kelly Decl. ¶ 9. Mr. Kelly and Ms. Edwards asked Ms. Meikle to explain why RCMP wanted

the contractor to execute letters of credit for 100% of the contract price no later than April 1,

2009, prior to the date CCCM would receive any payment from the RCMP. Id. ¶ 10. Ms.

Meikle explained “that the RCMP needed some type of financial security in place to make sure

10

Ms. Kaluza was the “accommodation director” for the ISU, with duties to “oversee and

address the matters of accommodation relating to the security force, in its broadest sense, for the

Olympics.” Deposition of Donna Kaluza, May 16, 2012, CCCM Opp., Ex. 5 [Dkt. 67-5] at 4.

21

that the RCMP did not pay Cruise Connections tens of millions of dollars, only to have Cruise

Connections fail to deliver the ships when it came time for the Olympics,” and “letters of credit

in favor of the RCMP for 100% of the contract price would allow the RCMP to recoup any

payments already made to Cruise Connections if Cruise Connections ultimately failed to deliver

the ships.” Id. ¶¶ 11–12. CCCM responded that “obtaining letters of credit for 100% of the

contract price before receiving any payment from the RCMP was simply not possible, especially

when coupled with a requirement that Cruise Connections also pay the cruise lines at least 75%

of the cruise fare before receiving any payment from the RCMP.” Id. ¶ 13.

Mr. Kelly and Ms. Edwards declare that the parties reached a mutually

satisfactory compromise with three points that were significantly different from the RFP and

Bid:

[1] [T]he “contract financial security” to be delivered to the RCMP

by April 1, 2009 would not be letters of credit totaling 100% of the

contract price, but would instead be fully signed, non-cancellable

charter party agreements naming the ISU as having exclusive use

of the vessels during the time period the ships were to be in

Vancouver Harbor for the Olympics. . . . [CCCM] would submit

the fully signed charter party agreements to the RCMP by April 1,

2009 . . . because the signed charter party agreements were being

used as a substitute for the contract financial security originally

referenced in the [RFP], [which] called for contract financial

security to be submitted to the RCMP by April, 2009.

...

[2] [The] first payment from the RCMP would not be due to

[CCCM] until a reasonable time after [CCCM] submitted the

signed charter party agreements to the RCMP, [i.e.,] April 30,

2009. Either Mr. Day or Ms. Meikle explained that the funds

necessary to pay [CCCM] could not be appropriated until after

April 1, 2009, since the RCMP’s fiscal year commences on April

1. Since [CCCM] could arrange to make its initial payments to the

cruise lines in May 2009, this payment schedule was agreeable.

22

[3] [I]nstead of paying the cruise lines 75% of the cruise fare prior

to receiving payment from the RCMP, as contemplated by the

[RFP], Cruise Connections would obtain letters of credit securing

70% of the cruise fare within 30 days of entering the charter party

agreements with the cruise lines. These letters of credit would

secure the ships for the RCMP well before [CCCM’s] first

payment to the cruise lines came due.

II Kelly Decl. ¶¶ 14–17.

Officer Kaluza’s contemporaneous notes reflect that taxes were discussed but do

not provide any substance of that discussion. Notes of CCCM/RCMP Meeting at CAN20650.

Mr. Kelly described the discussion on taxes at his deposition:

I said that it was impossible to know what taxes would be applied;

that because the ships are acting as—for lack of a better term—a

static hotel, we didn’t know what ramifications would mean for

Canadian taxes. We talked about this for a while. We talked

specifically about a number of different taxes that could be

potential for this charter. Michael Day and Kelly Meikle both

understood and agreed that we couldn’t come up with a hard

number for that, and I believe it was Michael and Kelly Meikle

who also believed that—and I won’t get this exactly right, but that

the government, by taxing the RCMP, it’s taking money from one

pocket and putting it into another pocket of the same suit. And I

believe that that’s where these potential and questionable taxes,

would they or would they not be applied, was their position of they

didn’t even know if they would be applied.

Kelly Dep. at 216.

A few days after the June 3 meeting, Mr. Kelly recounted the discussion on

Government Taxes in an email to Messrs. Phillip and Michael Sloane and Ms. Edwards:

As noted within the Response to RFP there are costs that the

Cruise Line and Cruise Connections Charter Management must

pass thru to the RCMP. . . .

3. Government Taxes. As noted in the Response to RFP any and all

Canadian Government Taxes imposed as a result of this Charter

will be the responsibility of the RCMP. Kelly Meikle notes “I do

not think any GST will apply . . . Anything over 28 days is not

applicable. But the Contract is with CCCM and not the Cruise

Lines and CCCM is providing a “service” and so we are including

in our Budget the 5% GST.” Michael Day notes “Since our

23

contract is with CCCM and not the cruise lines, there should be no

Hotel Tax (cannot pay GST plus Hotel Tax). We are PST exempt.”

Also noted is that [the Canadian Border Services Agency

(“CBSA”)] states no need for “working visas.”

E-mail from Tracey Kelly to Messrs. Sloane & Susan Edwards, RCMP Opp., Ex. 9 [Dkt. 66-11].

Mr. Kelly proposed drafting an agreement to reflect the June 3 meeting with RCMP. Id. at

CCCM171. In response, Ms. Edwards expressed some concern about GST and the Hotel tax. E-

mail from Susan Edwards to CCCM Partners, RCMP Opp., Ex. 10 [Dkt. 66-12] at CCCM178

(“It is a fact that hotel accommodation is being supplied–is it by us or by Carnival??”). Mr.

Kelly wrote back: “3. The point about GST vs. HTL Tax, CCCM is providing a ‘service’ w/ the

charter ships. Specifically, Mike [Day] said that this cannot be viewed as both a service and Htl?

It was his quote.” E-mail from Tracey Kelly to CCCM Partners, RCMP Opp., Ex. 11 [Dkt. 66-

13] at CCCM179.

Ms. Edwards was not entirely convinced and worried in a June 12 email about

visas for crewmembers, hotel taxes, Canada Revenue Agency income taxes and other costs. See

E-mail from Susan Edwards to CCCM Partners, RCMP Opp., Ex. 14 [Dkt. 66-16] at CCCM206.

Mr. Kelly responded: “In our RFP response, did we not write that all Taxes (associated w/ the

Vancouver stay) will be a Pass Thru?” E-mail from Tracey Kelly to CCCM Partners, RCMP

Opp., Ex. 15 [Dkt. 66-17] at CCCM209.

Ms. Edwards then began an effort to procure a signed acknowledgment from

RCMP concerning the parties’ agreements at the June 3 meeting. She sent Ms. Meikle an e-mail

on June 18, 2008, with an attachment named “Contractor Outline.doc,” explaining: “Here is a

document from Tracey re: contract details. We would look to have these points agreed to in any

Contract.” E-mail from Susan Edwards to Kelly Meikle & CCCM Doc., CCCM MSJ, Ex. 12

[Dkt. 65-6] at CAN568; see also CCCM Reply, Ex. 6 [Dkt. 70-6]. The Contractor Outline is

24

referred to in the record as “Minutes” of the June 3 meeting or as an effort to “memorialize” the

meeting. In relevant part, the Minutes stated:

This Document is to formalize our Agreement to the Terms

identified in our Response to the ISU RFP as discussed in our

meetings, emails and phone calls from Tuesday, June 3rd 2008,

through June 23, 2008.

...

Components of the Contract Price. As noted within the Response

to RFP there are costs that the Cruise Line and Cruise Connections

Charter Management One, LP must pass thru to the RCMP.

… [Fuel Surcharge; Insurance Premiums]

Government Taxes. As noted in the Response to RFP any and all

Canadian Government Taxes imposed as a result of this Charter

will be the responsibility of the RCMP. CCCM is providing a

Service and the RCMP is paying the 5% GST in addition to $298.

pppd.

Id. at CAN9671–72. The document also noted that “the original bid award of 3 ships (2 Fantasy

Class Carnival Ships, 1 S Class Holland America Line Ship) will move forward.” Id.

Procurement by RCMP was customarily accomplished through only a purchase order, and Ms.

Meikle issued a Purchase Order to CCCM on June 20, 2008. E-mail from Susan Edwards to

Tracey Kelly, Bud Sloane & Mike Sloane, Confirmation Letter, Purchase Order & General

Conditions 9676, RCMP MSJ, Ex. 58 [Dkt. 62-62]; see also CCCM MSJ, Ex. 24 [Dkt. 65-15]

(duplicate). Ms. Meikle hesitated to adopt any other process and did not sign the Minutes.

At the same time, restrictions on space for rafted ships 11 at the Ballentyne Pier

forced CCCM to reconsider its plan to use a combination of Holland America and Carnival

ships. See June 19, 2008 E-mail from Susan Edwards to Tracey Kelly, RCMP MSJ, Ex. 89 [Dkt.

11

When ships are “rafted,” they are tied to each other, side to side, to form a raft. Limited dock

space can cause one ship to be tied to the dock itself and one or more other ships rafted

alongside.

25

62-93] at CCCM354; see also RCMP Opp., Ex. 95 [Dkt. 66-97]. CCCM was also investigating

financing options to secure letters of credit. See E-mail Chain Between Susan Edwards & Kelly

Meikle, CCCM MSJ, Ex. 14 [Dkt. 65-8]. 12 While Ms. Edwards was worried that it might be

financially infeasible for CCCM to fulfill the contract 13 and wanted to convey her worries to Ms.

Meikle, 14 Mr. Kelly responded, “We are not going to provide the RCMP with ‘choices.’ We will

provide them with ‘solutions.’ Please do not provide Kelly the Options. You can only say, how

we got here (to this situation) and that we are confident that we will have a solution that will

work.” Id.

On June 24, 2008, Ms. Edwards sent an updated copy of the Minutes of the June 3

meeting to Ms. Meikle, now described as a Project Services Agreement. E-mail Chain Between

Susan Edwards & Kelly Meikle at CAN9671–73. This was CCCM’s second effort to obtain

more formal sign-off on the topics and agreements from the June 3 meeting and thereafter, in

part for CCCM’s protection and in part for the cruise lines and banks that wanted to see a

“contract,” not merely a purchase order. Ms. Edwards wrote:

Went to the bank today :)

They need a copy of a contract (see attached [Project Services

Agreement] on RCMP letterhead). This will enable the bank to

send the [Letters of Credit] to the Cruise Lines. The contract

12

This e-mail chain was apparently reconstructed from multiple sources; the document submitted

as Exhibit 14 to CCCM’s motion for summary judgment consists of pages CCCM503–04,

CAN7228, and CAN9671–73.

