Four Seasons Site Development Ltd. v. City of Toronto

CITATION: Four Seasons Site Development Ltd. v. City of Toronto, 2017 ONSC 2687

DIVISIONAL COURT FILE NO.: 151/17

DATE: 2017-05-01

SUPERIOR COURT OF JUSTICE – ONTARIO

DIVISIONAL COURT

RE: Four Seasons Site Development Ltd., Applicant

AND:

City of Toronto, Respondent

BEFORE: Kiteley J.

COUNSEL: Michael I. Binetti and Daphne H. Hooper, for the Applicant Michele A. Wright and Christopher J. Henderson, for Respondent

HEARD at Toronto: April 28, 2017

ENDORSEMENT

[1] The applicant Four Seasons Site Development Ltd. (“Four Seasons”) seeks interim relief pursuant to s. 4 of the Judicial Review Procedure Act[^1] pending the determination of this application for judicial review by a panel of the Divisional Court in November 2017. The order sought would stay the operation of the Chief Purchasing Official’s (“CPO”) February 9, 2017 temporary suspension of Four Seasons from bidding on and participating in City of Toronto’s construction tender calls until the suspension expires.

[2] Counsel have provided extensive materials from the applicant and the respondent and attended most of Friday, April 28, for submissions. In view of the urgency of this motion, I will not review the materials in detail nor will I outline their respective positions on all of the issues. Suffice it to say, every aspect of the motion was opposed.

[3] The test to be applied is set out in RJR-MacDonald Inc. v. Canada (Attorney General)[^2]: a serious issue to be tried, irreparable harm to the moving party, and the balance of convenience.

[4] Counsel for the respondent takes the position that because the motion engages a public authority, the first of those criteria should be replaced by the higher test, namely the applicant must establish a strong prima facie case[^3]. I need not decide that issue because, as indicated below, the circumstances of this case meet the latter test.

Background

[5] The City of Toronto (“City”) has historically had a purchasing by-law, procurement policies and standard form contracts for work done pursuant to contractors’ bids in response to tenders. In 2013 the City introduced written Contractor Performance Evaluations (“CPE”) which, pursuant to the contracts for each solicitation, were required at intervals depending on the duration of the particular contract. The standard form contract also had provisions with respect to performance including the following pages from exhibit 5 of the affidavit of the CPO: pages 166, 167, 206, 209, 221 and a copy of the CPE form attached at page 228. Under the heading “Performance Evaluation” the standard form contract states the following:

The Contractor’s performance will be monitored and evaluated as necessary. Unsatisfactory performance, including failure to rectify defective works as requested by the Contract Administrator throughout the Contract (including Warranty Period), may lead to the Contractor not being awarded future City contracts.

[6] Following the June 13, 2016 approval by its Government Management Committee (“GMC”), the City Council adopted on July 12, 2016 the City Staff Report that did the following:

(a) adopted the proposed new Chapter 195, Purchasing, of the City of Toronto Municipal Code, based on the attachment to the Staff Report dated May 30, 2016 and repealed the existing Chapter 195, effective January 1, 2017;

(b) adopted the proposed new Procurement Processes Policy, as set out in Attachment 2 to the May 30, 2016 Staff Report and repealed the existing Procurement Processes Policy, effective January 1, 2017.

[7] Article 195-13 of the City of Toronto Municipal Code establishes the Supplier Code of Conduct that requires the supplier:

13.1 to respond in an honest, fair and comprehensive manner

13.2 to maintain confidentiality

13.3 to declare and fully disclose actual or potential conflict of interests

13.4 not to discuss or communicate with any other supplier about the preparation of the supplier’s submissions

13.5 to disclose any previous convictions

13.6 not to threaten, intimidate, harass, or otherwise interfere with any City employee

13.7 not to offer gifts, favours or inducements or otherwise attempt to influence or interfere with the duties of City employees

13.8 not to misrepresent their relevant experience and qualifications

13.9 not to discuss or communicate with any employee between the time of the issuance of the solicitation and execution of final form of contract

13.10 to honour their bid.

