COURT OF APPEAL FOR ONTARIO
CITATION: Rankin Construction Inc. v. Ontario, 2014 ONCA 636
DATE: September 16, 2014
DOCKET: C56573
Hoy A.C.J.O., Cronk and Pepall JJ.A.
BETWEEN
Rankin Construction Inc.
Plaintiff (Appellant)
and
Her Majesty the Queen in Right of Ontario
Defendant (Respondent)
Peter A. Mahoney and Nicholas Debono, for the appellant
Ronald E. Carr and Christopher P. Thompson, for the respondent
Heard: June 10, 2014
On appeal from the judgment of Justice David A. Broad of the Superior Court of Justice dated January 7, 2013, with reasons reported at 2013 ONSC 139.
Hoy A.C.J.O.:
I. OVERVIEW
[1] This appeal involves the complex law of tenders.
[2] The Ministry of Transportation (the “MTO”) concluded that the lowest bid for a contract to widen a highway – that of the appellant, Rankin Construction Ltd. – did not comply with the terms of the MTO’s invitation to tender. It accordingly awarded the contract to the second-lowest bidder. The appellant sued the respondent, Her Majesty the Queen in Right of Ontario (the “Province”), for lost profits suffered because of the MTO’s allegedly improper failure to accept the appellant’s tender. The trial judge dismissed that action and the appellant now appeals.
[3] While my reasons are somewhat different than those of the trial judge, I agree with the result he reached, and would dismiss the appeal.
II. THE BACKGROUND
[4] Briefly, the background is as follows. In August 2005 the MTO invited tenders for the widening of Highway 406 in the Niagara region of Ontario.
[5] The 275 pages of tender documents issued by the MTO included a document entitled “Instructions to Bidders”. Among other things, the Instructions to Bidders established procedures that bidders were required to comply with and set out provisions regarding the MTO’s acceptance and rejection of tenders. A number of the provisions of the Instructions to Bidders are considered on this appeal. For ease of reference, the relevant provisions are reproduced in Schedule “A”.
[6] The tender documents also required bidders to declare the value of any imported steel that they proposed to use in the project. Tenders were to be ranked based on the lowest “Adjusted Tender Amount”. In the calculation of that amount, bidders received a 10% discount for steel that was domestically supplied. The tender document specifically provided that H-Piles – one of the steel components required for the project – were not eligible for the 10% price preference for Canadian content.
[7] Based on inquiries it made of its supplier, the appellant mistakenly believed that the H-Piles specified in the tender documents were available domestically. The appellant therefore did not declare the approximately $500,000 value of the H-Piles as imported steel. As a result, the appellant obtained a 10% price preference for the H-Piles, contrary to the express terms of the tender documents, and the appellant’s Adjusted Tender Amount was approximately $50,000 less than it would have been had the appellant declared the value of the H-Piles. The appellant’s tender was the lowest overall tender and the lowest Adjusted Tender Amount at the time of opening of the tenders. Moreover, adjusted to exclude the benefit conferred by the mistaken classification of the value of the H-Piles as domestic steel, the appellant’s Adjusted Tender Amount would still have been $1.7 million lower than the next lowest Adjusted Tender Amount.
[8] A competing bidder – Hard Rock Paving (“Hard Rock”) – complained that the appellant’s bid was non-compliant, because the appellant had not declared the value of the H-Piles as imported steel. Hard Rock and the Ontario Road Builders’ Association, of which Hard Rock was a member, asserted that the contract should be awarded to the next lowest bidder: Hard Rock.
[9] The MTO conducted an investigation, which included interviewing the appellant. The appellant, in turn, made further inquiries of its supplier. The supplier advised that since no one in Canada manufactured the specified H-Piles, it “considered” the product imported from the U.S. to be domestic. However, the H-Piles fell within the definition of imported steel in the tender documents: “steel manufactured or fabricated outside of Canada.” The appellant acknowledges that the H-Piles constitute imported steel.
[10] After consulting with in-house legal counsel, the MTO contacted the appellant by telephone on October 25, 2005 and faxed the appellant a letter on October 27, 2005 – 21 days after the opening of tenders – advising that the MTO had determined that its bid was non-compliant. The letter did not specify why the MTO had determined that the appellant’s bid was non-compliant. On the advice of counsel, the MTO awarded the contract to Hard Rock.
[11] The appellant sued the respondent for damages in the form of loss of profits in the amount of $5,000,000. Following a six-day trial, the trial judge dismissed the appellant’s action.
