C.A. No. 122976
NOVA SCOTIA COURT OF APPEAL
Cite as: Nova Scotia (Attorney General) v. Arrow Construction Products
Hallett, Jones and Chipman, JJ.A.
BETWEEN: )
)
ATTORNEY GENERAL OF NOVA SCOTIA ) Alexander M. Cameron
) for the Appellant
Appellant )
)
- and - )
)
ARROW CONSTRUCTION PRODUCTS LIMITED ) Stewart McInnes, Q.C.
) and Hugh Wright
Respondent ) for the Respondent
)
- and - )
)
CONSTRUCTION ASSOCIATION OF NOVA SCOTIA ) Gregory Cooper
) for the Intervenor
Intervenor )
)
)
) Appeal Heard:
) March 25, 1996
)
)
) Judgment Delivered:
) April 16, 1996
THE COURT: The appeal is allowed and the decision and order of the trial judge are set aside, and the cross-appeal is dismissed with costs as per reasons for judgment of Chipman, J.A.; Jones and Hallett, JJ.A., concurring.
CHIPMAN, J.A.:
This appeal is from a judgment in the Supreme Court holding that an owner awarding a tender for a building contract was liable in tort to a materials supplier who quoted prices to bidders.
The appellant, Attorney General of Nova Scotia, represents the Department of Supply & Services of the Province (D.S.S.). The respondent, Arrow Construction Projects Limited (Arrow) supplies material for the fabrication of roofs known as EPDM. It supplies this material to roofing contractors who bid on jobs put out for tender.
The intervenor, Construction Association of Nova Scotia (C.A.N.S.) was given leave to intervene and present argument on the hearing of this appeal.
The case arose out of the design and tender for the roof of a large maintenance and storage facility operated by the Department of Transport (D.O.T.) at Miller Lake near Halifax. This facility consisted of two buildings and was built in 1978. The original roof was an IRMA roof, which is a type of ballasted roof using gravel to hold down the roof components. In the mid 1980's, this roof began to leak and the situation worsened each year. By the spring of 1991, D.O.T. referred the problem to D.S.S. and the project was assigned to Don Lohnes, an architect with D.S.S.
After investigating the matter, Lohnes concluded that the Miller Lake facility needed a new roof. A very large number of roofing materials and products are available in the marketplace. After considering alternatives, Lohnes reported to his supervisor Harry MacKinley, outlining three options: (a) a new IRMA ballasted roof; (b) a mechanically fastened EPDM roof; and, (c) another type of ballasted roof. He also made an estimate of the cost of these options. He concluded that the EPDM roof should be chosen. EPDM is a synthetic rubber membrane. It comes in sheets which, when installed on the roof are glued together with an adhesive to make a continuous membrane.
In August of 1991, Lohnes forwarded his report containing the budget estimate to MacKinley. MacKinley concurred in the selection of option (b), but with one change. MacKinley scratched out the words "EPDM" on a memo prepared by Lohnes and substituted the letters "PVC". Lohnes asked MacKinley why. They discussed the seaming problems of EPDM. Winter construction was anticipated at that time. MacKinley's concern related to the lap joints of the product when it was installed in winter weather. As a result, Lohnes directed his attention to researching the merits of PVC.
As it turned out, the project did not proceed in the winter of 1991-1992 due to a lack of funds. It revived the following year when D.O.T. asked D.S.S. to look into it again.
Lohnes redirected his attention to the Miller Lake roof. He considered and discarded option (c) - a ballasted roof. He feared that the material would drift or slide as it appeared to have done on the existing roof. Keeping in mind his discussions with MacKinley the previous year, he prepared the tender specifications providing for a PVC membrane; "Colour selected by Consultant from membrane manufacturers standard colour range". Lohnes' preference for colour was blue.
MacKinley testified that when he changed the recommendation from an EPDM roof to a PVC roof he did so because research had indicated that for winter installation, PVC would be the better value. It had been a much higher priced material, but he believed that the two materials had become competitive.
The tender was issued with a closing date of February 25, 1993. The Instructions to Bidders stated clearly that under the heading "Award/Selection":
"Bidders shall be evaluated on 'Base Bid Price'."
When the tender specifications for the project came to the attention of Ed Pottie, Manager of the Roofing Division at Arrow, he noticed that they called for PVC roofing and not EPDM. He contacted D.S.S. He was advised by MacKinley that the membrane to be chosen would be blue. He indicated that he could provide EPDM with a blue "hypalon" coating. He was told to submit a written request asking for the Department to include hypalon EPDM, which he did. This request was denied because the hypalon coating was not covered by a warranty.