13

June 19, 2008 E-mail from Susan Edwards to Tracey Kelly at CCCM354 (“We always knew

that we might run into someone (else) who would bid low and then get caught out on something.

To some degree, we are in that position. . . . It is not too late to change our minds if the profit is

not enough for everyone.”).

14

June 21, 2008 E-mail Chain Among CCCM Partners, RCMP MSJ, Ex. 88 [Dkt. 62-92] at

CCCM383 (proposing that she “put[] together a fact sheet” to”present to Kelly [Meikle] on

Monday”).

26

illustrates what we have discussed and agreed previously. . . . If

you could pls review, print off and sign 2 original copies.

Id. at CAN7228.

On June 26, 2008, Ms. Meikle and Ms. Edwards both signed the version that had

been sent to Ms. Meikle on June 18, 2008, i.e., the so-called Minutes of the June 3 meeting. See

Executed Version of June 3, 2008 Meeting Minutes, CCCM MSJ, Ex. 13 [Dkt. 65-7] at

CCCM13790. Ms. Edwards signed on behalf of Messrs. Kelly and Sloane. Id. Ms. Meikle

testified at her deposition that she “believe[d] this document was a document of minutes of what

was discussed. . . . Whether or not I agreed to everything in it was not my intent. My intent was

a – this basically was what they wanted and what we had talked about.” Meikle Dep. at 135.

On June 26, Ms. Meikle also reminded Ms. Edwards that RCMP needed signed

charter party agreements with the cruise lines. Ms. Edwards promised to ask Mr. Kelly about

their delivery date. E-mail from Susan Edwards to CCCM Partners, RCMP Opp., Ex. 81 [Dkt.

66-83] at CCCM556.

G. June 29 through July 14: Negotiations Continue; Bank Involved

At least by June 29, 2008, CCCM was deep in discussions with Cindy Brand of

the Royal Bank of Canada (also “the Bank”) about financing. Negotiations for financing are

relevant because RCMP argues that CCCM would never have been able to get the necessary

funding and therefore could never have performed under the contract. RCMP also argues that

because CCCM could not get the requisite financing, RCMP is not liable to CCCM even if

RCMP itself breached the contract. See infra § III.F. Ms. Brand notified Ms. Edwards on June

29 that the Bank would need various confirmations from Mr. Day concerning the contract and

payment schedule “prior to moving forward with [CCCM’s] financing request.” E-mail Chain

Among Susan Edwards, Cindy Brand & Tracey Kelly, et al., CCCM Opp., Ex. 40 [Dkt. 67-40] at

27

CCCM636. Ms. Brand also sought “[c]onfirmation of the financial ability of CCCM to provide

some level of financial backup for the financing requested. We could start with Bankers

references for each of the limited partners.” Id.

The record then reflects silence in the three-way discussions among CCCM,

the Bank, and RCMP for approximately two weeks. However, during the lull on financing

issues, Mr. Kelly received additional information on the still-burgeoning tax issue, by way

of a detailed e-mail from Mark O’Brien, Chief Tax Strategic Officer of Carnival

Corporation. See E-mail Chain Between Tracey Kelly & Carnival, RCMP MSJ, Ex. 42

[Dkt. 66-44] at CCCM965–67. Mr. O’Brien’s e-mail is repeated here nearly in full, as it is

the most complete and contemporaneous exposition of the tax issues in the entire record:

Below is a summary of the taxes that applies to our transaction. As

discussed, we recomend [sic] that our Canadian tax advisor talk to

your Canadian tax advisor so that we are all in agreement with the

issues. Note that our tax advisor works at Miller Thomson LLP.

Let me know the name and number of your tax advisor and we will

set up a call.

Customs Duty: Upon importation, duty is payable under the

Customs Tariff, Chapter 89, at the rate of 25% of the value;

however, the “Vessel Duties Reduction or Removal Regulations”

would generally apply to remit the duty on cruise ships to $0

provided there is no suitable Canadian duty paid or Canadian

registered vessel available.

GST: GST is applicable at the rate of 5% of the duty paid value of

the imported vessel (value of the vessel plus any applicable

customs duty). Under the “Value of Imported Goods (GST/HST)

Regulations” and section 215(2) of the Excise Tax Act, the value

for GST (i.e. the amount on which the 5% GST is imposed) is

remitted to l/120th per each month the vessel remains in Canada.

GST would also be payable by the RCMP on the charterer but it is

given an internal credit so the tax is not borne by the RCMP,

although a GST registrant would have to collect it.

B.C. PST: The British Columbia Social Service Tax Act (the

“SSTA”) imposes a sales tax on sales of taxable tangible personal

28

property and certain enumerated services. Tax at a rate of 10%

will apply to sales of liquor to individual RCMP officers, although

the RCMP itself is not subject to the tax.

Hotel Room Tax: The British Columbia Hotel Room Tax Act

(“HRTA”), the purchaser of a hotel room accommodation must

pay a tax of 8% of the purchase price of the accommodation. The

HRTA imposes a further tax of 1.65% on the purchase price of the

accommodation. The City of Vancouver imposes an additional tax

at a rate of 2% payable in respect of accommodation purchased

within the City of Vancouver for a total of 10% payable by the

purchaser. This tax is payable by the federal government pursuant

to the Reciprocal Tax Agreement and is payable to the RCMP, if

applicable. However, an exemption would appear to cover the

provision of lodging for a period of over 30 days where the lodging

is occupied during that period by employees of the RCMP such

that the 10% HRTA would not apply.

Payroll Taxes: The Income Tax Act (the “ITA”) and Regulations

impose an obligation on a non-resident employer to withhold and

remit tax . . . in respect of remuneration paid to a non-resident

employee to the extent that such remuneration is reasonably

attributable to employment duties performed (or to be performed)

in Canada. Accordingly, the ITA requires that any employer

withhold and remit in respect of remuneration attributable to

employment duties performed in Canada, even if, by reason of the

ITA or the application of a tax treaty between Canada and the

employee’s country of residence, the employee’s income is

ultimately not taxable in Canada.

Corporate Income Tax: The corporate tax rate is 29.5% if the

Canadian source business income of a non-resident from a

business “carried on in Canada” is not earned in a province (e.g.

British Columbia), or 31.5% if the business income is considered

to be earned in British Columbia. In addition to the corporate tax

rate, a non resident corporation will be subject to Canadian branch

tax at a rate of 25% under Part XIV of the ITA unless reduced or

eliminated by a Treaty. Generally, branch tax applies to after tax

profits that are not reinvested in Canada. Therefore, the aggregate

corporate tax rate levied on the profits of Princess Bermuda from

carrying on business in Canada would be just under 50%.

Taxes Collectible from Individuals: GST on taxable goods and

services (at 5% on all supplies) and liquor tax (10%) and BC SSTA

(7%) must be collected by a GST or BC Registered Company.

Id. at CCCM966–97.

29

Mr. Kelly wrote back:

To be clear Mark, you are stating that the Taxes that are noted

below, are all outside of the normal tax consequences for

operations of Carnival Cruises? (CCCM accepted Response to the

RFP stated that the RCMP would be responsible for any Taxes

specifically associated with the Olympic Charter, that were outside

of the normal/standard operating taxes of the Cruise Line).

Can you provide the contact name and number at Miller Thompson

and we will review.

We will begin the process with the RCMP to identify and put in

writing the specifics of these Taxes.

As we have discussed, most of these Taxes are not identified via

the official government web site and associated with providing

accommodations for the 2010 Olympics. So there will likely be an

“educating process” we will need to go through with the RCMP.

We will most likely need some supportive points from Miller

Thompson as why these Taxes (could) apply.

Id. at CCCM965–66. A few days later, Mr. O’Brien advised: “There are all [sic] outside our

normal tax consequences. Again let’s get our Canadian tax advisors together to discuss. These

are complicated issues.” Id. at CCCM965. Mr. Kelly forwarded Mr. O’Brien’s e-mail to Ms.

Edwards, asking whether she had “an update on getting these Tax concerns in-front of Mike?”—

presumably, Mr. Day. Id. The e-mail chain does not show a response from Ms. Edwards.

Beginning on July 14, 2008, CCCM began anew its efforts to obtain a formal

written version of the agreements between the parties subsequent to the contract award. Mr.

Kelly explained:

[W]hen we submitted our response to the RFP, it made up—in

Kelly Meikle’s mind, it made up our agreement. They then put

together a PO, standing for “purchase order.” And the bank—no.

Strike that. Phil[l]ip said that the bank—because I did not have

direct knowledge. Phil[l]ip said that the bank required a signed

contract and that a purchase order would not suffice. We brought

this to Kelly Meikle, and Kelly Meikle said, “Oh, no, we only do

purchase orders,” and then obviously a contract developed out of

that.

30

Kelly Dep. at 150.

On the morning of July 14, Ms. Edwards asked Ms. Meikle to put the attached

agreement on RCMP letterhead, sign it, and return. Email Chain Among Kelly Meikle & Susan

Edwards, et al., CCCM MSJ, Ex. 14 at CAN399; see also RCMP Opp., Ex. 16 [Dkt. 66-18]

(partial copy of exchanges). With her email, Ms. Edwards forwarded the prior emails between

Mses. Edwards and Meikle from June 24, 2008, with the draft Project Services Agreement

(“PSA”). Ms. Meikle responded later in the afternoon, stating:

I have sent a letter outlining the payment terms as requested.

. . . The other items are not included as my understanding the

payment terms are what you needed. Mike Day is back in the

office on Wednesday and I need to have his approval on signing

this off. The reason is that I would like to ensure we are consistent

in our management of this project. If it is a project sign off sheet,

then that’s fine, or if it a change order which will need funding

then I must do an amendment. But I think we need to ensure

consistency and number each document.

E-mail Chain Among Kelly Meikle & Susan Edwards, et al., at CAN398. Ms. Edwards further

wrote that evening that she “absolutely support[ed] the Project Sign Off Document strategy” and

“consider[ed] this the first Document of many that will take us through this Project. Through

some method, I will need this Document (Contractor Outline) acknowledged and signed off on

for my Records . . . .” Id. at CAN398.