III. THE LAW OF TENDER
[12] Before outlining the trial judge’s findings, the appellant’s arguments on appeal, and my analysis of those arguments, some legal context is helpful.
[13] The Supreme Court’s most recent judgment dealing with the law of tender is Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69. Though he and three others dissented in the result, Binnie J. provides a helpful overview of the law of tender, at para. 87:
For almost three decades, the law governing a structured bidding process has been dominated by the concept of Contract A/Contract B initially formulated in The Queen in right of Ontario v. Ron Engineering & Construction (Eastern) Ltd., 1981 CanLII 17 (SCC), [1981] 1 S.C.R. 111. The analysis advanced by Estey J. in that case was that the bidding process, as defined by the terms of the tender call, may create contractual relations (“Contract A”) prior in time and quite independently of the contract that is the actual subject matter of the bid (“Contract B”). Breach of Contract A may, depending on its terms, give rise to contractual remedies for non-performance even if Contract B is never entered into or, as in the present case, it is awarded to a competitor. The result of this legal construct is to provide unsuccessful bidders with a contractual remedy against an owner who departs from its own bidding rules. Contract A, however, arises (if at all) as a matter of interpretation. It is not imposed as a rule of law. [Emphasis in original.]
[14] Tercon makes clear that the content of Contract A – sometimes referred to as the “bidding contract”[^1] – is based on its express, and occasionally, implied terms: para. 17. In M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., 1999 CanLII 677 (SCC), [1999] 1 S.C.R. 619, the Court implied a term, based on the presumed intention of the parties, that notwithstanding a “privilege” clause stating that the owner was not obliged to accept the lowest or any tender, only compliant bids were open for acceptance. And in Martel Building Ltd. v. Canada, 2000 SCC 60, [2000] 2 S.C.R. 860, the Court implied a term requiring the owner to be fair and consistent in the assessment of tenders.
[15] At para. 93 of Tercon, Binnie J. cautions that “[o]nly in rare circumstances will the Court relieve a party from the bargain that it has made.”[^2] He continues, at para. 94, that in determining whether a term should be implied, the focus is on the intentions of the actual parties, not those of reasonable parties, and that if there is evidence of a contrary intention, on the part of either party, a term may not be implied.
[16] Therefore, whether a Contract A has arisen, and what terms, if any, should be implied, are case-specific determinations.
[17] Here, the appellant argued that a Contract A between it and the MTO arose when it submitted its bid. The MTO breached that contract when it conducted an investigation in response to Hard Rock’s complaint and failed to award the Contract B – the contract to widen the highway – to the appellant. The appellant was accordingly entitled to damages for lost profits. The appellant argued that as in Tercon, the express exculpatory clause in the Contract A between it and the MTO did not insulate the Province from liability for the MTO’s breach of Contract A.
IV. THE TRIAL JUDGE’S REASONS
[18] The trial judge concluded that the MTO was entitled to investigate the appellant’s bid for non-compliance; that the failure by the appellant to declare the value of the H-Piles as imported steel constituted material non-compliance with the tender documents; and that because of this material non-compliance, the appellant’s bid did not amount to acceptance of the MTO’s invitation to tender. Accordingly, no Contract A was formed, and the appellant could not sue for its breach.
[19] The trial judge rejected the appellant’s argument that, under para. 6.3 (discussed below) of the Instructions to Bidders that formed part of the tender documents, the MTO could only reject non-compliant bids within 10 days of the opening of tenders. The trial judge also concluded that even if the failure to declare the value of the H-Piles did not constitute material non-compliance, the appellant’s claim would be barred by the express exculpatory clause at para. 11.3 of the Instructions to Bidders. Finally, in the event that he was found wrong on the question of liability, the trial judge calculated the damages suffered by the appellant. He concluded that the appellant was largely able to mitigate its damages, and fixed its net damages at $938,228.
V. THE ISSUES ON APPEAL
[20] The appellant takes issue with each of the trial judge’s key findings. It argues that: (1) a Contract A between the Province and the appellant was formed when the appellant submitted its tender; (2) the trial judge erred in law in concluding that the MTO had the right to investigate the appellant’s bid for non-compliance; (3) the trial judge erred in determining that the nature of the appellant’s non-compliance – the failure to declare the value of the H-Piles – was such that the MTO was not required to accept the appellant’s bid; (4) in any event, under para. 6.3 of the Instructions to Bidders, the MTO could only reject bids for non-compliance within 10 days of the opening of tenders, and it had purported to do so 21 days after the opening of tenders; (5) properly interpreted, the exculpatory clause in para. 11.3 of the Instructions to Bidders does not bar the appellant’s claim; and (6) the trial judge erred in finding that the appellant had mitigated its losses by 75%.
