COURT FILE NO.: CV-17-0137
DATE: 2022-September-8
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
PRIME TERRA GROUP INC.
R. Lepere, for the Plaintiff
Plaintiff
- and -
THUNDER BAY (CITY OF)
Defendants
S. Wojciechowski, for the Defendant
HEARD: June 1, 2022, via Zoom
REASONS FOR JUDGMENT
Justice J. Fregeau
INTRODUCTION
[1] The plaintiff, Prime Terra Group Inc. (“Prime Terra”), commenced this action against the defendant, The Corporation of the City of Thunder Bay (the “City”) claiming damages related to the City’s rejection of Prime Terra’s bid for municipal Contract No. 2, 2015 – Sidewalks and Traffic Rehabilitation (the “contract”).
[2] The parties have agreed to bifurcate this trial. These Reasons for Judgment address the issues of liability. If the plaintiff is successful in establishing that the City is liable to Prime Terra, a further trial will be required to determine damages.
BACKGROUND
[3] There are no material facts in dispute. The parties have appropriately filed an Agreed Statement of Facts. The facts which I see as relevant to a determination of the issues are as follows:
Prime Terra at all material times was a corporation operating in Thunder Bay, Ontario carrying on business as a general contractor.
The City at all material times was a municipal corporation operating pursuant to the terms of the Municipal Act, 2001, S.O. 2001, c. 25, as amended.
In February 2015, the City issued a tender call for the contract which included construction work related to the replacement of sidewalks, the construction of new sidewalks and other related work.
On February 9, 2015, the Manager Supply Management was advised by the City’s Legal Services department that Prime Terra was a disqualified bidder.
The City’s position that Prime Terra was a disqualified bidder was based upon City By-law No. 113-2011 (“the By-Law”).
Section 3.07 of the By-Law includes the following:
Disqualified Bidders List
The Manager Supply Management will maintain a list of persons from which no Bids will be accepted by the Corporation. This list will include the names of persons who have performed poorly (or not at all) in past Contracts or who are involved in litigation with the Corporation relating to past Contracts. Persons whose names are on the list will not be permitted to submit Bids. In addition, the Manager Supply Management may refuse to accept Bids from persons who are affiliated with a person on the list through direct involvement or effective control by one or more of the directing minds of the other person on the list.
The disqualified Bidders list maintained under this Section applies to allow the disqualification of a Bid regardless of whether or not any particular acquisition process has involved a pre-qualification process.
- Section 3.08 of the By-Law states the following:
Litigants
Unless otherwise permitted by this section, no Bid shall be accepted from, nor shall any Contract be awarded or extended to any Contractor, its principals, directors or any officer of that firm, or another related person (as determined by the Manager Supply Management, in his or her sole and unreviewable discretion), with whom the Corporation is engaged in unresolved litigation.
The By-Law, the existence of a disqualified bidder list, sections 3.07 and 3.08 of the By-Law and/or any reference to the fact that bidders with active litigation against the City could not submit a bid, were not specifically referenced in the tender document.
Prime Terra prepared a bid submission for the contract, and on March 10, 2015, Prime Terra dropped off its bid submission in a sealed envelope at the City’s Supply Management counter.
At the time Prime Terra provided its bid submission to the City on March 10, 2015, it was involved in litigation with the City. At this time, there was no physical nor electronic disqualified Bidder list available to the clerical staff who worked at the counter in Supply Management. As such, the clerical staff who worked at the counter in Supply Management and who would have received the bid from Prime Terra did not have knowledge of who was on the disqualified bidder list.
Before Prime Terra provided its bid submission to the City on March 10, 2015, there was an informal process in place whereby the City’s Legal Services department would notify Supply Management of a party who was involved in litigation with the City which would result in that party being designated a disqualified Bidder.
Once a bidder had been identified as a disqualified Bidder, the Manager Supply Management and four other positions in Supply Management–three buyers and a supervisor–would be made aware of this fact.
On February 9, 2015, after the Manager Supply Management was advised by the City’s Legal Services department that Prime Terra was a disqualified Bidder, the Manager Supply Management shared this information with the three buyers and his supervisor who worked in Supply Management.
