Double N Earthmovers Ltd v Edmonton
Last week, the Supreme Court released its decision in Double N Earthmovers Ltd v Edmonton (City), 2007 SCC 3. In that case, the SCC had the opportunity to review the law governing the tender process.
Many law students fondly remember learning about the cases of Ron Engineering and M.J.B. Enterprises in first year contracts. Learning about the Contract A/Contract B analysis is one of our first introductions to the inventiveness of lawyers and judges in using legal fictions to shoehorn everyday situations into an ill-fitting legal category so that a deserving plaintiff can get relief from the court.
This case also offers a comment on the glacial pace of dispute resolution. The tender in issue occurred in 1986. Although it’s not clear when the action was launched, the trial judgment refers to an examination for discovery occurring in 1995. That judgment was issued in January, 1998 – a full nine years before the Supreme Court released its judgment! In fact, when this case first went to trial, M.J.B. Enterprises, now the leading authority, was awaiting its hearing before the Supreme Court.
The rule governing the tendering process is that the tender documents form a binding “Contract A” between the owner and each bidder. The contract being bid on is known as “Contract B” and is eventually formed between the owner and the winning bidder. “Contract A” includes an implied duty to accept only a compliant bid. The requirement is for substantial compliance with all material terms (that is, anything that will materially affect the price or performance), rather than strict compliance.
In this case, Sureway Construction and Double N Earthmovers responded to a call for tenders for equipment and operators to move waste in a city landfill. The tender documents specified that the each piece of equipment used was to be a 1980 model or newer.
Sureway’s bid was selected by the city. However, after “Contract B” was signed, it became apparent that Sureway’s bid did not comply with all the terms of the tender. There were two problems with the equipment:
- For one item, the Sureway bid falsely listed a 1979 bulldozer model as a 1980 model. The bid included the serial number, which was required as part of the bid. The bulldozer was registered with the city as a 1979 model. The evidence at trial was that the city did not check the serial number and did not know that it was a 1979 model when they entered into the contract with Sureway (although a representative of Double N had told the city that Sureway owned no 1980 bulldozers).
- For a second item, the Sureway bid listed the equipment as “1977 or 1980 Rental Unit”. The serial number included was for the 1977 model.
The debate in the SCC revolved around whether the problems with the bids constituted non-compliance such as to be a breach of “Contract A” between Double N and the city. The majority found that the city was not aware that Sureway’s bid was not compliant, and that there was no obligation to investigate the bid to ensure that it was. Therefore, there was no breach of the contract between Double N and the city.
There are two important issues here. The first was the responsibility of the City to investigate whether Sureway’s bid was in fact compliant. Although Sureway had falsely listed the model year of the first bulldozer, it was well within the City’s power to discover the deceit. The model was registered with the City as a 1979 model. Furthermore, the City was warned by Double N that Sureway did not own any 1980 models. If the city is able to accept the bid at face value and has no obligation to investigate whether the bulldozer was new enough, Sureway’s bid could be said to be compliant.
However, the minority judgment quite reasonably asks why the city required the registration number if not for the very purpose of confirming the submitted information. They go so far as to suggest that in light of all the terms of the tender, the city was in fact under an obligation to do so: “The obligation to accept only a compliant bid would be meaningless if it did not include the duty to take reasonable steps to ensure that the bid is compliant.” Their failure to investigate was therefore a breach of their “Contract A” with Double N.
I think that on this issue, the SCC has quite rightly stepped in to limit the potential liability of a party putting out a tender. Imposing an obligation to investigate the details of submitted bids to ensure they are compliant places an onerous obligation on the owner. In fact, it sounds to me like the minority decision comes close to imposing a tort duty of care on the party putting out the tender – a proposition that was rejected by the SCC’s decision in Martel Building Ltd v Canada,  2 SCR 860.
The second issue revolved around the compliance of the second bulldozer in the bid. Sureway listed a 1977 model, whose registration number was included. The bid then read “or 1980 rental unit” and specified no model number (because, of course, they didn’t own a 1980 unit). The majority argued that because the Sureway bid promised a 1980 model, the obligation was enforceable by the city and the bid was therefore compliant.
It seems clear to me, however, that this was not compliant with the terms of the tender. The listed 1977 unit was clearly not compliant. The “1980 rental unit” was also not compliant, since the city required the registration number for each piece of equipment in the bid. The majority says that the 1980 unit qualified because the registration number requirement was a mere formality. I would agree with the minority, who argue that “it can hardly be said that this bid was compliant with the City’s request. The City asked only for apples, and Sureway responded by saying that it would provide the City with oranges, or with apples. At best, the bid was ambiguous.” The minority argues that the majority decision uses the city’s ability to insist on compliance to transform a non-compliant bid into a compliant one.
The majority decision leaves a tendering party with a great deal of room to submit an ambiguous bid. Conceivably, the ruling could apply to the situation where a party submits a bid that merely promises to meet all the requirements of the tender. The owner would have the right to insist on compliance, which under their approach would mean that their obligations in the tendering process have been met.
The minority describes it as “a tendering process gone badly wrong.” Clearly, it did. And the approach of the majority leaves it as a private matter between Sureway and the city. The minority has scathing words for this approach, arguing that
[a] bidder can submit a bid that is either ambiguous or deliberately misleading but compliant on its face in some respects, secure in the knowledge that if it is awarded Contract B it will be in a strong position to renegotiate essential terms of the contract. And an owner can reason that it may be best not to resolve any ambiguity before awarding Contract B, since at that time all Contract A obligations towards other bidders will terminate and it can then enter into renegotiations with the successful bidder without fear of liability. This approach is not consistent with a fair and open process.