[21] I address the first five arguments below. Given my conclusions on those issues, it is unnecessary for me to consider the appellant’s argument regarding the calculation of damages.
VI. ANALYSIS
(1) Was a “Contract A” formed upon the appellant’s submission of its tender?
[22] I agree with the appellant that a Contract A arose when the appellant submitted its tender and purported to accept the call for tenders. The terms of that contract – express and implied – govern the rights and obligations of the parties arising from the appellant’s submission of its tender. It established how the bidding process would be conducted and the basis on which the MTO would consider bids for Contract B. The significance of the appellant’s non-compliance with the tender documents is that, pursuant to the express or implied terms of that Contract A, it may not be awarded Contract B, even if it is the lowest bidder – not that no Contract A is formed. I come to this conclusion based on the language of the Instructions to Bidders, which form part of the tender documents. In this case, the tender offer contemplated that tenders submitted might not be compliant.
[23] Paragraph 7.3 of the Instructions to Bidders specifically requires that a bidder include a tender deposit with its tender. This requirement is clearly material. However, para. 11.2 of the Instructions to Bidders also provides that “Tenders not accompanied by a Tender Deposit in the required amount may be rejected.” The fact that the MTO specifically addresses the consequences of the submission of a materially non-compliant tender – when viewed in conjunction with the other provisions in the Instructions to Bidders discussed below – is evidence that it intended that a Contract A come into effect, even if the tender submitted is non-compliant.
[24] At para. 11.1, the Instructions to Bidders also include a “discretion clause”, which I set out in full below, entitling the MTO to “waive formalities”. And, as I discuss below, I would imply a term that the MTO would not award Contract B to a non-compliant bidder, if the non-compliance were otherwise more than a “formality”. Further, at para. 11.3, the Instructions to Bidders include an express exculpatory clause, which, I conclude below, properly interpreted protects the MTO from claims arising from non-acceptance of non-compliant bids. Given all these provisions, in my view it is clear that the parties intended that contractual relations would arise on the submission of the appellant’s bid, even if the appellant’s bid were non-compliant.
[25] I note that while the trial judge concluded that no Contract A had come into existence, he nonetheless properly went on to consider the terms of the tender documents in his analysis of whether or not the MTO had the right to investigate for non-compliance – supporting my conclusion that a Contract A governing the bid evaluation process had come into existence.
[26] Respectfully, the trial judge erred in concluding that the necessary consequence of Ron Engineering, referred to in Tercon, is that no Contract A can come into existence where a bid is not materially compliant with the tender documents, without considering the effect of the tender documents. In other words, the terms of the offer to consider bids made by the request for tenders, as reflected in the tender documents, must be scrutinized to determine whether the parties intended contractual relations to arise on the submission of a tender: see M.J.B. Enterprises, at para. 19. In my view, subject to the governing documentation, contractual relations would usually come into existence on the submission of a bid. This is a desirable result: it provides greater certainty as to the rights and obligations of the bidders and the owner, and may reduce the frequency of litigation arising out of the award of tenders.
(2) Right to investigate for non-compliance
[27] In Double N Earthmovers Ltd. v. Edmonton (City), 2007 SCC 3, [2007] 1 S.C.R. 116, the Supreme Court found that the owner did not have an implied duty to investigate allegations of non-compliance by a rival bidder. The trial judge concluded that it does not follow from this holding that an owner does not have the right to investigate allegations of non-compliance, if not precluded from doing so by the tender documents. And here the tender documents did not preclude the MTO from conducting an investigation. At para. 39, the trial judge reasoned that:
[T]o require an owner to stay its hand and refrain from making enquiries in the face of information that it will be impossible for a bidder to fulfill a material requirement of its bid, and to award the contract to such a bidder, does not promote the integrity of the bidding process.
[28] I agree with the trial judge that the tender documents do not preclude the MTO from conducting an investigation. They do not expressly provide that the MTO will not investigate any complaints, and I see no basis for implying such a term.
[29] Terms may be implied in a contract based on: (1) custom or usage; (2) legal incidents of a class or type of contract; or (3) the presumed intention of the parties, where the term is necessary “to give business efficacy to a contract or as otherwise meeting the ‘officious bystander’ test as a term which the parties would say, if questioned, that they had obviously assumed”: Canadian Pacific Hotels Ltd. v. Bank of Montreal, 1987 CanLII 55 (SCC), [1987] 1 S.C.R. 711, at p. 775; see also M.J.B. Enterprises, at para. 27; Double N Earthmovers, at para. 30; Martel, at para. 81. Any implied terms must fit and be the necessary implication of the express terms; if there is any evidence against the proposed term, it cannot be implied: M.J.B. Enterprises, at para. 29. In my view, none of the criteria for an implied term prohibiting investigation of allegedly non-compliant bids is made out in this case.