Pottie then asked that the specifications be revised to include "Briteply" white EPDM. This request was also rejected by Lohnes as he preferred the colour blue.
Arrow was not prepared to let the matter drop, and its President Edgar Goguen went directly to Brian Stonehouse, Executive Director of Capital Development and Environmental Services at D.S.S. He spoke to him by telephone and Stonehouse said that he would look into the matter. Stonehouse testified that Goguen had asked him if he was aware of the fact that they would be paying a premium cost because the roof was blue and that he had a product that was suitable.
Stonehouse in turn contacted Lohnes and inquired respecting the merits of the two products and whether a premium would be paid for blue PVC. Lohnes advised Stonehouse of his concerns with respect to seaming of EPDM in a winter installation, but he was unable to say how expensive the colour blue was.
Stonehouse directed Lohnes to prepare an addendum to the tender to seek prices on white PVC and white EPDM.
Addendum No. 1 was issued February 16, 1993. The base bid was to be for blue PVC, and bidders were instructed that as an alternative to the base bid, they might tender on additions or reductions resulting from the use of white/gray PVC or white mechanically fastened EPDM. The addendum provided inter alia that:
After determination of preferred bidder, consideration will be given to alternatives in bid price adjustments.
This addendum was circulated to all contractors by letter over Stonehouse's signature.
Thus the tender would be awarded to the acceptable bidder on the base bid price, but D.S.S. would, after the determination of the preferred bidder, give consideration to alternates and bid price adjustments, the alternates being no. 1, white or gray PVC, and no. 2, mechanically fastened white EPDM.
Goguen called Stonehouse again on February 19, 1993 and was pleased to learn that D.S.S. had issued the addendum. He advised Pottie.
Arrow did not bid, but submitted prices for the supply of EPDM to several contractors who bid on the job.
Tenders closed on February 25, 1993.
When the tenders were opened, J. W. Lindsay was the low base bid. The results were:
Bidders Base Bid
J. W. Lindsay Enterprises Limited $373,465
Atlantic Roofers Limited $379,425
Fosco Contracting Services Limited $382,935
Semple Gooder Roofing $404,860
Peter Cox Enterprises Limited $430,000
Scotia Roofing Contractors Limited $451,568
The alternatives proposed by the bidders in response to Addendum No. 1 were:
BIDDERS ALTERNATIVE #1 ALTERNATIVE #2
(PVC White/Grey) (EPDM White)
Price Adjusted Price Adjusted
Adjustment Price Adjustment Price
(Credit) (Credit)
J.W. Lindsay $29,434 $344,031 $31,224 $342,241
Atlantic Roofers $34,150 $345,275 $46,963 $332,462
Fosco $28,789 $364,146 $26,572 $366,363
Semple Gooder $28,060 $376,800 --- ---
Peter Cox $25,868 $404,632 $36,451 $393,549
Scotia Roofing $12,568 $439,000 --- ---
It was now up to D.S.S. to consider the alternatives. Blue PVC was more expensive than the others by some $30,000. White PVC was competitive with, but more expensive than, white EPDM. J. W. Lindsay's alternate price on the white PVC was $344,031 which was only $1,790 more than their alternative price on white EPDM of $342,241.
Brian Stonehouse made the decision on which of the alternatives would be accepted. He could not justify paying a premium of $30,000 for the blue colour. The question was therefore whether to go with white PVC or with EPDM. He asked for a recommendation from his staff. Lohnes and MacKinley had to balance the merits of the slightly more expensive PVC against the cheaper EPDM, about which they had concerns with winter seaming. They considered that the mechanical fastening system for PVC was preferable to that for EPDM and that PVC was less likely to cause problems.
In a memo to Stonehouse dated March 16, 1993, Harry MacKinley on behalf of the Design Section of D.S.S. recommended the selection of a mechanically fastened PVC system on the basis that while EPDM had a slight edge on cost, seam failure with EPDM was more frequent than with PVC. This recommendation was accepted by Stonehouse.
On April 7, 1993 Lindsay was advised that D.S.S. would award the contract to it on the basis of its base tender of $373,465. Enclosed was a change order for the installation of white PVC roof membrane resulting in a reduction of $29,434 for a revised contract price of $344,031. PVC had been the material of choice for the base bid and the alternative chosen resulted in staying with that material in white with a reduction of some $30,000.
