Legal Blog

Good Faith Bargaining

We know that there is no cause of action for negligent negotiation (as opposed to negligent misrepresentation): Martel Building Ltd. v. Canada (see March 2001 newsletter). However, the Supreme Court of Canada in Martel specifically declined to comment on whether there was a duty to negotiate in good faith. The British Columbia Court of Appeal dealt with just such an allegation in its November 2000 decision in Midwest Management (1987) Ltd. v. B.C. Gas Utility Ltd.

Complain! Complain! 

An owner’s request for tenders contained the usual privilege clause. The general’s tender was non-compliant in that instead of submitting a tender for the entire project, it tendered a lump sum price for part of the work and stated it would do the remainder on a cost-plus basis. Since none of the tenders were compliant, the owner commenced negotiations with two contractors, including the general. The owner ultimately did not award the contract to the general and the general sued.

The general noted that the tender call allowed the owner to accept a non-compliant bid. It argued that the owner ought to have accepted its bid and that the owner’s non-acceptance was a breach of contract A. We hear you laughing. Stop it!

Not surprisingly, the motions judge held that there was no contract A. It comes into existence only when a compliant bid is made. The general’s bid was at best a counteroffer and the negotiations were nothing more than a failed attempt to achieve a contract.

However, the motions judge did not throw out the entire action. He stated that there might be a cause of action based on a duty, outside of contract, to act fairly.

The general appealed the judge’s decision regarding contract A – can you believe it? The owner cross-appealed regarding the fairness issue.

On Appeal 

The Court of Appeal took one paragraph to throw out the general’s appeal. It also allowed the owner’s cross appeal and stated: “Whether such an independent duty of fairness exists is a pure question of law. The learned trial judge said he knew of no ‘free-standing enforceable duty of fairness simpliciter.’ … Such a duty is quite inconsistent with an adversarial competitive tendering process. To find such a duty would cause great uncertainty in this area of law.”

This issue is now dead in British Columbia but, we suggest, it will still be litigated in Ontario and probably in the Supreme Court of Canada.