The RCMP letter promised by Ms. Meikle was signed by Michael Day, but it

proved to be a disappointment to CCCM. It stated that it was written “in response to the request

for clarification sent you [sic] by Cindy Brand” of the Royal Bank of Canada.” Letter from

Michael Day to CCCM, part of RCMP MSJ, Ex. 10 [Dkt. 62-14] at CAN1392. 15 It continued:

15

The letter appears in the record separate from the e-mail chain and from the attachments to the

letter.

31

[T]he Notice of Award (PO) [Purchase Order] dated June 23, 2008

is attached. In addition, a copy of [General Conditions 9676] are

[sic] provided. These, along with the Agreement of Terms, the

resulting contract clauses, and the statement of work contained in

the RFP, constitute the current agreement between Canada and

[CCCM].

The [ISU] have [sic] the authority to enter into contracts on behalf

of the Government of Canada. Ms. Kelly Meikle is a Senior

Procurement Office employed by the Government of Canada and

has delegated authority to enter into contracts, in that capacity, on

behalf of Canada.

All payments specified in the contract will be made at the

stipulated time assuming the obligations of the Contractor have

been fulfilled. Those obligations require the Contractor to have

secured, under contract, sufficient and suitable vessels to fulfill the

requirements of the contract.

The contract with [CCCM], as amended or replaced from time to

time, will comprise the entire agreement between the named

parties. The terms of that agreement will not be changed without

the knowledge and concurrence of both parties to the agreement.

Upon receipt, the RCMP will acknowledge and comply with a

properly executed agreement between an authorized officer of

[CCCM] and the [Royal Bank of Canada] requesting us to assign

payments due under the contract.

Id. Enclosed with Mr. Day’s letter were copies of the Purchase Order and General Conditions

9676. See supra § I.B. General Conditions 9676 contained a section critical to this dispute.

“§ 35: Taxes” stated, in part:

3. Changes to Taxes and Duties. In the event of any change in any

tax imposed under the Excise Act, R.S.C 1985, c. E-14, and Excise

Tax Act, R.S.C. 1985, c. E-15, or any duties imposed under the

Customs Tariff or any other federal or provincial sales, excise or

other like duties, taxes, charges or impositions after the bid

submission date and which affects the costs of the Work to the

Contractor, the Contract price will be adjusted to reflect the

increase or decrease in the cost to the Contractor.

E-mail from Susan Edwards to Tracey Kelly, Bud Sloane & Mike Sloane, Confirmation Letter,

Purchase Order & General Conditions 9676, RCMP MSJ, Ex. 58 at CCCM917.

32

Ms. Edwards forwarded Mr. Day’s letter and attachments first to the CCCM

partners for review, id. at CCCM890, and then to Ms. Brand, E-mail from Susan Edwards to

Cindy Brand, CCCM Opp., Ex. 18 [Dkt. 66-20] at CCCM930. Separately, Ms. Edwards warned

the CCCM partners that Kelly Meikle was “starting to dig in her heels” about providing any

further documentation to make the cruise lines or banks feel more secure about the contract. E-

mail from Susan Edwards to CCCM Partners, CCCM Opp., Ex. 17 [Dkt. 66-19] at CCCM924.

Ms. Edwards worried that if CCCM pushed any harder, “she will dig her heels in farther.

PO=Contract. Period.” Id. Nonetheless, Ms. Edwards planned to forward the draft Project

Services Agreement on RCMP letterhead in hopes that Ms. Meikle, who had approved it in the

format of Minutes, would sign off. Id.

That evening, Ms. Edwards shared her frustration with Mr. Kelly: “I am losing it

with regard to the financing. Phillip [Sloane] calls me again and again stating that he must have

his contract or there is no point in going to a Bank. Kelly [Meikle] calls me again and again

stating that the PO and the Payment Terms Outline is as good as it [is] going to get and that the

financing is our problem don’t involve them.” E-mail from Susan Edwards to Tracey Kelly,

RCMP Opp., Ex. 21 [Dkt. 66-23] at CCCM959.

H. July 15 and 16: Agreement on Project Services Agreement #1

Ms. Edwards yet again sought a more detailed document from Ms. Meikle on July

15. See E-mail from Susan Edwards to Kelly Meikle, et al., RCMP Opp., Ex. 101 [Dkt. 66-103]

at CAN2322 (“As per our conversation yesterday Tracey and the Cruise Lines are looking for the

full contract option that you spoke of yesterday.”). 16 She wrote further to Ms. Meikle later in the

day on July 15, copying Mr. Day and suggesting:

16

Ms. Edwards also advised Ms. Brand at Royal Bank of Canada that she had “the RCMP

officially signing off on a few more Operational Details that will give RBC a clearer picture of

33

Upon further reflection about how to meet our (CCCM’s) regular

recording process to meet all of our Client’s Logistics and Op’s

needs, I usually create a timely and consistent record of everything

that I have gone over with a Client and sent it to them for

acknowledgement and approval. [i.e.] See Attached; Project Sign

Off #1. . . . I would like to continue this practise, but I am happy to

format these Documents in any way the RCMP would like them.

...

E-mail from Susan Edwards to Kelly Meikle & Michael Day, RCMP Opp., Ex. 22 [Dkt. 66-24]

CCCM970.

Ms. Meikle answered the second of these e-mails, indicating that they were both

“on the same page” and that “[t]his project is going to need this type of record keeping for the

purposes of audit, and best practices.” E-mail Chain Among Kelly Meikle, Susan Edwards &

Tracey Kelly, et al., RCMP Opp., Ex. 23 [Dkt. 66-25] at CCCM983. On the next day, July 16,

Ms. Meikle and Ms. Edwards signed “Project Services Agreement 1” on CCCM letterhead with

an RCMP watermark (“Project Services Agreement,” occasionally referred to as “Project Sign

Off #1”). 17 See Project Services Agreement, CCCM MSJ, Ex. 17 [Dkt. 65-10] at CCCM1098.

As discussed above, the Project Services Agreement was a slightly more developed version of

the June 3 meeting minutes. It stated, in part:

This document, signed by both parties, creates the specific

Logistics and Operational Plan as they arise for the duration of the

contract and as outlined by the RCMP to the Contractor, in

accordance with the Statement of Work. . . . This document is to be

used as an agreement on discussions and does not supersede

anything found in the Request for Proposal Resulting Contract

clauses. If there is a monetary costs or any monetary ramification

early non-required Operational Issues,” but the Bank should not be concerned because CCCM’s

only performance obligation prior to April 30, 2009 is “to provide a copy of the Cruise Line

Contract, Section 18 RFP (Charter Party Agreement).” E-mail from Susan Edwards to Cindy

Brand, RCMP Opp., Ex. 85 [Dkt. 66-87] at CCCM980.

17

The handwritten dates say 2007, but this is clearly a typo, as Ms. Meikle acknowledged. See

Meikle Dep. at 21.

34

associated with any of the Project Services Agreement a Change

Order will be signed off by all Parties and an amendment to the

Contract would be entered . . . . #1 covers items discussed in our

meetings, emails and phone calls from Tuesday, June 3rd 2008

through June 23, 2008.

Id. at CCCM1092. As in the prior Minutes, the Project Services Agreement stated:

Components of the Contract Price. As noted within the Response

to RFP there are costs that the Cruise Line and Cruise Connections

Charter Management One, LP must pass thru to the RCMP. . . .

Government Taxes. As noted in the Response to RFP any and all

Canadian Government Taxes imposed as a result of this Charter

will be the responsibility of the RCMP. CCCM is providing a

Service and the RCMP is paying the 5% GST in addition to $298.

pppd.

Id. at CCCM1094–95 (emphasis added). Ms. Edwards sent a copy of the Project Services

Agreement to Ms. Brand at the Royal Bank of Canada later that same day. E-mail from Susan

Edwards to Cindy Brand, RCMP Opp., Ex. 106 [Dkt. 66-108] at CCCM1065.

Ms. Meikle and Mr. Day were questioned about the Project Services Agreement

and the status of the parties’ agreements as of July 15 and 16 at deposition. Ms. Meikle testified

that Ms. Edwards drafted the document, including putting the RCMP watermark on it, and that

she believed the Project Services Agreement “doesn’t supersede the contract.” Meikle Dep. at

141, 143–44. By contrast, Mr. Day had the following exchange with CCCM’s counsel:

Q. By July 15, 2008, you knew that CCCM’s bid had included in it

a provision that any and all community and government taxes

imposed as a result of the charter would be the responsibility of the

RCMP. Right?

A. Yes.

Q. And you knew that RCMP had accepted that provision of the

bid; right? . . .

A. I—yeah, we have accepted that we are responsible for the taxes.

35

Q. RCMP had accepted by July 15, 2008, that RCMP would be

responsible for any and all Canadian government taxes imposed as

a result of the charter; correct?

A. Yes.

Q. Which is why when you read Project Sign Off #1 you didn’t

have any concern about the government taxes paragraph contained

in that document; correct? . . .

A. I would agree with that.

Day Dep. at 105.

I. July 16 through 18: Discussions Shift to Articles of Agreement; First Draft of

Articles of Agreement and Feedback

Despite agreement on the Project Services Agreement, CCCM still wanted a

formal contract to share with cruise lines and banks, as Mr. Kelly explained to Mr. Day in a July

16, 2008 e-mail:

Mike, we are going to need a full contract created to work in

conjunction with the PO.

In our business circle, the PO is meeting with too many questions

and although we are clear in the PO use and what the PO means,

the Cruise Lines and our other Key Partners are not accepting the

contractual value of the PO.

Simply put, the PO is not sufficient.

With a full contract to work in conjunction with the PO and the

signed PSO’s, we will have enough to satisfy everyone in our

business. . . .

This is a unique Contract and we are very excited to be on ‘your

team.’ To that end, the RCMP also get to work on ‘our team’ and

we are requesting as soon as possible to have a full contract created

and the PSO #1 returned so that we can move forward with our key

partners and maintain our records to the professional level that we

employ.

E-mail from Tracey Kelly to Michael Day, RCMP Opp., Ex. 27 [Dkt. 66-29] at CCCM1045.

When he forwarded a copy of this e-mail to the CCCM partners, Mr. Kelly commented, “I have

36

been asking for a contract for 6 weeks with Kelly’s eyes glazing over whenever I do.” E-mail

Chain Among CCCM Partners, et al., CCCM Reply, Ex. 13 [Dkt. 70-13] at CCCM1046. Ms.

