Hard Hat Forum – Caselaw UpdateApril 2, 2015
Dentons Canada LLP
Stephen Coyle, Partner
604-443-7148
Don Smith, Counsel
604-648-6551
Karen Martin, Partner
604-691-6455
Procurement Cases
2
Todd Brothers Contracting Ltd. v. Algonquin
Highlands (Township) 2015 ONSC
3
• Township issued tender for airport runway construction
• Todd was lowest bidder, and agreed to extend bid acceptance date to
allow environmental assessment, and then agreed to phasing of the
project to allow first part to proceed in meantime
• Todd signed “compensation waiver acknowledgement” that it would:
• not seek any compensation … in the event that the Township cannot proceed
to any of the phases as a result of matters beyond the control of the Township
… or delays resulting from the review being completed by the CEAA… any
other public issues/concerns or the withdrawal of funding from applicable
sources
• Council passed Resolution accepting bid subject to CEAA
• Part 1 proceeded. Then a new Council cancelled the rest of the Project
Todd Brothers cont’d
4
• Todd sued, asserting Township’s failure to proceed was a breach of
Contract A
• Court found :
• Contract A arose when Todd submitted its compliant bid
• Contract B arose when Council accepted bid (even though acceptance not
communicated to Todd)
• Waiver provision barred Todd’s claim, as the wording covered those particular
circumstances
• Waiver of claims signed by bidder during a tender was enforced to defeat
contractor’s claim
Newfoundland and Labrador v. Marine Contractors,
2014, NLTD(G)
5
• Original tender form was revised by addendum
• IBs said “Tenders not submitted on Tender Form provided will not be
considered”
• Low bidder submitted bid on original tender form
• Owner sought declaration that low bid was compliant before award
• Court found bid was compliant. Test for compliance is whether bid is
responsive to the substantive requirements of the tender – the key
question is whether there has been substantial compliance with the
tender call. Tenders should not be rejected for a mere technical error
• Court concluded that all of the material information was included by the
bidder and its use of the original tender form did not prejudice or cause
unfairness to other bidders
Cobalt Construction Inc v. Kluane, 2014, YKSC
6
• Cobalt submitted lowest bid, but Owner awarded to its own development
corporation, who had failed to submit a bid bond until after closing
• Cobalt sued. Owner argued Cobalt’s bid was materially non-compliant,
so it had no Contract A and no claim, because it:
• failed to include a full list of its subcontractors as required by the tender
because did not list “Own Forces for the trades”
• failed to comply with tender requirement to make best efforts to invite local
business to bid on subcontracts related to the work
• Court rejected Owner’s arguments and awarded lost profits to Cobalt
• Cobalt was not required to seek local bids for subcontract work it did not need
to subcontract, or to list Own Forces acting as trades when it had no “Own
Forces” acting as trades
Pomerleau v. Newfoundland & Labrador,
2014, Nfld SC
• Low bidder failed to complete Appendix D, calculation of separate price;
though information could have been gleaned from rest of bid
• IBs said “incomplete tenders will be rejected”
• No discretion clause allowing waiver of irregularities
• Owner rejected and low bidder sued
• Court agreed owner had obligation to reject
• Test was strict compliance on the wording of these tender documents
7
Rankin Construction v. Ontario, 2013, ONSC &
2014, ONCA
8
• Rankin submitted lowest bid. Tender documents provided a 10% price
reduction for domestically sourced steel. Rankin mistakenly believed H-
Piles were available domestically, and failed to declare them as imported
• Another bidder complained. Owner investigated, Rankin’s bid was
declared non-compliant. Contract was awarded to second lowest bidder
• Issue: Can the Owner investigate a bid in response to a call for tenders
or must it take the bids at face value?
• ONSC: Owner is not obligated to investigate (Double N), but that does
not mean it is not permitted to investigate
• ONSC: failure to disclose the correct declared value of imported steel
was a material non-compliance and so no contract A was formed
between Rankin and Owner
Rankin Construction cont’d
9
• ONCA: held that Contract A was formed, but that under Contract A,
owner could choose not to award to a non-compliant bidder
• Must consider language of tender to determine whether parties intended
contractual relations to arise on submission of a non-compliant bid.
