Date: 20090601
Docket: T-643-09
Citation: 2009 FC 545
Ottawa, Ontario, June 1, 2009
PRESENT: The Honourable Mr. Justice Barnes
BETWEEN:
THE ST. LAWRENCE COLLEGE OF
APPLIED ARTS AND TECHNOLOGY
Applicant
and
HER MAJESTY THE QUEEN
IN RIGHT OF CANADA
Respondent
REASONS FOR JUDGMENT AND JUDGMENT
[1]
On this
application for judicial review, the St. Lawrence College of Applied Arts and
Technology (the College) challenges a decision by Public Works and Government
Services Canada (Public Works) to disqualify the College’s bid to supply leased
space in Cornwall, Ontario, in response to a Public Works Invitation to Tender.
The College seeks a declaration that its bid was compliant with the tender
requirements and an order compelling Public Works to consider its bid. The
hearing of this application was expedited by Order of Prothonotary Kevin Aalto
because the finalization of the tendering process is set for June 15, 2009.
I. Background
[2]
In early
2009 Public Works invited bids for the provision of 3085 square metres of
office space in Cornwall, Ontario, for a lease term of ten years. That
process was initiated through an Invitation to Offer which set out detailed tender
requirements. Also included was a form of Offer and a Specimen Lease. The
Invitation to Offer contained typical tender provisions including the following
dealing with the evaluation and acceptance of offers:
10. EVALUATION
1. The evaluation of
Offers received is an on-going process and the Lessee reserves the right to
terminate any further consideration of any Offer at any time during the
Acceptance Period for any reason whatsoever without any notice thereof.
2. The Offeror shall
permit the Lessee’s employees, servants, agents and contractors reasonable
access to the Leased Premises and Building, or Lands on which the Leased
Premises are located, for the purpose of making assessments with respect to the
Premises offered including Building systems and environmental assessments which
the Lessee deems appropriate. Such assessments shall not constitute a taking of
possession by the Lessee.
3. An Offer may not be
subject to further evaluation if, in the sole opinion of the Lessee, the Offer
fails to meet or comply with the provisions, requirements or standards as set
forth in this Lease Tender Documentation Package.
4. An Offer will not
be subject to further evaluation if, in the sole opinion of the Lessee, the
Offer is conditional or qualified in any matter.
[…]
6. Notwithstanding the
above, the Lessee reserves the unqualified right to carry out a comparative
evaluation of all or any of the Offers and evaluate them based on
considerations which in the sole opinion of the Lessee would yield to the
Lessee the best value. This evaluation may be on such matters as, but not
limited to, the quality of Leased Premises, the efficiency of the Leased
Premises offered, building design and access, the degree to which the
requirements are already met, or the time within which all requirements will be
met.
11. ACCEPTANCE
1. The Lessee may
accept any Offer whether it is the lowest or not, or may reject any or all
Offers.
[3]
Because
the College is exempt from municipal taxation it was concerned that the tax
clause in the Specimen Lease did not apply. It brought that concern to the
attention of Public Works and an addendum to the Specimen Lease was then issued
to take account of the College’s special tax circumstances.
[4]
The
College submitted its Offer to Public Works on February 5, 2009, with an
accompanying cover letter signed by its Purchasing Manager, Carey McCartney.
Mr. McCartney’s letter stated:
St. Lawrence College is pleased to have
the opportunity to submit our proposal for your review. The information
provided herein is our response to your Request for Proposal for leased
accommodation. The attached submission should not be expressed as a final
contract agreement. As stated in your RFP (page 52), the Lessor’s offer,
the Lessee’s acceptance and the Lease agreement will constitute the entire
agreement. Both the Lessor and the Lessee will reserve the right to negotiate a
final written contract. It is this agreement, that will result in the final
expression of contract. Failure to reach a contract agreement will not be
binding on either party or result in any damage claims.
It is our sincere belief that our state
of the art facility, coupled with its numerous amenities, warm and friendly
atmosphere and picturesque location will lead to a long, successful
partnership.
Please contact me if you have any
questions or require any clarification with regards to our proposal or any of
the supporting documentation.