Edwards also exchanged emails with Ms. Brand at the Bank, expressing regret that RCMP had

not yet given CCCM “a full Service Contract” and asking Ms. Brand to be patient. See E-mail

from Susan Edwards to Cindy Brand, RCMP Opp., Ex. 28 [Dkt. 66-30] at CCCM1051; see also

E-mail Chain Between Susan Edwards & Cindy Brand, RCMP Opp., Ex. 105 [Dkt. 66-107] at

CCCM1059–60 (response that the Bank had “not given up” on CCCM).

In fact, on July 17, 2008, Ms. Brand offered to have the Bank’s own lawyer draft

a “legal document” to confirm that CCCM would assign 80% of the contract value directly to the

Royal Bank of Canada as collateral for the requested financing. E-mail from Cindy Brand to

Susan Edwards, RCMP Opp., Ex. 26 [Dkt. 66-28] at CCCM1138. She added: “It must be clearly

noted that the drafting of these legal documents and considering 100% financing of a project is a

very unusual step for RBC,” but she was willing “to present this deal if it can be confirmed that

payment is undoubted, which will assist in mitigating the risk level.” Id.

Apparently, CCCM had finally persuaded RCMP that a formal contract was

needed because, also on July 17, 2008, Ms. Meikle’s assistant sent the first draft of a full-length

contract to Ms. Edwards. E-mail Chain & First Draft of Articles of Agreement (“First Draft”),

CCCM MSJ, Ex. 18 [Dkt. 65-11] at CCCM1104. The First Draft followed the structure of the

RFP and continued many of its terms as if the intervening discussions and Project Services

Agreement had never occurred. 18 For instance, it incorporated all the standard Canadian

procurement terms without change, § 3; its language on tax responsibilities came directly from

18

Unlike the terms of the RFP and Bid, the Articles of Agreement’s terms were not divided into

different “Parts,” meaning that the leading number for some sections was dropped—for example,

§ 4.6.3 of the RFP, regarding taxes, corresponds to § 6.3 of the Articles of Agreement.

37

the RFP and was arguably inconsistent with Project Services Agreement, which had specified

that “any and all Canadian Government Taxes imposed as a result of this Charter will be the

responsibility of the RCMP;” it incorporated terms from Annex A § 4.1 (“proof of payment to

the vessel provider (minimum 75%) must be received by the ISU Contracting Authority within

twenty (20) days of contract award”) and Annex B § 1 (requiring “a second security deposit of

ninety (90%) percent of the bid value, on or before April 1, 2009”), despite subsequent

discussions; it retained the RFP’s timing for CCCM to nominate and secure ships—

notwithstanding, of course, that more than ten days since the initial contract award had already

lapsed and CCCM had neither nominated nor secured any ships; and it put the First Draft in first

place among the priority of documents, followed by: “(b) 9676 (2007/11/30) General

Conditions-Services[;] (c) Annex A, Statement of Work[;] (d) Annex B, Basis of Payment[;] (d)

[sic] The Contractor’s Bid dated 2008-05-20[;] (e) Project Services Agreements[.]” First Draft

§ 9. One of the negotiated changes did survive: § 6.2 stated:

Method of Payment. An initial payment equal to eighty percent

(80%) of the Contract value shall be payable on or before April 30,

2009) providing the contract financial security, in the amount of

one-hundred (100%) of the contract value has been received by the

ISU. A second payment equal to fifteen percent (15%) of the

Contract value shall be payable on or before October 31, 2009; A

final payment equal to five percent (5%) of the Contract value

shall be payable on or before March 31, 2010 providing full and

satisfactory completion of the contract.

CCCM’s partners immediately expressed their dismay to each other. Mr. Kelly

emphasized the most critical point regarding § 6.3: “This section needs to state specifically that

all Tax consequences that arise as a result of this Charter are the responsibility of the

RCMP/ISU. IT DOES NOT CURRENTLY.” E-mail Chain Among CCCM Partners, et al.,

RCMP Opp., Ex. 29 [Dkt. 66-31] at CCCM1146. Ms. Edwards asked to meet with Mr. Day

during the week of July 21 “to go over the Contract.” E-mail Chain Among Michael Day, Susan

38

Edwards & Kelly Meikle, et al., RCMP Opp., Ex. 30 [Dkt. 66-32] at CAN7214. She told Mr.

Day and Ms. Meikle that she would “be sending out, ahead of time, some notes/suggested

amendments for clarity and for operational correctness that will assist the project.” Id. When

Mr. Day stated that he was unavailable and suggested pushing the meeting to the week of July

28, Ms. Edwards responded: “The amendments we are suggesting are almost all cosmetic, or

minor due to Operational issues. . . . I am loathe to wait another minimum 10 days before we

can present something to the Cruise Lines, would there be any alternatives as to how we can

push this??” Id. Ms. Meikle then sent an email only to Mr. Day, expressing some exasperation:

The ships were supposed to be contracted 10 days after contract

signing. The PO was signed within 5 days of contract and given to

Sue in June. Nothing in the contract was any different from that of

the PO. If there is to be a contract “amendment” then that will

happen once we receive confirmation of the actual acquisition of

the vessels. The company is responsible for putting the finances in

place, and acquiring the ships, this is taking too long. I think we

need to push back a bit, we seem to be doing a lot of work to

ensure the contractor can get financing.

Id.

J. July 24 through 27: Internal CCCM Discussions Prior to RCMP Meeting

While waiting for its meeting with RCMP, CCCM continued its internal

discussions about how to respond to the First Draft. These e-mails demonstrate that the absence

of a full-length contract continued to be a sticking point for the Royal Bank of Canada. See E-

mail from Phillip Sloane to CCCM Partners, RCMP Opp., Ex. 102 [Dkt. 66-104] at CCCM1346.

On July 24, Ms. Edwards assured the Bank that CCCM’s discussions with the RCMP were

“moving forward and the RCMP have the ball in their court[.]” E-mail Chain Among Susan

Edwards & Cindy Brand, et al., RCMP Opp., Ex. 107 [Dkt. 66-109] at CCCM1344.

CCCM responded to the First Draft on July 24 with a document titled “Response

to Contract: Clarifications.” See E-mail from Susan Edwards to Kelly Meikle & Michael Day, et

39

al., Clarification Doc.& Timeline Doc.(“CCCM First Draft Resp.”), RCMP Opp., Ex. 8 [Dkt. 66-

10]. Most clauses in the Articles of Agreement were identified only by number and CCCM’s

statement that it “Agreed.” CCCM placed comments or responses to others. CCCM also

proposed a timeline to complete negotiations between the parties, which envisioned execution of

the Articles of Agreement on July 30, 2008, and then a month, until August 30, 2008, for CCCM

to deliver to RCMP “[a]ll required certificates [and] [charter party agreements]/Proof of non-

cancelable contracts with the Cruise Lines.” Id. at CAN627. Whereas Annex A § 4.1 of the

First Draft had required CCCM to “identify and secure” vessels within “ten (10) days of contract

award” and provide proof of 75% payment and security within twenty days, CCCM proposed:

“The contractor shall identify and secure the vessels within 30 days of contract award. Proof of

contractual obligations to cruise lines will be provided to ISU contracting authority within 30

days of contract being signed.” Id. at CAN622–23. CCCM also proposed to extend to 30 days

the deadline for providing charter party agreements to the RCMP following acceptance of the

nominated ships. Id. at CAN621.

The Response to Contract included two lengthy sections on taxes. In the first

section, under a heading of “Payment,” CCCM wrote:

As noted in the Response to the RFP, the below are identified as

pass through costs to the RCMP. . . . Government Taxes: As noted

in the Response to RFP, any and all taxes imposed by Canadian

Authorities imposed as a result of the ship charters will be the

responsibility of the end user (RCMP) same as all identified taxes

by the end user when sailing on a ship at any time. As CCCM is

providing a service, the RCMP is paying the 5% GST in addition

to the $298.00 pppd which CCCM is responsible for paying to the

proper governmental authorities.

Id. at CAN616. The second section responded to “Goods and Service Tax,” at § 6.3 of the First

Draft, and began with the following two paragraphs:

40

Potential taxes have been identified by the Cruise Lines as a result

of this Charter being stationary (these potential taxes were

identified by a tax consultant from issues arising from the

Hurricane Katrina Ships and the United States Government). As is

standard practice, when purchasing any item, including travel, it is

the end user who must bear the cost of these taxes if the

Government of the Day imposes them. As referred to in the RFP

reply, “ . . . In any case, all taxes are not the responsibility of the

Charterer, as the Charterer is providing the service, and the RCMP

are the end user. Therefore if any of these potential taxes are

levied, they are additional and a pass through cost to the

Government of Canada.”

It is unknown if the Government of Canada will assess any of these

Taxes.

Id. at CAN618. The Response to Contract then included a nearly verbatim repetition of the

lengthy e-mail on potential taxes sent to Mr. Kelly by Mark O’Brien, Carnival’s Chief Tax

Strategic Officer, quoted supra at § I.G. See CCCM 1st Draft Resp. at CAN618–20. CCCM

also replaced RCMP’s Goods and Services Tax paragraph with the statement “GST is included

in the RFP as a pass through cost, the Contractor will remit upon receipt to the Government.” Id.

K. July 28, 2008 Meeting and Second Draft of Articles of Agreement

Mr. Kelly and Ms. Edwards finally met with Ms. Meikle and Mr. Day on July 28,

2008. For this meeting, as with the June 3, 2008 meeting, the record includes depositions and

declarations from Mr. Kelly and Ms. Edwards and limited excerpts from the depositions of Mr.

Day and Ms. Meikle to reconstruct the parties’ discussions and agreements. There is no

pertinent disagreement among these sources. Mr. Kelly avers:

On July 28, 2008 Sue Edwards and I met with Ms. Meikle and Mr.

Day to discuss the first draft of the Articles of Agreement.

. . . During the meeting, Mr. Day repeatedly assured me and Ms.

Edwards that General Conditions 9676, paragraph 35, bound the

RCMP to pay any and all Canadian government taxes imposed on

the cruise lines as a result of the ship charters, including taxes,

such as income taxes, imposed on the cruise lines as a result of

their cruise ships being docked in Vancouver Harbor for the

duration of the Olympics (“the taxes”). Mr. Day assured me and

41

Ms. Edwards that it was unnecessary to add further language into

the Articles of Agreement to confirm that the RCMP was obligated

to pay the taxes.