[30] Like the trial judge, I reject the appellant’s argument that an owner cannot investigate allegations of non-compliance unless the bid documents specifically give the owner the right to do so or the owner has a written policy that it will do so. There was evidence that the MTO had an unwritten policy that it would investigate if another bidder complained of non-compliance. While I do not accept that it is an implied term of the contract that the MTO would not investigate complaints of non-compliance, I do accept that in this case, as in Martel, there was an implied term, based on the presumed intention of the parties, that the MTO would be fair and consistent in the assessment of tenders submitted to it. However, I note that there was no evidence that the MTO investigated complaints in relation to the appellant but not in relation to any other bidders, or that the MTO was not otherwise fair and consistent in its assessment of the tenders submitted pursuant to its invitation to tender.
(3) The effect of non-compliance
[31] I agree with the trial judge that as a result of the appellant’s non-compliance, the MTO was not required to accept the appellant’s bid. However, because I have concluded that a Contract A between the appellant and the MTO arose when the appellant submitted its bid, my analysis is necessarily different. It is driven by the terms of the Contract A.
[32] Paragraph 11.1 of the Instructions to Bidders provides as follows:
The Ministry reserves the right to reject any or all tenders, and to waive formalities as the interests of the Ministry may require without stating reasons, therefore, the lowest or any tender may not necessarily be accepted.
[33] This paragraph constitutes both what are often referred to in cases involving the law of tender as a “privilege clause” (the right not to accept the lowest or any tender) and a “discretion clause” (the right to waive formalities as the interests of the MTO may require).
[34] Thus, under para. 11.1, the MTO specifically reserved the right, in the case of a non-compliant tender, to “waive formalities”.
[35] Paragraph 6.1 of the Instructions to Bidders provides as follows:
Tenders that contain prices that appear to be unbalanced, may be referred to the Qualification Committee and any Tenders that are so unbalanced that it may adversely affect the interests of the Ministry may be rejected.
[36] In my view, the combined effect of paras. 11.1 and 6.1 is that the MTO may, but is not required to, waive non-compliance by a bidder that amounts to a “formality”, and – whether or not the tender documents elsewhere specifically require that tenders contain balanced prices – reject tenders that contain prices that are so unbalanced that they may adversely affect the interests of the MTO.
[37] Here, it was agreed that the appellant’s tender was not “unbalanced”. That term refers to a tender that attributes an unrealistic amount of money to particular items to skew the bid to the advantage of the bidder, and to the disadvantage of the MTO.[^3]
[38] The questions, therefore, are whether (1) the appellant’s failure to include the H-Piles as imported steel was a “formality”, within the meaning of that term in the Instructions to Bidders, and (2) if it was a formality, the MTO was required to waive it.
[39] Instances of “non-compliance” in the bid process are seemingly common. Unfortunately, “formality” is not defined in the tender documents. One can only hope that, if it has not already done so, the MTO engages in a comprehensive review of its Instructions to Bidders to address this and other issues. In the absence of guidance from the tender documents, whether the appellant’s non-compliance amounts to a formality is not an easy question. In Double N Earthmovers, the Supreme Court divided, five to four, on the question of whether a bidder’s non-compliance was an “informality” within the meaning of the tender documents in that case, with the majority concluding that it was.
[40] The appellant essentially argues that its non-compliance is merely a formality: it intended to use Canadian steel for the H-Piles, and it was the lowest bidder by a significant margin, even adjusting for its mistake.
[41] The respondent endorses the reasons of the trial judge, who, while not specifically considering whether the non-compliance amounted to a “formality”, found that the appellant’s non-compliance was “material”. The price preference for Canadian content was an integral element of the tender scheme. The tender documents specifically provided that the price preference was not available for the H-Piles. In the trial judge’s words, “materiality is to be determined objectively having regard to the impact of the defect on the tendering process and the principles and policy goals underlying the process.” It does not matter that the outcome of the tender process would not have been different. As the trial judge wrote, at para. 65, “[t]he focus is not on the impact of the defect on the outcome of the particular tender process, but on the impact on the process itself, including the reasonable expectations of the parties involved in the process, including rival bidders” (emphasis in original). The respondent would argue that if the non-compliance is material, it is not a formality.