The person at the City’s Supply Management counter who received Prime Terra’s bid submission was a clerk, not a buyer, and she created and initialed a time stamped slip which was then affixed to the sealed envelope containing Prime Terra’s sealed bid submission.
The sealed envelope was not opened by anyone in Supply Management or the City and was placed in a location with the other bid submissions that had been submitted by other companies.
The sealed envelope submitted by Prime Terra containing its bid submission for the Contract was returned, unopened, to Prime Terra on March 10, 2015, together with a letter from the City advising Prime Terra that its bid submission was rejected pursuant to section 3.08 of the By-Law.
In total, there were three bid submissions for the Contract. Two bid submissions were opened and evaluated by the City. These two submissions were from Bay City Contractors and Wilco Contractors Superior Inc. Ultimately, the City accepted the bid submission from Bay City Contractors, and that company was awarded the contract.
If Prime Terra’s bid submission had been opened and considered by the City, it would have been the lowest bidder.
THE POSITIONS OF THE PARTIES
[4] The parties rely upon the “Contract A/Contract B” framework that has governed the tendering process in Canada since the Supreme Court of Canada decision in The Queen in Right of Ontario v. Ron Engineering & Construction (Eastern) Ltd., 1981 CanLII 17 (SCC), [1981] 1 S.C.R. 111.
THE PLAINTIFF
[5] Prime Terra submits that the creation of Contract A is dependant on the parties’ intentions to initiate contractual relations by the submission of a bid in response to an invitation to tender. A call for tenders is an offer by the owner. Prime Terra submits that a bidder accepts that offer by submitting a compliant bid, thus creating Contract A. Prime Terra submits that it is settled law that the submission of the bid, and not the opening of the bid, is the acceptance of the offer which creates Contract A.
[6] Prime Terra submits that the express terms in the tender documents govern Contract A. Prime Terra accepts that Contract A may also contain implied terms based on custom or usage, the legal incident of a particular class of contract or the presumed intention of the actual parties. Prime Terra suggests that there is no basis to imply any terms to Contract A in the circumstances of this case.
[7] Prime Terra acknowledges that sections 3.07 and 3.08 of the By-Law provide that no bid shall be accepted from, and no contract awarded to, any contractor with whom the City is engaged in unresolved litigation (the “reprisal policy”). Prime Terra notes that section 3.07 of the By-Law also requires the Manager Supply Management to maintain a disqualified bidder list, which was not done as of March 10, 2015.
[8] Prime Terra submits that there is no evidence that Prime Terra’s bid was non-compliant with the express terms of the tender relating to the Contract. Prime Terra submits that Contract A was formed between Prime Terra and the City on March 10, 2015, when Prime Terra’s bid was submitted, received and date-stamped by the City.
[9] Prime Terra contends that the City, when it physically accepted Prime Terra’s bid, waived its right to rely on the reprisal policy to reject Prime Terra’s bid. Prime Terra submits that the reprisal policy was not an express term of Contract A because the tender documents did not contain any specific reference to it.
[10] Prime Terra acknowledges that the Supplementary General Conditions for use with Ontario Provincial Standard General Conditions (the “Supplementary Conditions”) referenced in the tender documents define “Applicable Law” as including all municipal by-laws. However, Section 00100 Article 1.4 of the tender documents, entitled “Disqualification of Tenders”, does not include the reprisal policy as a ground for the disqualification of a bidder.
[11] Prime Terra submits that these two provisions of the terms of the tender documents are in conflict and create ambiguity – the general conditions incorporate all municipal by-laws but the specific conditions relating to the disqualification of tenders does not include a reference to the terms of the reprisal policy. Prime Terra contends that this ambiguity in the terms of the tender documents must be resolved as against the City, the party which drafted the tender documents.
[12] Prime Terra submits that there is no basis to find that the reprisal policy was an implied term of Contract A pursuant to custom, usage or given the nature of the contract.
[13] Prime Terra also disputes that the reprisal policy was an implied term of Contract A pursuant to the presumed intention of the parties. The tender documents make no reference to the reprisal policy yet expressly reference, in Section 00100 Article 1.4, various reasons for which a tender will be disqualified.