I Kelly Decl. ¶ 12; accord Declaration of Susan Edwards (“I Edwards Decl.”), November 27,

2012, CCCM MSJ, Ex. 15 [Dkt. 60-15] ¶ 4. At deposition, Mr. Kelly testified that Ms. Meikle

and Mr. Day “confirm[ed] multiple times that 9676 obligated the RCMP to pay any and all

Canadian taxes” and that Mr. Kelly relied on that confirmation because “[t]hey were the

contracting authority, and that was reinforced to us and we relied on their statements, their

commitments.” Kelly Dep. at 217–18. Mr. Kelly also testified that Ms. Meikle and Mr. Day

told him “that because 9676 obligated RCMP to pay these taxes just discussed in my previous

questions, that it was not necessary to include in the articles of agreement more specific language

showing that RCMP had bound itself to pay those taxes.” Mr. Kelly trusted this advice because

“they knew 9676 and . . . understood the meaning.” Id. at 218–19.

The recollections of Ms. Meikle and Mr. Day dovetail with those of Mr. Kelly

and Ms. Edwards. Mr. Day testified at deposition:

Q. You believed during your July 28, 2008, meeting with Tracey

Kelly and Sue Edwards that Standard Conditions 9676, section 35,

paragraph 3, obligated the RCMP to pay the Canadian government

taxes that might be assessed against the Cruise Lines as a result of

the charter; correct?

A. No. I believed that 9676, section 35, paragraph 3, permitted

the RCMP to pay any taxes that changed or new taxes that were

imposed after the contract was agreed on.

...

Q. One of the things that RCMP and CCCM had already agreed to

[at the time of the July 28 meeting] is that RCMP would be

responsible for paying any and all Canadian government taxes

imposed as a result of the charter; correct? . . .

A. Yes.

42

Q. And that would include taxes imposed upon the Cruise Lines as

a result of their ships being docked in port for an extended period

of time; correct? . . .

A. Yes.

...

Q. You knew in July of 2008 that you were agreeing to bind the

Crown to pay the full contract price plus any and all Canadian

government taxes imposed as a result of the charter; correct? . . .

A. Yes, I would agree with that.

Q. D[id] you know how much taxes were at that time?

A. No, I did not.

Day Dep. at 137, 140, 191 (emphases added).

Ms. Meikle testified that “[t]o the extent there was discussion in the July 28

meeting . . . concerning the tax issue being raised by the Cruise Lines,” those discussions “would

have been conducted by Mike Day,” Meikle Dep. at 186, and also indicated her agreement with

Mr. Day:

Q. . . . [Y]ou absolutely believed that 9676, paragraph 35(3) would

have obligated RCMP to pay five and a half million dollars in

taxes, estimated, if those taxes were assessed against the Cruise

Lines as a result of their ships being docked in Vancouver Harbor

for an extended period, right?

MR CHRISTENSEN: Objection. Objection. Asked and answered

repeatedly. . . .

A. 9676 stands. . . . The answer is “yes.”

Meikle Dep. at 245–47.

On July 30, 2008, Ms. Meikle forwarded a Second Draft of the proposed Articles

of Agreement (“Second Draft”). Meeting the timeline proposed by CCCM, the Second Draft

was signed by Mr. Day and Ms. Meikle. Second Draft Articles of Agreement, CCCM MSJ, Ex.

43

21 [Dkt. 65-12] at CCCM13066. As compared to the First Draft, the Second Draft did not

change: § 3, incorporating General Conditions 9676; § 6.2, regarding method of payment; § 10

(former Section 9) regarding Priority of Documents; §§ 4 and 19 regarding contract financial

security; Annex A § 4.5, requiring ISU to confirm acceptance of nominated vessels within forty-

eight hours; Annex A § 5.6, stating that CCCM’s failure to “nominate and secure the ships

within the time required” constituted a breach of contract; and Annex B, requiring CCCM to, in

relevant part, provide “a second security deposit of ninety (90%) percent of the bid value, on or

before April 1, 2009.” See id. at CCCM13067–96.

Among the provisions RCMP revised were:

Basis of Payment—Tax Clause: The title of the section was changed from “§ 6.3.

Goods and Services Tax/Harmonized Sales Tax and Provincial Sales Tax” to “§ 6.3. Goods and

Services Tax/Harmonized Sales Tax and Provincial Sales Tax AND HOTEL TAX.” Id. at

CCCM13072. The text of § 6.3 was augmented with a new paragraph:

If the City of Vancouver/Province of British Columbia imposes a

Hotel Tax then the RCMP shall pay the applicable tax to the

Charterer for submission to the appropriate government body. The

RCMP shall seek exemption from the Provincial Government with

respect to this tax under this contract, if necessary.

Id.

Contractor’s Obligation to Nominate Vessels and Timeline: Section 18 was

amended to provide 30 days after acceptance of a nominated ship, instead of ten, for CCCM to

“confirm all terms and conditions of the Agreement between the parties” in the charter party

agreement Id. at CCCM13076. Similarly, while Annex A § 4.1 still required CCCM to “identify

and secure the vessel or vessels” within “ten (10) days of contract award,” the deadline for

providing “[p]roof of security of the vessel, and proof of payment to the vessel provider

(minimum 75%)” was extended from 20 to 30 days. Id. at CCCM13078.

44

L. July 30 and 31: Negotiations Over Second Draft of Articles of Agreement

After CCCM received the Second Draft, the parties engaged in a rapid-fire series

of negotiations that led to final Articles of Agreement on July 31, 2008. Much of the critical

contract language that was in flux during the final bargaining is at issue in this case.

Late in the day on July 30, 2008, Ms. Edwards e-mailed Ms. Meikle a list of

proposed changes to the Second Draft, suggesting that the document was “so close” to being

final and only that “[t]here were some agreements that did not make it to the final document.”

July 30–31 E-mail Chain Among Susan Edwards & Kelly Meikle (“7/30-31 E-mail Chain”),

RCMP MSJ, Ex. 71 [Dkt. 62-75] at CCCM1828; see also CCCM MSJ, Ex. 22 [Dkt. 65-13]

(duplicates of some e-mails); RCMP Opp., Ex. 86 [Dkt. 66-88] (additional duplicates). CCCM

proposed the following changes; all language in the right column is quoted verbatim from Ms.

Edwards’s e-mail.

Clause as of Second Draft Edwards July 30 Proposal

§ 6.2. Method of Payment. An initial payment § 6.2. The last phrase . . . DELETE . . .

equal to eighty percent (80%) of the Contract providing the contract financial security in the

value shall be payable on or before April 30, amount of 100% of the contract value has been

2009) providing the contract financial security, received by the ISU.

in the amount of one-hundred (100%) of the

contract value has been received by the ISU. A REPLACE WITH . . . providing that proof of

second payment equal to fifteen percent (15%) the signed non-cancellable Cruise Line

of the Contract value shall be payable on or Contract is executed and a copy to the ISU

before October 31, 2009; A final payment (Section 18: Charter Party Agreement).

equal to five percent (5%) of the Contract

value shall be payable on or before March 31, Id. at CCCM1828.

2010 providing full and satisfactory

completion of the contract.

§ 6.3. Goods and Services Tax/Harmonized 6.3 ADDITION . . . Any potential additional

Sales Tax and Provincial Sales Tax AND taxes (assessed by the Provincial or Federal

HOTEL TAX. All prices and amounts of Governments) on behalf of this project are to

money in the Contract are exclusive of Goods be paid by the RCMP as per General Condition

and Services Tax (GST) as applicable, unless 9676, Section 35.

otherwise indicated. The GST is extra to the

price herein and will be paid by the RCMP. Id.

45

The RCMP is exempt from Provincial Sales

Tax (PST) under exemption number R005521.

If the City of Vancouver/Province of British

Columbia imposes a Hotel Tax then the RCMP

shall pay the applicable tax to the Charterer for

submission to the appropriate government

body. The RCMP shall seek exemption from

the Provincial Government with respect to this

tax under this contract, if necessary.

The GST shall be extended and incorporated

into all invoices and progress claims and must

be shown as a separate item on invoices and

progress claims. All items that are zero-rated,

exempt or to which the GST does not apply,

are to be identified as such on all invoices. The

Contractor agrees to remit to Canada Customs

and Revenue Agency any amounts of GST

paid or due.

§ 10. Priority of Documents. . . . (a) the 10. typo (a,b,c,d,d,e). CORRECTION: We

Articles of Agreement; (b) 9676 (2007/11/30) have in notes (e) and (f) as switched with

General Conditions-Services[;] (c) Annex A, PSA’s before Contractor Bid.

Statement of Work[;] (d) Annex B, Basis of

Payment[;] (d) [sic] The Contractor’s Bid dated Id. at CCCM1828.

2008-05-20[;] (e) Project Services

Agreements[.]

§ 19. Contract Financial Security. The form of 19. Contract Financial Security

the required security will be as previously DELETE . . . The form of the required security

indicated in this Request for Proposal. . . . will be as previously indicated in this request

for proposal.

REPLACE WITH . . . The form of the

required security will be a fully signed non-

cancellable Charter Party Agreement.

Id.

Annex A § 4.1. The Contractor shall identify STATEMENT OF WORK ANNEX A . . . 4.1

and secure the vessel or vessels within ten (10) DELETE 10 days[;] REPLACE with: 30 days

days of contract award. Proof of security of

the vessel, and proof of payment to the vessel DELETE: 75%[;] REPLACE with: 70%

provider (minimum 75%) must be received by

the ISU Contracting Authority within thirty Id. at CCCM1829.

46

(30) days of contract award. If this

requirement is not met, the contract may be

terminated.

Annex B § 1. In determining the Contractor DELETE ANNEX B from this Articles of

financial capability to undertake this Agreement.

requirement, the Contractor has provided

security in the form of an irrevocable Letter of Id.

Credit from a registered financial institution

drawn in favor of the Receiver General for

Canada in the amount of ten (10%) percent of

the bid value, and a second security deposit of

ninety (90%) percent of the bid value, on or

before April 1, 2009 if a the bid is successful

and contract is awarded. . . .

Ms. Edwards has explained that she “ask[ed] [RCMP] to state in the Articles of Agreement that

the taxes were to be paid by the RCMP ‘as per General Condition 9676, Section 35’ . . . because

Michael Day had explained to me that General Conditions 9676, paragraph 35 did, in fact,

obligate the RCMP to pay the taxes.” I Edwards Decl. ¶ 5.