[42] I am guided by the generous view of “informality” taken by the majority of the Supreme Court in Double N Earthmovers. I tend to the view that the appellant’s non-compliance was a formality because of the appellant’s honest intention to use Canadian steel[^4] and the fact that the outcome, and the cost to the MTO, would have been the same had it declared that the H-Piles are imported steel. The price preference for Canadian steel was a mechanism for evaluating the competing bids. It did not affect the actual price to be paid by MTO to the successful bidder. And the MTO expected that American H-Piles would be used in the project. The appellant’s non-compliance “did not materially affect the price or performance of Contract B”, and therefore amounts to an informality: Double N Earthmovers, at para. 41.
[43] I would add the following. Maintaining the integrity of the public bidding process is thought to encourage more bidders to participate in the process.[^5] And increased competition, in turn, promotes the public’s interest in the government obtaining the best price possible. Here, the tender process was essentially fair and the appellant’s bid was materially less costly to the public purse. Given this, in my view, a balancing of the public interest in promoting the integrity of the public bidding process so that the government can generally obtain the best prices, against the public interest in the MTO obtaining the best price possible in this particular case for widening Highway 406, also weighs in favour of the conclusion that the appellant’s non-compliance was a formality.
[44] However, whether or not the non-compliance amounted to a “formality” is ultimately not determinative. Contract A does not require the MTO to waive formalities. In my view, where an owner has the discretion to waive formalities and exercises that discretion reasonably and in good faith, it cannot be sued for failing to waive a “formality” and entering into a Contract B with a non-compliant bidder. Here, the MTO acted in good faith, and its conclusion that the appellant’s non-compliance was more than a formality – whether or not correct – was reasonable.
[45] It must be remembered that the MTO had entered into a Contract A with each bidder. As the Supreme Court observed at para. 69 of Tercon, a requirement that only compliant bids be considered has often been implied. In my view, a requirement that the MTO would not accept bids that were non-compliant, if the non-compliance amounted to more than a “formality”, can in this case be implied in Contract A on the basis of the presumed intention of the parties. Therefore, had the MTO been wrong in its conclusion, it risked being sued by the other bidders. They would have argued that the appellant’s non-compliance was more than a formality and did not relate to unbalanced pricing, and that the MTO was therefore not entitled to waive it. Indeed, in Bot Construction Ltd. v. Ontario (Ministry of Transportation), 2009 ONCA 879, 85 C.L.R. (3d) 25, which similarly involved a request for tenders with a price preference for Canadian steel, a bidder who failed to declare imported steel, a complaint of non-compliance by a rival bidder, and an investigation, the MTO was sued by the rival bidder after proceeding to award the Contract B to the non-compliant bidder.[^6] Further, the MTO made its decision in this case several years before Tercon: there can be no dispute that there was ongoing uncertainty about the enforceability of exculpatory clauses in tender documents. In the circumstances, the cautious approach taken by the MTO was reasonable and understandable.
(4) Does para. 6.3 of the Instructions to Bidders mean that the MTO was only entitled to reject bids within 10 days of bid opening?
[46] As I note above, the MTO notified the appellant in writing 21 days after the opening of the tenders that the appellant’s bid was non-compliant. That notice did not say that the MTO had “rejected” the appellant’s bid and did not specify why the MTO had determined that the appellant’s bid was non-compliant. However, from the MTO’s investigation after the tender opening, the appellant would have been aware that the MTO was examining its failure to include the H-Piles in its declaration of imported steel, although still not within the 10-day limit imposed by para. 6.3.
[47] The relevant provisions of the Instructions to Bidders are as follows:
6.0 UNBALANCED TENDERS AND DISCREPANCIES
6.1 Tenders that contain prices that appear to be unbalanced, may be referred to the Qualification Committee and any Tenders that are so unbalanced that it may adversely affect the interests of the Ministry may be rejected.
6.2 The bidder will NOT be allowed to adjust the Total Tender Amount after Tender Opening. The Itemized Bid Form will not be editable once submitted and approved.
6.3 Bidders whose Tender has been rejected by the Ministry will be notified of the reasons within 10 days of Tender Opening.
12.0 CONTRACT AWARD PROCEDURES
12.1 The Ministry will notify the successful bidder that the Tender has been accepted within 30 days of the Tender Opening.
