Legal Blog

Going Too Far

As promised – or forewarned, depending on your perspective – we will be discussing two recent appeal cases, the trial decisions of which have been the subject of previous newsletters. The first emanates from the Ontario Court of Appeal: Twin City Mechanical v. Bradsil (1967) Ltd. The second emanates from the British Columbia Court of Appeal: Ken Toby Ltd. v. British Columbia Building Corp.

Twin City 

Trial Decision 

The following statement of facts was set out in our newsletter of May 1997:

Twin tendered through the bid depository and its bid was carried by each of the generals bidding the job. Bradsil was the low general. Bradsil carried Twin’s price even though it knew that Twin was non-union. Ultimately, after demanding price concessions from Twin, Bradsil entered into a subcontract with another mechanical sub. The contract price was almost identical to the price that Bradsil was demanding from Twin. The trial judge found that Bradsil carried Twin’s price for the very purpose of using the labour non-compatibility to compel Twin into reducing its price and, if that failed, of shopping Twin’s bid.

It was easy to find Bradsil liable under these facts. However, the trial judge went further and found that the Owner was also liable. As we said:

It (the owner) did not treat Twin fairly because it refused to adjudicate on Twin’s complaints; granted the general contract to Bradsil without ensuring Bradsil made reasonable attempts to enter into a contract with Twin; and did not comply with the provisions of section 24.1 of CCDC 2 regarding the switching of contractors that are carried in the bid.

The trial judge stated that the owner owed Twin a duty of care to take reasonable steps to ensure the integrity of the bid depository system that it required the subcontractors and Bradsil to use.

Appeal Decision 

The Court of Appeal assumed for purposes of the appeal, without deciding the point, that the trial judge was correct in his statement regarding the owner’s duty of care. It then held that the owner did not breach the duty.

The Court stated that the owner was not required to investigate, adjudicate, or mediate the complex legal dispute between Twin and Bradsil. It was adequate for the owner to require Bradsil to attempt to work out an agreement with Twin and, if that failed, allow Bradsil to enter into a contract with another sub at a price not less than the price that Twin submitted. The Court held that this was a reasonable response by the owner.

The Court also held that the owner was not negligent in failing to ensure that the subcontract price with the new sub was not less than Twin’s price. The owner was entitled to rely on Bradsil’s assurance that the price was not less than Twin’s price. If Bradsil breached this assurance, the owner had its remedies to reduce the general contract price by the amount of the subcontract’s reduction, but this did not give Twin a cause of action.

Ken Toby 

Trial Decision 

The trial judge decided the case shortly after the Twin City case was decided and, no doubt, modelled much of his decision after that case.

The facts are convoluted and we will not go into them in full detail. Once again, the owner required use of the bid depository system. Toby, the sub, submitted a bid for section 1 of $506,000, for section 2 of $506,000 and for both sections of $506,000. The real value of work for section 1 was about $12,5000. However, Toby did not want to win the job on section 1 unless it was awarded the job on section 2 also. In this way, it was able to bid on both sections.

As it happened, no other subs bid on section 1. Another sub bid a significantly lower amount for section 2.

After the subs had submitted their bids to the bid depository and after the generals saw those bids, but before the generals submitted their tenders to the owners, a general notified the owner that there had only been one tender for section 1 and it was very high.

The owner had two choices: do nothing and put the generals in the position in which they had to accept Toby’s price for section 1 or, alternatively, issue an addendum substituting a small cash value for section 1. The owner did the latter and the low general accepted the other sub’s low bid on section 2.

The judge held that the owner, by doing so, breached a contract with Toby. In our newsletter of September 1997, we stated:

A contract was not readily available, so the trial judge invented one. (The judge held that) as soon as the subcontractor submitted its bid, there was a contract between the owner and the subcontractor whereby they each agreed to be bound by the Depository Rules and the owner agreed to act in good faith. The fact that the owner would have been astonished to learn that it was entering into any such contract was a mere annoyance that could be disregarded.

The trial judge also held that the owner was liable in negligence and had the same duty of care as set out in Twin.

Appeal Decision

The B.C. Court of Appeal, having read the Ontario Court of Appeal decision in Twin, did not accept any of the trial judge’s reasons.

It quite properly determined that there was no contract between Toby and the owner.

Just as the Ontario Court of Appeal side-stepped the issue, the B.C. Court also did not decide whether or not there was a duty on the owner not to act in such a manner as to adversely affect the integrity of the bid depository system. Rather, it simply assumed, without deciding the issue, that there was a duty. The Court then held that the owner did not breach that duty.

The Court was more concerned with Toby attempting to capitalise on a technicality than with the owner ensuring that it not be allowed to do so. It stated that Toby’s bid was a “spurious bid in the sense that it was not intended to be the ‘lowest bid in strict compliance with drawings and specifications’ (the official wording on the bid form submitted by Toby). It was intended to prevent acceptance of a bid on section 1 alone. Other bidders who did not wish to be awarded section 1 alone did not provide a bid price. This abstention was consistent with the bid depository system. Toby’s bid on section 1 was not.” 

Moral 

The smell factor clearly remains a consideration in the decisions in these cases. The Courts of Appeal simply differed from the trial judges on their sense of the smell.

Just as the Ontario Court of Appeal side-stepped the issue, the B.C. Court also did not decide whether or not there was a duty on the owner not to act in such a manner as to adversely affect the integrity of the bid depository system. Rather, it simply assumed, without deciding the issue, that there was a duty. The Court then held that the owner did not breach that duty.