Ms. Meikle responded early the next morning, writing that she would “look these

over . . . . However, just a heads up, once the RFP is bid on it is understood all clauses are

agreed to and I cannot change anything which is in 9676.” 7/30-31 E-mail Chain at CCCM1828.

Mr. Kelly suggested, to satisfy the cruise lines without making any change to 9676, that § 35,

subsection 3, of 9676 19 be cut and pasted into the agreement. E-mail Chain Among Tracey Kelly

& Kelly Meikle at CCCM MSJ, Ex. 22 at CAN729.

19

General Conditions 9676, § 35(3) stated:

3. Changes to Taxes and Duties

In the event of any change in any tax imposed under the Excise

Act, R.S.C 1985, c. E-14, and Excise Tax Act, R.S.C. 1985, c. E-

15, or any duties imposed under the Customs Tariff or any other

federal or provincial sales, excise or other like duties, taxes,

charges or impositions after the bid submission date and which

affects the costs of the Work to the Contractor, the Contract price

47

Ms. Meikle then wrote a lengthier response on each of Ms. Edwards’s points,

noting that “it appear[ed] there [were] some significant changes which were not discussed at the

meeting.” E-mail Chain Among Kelly Meikle & CCCM Partners, RCMP Opp., Ex. 32 [Dkt. 66-

34] at CAN2156. Ms. Meikle’s responses are quoted verbatim in the right-hand column:

Edwards July 30 Proposal Meikle July 31 Response

§ 6.2. The last phrase . . . No, the Government of Canada cannot pay out

DELETE . . . providing the contract financial any money in advance of services not

security in the amount of 100% of the contract provided. What ever [sic] financial

value has been received by the ISU. arrangements are in place cannot be the

responsibility of the Government. We cannot

REPLACE WITH . . . providing that proof of assume the risk of funding a private company

the signed non-cancellable Cruise Line and by allowing funding not to be in place is a

Contract is executed and a copy to the ISU risk. The charter agreement is not a contract

(Section 18: Charter Party Agreement). between the Government and the cruise lines.

We cannot consider a third party contract

meeting our risk to the taxpayer dollars. The

reason we put in an LOC versus a Bid

Bond/Security Performance Bond is that it

does not cost the vendor money. If you would

like we could change the document (Annex B)

to read full 100% security bond, or if you

would like we can also change the payment

schedules to be paid 80% on first date of

occupancy, and 20% within 30 days of

departure??

Id. at CAN2157.

6.3 ADDITION . . . Any potential additional 6.3 cannot be “added” to as this is a clause that

taxes (assessed by the Provincial or Federal has been approved by the Department of

Governments) on behalf of this project are to Justice as such. If you will please note, the

be paid by the RCMP as per General Condition second paragraph where I did indicate if a hotel

9676, Section 35. tax is assessed then we would pay, however,

this project is a fifty/fifty split funding from

the Province of British Columbia and the

Federal Government of Canada, and I have

spoken to the Regional Director of the ISU for

will be adjusted to reflect the increase or decrease in the cost to the

Contractor.

48

the Province of B.C. and he felt we could

request and receive an exemption for this

contract.

Id.

10. typo (a,b,c,d,d,e). CORRECTION: We No, the Contractor’s bid must be before the

have in notes (e) and (f) as switched with PSA’s simply because if there was no bid,

PSA’s before Contractor Bid. there would be no PSA’s.

Id.

19. Contract Financial Security [No response from Ms. Meikle.]

DELETE . . . The form of the required security

will be as previously indicated in this request

for proposal.

REPLACE WITH . . . The form of the

required security will be a fully signed non-

cancellable Charter Party Agreement.

STATEMENT OF WORK ANNEX A . . . Normally, we do not change the SOW, as that

was what was bid on however, I have also

made comments and changes to the contract.

Id.

4.1 DELETE 10 days[;] REPLACE with: 30 Done.

days

Id. at CAN2158.

DELETE: 75%[;] REPLACE with: 70% No, this was in the RFP and we have not

discussed this. We are making payment of

80% which currently exceeds the monies

which must be paid by yourselves to the

[c]ruise ship lines.

Id.

DELETE ANNEX B from this Articles of No, we cannot delete this annex, as it relates to

Agreement. the LOC, this was put in place and written by

the Dept of Justice, and I was directed to

include it . . . .

Id.

49

Ms. Meikle, Mr. Kelly, and Ms. Edwards exchanged additional e-mails and held a

telephone conference. The two primary points of discussion were (1) the percentage of

prepayment to be made to the cruise line within thirty days under Annex A § 4.1, which RCMP

agreed to reduce to 70%, E-mail Chain Among Susan Edwards & Kelly Meikle, et al., RCMP

Opp., Ex. 109 [Dkt. 66-111] at CAN373; and (2) modifying § 6.2 to require any agreement

between CCCM and the cruise lines to contain a clause specifying that the vessels were chartered

“for the express and exclusive use of the Vancouver 2010 ISU” as security for RCMP, see E-

mail Chain Among Kelly Meikle & CCCM Partners, RCMP Opp., Ex. 36 [Dkt. 66-38] at

CCCM1878. Mr. Kelly recounted that conversation as follows:

On July 31, 2008, I had a telephone conversation with Ms. Meikle,

during which we discussed the fact that Mr. Day had assured me

and Ms. Edwards that General Conditions 9676, paragraph 35

obligated the RCMP to pay any and all Canadian government taxes

imposed as a result of the ship charters. Ms. Meikle responded that

she shared that understanding, since Mr. Day had previously told

her the same thing. Ms. Meikle also informed me during this phone

call that she believed she would somehow be “changing 9676” if

she wrote language into the Articles of Agreement stating that the

RCMP was to pay the taxes “as per General Condition 9676,

Section 35.” Ms. Meikle said she was concerned that she could not

change 9676 since it had been approved by the Department of

Justice.

Given Ms. Meikle’s concerns about “changing” 9676, and given

that Mr. Day had repeatedly stated that paragraph 35 of General

Conditions 9676 obligated the RCMP to pay the taxes, Ms. Meikle

and I ultimately agreed that the best way to satisfy the cruise lines’

concerns about the taxes, without doing anything that Ms. Meikle

considered to be “changing” 9676, was to copy and paste General

Condition 9676, paragraph 35 into the Articles of Agreement.

Pasting this paragraph from 9676 into the Articles of Agreement

ended up being the last revision to the Articles of Agreement

I Kelly Decl. ¶¶ 13–14. Ms. Meikle agreed at her deposition that she cut and pasted 9676

General Conditions § 35(3) into the main text of the Articles of Agreement “to try to help satisfy

the Cruise Line tax concern.” Meikle Dep. at 197; see also id. at 217.

50

M. July 31: Executed Version of Articles of Agreement

The final version of the Articles of Agreement (“Articles of Agreement”) was

executed by Susan Edwards, Tracey Kelly, Michael Sloane, Kelly Meikle, and Michael Day on

July 31, 2008. Contract No. 7131092, RCMP MSJ, Ex. 18 [Dkt. 62-22] at CAN141; see also

CCCM MSJ, Ex. 11 [Dkt. 65-5] (duplicate). In this document, CCCM’s address was identified

as Winston-Salem, North Carolina, U.S.A. Articles of Agreement at CAN141. The terms of the

Articles of Agreement were as follows:

Choice of Law: As in the RFP, the Articles of Agreement provided: “The

Contract 20 must be interpreted and governed, and the relations between the parties determined,

by the laws in force in British Columbia.” Id. § 9.

Payment for CCCM: The face sheet of the Articles of Agreement stated:

Payment Terms: As agreed and upon satisfactory completion of

terms under Annex A, the following payments shall be made by

Direct Payment on or before the dates indicated: 80% of contract

value on or before 30 April 2009[,] $43,332,537.00 plus GST[;]

15% of Contract value on or before 31 October 2009[,]

$8,124,850.00 plus GST[;] 5% of Contract value on or before 30

March, 2010[,] $2,708,285.00 plus GST[;] Value of the contract is:

$54,165,672.00 plus GST of $3,142,444.00[;] Total

$57,308,116.00.

Id. at CAN141. As the parties had negotiated during the preceding two days, § 6.2 read:

Method of Payment. An initial payment equal to eighty percent

(80%) of the Contract value shall be payable on or before April 30,

2009 providing the non-cancellable charter party agreement

includes the clause:

These vessels are chartered for the express and

exclusive use of the Vancouver 2010 ISU. The

20

The Articles of Agreement defined “Contract” as “the Articles of Agreement, these general

conditions [i.e., 9676 (2007/11/30) General Conditions], any supplemental general conditions,

annexes and any other document specified or referred to as forming part of the Contract, all as

amended by agreement of the Parties from time to time[.]” Articles of Agreement § 3.

51

Holland America Vessel from January 19, 2010 to

March 04, 2010 and the Carnival Cruise Line

Vessels from January 31, 2010 to March 02, 2010 at

Ballantyne Pier.

has been received by the ISU on or before September 1, 2008.

A second payment equal to fifteen percent (15%) of the Contract

value shall be payable on or before October 31, 2009; A final

payment equal to five percent (5%) of the Contract value shall be

payable on or before March 31, 2010 providing full and

satisfactory completion of the contract.

Articles of Agreement § 6.2.

Basis of Payment and Tax Clauses: Section 6.1 of the Articles of Agreement

stated, in relevant part:

The Contractor shall be paid for services rendered and accepted in

accordance with the contract an all inclusive daily rate of $298.00

per bed, per day which includes: (a) All applicable licenses[;] (b)

Water bunkering[;] (c) Recycling[;] (d) Solid garbage removal[;]

(e) Embarkment costs[;] (f) Disembarkment costs[;] (g) Port Agent

costs[;] (h) Ground Services Port Agent[;] (i) Vancouver Harbour

Pilots[;] (j) On board meals not to exceed applicable Treasury

Board of Canada Travel Directive standards for Meal Allowances

and Incidentals[;] (k) Non-Alcoholic Beverages[;] (i) Chartering of

Cruise Ships[.]