[48] It was agreed that the appellant’s tender was not “unbalanced”. At paras. 81-82 of his reasons, the trial judge rejected the appellant’s argument that, because the MTO did not notify it within 10 days of Tender Opening that its bid had been “rejected”, as required by para. 6.3, its “rejection” of the appellant’s bid was invalid, and it was therefore required to award Contract B to the appellant, as the lowest bidder:
In my view, the intent of para. 6.3 of the Instructions to Bidders must be discerned from a review of the document as a whole. By paragraph 12.1 the MTO is given 30 days from tender opening to notify the successful bidder that its tender has been accepted. Given that the MTO is afforded 30 days to notify the successful bidder, the imposition of a 10 day period to reject for any reason creates an inconsistency. The juxtaposition of paragraph 6.3 in the same section and following the reference to “rejection” of unbalanced tenders, in this context must mean that if the MTO is to reject a tender on the basis that it is unbalanced, it must do so within 10 days of tender opening, giving reasons. The use of the word “discrepancies” in the title line to section 6.0 does not add to the matter as there is no mention in the body of the section to rejection due to “discrepancies”.
Moreover, it can be argued that what occurred was not a “rejection” of Rankin’s bid, but rather a ruling that it was found non-compliant and therefore not capable of being accepted under the law of tendering.
[49] The appellant argues that the trial judge’s interpretation was wrong, and that para. 6.3 is not restricted to unbalanced tenders. Alternatively, it argues that para. 6.3 is ambiguous. And, because it is ambiguous, it should have been interpreted in favour of the appellant, and not the MTO, which had prepared the document.
[50] I would reject the appellant’s arguments. The principles of contract interpretation require that the court consider the language in the contract as well as the context in which it is used: see e.g. Downey v. Ecore International Inc., 2012 ONCA 480, 294 O.A.C. 200, at para. 37; Geoff R. Hall, Canadian Contractual Interpretation Law, 2d ed. (Markham: LexisNexis Canada, 2012), at pp. 9-13. As noted above, I would imply a term that the MTO not accept bids that are non-compliant if the non-compliance is more than a formality. Paragraph 11.1 of the Instructions to Bidders – which contains the discretion clause – does not impose a time period within which the MTO must decide whether or not it will waive “formalities”, and specifically provides that the MTO is not required to state reasons. Given that, and given that para. 12.1 gives the MTO 30 days to determine the successful bidder, I agree with the trial judge that interpreting para. 6.3 to require the MTO to determine whether it will waive “formalities” and, if not, notify non-compliant bidders, within 10 days of tender opening, makes no sense. To require the MTO to notify all unsuccessful bidders of the reasons why it will not accept their bids within 10 days of Tender Opening, would effectively require the MTO to determine the successful bidder within 10 days, rather than 30 days as expressly provided for under para. 12.1. In addition, contrary to the appellant’s submissions, restricting para. 6.3 to unbalanced tenders would not render the word “discrepancies” in the title to section 6.0 meaningless. It can be seen as describing para. 6.2. The effect of that paragraph is that a bidder cannot adjust its bids to correct discrepancies. I am of the view that para. 6.3 clearly does not apply to the decision of the MTO not to waive “formalities”. That being so, this is not a case for the application of the principle of contra proferentem.
[51] Moreover, even on the appellant’s interpretation of para. 6.3, that clause does not provide that a “rejection” is invalid if the bidder is not notified of the reasons for the rejection within 10 days of Tender Opening.
[52] Further, I conclude below that even if para. 6.3 required the MTO to provide notice to the appellant within 10 days of Tender Opening that its bid was non-compliant because it did not include the H-Piles in its declaration of imported steel, para. 11.3 of the Instructions to Bidders – the exculpatory clause – would bar the appellant’s claim. I now turn to that clause.
(5) Does the exculpatory clause in para. 11.3 of the Instructions to Bidders in any event bar the appellant’s claim?
[53] Paragraph 11.3 of the Instructions to Bidders reads as follows:
The Ministry shall not be liable for any costs, expenses, loss or damage incurred, sustained or suffered by any bidder prior, or subsequent to, or by reason of the acceptance or the non-acceptance by the Ministry of any Tender, or by reason of any delay in acceptance of a Tender, except as provided in the tender documents.
[54] While the trial judge concluded that the appellant had no basis to sue the Province because no Contract A had arisen, he went on to consider whether, if wrong in so concluding, the appellant’s claim would be barred by para. 11.3.
[55] Tercon, at paras. 62 and 122-23, sets out the three-step analytical approach to be followed when considering an exclusionary clause, which I would summarize as follows:
The court must first interpret the clause to determine whether it applies to the circumstances established in evidence. This will depend on the court’s assessment of the intentions of the parties, as expressed in the contract.