[8] Article 195-13.11 “Supplier performance” indicates as follows:

A. Suppliers shall fully perform their contracts with the City and follow any reasonable direction from the City to cure any default.

B. Suppliers shall maintain a satisfactory performance rating on their previous contracts with the City and other public bodies to be qualified to be awarded similar contracts.

[9] Article 195-13.12, under the heading “Disqualification of suppliers for non-compliance” provides as follows:

A. Suppliers shall be required to certify compliance with the Supplier Code of Conduct as set out in Article 13 of this chapter with their bid and verify compliance prior to award. Any contravention of the Supplier Code of Conduct by a supplier, including any failure to disclose potential conflicts of interest or unfair advantages, may be grounds for the Chief Purchasing Official to disqualify a supplier from being awarded a contract.

B. The Chief Purchasing Official, in consultation with the City Solicitor, may also disqualify any supplier who may otherwise have an unfair advantage or conflict of interest that cannot be resolved in relation to any procurement.

C. A contravention of the Supplier Code of Conduct may also be grounds for the division head to terminate any contract awarded to that supplier and require the return of any advance payments.

[10] Article 195-13.14, under the heading “Suspension of suppliers from future solicitations” indicates as follows:

A. Without limiting or restricting any other right or privilege of the City, Council may suspend a supplier’s eligibility to bid for a period between one (1) and five (5) years due to a contravention of the Supplier Code of Conduct.

B. The Chief Purchasing Official, in consultation with the City Solicitor, may also temporarily suspend a supplier’s eligibility to bid for up to six (6) months due to a contravention of the Supplier Code of Conduct.

[11] In 2016 the applicant made bids on solicitations and was awarded 7 contracts including the College St. contract dated June 8, 2016 and the Shuter St. contract dated July 6, 2016. None of the contracts awarded to the applicant in 2016 made reference to the amended Article 195 or to the Supplier Code of Conduct.

[12] In a letter dated October 5, 2016 the Director, Design & Construction, Transportation Infrastructure terminated the College St. contract. In a warning letter dated November 21, 2016, the Manager, Construction Services informed the applicant that based on its performance scores on the CPEs in relation to the College St. contract, the applicant was at risk of suspension from future construction awards and that if there was poor performance reported on that contract or any other City contract, a suspension decision would be made by City Council on recommendation by City staff. The Manager, Construction Services sent a similar warning letter dated January 17, 2017 in relation to the Shuter St. contract. That letter refers to the earlier warning letter on the College St. contract. None of those letters referred to the Supplier Code of Conduct or to the possibility of temporary suspension from eligibility to bid on solicitations imposed by the CPO.

[13] In a letter dated February 9, 2017, the CPO informed the applicant’s Chief Operating Officer that the applicant had been suspended and that the suspension was triggered by poor interim performance ratings on both College St. and Shuter St. contracts, the termination of the College St. contract and the assessment from the Director of Engineering and Construction Services that was attached to the letter. The letter indicated as follows:

As Chief Purchasing Official, I am authorized to temporarily suspend any Contractor’s eligibility to bid on City Contracts for up to six (6) months, for supplier performance matters as set out in the Purchasing Chapter of the Toronto Municipal Code (See: Section 195-13.11 – Supplier Performance and Section 195-13.14 - Suspension of Suppliers from future solicitations [web site address omitted].

Based on the memo enclosed, I am exercising my authority to temporarily suspend Four Seasons from being awarded any contracts from the City for a period of six (6) months from the date of this letter or until this matter has been considered by Council. Any objections to the basis for this temporary suspension should be addressed to my attention in writing.