[14] In these circumstances, Prime Terra submits that it is unreasonable to presume that a potential bidder reading the tender documents, even with knowledge of the reprisal policy, would think that there could be other grounds for disqualification not included in Article 1.4, or that the reprisal policy was applicable to this particular contract.
[15] Prime Terra submits that the City, in the circumstances of this case, has breached Contract A by
Failing to open and consider the Prime Terra bid;
Failing to award Contract B to Prime Terra, the lowest bidder; and
Relying on the reprisal policy to reject Prime Terra’s bid after the formation of Contract A.
THE CITY
[16] The City submits that municipal powers, including a municipality’s capacity, rights, powers and privileges are exercised by municipal by-law. The City contends that municipal by-laws bind all persons within a municipality and that all persons within a municipality are obliged to take notice of municipal by-laws, whether or not they have actual notice of them. The City submits that by-laws are also binding on municipal corporations and that a municipal corporation cannot waive the requirements of its own by-laws.
[17] The City submits that by operation of the By-Law, it could not consider Prime Terra’s bid and that Prime Terra’s bid was therefore non-compliant such that Contract A was not formed between the parties upon submission of Prime Terra’s bid.
[18] The City submits that Contract A is not formed upon the delivery and receipt of a bid. The City contends that Contract A is not formed until the City is satisfied that the bid is compliant with the terms of the tender. This only occurs after receiving the bid, opening the bid and confirming it meets the terms of the tender, according to the City.
[19] The City agrees with Prime Terra’s submission that Contract A arises when the offer contained in a tender call is accepted from a bidder submitting a compliant bid.
[20] However, the City submits that the restrictions found in the reprisal policy reflect municipal policy which is in the public domain and ought to have been known to every contractor dealing with the City. The By-Law and the reprisal policy therefore form part of the tendering process and, by implication, of the invitation to tender package, according to the City.
[21] The City submits that, by operation of the By-Law, Prime Terra’s bid was not capable of acceptance and was therefore a non-compliant bid.
[22] The City also submits that it lacked the requisite intention to initiate contractual relations pursuant to the terms of the tender call as there could be no intention to initiate contractual relations with a disqualified bidder.
[23] The City also contends that the By-Law was an express term of Contract A because the Supplementary Conditions in the tender documents define “Applicable Law” as including municipal by-laws.
[24] In the alternative, the City submits that the By-Law and/or the reprisal policy was an implied term of Contract A based on custom or usage and/or as legally incidental to this class of contract.
[25] The City submits that it is common for parties in a tendering process involving government authorities and private contractors to expect a tender call to proceed in compliance with all applicable laws and policies. The City also contends that it is not unreasonable to expect that compliance with the City’s Supply Management By-Law be seen as a legal incident of Contract A.
[26] The City submits that Contract A could only be formed in the circumstances of this case after Prime Terra’s bid was opened and it was confirmed that it met the terms of the tender. As Prime Terra’s sealed bid was returned unopened immediately upon the City realizing that it had been submitted by a disqualified bidder, the City submits that Contract A was not formed.
DISCUSSION
[27] In Ron Engineering, the contractor submitted a tender together with a $150,000 deposit to be returned after execution of the contract and receipt of the performance bond and payment bond. The bid submitted was found to be in error after the opening of the tenders. The contractor gave notice of the error to the owner prior to acceptance of the tender. The contractor took the position that it had not withdrawn its tender (which according to the tender documents would have entitled the owner to retain the deposit) but that, by reason of the notice of its mistake given to the owner prior to acceptance of the tender, the offer was not capable of acceptance.
[28] The owner, aware of the mistake and in response to the contractor’s position that the offer was not withdrawn, presented the construction contract in the prescribed form to the contractor for execution.
[29] The contractor declined to execute the construction contract and the owner retained the deposit and accepted another tender. The contractor sued to recover the deposit.
[30] The Ontario Court of Appeal accepted the contractor’s position and held that when a mistake is established, the person to whom the tender is made is not in a position to accept the tender or to seek the forfeiture of the bid deposit.