If the clause applies, the court must then determine whether the clause was unconscionable at the time that it was made.
Finally, if the clause is applicable and valid, the court must consider whether it should nonetheless refuse to enforce it because of an overriding public policy (to be proven by the party seeking to avoid enforcement of the clause) that outweighs the very strong public interest in the enforcement of contracts.
[56] Applying this three-step approach, the trial judge concluded that even if the Crown had breached the terms of the tender by disallowing the appellant’s bid, the appellant’s claim was, as a matter of interpretation, barred by para. 11.3 of the Instructions to Bidders. He reasoned that had the MTO simply called off the project, the appellant would not have had a claim against the MTO. Its claim for damages arose out of the MTO’s acceptance of Hard Rock’s bid, and the non-acceptance of the appellant’s bid. It was therefore clearly covered by the wording of para. 11.3 – even if the MTO had erred in considering the appellant’s bid materially non-compliant. Further, para. 11.3 was not unconscionable at the time the contract was made: the appellant was a sophisticated contractor. And there was no overriding public policy that would justify the court’s refusal to enforce it: any error that the MTO might have made was made with the objective of promoting the integrity of the tendering process.
[57] The appellant takes no issue with the trial judge’s conclusion that para. 11.3 is not unconscionable, or unenforceable because of overriding public policy grounds. It argues that the trial judge erred in interpreting para. 11.3 as applying to the circumstances established by the evidence. According to the appellant, those circumstances are that: the MTO declared the appellant’s tender non-compliant based on an investigation that the MTO was not entitled to conduct; the MTO did so without giving notice to the appellant, with reasons, within 10 days of Tender Opening, as required by para. 6.3; and the non-compliance as a result of which the MTO did not accept the appellant’s bid was not material. The appellant says that the trial judge’s interpretation of para. 11. 3 “would allow the respondent to excuse itself from playing by the very rules that it imposed for the assessing of bids in the tender.” The appellant submits that the language in para. 11.3 is not specific enough to accomplish this.
[58] I would reject the appellant’s argument that para. 11.3 does not apply in the circumstances. Having considered the text of para. 11.3, in the context of the Instructions to Bidders as a whole, and in light of the commercial context of the tender documents, I agree with the trial judge that para. 11.3 bars the appellant’s claim. The language is in my view clear – both in the paragraph itself and in the context of the Instructions to Bidders as a whole. A bidder presumably would not sue unless it alleged that the MTO had breached a term – express or implied – of the tender documents by accepting another’s bid, or not accepting its bid. To interpret para. 11.3 as not applying where a breach by the MTO of the tender documents is alleged would effectively render it meaningless. Paragraph 11.3 is a commercial response to the increased litigation faced by owners arising out of the acceptance, and corresponding non-acceptance, of bids.
[59] The relevant commercial context also includes that bidders are sophisticated parties and are free to choose not to submit a tender in the face of a broad exculpatory clause in the tender documents. And if, faced with such a clause, desirable bidders do not respond to requests for tenders, market forces will drive the owner to modify the terms of its tender documents to stimulate competitive tenders. For example, an owner might chose to limit an unsuccessful bidder’s damages to its costs of preparing its tender, instead of barring claims for profits lost as a result of the award of the tender to a competitor.
[60] As noted above, the appellant does not take issue with the trial judge’s conclusion that, in the circumstances, there was no overriding public policy that would warrant refusing to enforce para. 11.3. It is possible that there may be circumstances where the conduct of the owner in the bid process is so aberrant that it would justify a court’s refusal to enforce an exculpatory provision in the tender documents on public policy grounds. This is not such a case.
(6) Did the trial judge err in finding that the appellant had mitigated its losses by 75%?
[61] As I have concluded that the appellant is not liable for any damages suffered by the appellant, it is unnecessary for me to address this final issue.
VII. DISPOSITION
[62] I would accordingly dismiss this appeal, and order the appellant to pay the respondent costs of the appeal in the amount of $10,000, inclusive of disbursements and all applicable taxes.
RELEASED: “AH” SEP 16 2014
“Alexandra Hoy A.C.J.O.”
“I agree E.A. Cronk J.A.”
“I agree S.E. Pepall J.A.”
SCHEDULE “A”
INSTRUCTIONS TO BIDDERS
6.0 UNBALANCED TENDERS AND DISCREPANCIES
6.1 Tenders that contain prices that appear to be unbalanced, may be referred to the Qualification Committee and any Tenders that are so unbalanced that it may adversely affect the interests of the Ministry may be rejected.