City staff are also in the process of preparing a Staff Report to City Council that will recommend that Four Seasons be suspended from being awarded contracts with the City of Toronto for a period of 1 to 5 years. The reasons for the suspension, as more particularly set out in the attached assessment, will also be included in the Staff Report. The Staff Report is scheduled to be on the agenda at the April 12th, Public Works and Infrastructure Committee.

Your firm will have an opportunity to present a deputation before Public Works and Infrastructure Committee.

The suspension of Four Seasons will be noted on the City’s website initially as a six (6) month suspension, pending the decision by City Council. Four Seasons will not be eligible to be awarded any future City contracts or perform work as a subcontractor on those contracts for the duration of the suspension. The suspension will also apply to any of Four Season’s affiliated persons within the meaning of the Purchasing Chapter.

[14] The memorandum dated February 7, 2017 from the Director, Design and Construction Transportation Infrastructure, listed various aspects of “highly unsatisfactory performance”.

[15] Neither the letter dated February 9, 2017 nor the memorandum dated February 7 enclosed with the letter refer to the Supplier Code of Conduct.

[16] In a Report for Action dated March 20, 2017 the Executive Director, Engineering and Construction recommended to the GMC that Four Seasons be suspended from bidding on or being awarded any tenders for an additional 30 months for total period of 3 years.

[17] On April 3, 2017, the GMC deferred a decision on that report and asked staff to provide additional information. The updated Report for Action dated April 25, 2017 is on the agenda for the GMC on Monday May 1, 2017. The recommendation of a total suspension of 3 years is unchanged, namely from February 9, 2017 to February 8, 2020. If the GMC deals with the report on May 1, 2017, it will be on the agenda for City Council on May 24, 2017.

[18] The Reports for Action dated March 20, 2017 and dated April 25, 2017 refer to the applicant’s performance issues and CPEs but make no reference to the Supplier Code of Conduct.

[19] On March 28, 2017, counsel for the applicant issued a Notice of Application for Judicial Review in which the applicant sought an order in the nature of certiorari quashing the temporary suspension and other relief including an interim injunction. The hearing of the Notice of Application is scheduled in November 2017.

[20] This is “construction season” in Toronto and there are solicitations on which the applicant did not bid because of the suspension. There are still significant solicitations including those that total $40 million that close imminently and further solicitations worth $10 million that close before the next meeting of City Council on May 24, 2017. This motion for a stay of the suspension order has been brought urgently in view of the immediate bid opportunities.

Did the CPO have authority to suspend the applicant?

[21] Article 195-13.14 distinguishes between suspension for up to six months and suspension for a period between one and five years. In both cases the suspension is due to a contravention of the Supplier Code of Conduct. As indicated above, the July 12, 2016 resolution adopted by City Council specifically referred to the Staff Report dated May 30, 2016 dealing with the amendments to the Purchasing by-Law and Procurement Processes Policy and attachments 1 and 2 to the Staff Report. At page 14 of that report there is a list of the “highlights from the Supplier Code of Conduct” that includes “suspension of suppliers from future solicitations” and indicates that the Supplier Code of Conduct:

• Clearly identifies that City Council can suspend any Supplier from having the opportunity to make future submissions to solicitations or otherwise provide goods or services to the City due to persistent and documented poor performance or default on previous contracts or for such other violations of the Supplier Code of Conduct or on other integrity grounds as may be prescribed in the City’s policies and procedures. City Council will be able to suspend for a period of 1 to 5 years depending on the circumstances of the violation.
• Further, setting out delegated authority to the Chief Purchasing Official, in consultation with Legal Services, to temporarily suspend a supplier’s eligibility to bid for up to six months due to a contravention of the Supplier Code of Conduct and requiring the Chief Purchasing Official to report to Government Management Committee annually on the use of such delegation.

[22] The Staff Report makes it clear that City Council has broad authority to suspend for four specified reasons and for a period of 1 to 5 years. On the other hand, City Council has delegated authority to the CPO to suspend on only one ground, namely contravention of the Supplier Code of Conduct, and only for up to 6 months.