[5]
Notwithstanding
the addendum to the Specimen Lease, the College’s Offer also included the
following notation concerning municipal taxes:
Note: The Lessee will be responsible for
all taxes payable (i.e., property, municipal water, school, local
improvements, and any other applicable taxes) on that portion of the rentable
taxable area occupied by the Lessee. The tax rate will be subject to annual
review and adjustment based upon changes to the assessed value of the property,
the tax rate, local improvements or any other changes attributed to the Leased
Premises. The rental rate will be subject to any increases or decreases in the
taxes payable as of the commencement date of the lease and each subsequent year
until termination of the lease.
[6]
On
February 24, 2009, Public Works wrote to the College advising that its Offer
was non-compliant and would, therefore, not be considered. The basis for that
decision was that the Offer was inappropriately qualified by a right to
negotiate the terms of the lease and by a modification to the tax clauses of
the Specimen Lease. It is from this decision that this application for judicial
review arises.
II. Issues
[7]
(a) What
is the applicable standard of review?
(b) Did
Public Works commit a reviewable error by disqualifying the College’s Offer?
III. Analysis
[8]
The
parties are in general agreement about the legal principles that apply in this
proceeding. Their disagreement arises in the application of those principles to
the facts. This is an issue of mixed fact and law for which the standard of
review is reasonableness: see H B Lynch Investments Inc. v. Canada (Minister
of Public Works and Government Services), 2005 FCA 237, [2005] F.C.J. No. 1091,
at para 6.
[9]
A
helpful summary of the law in this area can be found in the decision of
Baynton, J. in Derby Holdings Limited v. Wright Construction Western Inc.
2002 SKQB 247, [2002] 9 W.W.R. 126 at para 32:
32 The law of contract that
applies to the tendering process has been stated and re-stated in these cases
by the Supreme Court and need not be repeated here. For the purposes of
determining the issues in the case before me, the following general principles
can be distilled from the cases cited above:
1. An invitation to tender by an
owner may be characterized as an offer to consider a tender offer from a
contractor (Contract A) to enter into a contract (Contract B) to perform the
work in accordance with the terms specified by the owner in the invitation to
tender and at the price specified by the contractor in the tender. The
submission of a tender that complies with the terms of the invitation to tender
constitutes the acceptance of the offer in the invitation to tender and creates
Contract A. There is accordingly good consideration for the contractor’s
promise to enter into Contract B if the tender is accepted by the owner.
2. Provided the parties intended
to initiate contractual relations, Contract A arises upon the submission of the
tender. Its terms are those set out in the invitation to tender and the tender
submitted in compliance with these terms. Usually, when parties resort to the
tendering process as the means to select a contractor and determine the cost of
completing the project, they intend to create contractual relations.
3. The terms of Contract A are
case specific. They are comprised of the express provisions of the invitation
to tender and of the tender itself and any other terms that may be implied by
the court. Usually, the express terms provide that the tender is irrevocable
for a period of time and if accepted, the tenderer is obligated to enter into a
construction contract with the owner to perform the work. As well, the court
usually implies a term that the owner will treat all tenderers fairly and that
only compliant tenders will be considered and accepted.
[10]
Justice
Baynton’s decision in Derby dealt with the problem
of a non-compliant bid and whether it could be rectified after the opening of
the tenders. He held that it could not for the following reasons:
43 The plaintiff considers the
telephone acknowledgement of Clifford Wright as a rectification of the
non-compliant aspect of the defendant’s bid. But the case law suggests that an
otherwise non-compliant bid (for example one that is uncertain as to the price)
cannot be made compliant by addressing the deficiencies after the tenders are
opened. To permit this amendment of bids after they are opened would create
intractable problems and jeopardize the integrity of the tendering process. Vachon
Construction Ltd. v. Cariboo (Regional District) (1996), 136 D.L.R. (4th)
307 (B.C.C.A.). In the context of the unfortunate case before me, the failure
of the defendant to acknowledge the addenda in its tender is not merely an
irregularity. A crafty tenderer might decline to acknowledge an addendum with
the objective of getting a further chance to fine tune its bid once the other
bids were known. It could then elect whether to verbally acknowledge or refute
the addendum depending on the economic consequences of the election.
