We don’t usually think of the law of mistake as having any relevance in the 21st century. Mistake seems to be an 18th century problem which couldn’t possibly apply to today’s building contracts, especially those arising out of the modern law of tender.

But the recent decision in Asco Construction Ltd. v. Epoxy Solutions Inc. shows that this assumption isn’t correct. The Ontario Divisional Court held that a contract arising from a tender was void for mistake. The decision is a wake-up call about the need for reasonable certainty in tender information.  Otherwise the whole tender process may be for naught.

Facts

The City of Kingston hired Asco as the general contractor to renovate the Grand Theatre.  Asco invited tenders for the concrete and epoxy subcontract and gave bidders a sketch containing slab elevations. A revised sketch was also provided before tenders closed.

Epoxy Solutions submitted a bid for the subcontract work.  Asco confirmed that Epoxy was awarded the subcontract and the parties signed a letter of intent.  After Asco provided Epoxy with a draft contract to sign, Epoxy’s surveyor advised that the sketch forming part of the tender documents contained insufficient information, and that it was necessary to conduct an as built survey to calculate accurately the quantities of concrete necessary to perform the work.

Later, Epoxy told Asco that the elevations listed in the tender documents were inaccurate and that further work and material were needed for an additional cost of about $32,000. Epoxy refused to start the work without confirmation that it would be paid the additional amount. After accusatory correspondence between the parties which resolved nothing, Asco re-tendered the subcontract and hired another contractor at an additional cost of $17,800.00 plus taxes. Asco and Epoxy counter-sued each other for breach of contract.

The Decision

The trial judge dismissed Asco’s claim and awarded damages to Epoxy. The trial judge held that the sketch provided by Asco to Epoxy was misleading.  The parties appealed. The Divisional Court dismissed Epoxy’s appeal but allowed Asco’s appeal and dismissed Epoxy’s action. It did so on the basis that there was no contract between the parties arising from the tender process due to mistake.

The Divisional Court agreed with the trial judge regarding the misleading nature of Asco’s tender documents.  Epoxy was not aware of those errors and could not reasonably be expected to have discovered them prior to making its bid. The court found that Epoxy was under no obligation to investigate the accuracy of the tender invitation documents. The tender documents, it said, “constitute an implied representation to compliant bidders that the work described in the tender documents can be built as described. Contractors and subcontractors bidding on projects are entitled to rely on the accuracy of design information prepared by the owner or its engineers, rather than being compelled to duplicate design analysis prior to submitting bids.”

However, the Divisional Court dismissed Epoxy’s case because there was no contract between the parties due to mistake.  The Divisional Court arrived at this conclusion through the following reasoning:

“Both parties refused to budge from their positions. By their conduct, they walked away from any contractual obligations they had with each other. The positions they adopted arose from a common mistake. The sketch the appellant provided with the tender documents was not a detailed survey and failed to provide adequate information necessary to calculate accurately the costs of labour and materials required to do the work. The respondent did not become aware of the mistake until informed by its surveyor, almost ten months after submitting its bid, of the inadequacy of the sketch. We find that the mistake was so fundamental that it renders the contract between the parties void. No damages can flow from a contract that does not exist.”

Discussion

This decision raises a fundamental issue under the Ron Engineering line of cases in relation to tenders. If there is misinformation in the tender documents, or if those documents are indefinite or confusing, what is the impact on the Contract A arising from the tender under Ron Engineering analysis?

It does seem strange that Asco, the party whose tender information was found to be misleading, should be entitled to have the contract set aside for mistake. Usually, mistake will only lead to a remedy – rescission – if the party seeking relief is innocent of any wrongdoing leading to the mistake.  In this case, Asco was not innocent of wrongdoing and, perhaps recognizing this fact, had not even asked for rescission or asserted a mistake.

Without Ron Engineeering, there would be no real issue here. The letter of intent created no contract, and without Ron Engineering there would be no contract between the parties. Ron Engineering created Contract A which governed the tender process itself.  That contract obliged Asco to act in good faith toward Epoxy in considering its bid as the lowest tender, and obliged Epoxy to keep its bid open and to enter into a Contract B consistent with the invitation to tender.  If the information provided by Asco was either misleading or indefinite, then Epoxy would have been entitled to rescind Contract A, or the subject matter of the contract or the dealings would have been too uncertain to create a contract.

If rescission was to be granted for mistake or misrepresentation at Epoxy’s request – a request that was never made – then Epoxy might have been disentitled to damages due to its own fault in not detecting the errors in the sketch at the time of bidding.  This approach would have led to the same result.

All in all, this decision raises puzzling issues about how to properly apply the law of mistake to misleading information in an invitation to tender and a bidder’s failure to detect the errors on a timely basis.  What the decision does do is provide a warning to owners and contractors about the perils of inaccurate tender information.

Asco Construction Ltd. v. Epoxy Solutions Inc., 2013 CarswellOnt 7940, 2013 ONSC 4001 (Ont. Div. Ct.)

Tenders – Misrepresentations – Contract A – Contract B analysis – Rescission – Mistake

 Thomas G. Heintzman O.C., Q.C., FCIArb                                                                                                September 16, 2013

 www.heintzmanadr.com

www.constructionlawcanada.com