[23] Counsel for the City took the position that the Supplier Code of Conduct simply codified all of the performance requirements found in the contract and in the CPEs that were established pursuant to the contracts and that the CPO was entitled to use the authority acquired effective January 1, 2017 to suspend based on breaches of performance requirements before the Supplier Code of Conduct was in effect.

[24] I find that the issue is resolved on an interpretation of the plain language of Article 195-13.14, namely that the delegated authority to the CPO is limited to contraventions of the Supplier Code of Conduct. Suspension is a specific authority that was transferred or delegated by City Council to the CPO at the same time as the Supplier Code of Conduct which took effect January 1, 2017. In my view, the applicant has advanced a strong prima facie case that the CPO’s suspension authority that took effect on January 1, 2017 was limited to circumstances in which the contractor contravened the Supplier Code of Conduct. I find that the applicant has advanced a strong prima facie case that in purporting to suspend the applicant in the letter dated February 9, 2017 pursuant to Article 195-13.14 the CPO acted without authority to do so.

[25] All of the performance criticisms on which the CPO relied in the February 9, 2017 suspension notice occurred in 2016, before the Supplier Code of Conduct was in effect. It may be that the Supplier Code of Conduct incorporated some or all of the language of the contract and of the CPEs, but the unique aspect of the new Article 195 is that the supplier is now required to certify compliance with the Supplier Code of Conduct as part of the bid. Article 195-13.14 is included in the Supplier Code of Conduct which means that the supplier is required to certify compliance with the specification that the CPO has the authority to suspend a supplier’s eligibility to bid for up to 6 months due to contravention of the Supplier Code of Conduct. It is only logical that unless the supplier has certified compliance, the supplier cannot be found in contravention of the Supplier Code of Conduct. The contracts signed by the applicant on June 8, 2016 and July 6, 2016 make no reference to the Supplier Code of Conduct, which was not in effect at that time, and therefore have no certification of compliance.

[26] Both counsel made extensive submissions as to whether Article 195-13.14 is procedural or substantive and whether it operates retroactively or retrospectively.[^4] I have found that the applicant has met both the serious issue to be tried test and the strong prima facie case test and therefore I need not address those submissions. However, if the plain language of Article 195-13.14 did not resolve the issue, I would have found that the changes contemplated by Article 195-13.14 engage a matter of jurisdiction, namely that the CPO has been given delegated authority to take steps for which the CPO had not been previously authorized. Jurisdictional matters are substantive, not procedural.[^5]

[27] Furthermore, it was clear in the February 9 letter that the City recognized that the applicant had a vested right to bid by indicating that the applicant’s “eligibility to bid” was suspended. The presumption is that vested rights are not affected by legislation unless the intention of the legislature is clear.[^6] As the Staff Report dated May 30, 2016 indicated, the repeal and replacement of Article 195 and of the Procurement Processes Policy were part of the “four major transformational projects for the Purchasing and Materials Management Division”, the significance of which is reflected in the postponement of the effective date to January 1, 2017.

Has the applicant demonstrated irreparable harm if the stay is not granted?

[28] Paragraphs 106 and 107 of the affidavit of Mr. Bansal sworn April 24, 2017 and paragraphs 20 to 29 of his supplementary affidavit sworn April 24, 2017 demonstrate that the applicant has suffered and will continue to suffer irreparable harm as a result of the CPO’s temporary suspension decision including loss of revenue, loss of profit, abandonment by workforce, significant risk to commercial viability and significant impact on business reputation which is critical in this area of business.

Where does the balance of convenience lie?