Here, the language suggested Contract A arose, but gave owner rights to
not award in certain cases and to waive formalities in others
• Court said on the facts, the owner could have waived non-compliance
because this was an informality and maintained integrity because price
was lower; but it could chose not to in order to avoid litigation
• ONCA upholds Owner’s right (but no obligation) to investigate a bid, so
long as it is fair and consistent in assessment of bidders.
• Exclusion clause protected the Owner even if it breached the tender
terms (it might not only where there is Tercon aberrant behaviour)
Eastern Regional Integrated Health Authority v
Olympic Construction, 2014, NLCA
10
• Tender instructions required mandatory site visit, which only one bidder
attended (Redwood)
• Owner then invited two other contractors, including Olympic, which it
induced to submit a bid by issuing addenda changing the closing date
and adding a second site visit
• Addenda did not state that second site visit was mandatory, or that first
site visit was no longer mandatory
• Olympic submitted lowest bid. Redwood complained that Olympic failed
to attend the mandatory first site visit, and that its bid should be
disqualified. Owner disqualified Olympic
• Olympic sued
Eastern Regional cont’d
11
• Court held: Owner breached of duty of fairness – Owner did not play by
its own rules
• Owner made the rules by issuing the addendum which induced Olympic
to submit a bid to the Owner’s benefit, and then broke the rules by
insisting that the addendum had no effect on Contract A
• Court noted that low bidder did not complain when addenda issued
• While TJ had held that Owner had breached a “duty of good faith”, CA
clarified that in procurement, we are concerned with the duty of fairness ,
not a broader duty of good faith
Other Construction Law Cases
12
Shafazand v. Whitestone Management,
2014, BCSC
Illegality Doctrine
Facts
• Whitestone retained Shafazand as the general contractor pursuant to a
fixed price contract to construct a single-family dwelling
• Both parties agreed to conceal from the City of Vancouver an illegal
basement suite in the plans that the parties submitted to the City
• Shafazand sued for extras and Whitestone denied that payment was
owed and counterclaimed for the amounts that it incurred to complete the
work
13
Shafazand cont’d
• The court found contractor had performed extra work and that the
developer had incurred extras to complete the work
• However, the court dismissed both claims on public policy grounds and
denied the developer judgment for the balance
• It found that because the developer set out to deliberately deceive the
municipal authorities and was involved in the construction of an illegal
suite, it would be against public policy to allow the developer to be
rewarded for such conduct
14
Shafazand cont’d
Application
• Business practices which are deceptive (for instance knowingly
undertaken against municipal building regulations) may negate recovery
on legitimate claims
15
Haebler Construction (2003) Inc. v. Condura Forming
Ltd., 2014, BCSC
Swearing a False Statutory Declaration
Facts
• The plaintiff contractor Haebler completed certain concrete formwork
after the defendant subcontractor Condura that it had engaged failed to
complete the work
• Haebler claimed for its cost of completing the work less the original
subcontract price
• Haebler also sought damages for allegedly fraudulent or negligent
misrepresentations that subcontractor’s principal made in a sworn
statutory declaration concerning payment of accounts for sub-trades:
• “all claims for wages and materials due and payable in respect of the building
to date have been fully paid and satisfied”
16
Haebler Construction cont’d
• Court rejected the misrepresentation claim on the basis that given the
principal’s limited understanding of the significance of the statutory
declarations, it was unclear that he knew his representations were false
• Court also emphasized that Haebler had continued to deal with the
subcontractor even after it became aware of the subcontractor’s
problems with its creditors, meaning there could not have been ongoing
reliance on the principal’s statements
• Finally, any reliance caused no loss as Haebler was fully compensated
for any extra expense by the Owner
17
Haebler Construction cont’d
Application
• Look beyond the Statutory Declaration to confirm that project funds are
properly flowing down the contractual claim
18
First Queensborough Shopping Centres v. Wales
McLelland Construction, 2014, BCSC
Facts
• During of the project the defendant owner had been late in paying
invoices, and interest accrued on unpaid amounts
• The fixed price DB contract contained the following waiver:
• “as of the date of the final certificate for payment, the [contractor] expressly
waives and releases the Owner from all claims against the Owner including
without limitation those that might arise from negligence or breach of contract
by the Owner except … those made in writing prior to the [Contractor’s]
application for final payment and still unsettled … ”
• Notwithstanding the waiver, the contractor successfully sued the owner
and the court awarded damages for the unpaid interest
19
First Queensborough cont’d
• In doing so, the Court found that the Waiver did not make “commercial
sense”, noting:
• Issuance of Certificate of Payment that would operate to expunge any debt the
Owner owed makes no commercial sense
• The Waiver did not intend to operate in the Owner’s favor to extinguish any
claim the DB had for amounts owing under the Contract, including interest
• Owner was contractually obliged to pay interest on amounts due and owing
(20 days after submission)
• Contract did not require DB to issue invoices for interest due
• The parties could not have intended that any outstanding balance the Owner
owed, which did not become due until 20 days after receiving the Certificate of
Payment, was vitiated
• Objectively, the parties intended that interest would have continued to accrue
until the full balance was paid
20
First Queensborough cont’d
• There is no commercial or sound reason that justifies construing the Contract to
deny the DB interest on amounts the Owner had not paid at the date of the
Payment Certificate
• The Contract required the Owner to pay the full Contract price at the end of the
Contract; this amount should rationally include the accrued interest and any
amounts that became due after the Final Payment Certificate was issued
21
Wood Buffalo Housing & Development Corporation v.