[31] The Supreme Court overturned the Ontario Court of Appeal’s decision. In responding to the contractor’s position that its tender was not capable of acceptance by reason of mistake, the Court was required to determine when contract A came into being. In doing so, the Court formulated the “Contract A/Contract B” framework governing the construction tendering process.
[32] In Ron Engineering, at pg. 121, the Court held that “Contract A comes into being forthwith…upon the submission of the tender” at which point the rights of the parties under Contract A “have crystallized”. However, the Court clarified at pg. 122, that in order for Contract A to come into existence upon the submission of the tender, the tender must comply with the terms and conditions of the call for tenders.
[33] In Derby Holdings Ltd. v. Wright Construction Western Inc. and London Guarantee Insurance Company, 2002 SKQB 247, Baynton J., at para. 32, reviewed Ron Engineering, M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., 1999 CanLII 677 (SCC), [1999] 1 S.C.R. 619 and Martel Building Ltd. v. Canada, 2000 SCC 60, [2000] 2 S.C.R. 860, and distilled the following general principles from this line of cases:
An invitation to tender by an owner may be characterized as an offer to consider a tender offer from a contractor (Contract A) to enter into a contract (Contract B) to perform the work in accordance with the terms specified by the owner in the invitation to tender and at the price specified by the contractor in the tender. The submission of a tender that complies with the terms of the invitation to tender constitutes the acceptance of the offer in the invitation to tender and creates Contract A.
Provided that the parties intended to create contractual relations, Contract A arises upon the submission of the tender. Its terms are those set out in the invitation to tender and the tender submitted in compliance with these terms. Usually, when parties resort to the tendering process as the means to select a contractor and [to] determine the cost of completing the project, they intend to create contractual relations.
The terms of Contract A are case specific. They are comprised of the express provisions of the invitation to tender and of the tender itself and any other terms that may be implied by the court…the court usually implies a term that the owner will treat all tenderers fairly and that only compliant tenders will be considered and accepted (emphasis mine).
Contract A may include implied terms:
a. Based on custom or usage;
b. As the legal incidents of a particular class or kind of contract; or
c. Based on the presumed intentions of the parties where the implied term must be necessary to give business efficacy to a contract.
[34] In Derby Holdings, at para. 47, Baynton J. noted that non-compliant bids are “not capable of acceptance within the context of the tendering process. The case law has established that a bid is non-compliant if it is uncertain or is at odds with the terms of the invitation to tender. The issue of whether a bid is compliant…is determined by its own terms and those of the invitation to tender package…The modern case law clearly holds that the submission of a bid or the acceptance of it does not always result in the formation of Contract A”.
[35] In Double N Earthmovers Ltd. v. Edmonton (City) 2007 SCC 3, [2007] 1 S.C.R. 116, an action brought by an unsuccessful rival bidder, the Court was required to consider an owner’s obligations to treat all tenderers fairly and to accept only compliant bids.
[36] In the introduction to its analysis, at para. 104, the Court recognized the uniqueness of the tendering process, describing it as “…a process in which fairness and integrity are of paramount importance”.
[37] At para. 106 of Double N, the Court confirmed it is settled law that the terms of Contract A are those set out in the tender documents and that, in addition, there may also be implied terms based on custom or usage or on the presumed intentions of the parties. In determining whether a term should be implied in Contract A based on the intention of the parties, 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. See Rankin Construction Inc. v. Ontario, 2014 ONCA 636, at para. 15.
[38] Further at para. 106 of Double N, the Court noted that in M.J.B. Enterprises it had recognized an implied duty on the part of the owner to accept only a compliant bid as necessary to give business efficacy to the tendering process. At para. 107 of Double N, the Court noted that earlier in Martel it held that an owner also had a duty to treat all bidders fairly and equally. This latter obligation was described as “consistent with the goal of protecting and promoting the integrity of the bidding process” and as “necessary to give business efficacy to the tendering process”.
[39] In this case, the City, by issuing the tender call for the contract, and Prime Terra, Bay City Contractors and Wilco Contractors Inc., by submitting bids for the contract, generally intended to create contractual relations. The invitation to tender by the City was an offer to consider a bid from contractors (Contract A) to enter into a contract (Contract B) to perform the work in accordance with the terms specified by the owner in the invitation to tender and at the price specified by the contractors.