[29] As indicated above, solicitations valued at $40 million are closing imminently and further solicitations valued at $10 million are closing before the next scheduled meeting of City Council on May 24, 2017. Counsel for the City takes the position that if the court orders a stay of the suspension decision, the City will be greatly prejudiced by being required to permit Four Seasons to participate in bidding on tender calls. Counsel argues that it is essential that the City have authority to employ the suspension process in order to ensure that bids are only considered from bidders who are considered responsible and who will perform satisfactorily. The City’s construction work is carried out in the public realm, for the public’s benefit, and poor performance by contractors results in harm that is not compensable. Counsel argues that it is essential that the City be able to mitigate the risks arising from work it requires to be done through processes that govern those who are entitled to bid.

[30] Counsel for the City also argues that if Four Seasons is permitted to bid and is the low bidder on any tender, the likely result will simply be further litigation. It is presumed that if the applicant is the lowest bidder and the CPO recommends to City Council that the low bid not be accepted, the applicant will allege bad faith on the part of the City.

[31] I disagree that those factors favour the City. This is the first and only instance in which a supplier has been suspended pursuant to Article 195-13.14. The replaced Article 195 only took effect 4 months ago. Prior to the amendment effective January 1, 2017, the CPO could make a recommendation to City Council that the lowest bid not be accepted if it did not represent the best value to the City. As a result of this decision, those pre-2017 procedures will continue to apply. This might cause a delay of 1 month before a bid is approved by City Council. A one month delay to process the CPO’s recommendation is not insignificant in “construction season” but counsel advised that there are procedural rules that would reduce the delay. In any event, in the short term between now and the expiration of the suspension imposed by the CPO, the inconvenience to the City of staying the suspension is outweighed by the inconvenience to the applicant if the suspension remains in effect.

Conflicts in the evidence

[32] The affidavits filed on behalf of the applicant were sworn April 24, 2017 and the affidavit of the CPO was sworn April 27, 2017. The affidavits disclose significant conflict between the parties as to the nature of the performance issues, whether the applicant was responsible for delays or whether the City was responsible for delays but is blaming the applicant, as well as other contentious issues. The motion was heard within days of the service of the notice of motion and there have been no cross-examinations. Because of the resolution of the motion for the reasons indicated above, I did not need to address those significant evidentiary conflicts.

Conclusion

[33] I am satisfied that the applicant has met each of the criterion necessary to establish the basis for an interim and interlocutory injunction. As indicated above, the February 9, 2017 letter indicated that the applicant was suspended for 6 months or until the matter has been considered by Council. The GMC is meeting on Monday May 1, 2017 and City Council is meeting on May 24, 2017.

ORDER TO GO:

[34] Interim and interlocutory injunction staying the Chief Purchasing Official’s February 9, 2017 temporary suspension of Four Seasons Site Development Ltd. from bidding on and participating in City of Toronto construction tender calls until the temporary suspension expires.

[35] If by Friday May 5, 2017 counsel are unable to agree as to costs, each shall forward to me written submissions not exceeding 3 pages plus bill of costs no later than May 12, 2017.

[36] On consent, leave is granted to the applicant to amend paragraph 1(e) of the Notice of Application to be consistent with the amendment to paragraph 1(a) of the Notice of Motion returnable April 28, 2017.

Kiteley J.

Date: May 01, 2017

[^1]: R.S.O. 1990, c. J.1 [^2]: [1994] 1 S.C.R. 311 at para. 48. [^3]: Robert J. Sharpe, Injunctions and Specific Performance, loose leaf (25th release, 2016) (Toronto: Thomson Reuters, 1992) at 2-25 and 2-31. [^4]: Ruth Sullivan, Sullivan on the Construction of Statutes, 5th ed. (Markham: LexisNexis Canada Inc., 2008) at 672 and 714; 6th ed. (2014) at §25.76-§25.92, §25.107- §25.135 and §25.136-§25.164. [^5]: Royal Bank of Canada v. Concrete Column Clamps (1961) Ltd., [1971] S.C.R. 1038 at 1040. [^6]: Gustavson Drilling (1964) Ltd. v. Minister of National Revenue, [1977] 1 S.C.R. 271 at para. 15.