Flett, 2014, ABQB
Facts
• Fire occurred in 2007 in a multi-residential building owned by Wood
Buffalo. Certificate of Substantial Completion was issued in 2002
• Building had been designed and built by Liam Construction pursuant to a
CCA-14 Design Build contract
• Wood Buffalo commenced action against Liam, other subs and design
consultants for alleged construction and design deficiencies
22
Wood Buffalo cont’d
• DB Team brought Application to dismiss claim based on the following
“Waiver”:
• “As of the date of the Final Certificate for Payment, the Owner expressly waives
and releases the Design – Builder, the Consultant, all other Consultants, all
Subcontractors, all Suppliers and their agents and employees from all claims
against them including without limitation those that might arise from the
negligence or breach of contract by the Design-Builder, the Consultants, all
other Consultants, all Subcontractors, and their agents and employees except
one or more of the following:
.1 those made in writing prior to the date of the Final Certificate for Payment and still unsettled;
.4 those made in writing within a period of two years from the date of Substantial Performance of
the work…
06/04/2015 23
Wood Buffalo cont’d
• No claim in writing was made by Wood Buffalo against the DB prior to the
date of the Final Certificate of Payment, nor was any claim in writing
made by Wood Buffalo within a period of two years from the date of
Substantial Performance of the work
06/04/2015 24
Wood Buffalo cont’d
• Court essentially found waiver enforceable by stating that it would not
have dismissed the Application for dismissal:
• Fundamental principle of law that party cannot release/waive claims it is
unaware of at signing, but this clause expressly included future claims “without
limitation”
• The requirement to make claims in writing prior to certain dates does not, when
viewed in the context of the entire clause, import a knowledge requirement
(Contract does not incorporate the principle of discoverability)
25
First Queensborough/ Wood Buffalo
Application
• ONLY TRUST IN LITIGATION COUNSEL AND NOT YOUR SOLICITOR
• WAIVERS/ RELEASES within contracts subject to uncertain judicial
interpretation
26
Stanley Paulus Architect Inc. v. Windhill Holdings
Ltd., 2014, BCSC
Facts
• Architect sought a declaration of builder’s lien for the preparation of plans
and other architectural services for a project that was never constructed
• Owner had terminated the architect on the basis that its services were
not provided in a timely manner, and retained other architects to
complete the design and other architectural services
• The court dismissed the architect’s claim, finding that without an
improvement, there was nothing for which a claim of lien could attach
27
Stanley Paulus cont’d
Application
• Architects and other design consultants have valid lien rights , but those
rights, if any, do not materialize until construction has commenced on the
improvement
28
Duty of Good Faith
29
Duty of Good Faith pre Bhasin
• Duty of good faith implied in commercial contracts in many jurisdictions:
• Quebec; US; much of Europe – i.e. Germany, Austria, France
• In Canada (outside Quebec), no general duty of good faith in
commercial contracts – UK, Australia are similar
• EXCEPTIONS
• Insurance contracts
• Franchise & employment contracts
• Tender contracts
• In exercising contractual discretion
• Express contract terms
30
Bhasin v. Hrynew, 2014 SCC
Facts
• Bhasin and Hrynew were competitors with an acrimonious relationship
• Hrynew made attempts to take over Bhasin's business, urged Can-Am to
force a merger
• Can-Am developed a restructuring plan that involved Hrynew subsuming
Bhasin's business
• Dealership contract between Can-Am and Bhasin at heart of dispute
• Three-year term
• Automatic renewal unless either party gave 6 months' written notice
• Included an entire agreement clause
31
Bhasin cont’d
• Regulator (AB Sec. Comm.) required Can-Am to appoint a single person
to monitor compliance across the province – Can-Am chose Hrynew
• Bhasin resisted Hrynew’s oversight