[40] The submission of tenders or bids in compliance with the terms of the invitation to tender constitutes the acceptance of the offer in the invitation to tender and creates Contract A. As noted in Derby Holdings, the terms of Contract A are case-specific and include the provisions of the invitation to tender and the tender itself and any other terms implied by the court given the circumstances of a particular case.
[41] In this case, Prime Terra’s sealed bid was physically accepted by a clerk who was unaware that Prime Terra was a disqualified bidder pursuant to the City’s reprisal policy. Prime Terra’s sealed bid was returned to Prime Terra the same day that it was received when the City’s Supply Management staff realized that the bid had been submitted by a disqualified bidder, as determined by reference to the City’s reprisal policy.
[42] It is not in dispute that the By-Law, the existence of a disqualified bidder list and the reprisal policy were not specifically referenced in the tender document. I reject the submission of the City that the reprisal policy was an express term of Contract A pursuant to the Supplementary Conditions referenced in the tender documents. As noted by Prime Terra, the express terms of the tender documents include Article 1.4, “Disqualification of Tenders”, which section omits any reference to the reprisal policy as a ground for the disqualification of a bidder.
[43] I agree with Prime Terra that the ambiguity between these two contractual provisions, drafted by the City, must be resolved in favour of Prime Terra and against the City, pursuant to the doctrine of contra proferentum.
[44] However, the jurisprudence has clearly recognized the uniqueness of the tendering process, a process in which fairness and integrity are of paramount importance and in which the courts have consistently recognized an implied duty on the part of the owner to treat all bidders fairly and equally and to accept only compliant bids, all necessary to bring business efficacy to the tendering process.
[45] As noted in Derby Holdings, the terms of Contract A are case-specific. In my view, the consideration of whether to recognize any implied terms within the tender documents must take into account both of the above concepts.
[46] Having done so, I am persuaded that the reprisal policy was an implied term of Contract A based on the presumed intention of the parties.
[47] The By-Law is the City’s Supply Management By-Law and clearly and publicly reflects municipal policy. Section 3.08 of the By-Law states that no bid shall be accepted from, nor any contract awarded to, any contractor with whom the City is engaged in unresolved litigation. In my view, this clearly expresses the intention of the City in mandatory terms – bids shall not be accepted from contractors involved in active litigation with the City.
[48] As noted by the City, the terms of the reprisal policy are set out in the By-Law and had been within the public domain for approximately four years prior to the date on which Prime Terra submitted their bid.
[49] Recognizing the City’s reprisal policy as an implied term of Contract A is, in my view, necessary to bring business efficacy to this particular call for tenders and is consistent with the City’s obligation to treat all bidders fairly and equally in order to protect and promote the integrity of the bidding process.
[50] Failing to recognize the reprisal policy as an implied term of Contract A in circumstances where the disqualified plaintiff’s bid was physically accepted due to a clerical error and returned unopened the same day it was submitted and immediately upon realization that this bidder was disqualified would unfairly place the disqualified bidder on an equal footing with the two other qualified bidders. It would also be unfair to other disqualified bidders who did not submit a bid because of the reprisal policy. Such an approach would undermine the business efficacy of the tendering process.
[51] In conclusion, I find that Prime Terra’s bid was non-compliant with the implied terms of the City’s tender call and that the City did not breach Contract A by failing to open and consider Prime Terra’s bid. The action is dismissed.
[52] I encourage the parties to resolve the issue of costs given the unique circumstances of this case. If they are unable to do so, they shall file written submissions as to costs, not to exceed five pages, exclusive of their respective Bills of Costs. The City’s Costs Submissions shall be filed within 14 days of the release of this Judgment; Prime Terra’s Costs Submissions shall be filed within seven days thereafter. No responding Costs Submissions are to be filed.
The Hon. Justice J. Fregeau
Released: September 8, 2022
COURT FILE NO.: CV-17-0137
DATE: 2022-September-8
BETWEEN:
PRIME TERRA GROUP INC.
Plaintiff
- and-
THUNDER BAY (CITY OF)
Defendant
REASONS FOR JUDGMENT
Fregeau J.
Released: September 8, 2022