[…]
47 But there is no valid reason
why the application of this legal principle should depend upon the source of
the challenge. The legal rationale for requiring owners to reject non-compliant
bids from consideration is that those bids are not capable of acceptance by the
owner within the context of the tendering process. The case law has established
that a bid is non-compliant if it is uncertain or is at odds with the terms of
the invitation to tender. The issue of whether a bid is compliant is not
determined by the source of the challenge. It is determined by its own terms
and those of the invitation to tender package. The integrity of the tendering
process would be undermined by the disparate application of this legal
principle. The modern case law clearly hold that the submission of a bid or the
acceptance of it does not always result in the formation of Contract A. The
owner, not the contractor, is the one in control of the tendering process and
the one who is able to define what constitutes a compliant bid. There is
no justification for a rule of law that permits an owner to hold a tenderer to
a bid that the owner itself has pre-determined to be non-compliant.
[11]
It
can be seen from these general principles of tendering law that in responding
to an invitation to tender a bidder must, as a rule, submit an offer which
precisely conforms to the terms of the tender. Any variation from those terms –
at least with respect to a material item – will disqualify the bid notwithstanding
the offeree’s wish to consider it. The rationale for this is that the offeree
owes a duty of fairness to all the bidders engaged in the tendering process – a
duty it breaches by considering a bid which is non-compliant with the terms of
the tender. This is also the rationale for not allowing a bidder to carry out
an ex post facto repair to its bid or, alternatively, for not allowing
the offeree to waive a material tender requirement for one bidder before the
award of Contract B.
[12]
The
tender documents in this case make it quite clear that the contractual
intention of the parties was to require that offers conform to the terms of the
Invitation to Offer. Considerable care was taken to ensure that no room was
left for further negotiation over the terms of the tender. The question that
remains is whether the College’s letter of February 5, 2009, which accompanied
its Offer and Mr. McCartney’s notation concerning municipal taxes constitute
material qualifications or conditions which justify Public Works’ decision to
reject it as non-compliant.
[13]
The
Offer from the College was disqualified by Public Works on two grounds:
a.
The
Offer contained a reservation in the accompanying cover letter providing for a
right to negotiate the final terms of the lease; and
b.
The
Offer included a notation which purportedly modified the tax clauses of the
lease.
[14]
The
College asserts that, viewed objectively, its Offer substantially complied with
the Invitation to Offer and should not have been disqualified. On the other
hand it acknowledges that the requirement for certainty is the underlying
principle that determines whether substantial compliance with tender
requirements has been achieved. The College argues more specifically that Mr.
McCartney’s letter did not form part of its Offer and, even if it did, it
merely added clarity. In addition, it says that although Mr. McCartney was
tasked with the primary responsibility to prepare the Offer he was not an
authorized signing officer for the College. The College also says that Mr.
McCartney’s letter should be read down on the strength of his evidence that his
intention was merely to restate the wording of the tender package and not to
qualify the College’s bid.
[15]
There
can be no question that Mr. McCartney’s cover letter contained a significant
qualification to the Invitation to Offer. The letter purported to vitiate the
binding nature of the Offer by subjecting the terms of the Specimen Lease to
further negotiation and by stating unequivocally that a “failure to reach a
contract agreement will not be binding on either party or result in any damage
claim.” Taken at face value this letter would prevent the formation of contract
B which ordinarily would arise upon the Crown’s acceptance of the Offer. This
would defeat the clear intent of the invitation by Public Works to tender which
was premised on a bidder presenting an irrevocable offer to enter into a lease
in the form proposed which would legally bind the parties upon acceptance by
Public Works. This was not an inconsequential matter and it went well beyond a
point of simple clarification.
[16]
The
problem with Mr. McCartney’s evidence is that extrinsic evidence of the
parties’ intentions is not relevant to interpreting a contract where, when
viewed objectively, the language of the agreement is sufficiently clear: see Gilchrist
v. Western Star Trucks Inc., 2000 BCCA 70, [2000] 73 B.C.L.R. (3d) 102 at
108 (C.A.). Whatever
his intentions may have been, Mr. McCartney’s letter contains an unmistakable
qualification going to the root of the contractual relationship and there is no
basis for interpreting it inconsistently with its clear expression.