• Refused to allow Hrynew access to confidential business records
• Can-Am issued non-renewal notice to Bhasin under the agreement
• Bhasin lost his ESP dealership business and Hrynew hired much of
Bhasin's former salesforce
• Bhasin sued Can-Am for breach of contract, Hrynew for inducing breach
of contract and both for civil conspiracy
32
Bhasin – Duty of Honesty
• SCC established a general duty of honest contractual performance
“… parties must not lie or otherwise knowingly mislead each other about
matters directly linked to the performance of the contract. This does not
impose a duty of loyalty or of disclosure or require a party to forego
advantages flowing from the contract; it is a simple requirement not to lie or
mislead the other party about one's contractual performance.”
• General doctrine of contract law that imposes a minimum standard of
behavior in every contract, not an implied term
• This means parties cannot contract out of the duty; but can modify and
'relax' it through express terms in contract so long as not manifestly
unreasonable and respects the core duty
33
Bhasin – Duty of Honesty cont’d
• The new duty of honest in contractual performance is NOT:
• a fiduciary duty or duty of loyalty (so not required to give up
contractual advantages, or look out for other party’s
interests)
• a duty to disclose material facts
• a duty in contract negotiations – just in performance
• to be used as a pretext for scrutinizing motives of other party
34
Bhasin – Court Findings
• SCC found that Can-Am had acted dishonestly with Bhasin
• The entire agreement clause not applicable as parties cannot contract
out of the duty of honest performance
• Bhasin awarded $87,000 to replace lost value of business
35
Bhasin – Implications
• More litigation! – relying on Quebec and US law
• Proactively address scope of duty in express terms in contract – e.g.
circumstances in which discretion will be exercised, or factors that will
be applied
• In any contract situation, including procurements, communications
cannot be actively misleading or deceptive
• Underlying context will inform the scope of the duty - so internal
communications relevant to motives may be examined
• Termination and exercise of discretion will attract particular attention
36
Bhasin - Implications re Preparing Draft Contracts
Preparing Draft Contracts to Accompany Tenders
• Clauses needed to designate standard of honest performance of
contractual obligations and provide some certainty for contract
administration and interpretation
• Parties may relax the requirement of honest performance by express
agreement, e.g. circumstances in which discretion will be exercised, or factors
that will be applied
• Standard used must (1) not be manifestly unreasonable and (2) respect the
core requirements of the duty.
37
Bhasin – Implications re Administration of Contracts
Implications for Administration of Construction Contracts
• Communications must not be actively misleading or deceptive
• Does not matter whether party making the communication intended for the
other party to rely on it
• Though underlying context will inform the scope of the duty - so internal
communications relevant to motives may be examined
• Documentation of process for arriving at discretionary decision and
exercising of contractual rights
• Duty of honesty may lead to challenges of discretionary decisions, which
cannot be made in an arbitrary manner under the duty of good faith
• Decision-makers should document the process through which a discretionary
decision was made to forestall any legal challenges
• Termination decisions will attract particular attention
38
Future Developments
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Future Developments
• Revamping of Builders Lien Act
• Lobbying for prompt payment legislation
• J Cote v. Burnaby and related industry discussions – Claims history as a factor
in procurement decisions
• Ongoing bid rigging litigation in Ontario regarding federal computer services
contacts (follows on Envoy)
40
Thank you
Dentons Canada LLP
Stephen Coyle, Partner
604-443-7148
Don Smith, Counsel
604-648-6551
Karen Martin, Partner
604-691-6455