Articles of Agreement § 6.1. The final version of the taxes clause incorporated verbatim § 35(3)

of the 9676 General Conditions document. As relevant here, it read:

3. Changes to Taxes and Duties. In the event of any change in any

tax imposed under the Excise Act, R.S.C 1985, c. E-14, and Excise

Tax Act, R.S.C. 1985, c. E-15, or any duties imposed under the

Customs Tariff or any other federal or provincial sales, excise or

other like duties, taxes, charges or impositions after the bid

submission date and which affects the costs of the Work to the

Contractor, the Contract price will be adjusted to reflect the

increase or decrease in the cost to the Contractor.

4. Goods and Services Tax/Harmonized Sales Tax[.] The

estimated Goods and Services Tax (GST) or Harmonized Sales

Tax (HST), if applicable, is included in the total estimated cost on

page 1 of the Contract. The GST or HST is not included [i]n the

52

Contract price but will be paid by Canada as provided in the

Invoice Submission clause below. The Contractor agrees to remit

to Canada Revenue Agency any amounts of GST and HST paid or

due.

Articles of Agreement § 6.3.3–.4.

Contractor’s Obligation to Nominate and Secure Vessels: Annex A § 4.1 now

reflected RCMP’s concessions on the timeline for CCCM to subcontract for ships and on the

percentage of prepayment that CCCM was required to make to the subcontractor. It stated:

The Contractor shall identify and secure the vessel or vessels

within thirty (30) days of contract award. Proof of security of the

vessel, and proof of payment to the vessel provider (minimum

70%) must be received by the ISU Contracting Authority within

thirty (30) days of contract award. If this requirement is not met,

the contract may be terminated.

Id., Annex A §§ 4.1, 4.6. The deadline had also been extended to thirty days in the provision on

charter party agreements, which read: “The contractor must provide the RCMP with a Standard

Cruise Ship Charter party agreement for review and comments. The Charter Party agreement

shall confirm all terms and conditions of the Agreement between the parties within thirty (30)

days of the Contractors [sic] confirmation of acceptance of the ship nominated.” Id. § 18.

Two new sections appeared in the Articles of Agreement, addressing financial

security for RCMP against any failure to perform:

19. The form of the required security will be a fully signed non-

cancellable Charter Party Agreement, naming the Vancouver 2010

Integrated Security Unit, having exclusive use of the vessels. The

balance of the amount payable will be paid in accordance with the

payment provisions of the Contract upon completion of delivery

and acceptance by Canada of all Work performed in accordance

with the Contract and a final claim in the form of an invoice is

submitted to the attention of the Contracting Officer.

20. Both parties acknowledge and agree that this contract is under

100% penalty for any reduction of days of service or cancellation

by either party. The RCMP acknowledges and understands that

[CCCM] has an obligation to fulfill all terms and conditions in

53

providing cruise ships for the use by the RCMP and [Canadian

Armed Forces] on the dates specified under this contract. Further

it is understood that in order to meet this obligation, [CCCM] must

enter into non-cancelable charter agreement with the cruise lines

and are under the same penalty clause (100%) penalty for any

reduction in service.

Id. §§ 19, 20.

As in the RFP, at the time of nomination, CCCM was required to provide:

Name of the Vessel; Official number, Class, year built, Flag,

length, beam, displacement, passenger capacity, proof of Health

Canada inspection of no less than 95% in the last two years, proof

of Canadian Insurance and permission from the Cruise Ship line

Insurance Carrier for multi-ship Inventory to be docked at one

location for an extended period of time.

Id., Annex A § 4.7.

The 48-hour-response period remained, requiring CCCM to “ensure the vessel or

vessels nominated . . . in all respects [met] the specification standards of the RFP document” and

the RCMP to, in return, “confirm acceptance of the vessels within forty-eight (48) hours of

receipt of the vessel nomination.” Id., Annex A § 4.5

Requirements for Vessels: These provisions were unchanged in any meaningful

way from the RFP, see supra § I.B, except that the Articles of Agreement anticipated “two

Carnival Cruise Line ships and . . . one ‘S’ Class Holland America Cruise Line ship.” Id. § 1.

In addition, the same health-score provisions, which had not been an issue in the parties’

discussions to that point, appeared unchanged in the Articles of Agreement. Id., Annex A § 5.4.

Vessel Replacement: The Articles of Agreement maintained the clause giving the

cruise lines flexibility in substituting ships, with the same caveats. Id. § 4.11.

Priority of Documents: Without explanation in the record, the priority of

documents differed from all drafts. The Articles of Agreement provided:

54

If there is a discrepancy between the wordings of any documents,

which appear on the list, the wording of the document, which first

appears on the list, has priority over the wording of any document,

which subsequently appears on the list. (a) the Articles of

Agreement[;] (b) 9676 (2007/11/30) General Conditions-

Services[;] (c) Annex A. Statement of Work[;] (d) The

Contractor’s bid dated 2008-05-20[;] (e) Project Services

Agreements[.]

Id. § 10.

The meaning of the Articles of Agreement and the significance of the evolution of

the drafts are at issue in the parties’ cross-motions for summary judgment. As with other of the

contracting documents, CCCM has offered declarations from its partners as to their

understandings of the terms of the Articles of Agreement; RCMP has offered no conflicting

evidence. As CCCM’s declarations are substantively similar, Mr. Kelly is quoted for

consistency and clarity:

On July 31, 2008 I signed the Articles of Agreement . . . . At the

time I signed the Articles of Agreement, I believed and understood

that it, and the contract between Cruise Connections and the

RCMP as a whole, obligated the RCMP to pay the taxes. I had this

understanding because Cruise Connections’ bid and Project

Services Agreement 1 both explicitly stated that the RCMP was

required to pay the taxes, and both were made part of the contract.

I also had this understanding because Mr. Day had repeatedly

assured me and Ms. Edwards that General Conditions 9676,

paragraph 35, bound the RCMP to pay the taxes. I also knew that

Mr. Day had many years of contracting experience working for the

Canadian government, was the RCMP’s Director of Procurement

and Contracting, and had worked with General Conditions 9676

repeatedly throughout his career.

When agreeing to the final language of the Articles of Agreement

and when deciding to sign the Articles of Agreement, I relied on

Mr. Day’s repeated assurances that General Conditions 9676,

paragraph 35, bound the RCMP to pay the taxes, and his additional

assurance that it was unnecessary to add further language into the

Articles of Agreement to confirm that the RCMP was obligated to

pay the taxes. I would not have agreed to the final form of, nor

signed, the Articles of Agreement absent such assurances.

55

I Kelly Decl. ¶¶ 15–16; I Edwards Decl. ¶¶ 6–7 (substantively the same); see also Declaration of

Michael T. Sloane (“M. Sloane Decl.”), November 29, 2012, CCCM MSJ, Ex. 20 [Dkt. 60-20]

¶ 4 (substantively the same).

Almost immediately after receiving the executed Articles of Agreement, Ms.

Edwards sent a copy to Ms. Brand at the Royal Bank of Canada via e-mail. E-mail from Susan

Edwards to Cindy Brand, et al., RCMP Opp., Ex. 33 [Dkt. 66-35] at CCCM1907.

N. July 31 through August 19: CCCM Refocuses on Cruise Lines

With the Articles of Agreement in hand, CCCM immediately returned its focus to

negotiations with the cruise lines to finalize charter party agreements (often referenced as

“CPAs”). See E-mail Chain Between Tracey Kelly & Susan Edwards, RCMP Opp., Ex. 38 [Dkt.

66-40] at CCCM1980. Mr. Kelly, who owned a travel agency, served as CCCM’s primary

negotiator with the cruise lines. When the Articles of Agreement was executed on July 31, 2008,

CCCM intended to subcontract with Holland America and Carnival and expected to make a

profit of $14,415,182. E-mail from Phillip Sloane to Cindy Brand & Profit Projections Doc.,

RCMP Opp., Ex. 80 [Dkt. 66-82] at CCCM2174–75. During the quick pivot from negotiations

with RCMP to negotiations with the cruise lines, CCCM made one strategic choice that would

have later ramifications. In order to “hide [CCCM’s] ‘profit’ margin,” Mr. Kelly decided that he

would not provide the cruise lines with the entire Articles of Agreement or provide RCMP with

complete copies of the final charter party agreements. E-mail Chain Between Tracey Kelly &

Susan Edwards, RCMP Opp., Ex. 38 at CCCM1980 (he would “share ‘parts’ of the contract w/

the Cruise Lines as issues arise (such as Taxes)” but would not “provide a full copy of the ISU

Articles of Agreement to Cherie [Weinstein of Carnival];” E-mail Chain Among CCCM

Partners, RCMP Opp., Ex. 110 [Dkt. 66-112] at CCCM1996 (he would have the cruise lines

“blank out” portions of the CPAs that would allow RCMP to determine CCCM’s profit).

56

1. Negotiations with Holland America Start Well

On August 5, 2008, Mr. Kelly forwarded a first draft of a charter party agreement

between CCCM and Holland America to the CCCM partners, which Mr. Kelly had negotiated

with Alexis Puma of the cruise line. E-mail Chain Among CCCM Partners & Alexis Puma, et

al., RCMP Opp., Ex. 111 [Dkt. 66-113] at CCCM2206. Mr. Kelly noted that he had asked Ms.

Puma to seek management approval for several revisions on the next draft, including, most

importantly: “that the 10% cash deposit be waived in-lieu of 70% [Letter of Credit] and full

payment of Charter Hire in May 09. Explained how the payments come from Canadian Gov’t to

[the Royal Bank of Canada] and [the Bank] to Cruise Lines.” Id. On August 11, 2008, Rob

Coleman of Holland America notified Mr. Kelly that Holland America would agree to the

financial structure Mr. Kelly had requested—i.e., that CCCM would not be required to make any

cash deposit and would instead post a 70% letter of credit upon signing the charter party

agreement, and would pay the charter fare in full in May 2009. E-mail Chain Among Tracey

Kelly & Holland America Personnel, RCMP Opp., Ex. 88 [Dkt. 66-90] at CCCM15118.

2. Negotiations with Carnival Stall; CCCM Considers Royal Caribbean

Mr. Kelly’s first documented contact with Carnival (“CCCL” in emails) after the

Articles of Agreement was to inform Ms. Weinstein on August 6, 2008 that he “believe[d]” that

CCCM had “addressed . . . Taxes.” E-mail Chain Between Tracey Kelly & Cherie Weinstein,

RCMP Opp., Ex. 43 [Dkt. 66-45] at CCCM2258. Ms. Weinstein was not convinced:

I do not believe that the tax issues have been dealt with to the

satisfaction of our corp tax dept. . . . [Mark O’Brien] does not feel

that we have any greater comfort level. The analysis that corp tax

and finance have done shows us a potential tax liability of $5.456

million. Without letters of remission from the Canadian taxation

authorities for specific tax liabilities that our Canadian advisors

have laid out for us, we simply must have a[] [Letter of Credit] to

cover that liability. As I noted, we did it once before on a ‘written

57

promise’ from a government agency of tax relief that was later

ignored by the Dept of Internal Revenue and we had to pay.