[17]
The
College has provided no authority for its argument that Mr. McCartney’s lack of
authority to qualify the Offer should somehow avoid the ostensible legal
significance of his covering letter. It has also provided no legal basis for
its contention that a cover letter containing a contractual qualifier should be
taken not to be legally part of a contractual offer. Indeed the decision in J.
Oviatt Ltd. v. Kitimat General Hospital Society, 2000 BCSC 911, [2000] BCJ
No. 1196 stands for the opposite proposition.
[18]
In
my view it was well within Public Works’ discretion under Article 10.4 of its
Invitation to Offer to disqualify any bid which it reasonably considered to contain
a condition or qualification. Public Works was under no obligation to
investigate Mr. McCartney’s authority to bind the College or to reconsider the
Offer on the basis of subsequently discovered information: see Double N
Earthmovers Ltd. v. Edmonton, 2007 SCC 3, [2007] 1 S.C.R. 116 at paras 49
and 52. Furthermore, it is not open to the College to assert that Mr.
McCartney’s letter carried no legal effect and should simply have been ignored
by Public Works. Public Works had no obligation to accept the legal
uncertainties that went with Mr. McCartney’s letter. That letter was an open
invitation to controversy and disagreement not only with the College but also
with other parties involved in the tendering process. Public Works was entitled
to the clarity and certainty of an unqualified offer and it was fully entitled
to respond as it did. The right of the offeree to disqualify a bid for
non-compliance because it might trigger a dispute was confirmed in H B Lynch
Investments, above, where Justice Robert Décary stated at para. 7:
7 This is not a matter of mere
formality, as alleged by counsel for the plaintiff. The issue of capacity to
contract is fundamental in contract law. The Minister took great pains to draft
a clear, precise and comprehensive clause dealing with the formalities of
execution so as to avoid any dispute as to the tenderer's capacity to contract.
[19]
The
College points out that Public Works could easily have asked it to clarify its
intentions. While that may be true, there was no obligation on Public Works to
approach the College to clarify its Offer and to do so with a view to repairing
the College’s bid would potentially create a new set of problems with those
whose bids were compliant. In the absence of a right in an Invitation to Offer
to waive certain non-compliant lapses, there is no room to cure a non-compliant
bid after the fact: see Robert C. Worthington, The Public Purchasing Law
Handbook (Markham: Butterworths, 2004) at p. 344 and M.J.B.
Enterprises Ltd. v. Defence Construction (1951) Ltd., 1 [1999] S.C.R. 619, 170
D.L.R. (4th) 577 at para 41.
[20]
It
is not strictly necessary to address the problem created by the addition of a
so-called clarifying note to the College’s Offer concerning taxes payable. It
is enough to say that the interpretive difficulties created by that added
condition cannot be reasonably characterized as immaterial or inconsequential:
see Graham Industrial Services Ltd. v. Greater Vancouver Water District,
2004 BCCA 5, 25 B.C.L.R. (4th) 214 at paras 31-34. An indication of the
difficulties that notation could create can be found in the letter from the
College’s legal counsel to the Department of Justice dated March 11, 2009,
setting out a fairly complicated interpretive argument in support of the
College’s position. Notwithstanding the College’s good intentions, it did not
have the right to impose a new condition in its Offer which allowed any room for
ambiguity, uncertainty or doubt. According to Mr. McCartney this note was intended
only to explain the College’s unique tax situation, but that rationale for
adding the notation is not apparent since issue had already been dealt with by
an agreed addendum. The ultimate effect of the notation was to introduce a
degree of uncertainty into the offer that the Crown was not required to accept.
[21]
In
conclusion, I do not find the Applicant’s argument to be persuasive and the
application is dismissed. The parties asked for the opportunity to address the
issue of costs in writing. If they cannot agree on costs, I will receive
further submissions in writing not to exceed 5-pages in length. The Respondent
will have 7 days to make its submission and the Applicant will then have 7 days
to respond.
JUDGMENT
THIS COURT
ORDERS AND ADJUDGES that this
application is dismissed with the issue of costs reserved pending submissions
from the parties.
“ R. L. Barnes ”
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