The Supreme Court of Canada has recently refused leave to appeal in Trevor Nicholas Construction Co. Ltd. v. Canada. In doing so, it has upheld the decisions of the Federal Court Trial Division and Federal Court of Appeal which declined to permit a bidder to rely on after-the-fact information to overturn an invitation to tender.  These decisions, and the Supreme Court’s decision not to allow an appeal, may signal a growing unwillingness of courts to disturb the tender process based upon facts or events occurring after the tender is completed.

Background Facts

This is a long story, starting 23 years ago in 1989. The summary judgment motion judge summarized the facts as follows.

In 1989 and 1990, Trevor Nicholas submitted the lowest bid on two invitations to tender for dredging contracts issued by Public Works Canada.  In each case, Public Works Canada advised Trevor Nicholas that it was “by-passed” in favour of the second lowest bidder based upon its previous work and apparent incapacity.  Trevor Nicholas submitted bids on three further projects between 1990 and 1993. It was the lowest bidder but was by-passed for the same reasons.

In 1995, Trevor Nicholas sued the federal Crown and alleged that the defendant had treated the plaintiff unfairly during the first four tenders.  Trevor Nicholas also claimed that the Crown had breached an implied term of the contracts which were created when the plaintiff delivered four fully qualified low tenders.

In May, 2001, the Federal Court granted summary judgment dismissing the plaintiff’s claim under the implied term theory.

In January 2011, the balance of the plaintiff’s claim was dismissed on summary judgment, on the ground that there was no genuine issue for trial with respect to the plaintiff’s claim that the defendant breached its obligation to treat the plaintiff fairly. The Federal Court of Appeal upheld that decision and the Supreme Court of Canada has now denied leave to appeal from that decision.

The Federal Court of Appeal’s decision

The Federal Court of Appeal quoted, and agreed with, the following portion of the trial judge’s reasons which stated the ingredients of the duty of fairness in an invitation to tender.  The Federal Court of Appeal underlined the concluding portion of the quote:

“The defendant’s implied obligation to treat the plaintiff fairly flows from its “obligation to treat all bidders fairly in the sense of not giving any of them an unfair advantage over the others” and not unfairly preferring one bidder over another… In assessing whether this obligation was breached, it must therefore be determined whether the plaintiff was treated unfairly, relative to other bidders. This assessment should include a determination as to whether the By-Pass Decisions were made on the basis of considerations that were extraneous to those set forth or implied in the tender documentation…. In my view, the assessment should also include a determination as to whether the defendant was biased against the plaintiff or made one or more of the By-Pass Decisions in bad faith, for example, by basing any of the By-Pass Decisions on facts that the defendant knew or ought to have known were untrue at the time those decisions were made. [underlining added]”

The central argument of Trevor Nicholas was that the Crown knew or should have known at the time of the tender that the information which the Crown relied upon to by-pass Trevor Nicholas was false.  Trevor Nicholas attempted to show the falsity of that information, and the Crown’s contemporary knowledge of it, through cross examination of witnesses on the summary judgment motion. Its difficulty was that all the facts that it relied upon were dated long after the invitation to tender.  Trevor Nicholas was attempting to show that, by virtue of those facts long after the tender, the Crown knew or should have known of the falsity at the time of the tender. But it had no information that the Crown did know that falsity at the time of the tender.

The trial judge and the Federal Court of Appeal were not prepared to allow Trevor Nicholas to proceed to trial on the issue of fairness when Trevor Nicholas based its case on facts occurring long after the tender, and sought to extrapolate backwards from those facts to show unfair conduct by the Crown at the date of the tender.  As the Federal Court of Appeal said:

“[T]he plaintiff had no direct evidence to show that when making his decision not to accept the plaintiff’s tenders, the decision-maker knew that the information before him was incorrect or based upon irrelevant factors. At best, the plaintiff’s evidence took issue with the accuracy of various opinions placed before the decision-maker…[T]he Judge wrote that there was nothing in the plaintiff’s motion record:

[…] that would indicate or suggest in any way that the defendant knew, at the time when it made the By-Pass Decisions, that any of the facts upon which it relied in making those decisions were false, erroneous or misleading. Despite my repeated requests during the oral hearing, the plaintiff was not able to identify any basis for this claim, other than its mere belief that the defendant knew that some of those facts were false.”

The Crown led evidence to show that, at the time of the tenders, it retained and relied upon independent experts to evaluate the bids.  The tender documents explicitly stated the past performance of bidders, and the similarity of work previously undertaken by bidders to the proposed work, would be considered.  The summary motion judge concluded that, in all the circumstances, Trevor Nicholas had not shown that there was any genuine issue for trial on the issue of fairness. The Federal Court of Appeal agreed.

Discussion

The decision brings to an end 23 years of disputes and litigation over tenders. There have been 20 reported decisions in the two actions brought by Trevor Nicholas over these tenders. This is a remarkable amount of unsuccessful litigation.

One can well understand the frustration of a contractor repeatedly losing out on invitations to tender on which it was the low bidder.  This frustration is then fed by discovering later facts which demonstrate, in its view, that the decisions to by-pass it were unjustified.  In invitations to tender, bidders are outsiders to the decision-making process.  When they are excluded for subjective reasons, such as unsuitability or incapacity, there is a natural tendency to blame the process and to jump to the conclusion that the process was unfair.

But the invitation to tender process cannot be run by “monday morning quarterbacking.”  Business is business, and courts are not going to paralyze the tender process by raising the spectre of penalizing owners if facts are later discovered which call into question the wisdom of the tendering decision.  Fairness will be judged by the fairness of the process, and the later discovery of new facts does not render a prior process unfair.

See Heintzman and Goldsmith on Canadian Building Contracts (4th ed.), Chapter 1, section 1§1(f)    

Trevor Nicholas Construction Co. Ltd. v. Canada, 2012 FA 110

Building Contracts  –  Tenders  –  Fairness  –  Duty of Care  –  Remedies

Thomas G. Heintzman O.C., Q.C., FCIArb                                                                                                                          December 9, 2012

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