Tracey, please understand that I am not trying to be difficult, but it

is my responsibilty [sic] to work with the various experts here to

ensure that Carnival is protected against all known risk in a project

of this scale.

Id. at CCCM2258–60. Mr. Kelly wrote back: “Where I do understand this concern, and the past

experience that CCCL had with Katrina, this is a much different situation and a different

government. There is specific legislation (section 9676 of Canadian government contracts,

Terms and Conditions) that addresses taxes and confirms that the RCMP will pay.” Id.

Thereafter, Mr. Kelly contacted Vicki Freed and Stacy Shaw of Royal Caribbean

International (“RCI” or “RCL” in emails), indicating that CCCM “would like to do business with

[Royal Caribbean and Celebrity Cruises].” 21 E-mail Chain Among Tracey Kelly, Vicki Freed &

Stacy Shaw, RCMP MSJ, Ex. 19 [Dkt. 62-23] at CCCM2465. Mr. Kelly offered the same

structure to which Holland America had just agreed, i.e., CCCM “would secure the Vessel(s)

with a 70% [Letter of Credit] w/in 14 days of contract signing. [CCCM] would pay 100% of the

Charter Cruise Fare on or before the end of May 2009.” Id. at CCCM2466. Ms. Shaw

responded on August 13, offering to provide at least one ship, Jewel of the Seas, and possibly a

second ship, Radiance of the Seas. E-mail Chain Between Stacy Shaw & Tracey Kelly, RCMP

MSJ, Ex. 20 [Dkt. 62-24] at CCCM2542. She also told Mr. Kelly that the proposed financial

structure would need some work, but Royal Caribbean would be willing to try to accommodate

the charter rate proposed by CCCM. Id.

21

Royal Caribbean Cruises Ltd. was formed in 1997 when Royal Caribbean and Celebrity

merged. Mr. Kelly also made overtures to Norwegian Cruise Lines in mid-August, but those

talks did not progress. E-mail Chain Among CCCM Partners and Norwegian Cruise Line

Personnel, RCMP Opp., Ex. 113 [Dkt. 66-115] at CCCM2906–10.

58

On August 14, 2008, the CCCM partners discussed by e-mail whether it would be

financially advantageous for CCCM to switch from Carnival to Royal Caribbean. E-mail Chain

Among CCCM Partners, et al., RCMP Opp., Ex. 112 [Dkt. 66-114] at CCCM2576. A change

was also driven in part by RCMP’s request for an increase in the number of beds. Mr. Kelly and

Ms. Shaw then exchanged further electronic communications, by which Mr. Kelly asked Ms.

Shaw to “move forward with this Proposal,” including both “Radiance Class vessel[s],” and Ms.

Shaw replied to confirm: “[D]o I understand your offer as follows if both ships are offered: Jewel

of the Seas [and] . . . Radiance of the Seas[?]” E-mail Chain Between Tracey Kelly & Stacy

Shaw, RCMP MSJ, Ex. 21 [Dkt. 62-25] at CCCM10040–41.

3. Holland America and Royal Caribbean Raise More Tax Concerns

Only a few days apart in mid-August 2008, representatives of both Holland

America and Royal Caribbean expressed more concerns about the taxes they might have to pay if

their ships were used for the 2010 Vancouver Olympics. Mr. Kelly sought to assure both lines

that their concerns had been addressed by the revisions to the Articles of Agreement on which

CCCM had insisted.

First, in an August 14, 2008 e-mail, Mr. Coleman of Holland America wrote to

Mr. Kelly:

I did some work with David Walton on Friday regarding taxes and

based on our latest charter hire, he has provided me the following

estimate. I know that some of these taxes may be exempted due to

the nature of the charter. However, per our Canadian tax counsel,

the following should be anticipated. While I know that your

agreement with the ISU has provisions to cover taxes, I’m not

certain that this would be extended to corporate income tax paid by

Holland America Line. David Walton indicates that Holland

America Line did in fact have income tax assessments in Athens

[the 2004 Olympics] and Jacksonville (perhaps this was the issue

that emerged post-chareter [sic] in JAX?), and we have had to

integrate them into our recently signed agreement for South Africa

59

[the 2010 World Cup] through additional security. Unless there is a

clear indication and management acceptance that we are exempt

from corporate taxes and/or other line items, we will have to

address this somehow in the agreement. I know one approach will

be to put forth a copy of your ISU agreement that demonstrates the

obligation by the ISU but we will need to get buy off.

[Estimated charter fee] $ 9 440 080

Customs duty 1,925,501

GST 664,554

Payroll taxes 40,500

income taxes 1,625,360

hotel taxes 1,000,000

individual income taxes 50,625

[Total duties & taxes] 5,306,539 22

E-mail Chain Among Rob Coleman, Tracey Kelly & Susan Edwards, et al., RCMP Opp., Ex. 39

[Dkt. 66-41] at CCCM2872. Interdelineating Mr. Coleman’s email, Mr. Kelly responded:

Tracey Response: Customs Duty applies if we are opening [sic] the

Shops on-board which we are not. GST of 5% is being paid by the

ISU on the value of the Charter, the only other GST which will

apply is that GST assesed for on-board purchases of Service

(which HAL has agreed to collect and remit). Payroll Taxes are

exempt via Legislation 9676. Hotel Taxes are exempt. “Individual

Income Tax” do not know what is meant by this line item? . . .

Summary: From what is presented here, the issue comes down to

Corporate Income Tax?

Id. In his e-mail, Mr. Coleman also “provided the details” of the Holland America’s corporate

tax calculation:

Estimated charter fee: 9,440,080

estimated profit margin 36%

Taxable income 3,368,621

tax rate

Federal and provincial 31.0% 0.31

total federal and provincial tax 1,044,273

taxable income less fed & provincial tax 2,324,349

branch profits rate 25.00%

branch profits tax 581,087

22

Mr. Coleman made either a mathematical or typographical error; the duties and taxes as

written in his e-mail add up to an even $5,306,540.

60

total federal, provincial and BPT 1,625,360

Id. To these points, Mr. Kelly responded:

Tracey Response: It is our understanding that the Tax Treaty that

exists between the USA and Canada exempts the Branch Tax.

Therefore the amount we are talking about is the Fed and

Provincial Tax (31%) against the ‘estimated profit’

($1,044,273.00). Does HAL not pay Corporate Income Tax? Is

this not a standard for doing business?

Id. at CCCM2871. Responding only to Mr. Kelly, Ms. Edwards complained that it did not

“seem appropriate” for Holland America to ask CCCM “to be responsible for their Corporate

Income tax??” Id.

Mr. Kelly sent Mr. Coleman a more lengthy e-mail later on August 18, attaching a

copy of General Conditions 9676. See E-mail Chain Among Susan Edwards, Tracey Kelly &

Rob Coleman, RCMP Opp., Ex. 44 [Dkt. 66-46]. Writing that he was “highlighting General

Conditions 9676, section 35, paragraph 3,” Mr. Kelly explained:

Per Michael Day, Director of Procurement for the RCMP, and with

30 years of Canadian Government experience on contracting, this

section addresses all Tax implications that ‘may’ be assessed, and

insures that the Canadian Government (ie : RCMP) will be

financially responsible.

(There will be GST applied to on-board purchases of Services, and

the Cruise Line will charge the GST to the Guests and remit to the

Canadian gov’t at the end of the Charter . . . )

Pls note the red and bolded text that directly apply to the Tax

issues being raised.

Subsection 2 outlines that Provincial Sales Taxes are exempt from

this Cruise Charter Contract under Exemption #R005521.

However, Section 2(d) outlines that passengers onboard will be

required to pay Provincial Sales Taxes on items of any personal

nature ([i.e.] liquor purchases). The Cruise Line would be

responsible for adding the appropriate amount of Sales Tax to

purchases and remitting (or CCCMT would remit on behalf of the

Cruise Line) to the Province of British Columbia.

61

Subsection 3 outlines that any and all taxes applied after the fact to

this Government of Canada Contract will be the responsibility of

the Government of Canada and as such the Contract price will be

adjusted up or down to reflect any unknown or new tax imposition

that may arise.

Subsection 4 outlines GST/HST that it is clearly the Government

of Canada who is responsible for the payment of this tax to

CCCMT and it is CCCM[‘]s responsibility to remit (GST

# 800972010RTOOOI) that said amount back to the proper

authorities.

Id. at CCCM2828–29. Ms. Edwards complimented Mr. Kelly on his phrasing in an e-mail sent

only to him, noting that she “ha[d] a concern that they won’t see the Corporate Income tax as

being covered” but “hope[d] that 9676 mollifie[d] them.” Id. at CCCM2828. Asked at her

deposition about this e-mail, Ms. Edwards stated: “I had a great belief in the project that 9676

would cover it, but it didn’t matter. We knew right from the very beginning that corporate

income tax needed to be covered.” I Edwards Dep. at 136.

Second, and much to CCCM’s consternation, Royal Caribbean contacted Mr.

Kelly on August 19 about their own reservations concerning Canadian tax liability. Ms. Shaw

wrote:

. . . [W]anted to share feedback from our Director of Tax relating

to the Canadian Income Tax. He reviewed the specific section that

you directed me to and discussed with our Canadian Tax Counsel

in Vancouver. We’ve been advised that this section of the

Agreement is written to cover GST/PST, customs duties and excise

taxes that may change after the bid is submitted. According to our

guidance, the Government is only required to adjust the contract

price if there is a change in those types of taxes. Further, we’ve

been advised that it does not cover taxes that are currently in effect

such as the Canadian Income Tax. He did not find any reference

that might indicate the Canadian Government will reimbursement

[sic] Royal Caribbean for any income taxes that may be incurred.

Let us know your thoughts on the above - we can arrange a call

later today to discuss if that’s easiest. If you are willing to allow

language in the Charter Agreement that obligates CCCM to

This text is long and has been trimmed here. Open the source document for the complete record.