Tarmac Canada Inc. v. Regional Municipality of Hamilton-Wentworth

Tarmac Canada Inc. v. Regional Municipality of Hamilton-Wentworth Collection Decisions of the Court of Appeal Date 1999-09-13 Docket numbers C28200 Judges McMurtry, Roy; O’Connor, Dennis; Sharpe, Robert J. Subject Civil Decision Content DATE: 19990913 DOCKET: C28200 COURT OF APPEAL FOR ONTARIO McMURTRY C.J.O., O'CONNOR AND SHARPE JJ.A. BETWEEN: ) ) TARMAC CANADA INC. ) Kenneth E. Wise (Plaintiff/ ) for the appellant Respondent)) ) and ) ) THE REGIONAL MUNICIPALITY OF ) James A. Hodgson HAMILTON-WENTWORTH ) for the respondent ) (Defendant/ ) Appellant) ) Heard: August 24, 1999 ) On appeal from the judgment of Cameron J. dated September 2, 1997. SHARPE J.A.: [1] This appeal arises from the award of a contract following a call for tenders by the appellant municipality for excavating, blasting and grading a road to the gravel base. The respondent was the lowest bidder. The appellant awarded the contract to the second lowest bidder. Following a one-day trial, Cameron J. found the appellant liable for failing to act fairly or in good faith in connection with the respondent’s bid. [2] The tender documents contained a “privilege clause” in the following terms: The Region reserves the right to reject any or all bids submitted or any part and the lowest of any bid will not necessarily be accepted.[sic] [3] The appellant submits that the trial judge erred in rejecting the contention that its decision to award the contract was justified in view of this clause and in view of this Court’s decision in Acme Building & Construction Ltd. v. Newcastle (Town) (1992), 2 C.L.R. (2d) 308. [4] The invitation to tender required that all bidders be pre- qualified in accordance with Ministry of Transportation standards. Bidders were to submit bids on a unit price basis. The trial judge found that there was no scope for variation of the work, of the method of doing the work, or of the nature or quality of the materials to be used. The only variable permitted by the tender documents was the price. Bids had to remain irrevocable for 60 days following the opening of bids and tenderers were required to post a bond of $200,000. Six bids were submitted. The respondent’s bid of $8,507,056.12 was $19,689.50 lower than the next lowest bid submitted by Dufferin Construction Company, (“Dufferin”) a local contractor. The appellant’s Director of Roads, the official responsible for administering the tender process and for analyzing the bids, recommended that the contract be awarded to the respondent as the lowest bidder. However, representations were made by Dufferin to the Chairman and Members of the Transportation and Services Committee of Hamilton-Wentworth. Dufferin pointed out that it paid taxes in the Region and that it employed local workers, many of whom were presently laid off. The tender documents did not indicate that preference might be given to local contractors or to those employing local workers. The Transportation and Services Committee referred the matter to Council which awarded the contract to Dufferin. The Council gave no reason for its decision. At trial, counsel for the appellant took the position that there was no reason for the decision. [5] Following the principles established in The Queen in Right of Ontario and the Water Resources Commission v. Ron Engineering Construction (Eastern) Ltd., [1981] 1 S.C.R. 111, the trial judge found that the submission of the respondent’s bid in response to the invitation to tender established a unilateral contract in accordance with the tender documents. The trial judge found that “the law implies an obligation on the owner [the appellant municipality] of fairness in exercising its rights under the privilege clause”. He concluded on the evidence that: … the plaintiff has established on the balance of probability that the defendant did not act fairly or in good faith when it awarded the contract to a tenderer who was not the low bidder, and no basis of possible decision on other grounds was disclosed in, nor can one be implied, from the tender documents or any published policy or the defendant. [6] In coming to that conclusion, the trial judge took into account the failure of the appellant to give any reason for its decision. He noted that while Acme Building and Construction, supra, states there is no obligation to give reasons, “in the absence of possible grounds in the tender documents or a published policy…the defendant risks an adverse finding of fact by the court”. [7] I can see no reason to interfere with the findings of the trial judge or with the conclusion he reached. [8] It is well-established that tenderers and owners have reciprocal obligations that arise from the contract that is created by the submission of a bid. Under this contract, referred to as “Contract A” in Ron Engineering, supra, the tenderer is bound not to revoke its bid for the specified period and is bound to accept “Contact B”, the contract for the work, if its bid is accepted by the owner. [9] There is a long line of authority for the proposition that, in turn, the owner is obliged to treat all bidders fairly and in good faith and that the owner is in breach of contractual obligations under Contract A where it awards the contract on the basis of considerations or criteria extraneous to those identified in the tender documents: See eg Chinook Aggregates Ltd. v. Abbotsford (Municipal District) (1989) 35 C.L.R. 241 (B.C.C.A.) at 248: By adopting a policy or preferring local contractors whose bids were within 10 per cent of the lowest bid, the appellant in effect incorporated an implied term without notice of that implied term to all bidders, including the respondent. In so doing, it was in breach of a duty to treat all bidders fairly and not to give any of them an unfair advantage over the others. [10] See also. M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., [1999] 1 S.C.R. 619 at 643, 644; Murphy v. Alberton (Town) (1994), 14 B.L.R. (2d) 99 (P.E.I. Sup. Ct.) at 115; Best Cleaners and Contractors Ltd. v. The Queen, [1985] 2 F.C. 293 (Fed. C.A.) at 300; Kencor Holdings Ltd. v. Saskatchewan, [1991] 6 W. W.R. 717 (Sask. Q.B.); Naylor Group Inc. v. Ellis-Don Construction Ltd. (1999), 43 O.R. (3d) 325 (C.A.) at 332 and 345; Colautti Brothers Marble Tile and Carpet (1985) Inc. v. Windsor (City), [1997] 36 M.P.L.R. (2d) 258. [11] The decision of this Court in Acme Building &Construction, supra, is consistent with this line of authority. In that case, there was a similar privilege clause. The tender documents required the bidders to specify a completion date. The successful bidder was not the lowest, but it did specify an earlier completion date. The owner relied on the privilege clause and gave reasons for its decision. Those reasons included the earlier date for completion specified by the successful bidder, and consequent costs saved by the town. In upholding a judgment dismissing the claim of the lowest bidder, this Court stated that the completion date was a material term specified by the tender documents and that the owner was entitled to base its decision on that element of the bids. As the owner’s decision was based upon a factor or criterion identified by the tender documents, there was no breach of the obligation to act fairly when invoking the privilege clause. [12] In Acme Building & Construction, supra at 310, the Court observed that the privilege clause “gave the respondent [owner] the right to reject the lowest bid and accept another qualifying bid without giving any reasons”. The appellant submits that as it was not required to give reasons for its decision to award the contract to Dufferin, the trial judge erred in taking into account its failure to give reasons. I reject that submission. While the appellant was not required to give reasons, in failing to do so, it ran the risk that the trial judge would draw an adverse inference from its silence. In my view, in the circumstances of this case, particularly in light of the Council’s failure to give reasons, the recommendation of the Director of Roads, and the representations made by Dufferin, and the fact that the only variable permitted by the tender documents was the price, the trial judge was entitled to find that the appellant breached its contractual obligation to treat the respondent’s bid fairly. There is no basis for this Court to interfere with that finding. [13] Accordingly, the appeal is dismissed. The court was advised that the parties agreed that costs, fixed at $10,000, should follow the event and I so order. “Robert J. Sharpe J.A.” “I agree. R. R. McMurtry C.J.O.” “I agree. D. O’Connor J.A.” Released: September 13, 1999