6.2 The bidder will NOT be allowed to adjust the Total Tender Amount after Tender Opening. The Itemized Bid Form will not be editable once submitted and approved.
6.3 Bidders whose Tender has been rejected by the Ministry will be notified of the reasons within 10 days of Tender Opening.
7.0 TENDER DEPOSIT
7.3 A Contractor submitting a bid on a Designated Contract, shall include with each Tender a Tender Deposit in the form of a Certified Cheque or Irrevocable Letter of Credit, made payable to the MINISTER OF FINANCE, or Bid Bond, equal to or greater than the amount shown in the following tables. The Ministry must receive the tender deposit by 4:00 p.m. Eastern Standard time on the last business day before Tender Opening.
TOTAL TENDER AMOUNT DEPOSIT REQUIRED
$ 20,000.00 or less …………………………………..$ 500.00
20,000.01 to 50,000.00………………………………. 1,000.00
50,000.01 to 100,000.00………………………………. 2,000.00
100,000.01 to 250,000.00………………………………. 9,000.00
250,000.01 to 500,000.00………………………………19,000.00
500,000.01 to 1,000,000.00………………………………40,000.00
1,000,000.01 to 2,000,000.00………………………………75,000.00
2,000.000.01 and over ……………………………..150,000.00
11.0 ACCEPTANCE OR REJECTIONS OF TENDERS
11.1 The Ministry reserves the right to reject any or all tenders, and to waive formalities as the interests of the Ministry may require without stating reasons, therefore, the lowest or any tender may not necessarily be accepted.
11.2 Tenders not accompanied by a Tender Deposit in the required amount may be rejected.
11.3 The Ministry shall not be liable for any costs, expenses, loss or damage incurred, sustained or suffered by any bidder prior, or subsequent to, or by reason of the acceptance or the non-acceptance by the Ministry of any Tender, or by reason of any delay in the acceptance of a Tender, except as provided in the tender documents.
11.4 The Tender shall be irrevocable for a period of thirty days following the date of Tender Opening.
12.0 CONTRACT AWARD PROCEDURES
12.1 The Ministry will notify the successful bidder that the Tender has been accepted within 30 days of the Tender Opening.
[^1]: See Paul Sandori and William M. Pigott, Bidding and Tendering: What is the Law?, 4th ed. (Markham: LexisNexis Canada, 2009), at pp. 12-13. Contract A is helpfully described as the bidding contract, and Contract B is described as the construction contract.
[^2]: While these references are from the dissenting reasons of Binnie J., the Court in Tercon was in agreement on all but the interpretation of the exculpatory clause.
[^3]: Sandori and Pigott write, at p. 332, that an “unbalanced” bid is one where the contractor “artificially inflates the value of divisions of work to be done first. The industry inelegantly describes this as front-end loading.” They explain:
The lack of balance may be evident in a bid, or in a required after-bid but pre-award submission. The result for the contractor is a cash flow which runs ahead of project completion. For the owner, this practice raises (at least) serious construction bonding problems (the bonding company may be partially or entirely discharged) unless it can be prevented. It also raises problems with lenders who are not anxious to have their loan advances running ahead of the value of construction.
[^4]: The appellant also argued that because it had intended to use domestic steel for the H-Piles it had not, in fact, made any error, and its bid was compliant. However, as noted at para. 6 above, the tender documents specifically provided that H-Piles were not eligible for the 10% price preference for Canadian content. In light of this, the appellant’s honest intention can only be a factor in determining whether the non-compliance was more than a formality.
[^5]: In M.J.B. Enterprises, Iacobucci J. wrote, at para. 41: “It appears obvious to me that exposing oneself to [the risks of bidding] makes little sense if the [owner] is allowed, in effect, to circumscribe this process and accept a non-compliant bid.” Sandori and Pigott, at p. 343, cast doubt on this proposition. They describe Ron Engineering as having opened the floodgates of litigation. They write: “One of the basic premises on which the Canadian law of bidding now rests – that no bidder would bid knowing that the owner is free to accept non-compliant bids – is obviously false. For a century or two or more before Ron Engineering bidders did just that”.
[^6]: In Bot, the MTO decided to award a major highway construction project to Cavanagh Construction, despite Cavanagh’s intention to use a different steel product than the one specified in the call for tenders. The next lowest bidder, Bot Construction, applied for judicial review of the decision on the basis that the MTO’s decision was unreasonable and breached the MTO’s duty of fairness to bidders. This court ultimately dismissed the application for judicial review, finding that the MTO acted reasonably and fairly.