On September 1, 1993, Arrow commenced an action against the Attorney General. The statement of claim alleged that D.S.S. had made an offer which had been accepted by Arrow "participating in the tender". Arrow alleged that there was a valid contract between it and D.S.S. An implied term of that contract was a duty of fairness to treat all bidders equally, which duty was breached. In the alternative, Arrow claimed that D.S.S. made representations that EPDM would be acceptable and was negligent in stating that it would accept EPDM. It alleged that D.S.S. breached its duty of fairness to Arrow to treat all bidders equally. As a result of the breach of duty of fairness, Arrow incurred loss consisting of costs incurred in the preparation and submission of its bid and loss of profits.
The case was tried in the Supreme Court over seven days and by decision dated November 17, 1995, the trial judge awarded $25,000 general damages and costs by the application of Tariff A, Scale 4, as the case was "a novel and difficult one to prepare and present".
After reviewing the facts, the trial judge embarked upon an extensive discussion about the conflicting evidence on the respective merits of PVC and EPDM. He concluded by saying that he was more impressed with those experts who supported EPDM than those who supported PVC. Specifically he found testimony by Harry MacKinley on the subject to be "lacking a substantial degree of credibility". The testimony of Don Lohnes was, he said, "weak and inconsistent". He criticized the lack of prior research by Lohnes in the preparation of specifications. He found that the weight of the evidence was that EPDM and PVC were equal materials. Both were subject to problems when installed in cold weather. The opinions of Lohnes and MacKinley that PVC installed in cold weather would yield a better quality roof were based upon "inadequate and lopsided research and, therefore, were wrong".
The trial judge found that once an owner determines the quality and materials of work that it is willing to accept, generally it should award the contract to the lowest bidder. Since PVC and EPDM were equal materials, the contract should have been awarded to the lowest bidder, Atlantic Roofers, with respect to Alternative No. 2 in the amount of $332,462, "or, if the Department insisted upon the material specified for Alternative No. 1 the contract should have been awarded to Lindsay Enterprises for that material". It should not, he said, have been awarded to Lindsay on the basis of the lowest base bid.
The trial judge said:
I can see no basis in a situation where specified alternate materials are equals for providing in the tender call that the contract would be awarded to the lowest base price bidder. While it might make sense to follow that procedure where the specified materials were not equals but have been fully evaluated by the specifier, it seems to be utter foolishness to do so where those materials are equals or not fully evaluated. I find that this contract should not have been awarded to Lindsay Enterprises on the basis of the lowest base price bid. It should have been awarded to the bidder which bid the lowest price overall rather than the lowest base price bid.
With these findings, the trial judge addressed three issues:
First, he found that the instructions to bidders and Addendum No. 1 constituted a representation to Arrow Construction that D.S.S., in evaluating the bids, would give "fair consideration" to the use of EPDM and would award the contract to the lowest overall tender. It did not do so. Arrow would have earned a profit if the contract had been awarded to a tenderer supplying EPDM material. When PVC was chosen, Arrow saw its efforts wasted. Arrow relied to its detriment on the representation thus made to it.
Second, the trial judge found that the contract was not awarded to the lowest bidder in view of a "hidden preference" for PVC, which could not be supported by the usual provision that the owner reserved the right to accept or reject any or all tenders. The trial judge then held that there was a duty in tort upon D.S.S. "as a tenderer for the public sector". He referred to cases dealing with the duty a tenderer owes to bidders, and concluded that the duty of fairness owed in contract by an owner to a bidder was helpful in defining the nature of a duty of care owed in tort in the present case. He concluded:
. . . The tender information included the representation previously referred to. The Department knew, or ought to have known, that someone for whom the tender information was prepared might rely upon it. It knew from experience . . . and from actual knowledge . . . that those likely to rely upon their representations included suppliers, in particular Arrow Construction. It cannot be a surprise that Arrow Construction acted upon the representations to its detriment. That reliance appears to have been quite reasonable. The facts establish a prima facie cause of action in negligent misrepresentation against the Department.
Third, the trial judge addressed damages. Arrow did not quantify its loss by any specific evidence relating to the cost of its bid process or anticipated profits. He awarded general damages of $25,000.
The Attorney General appeals. Arrow cross-appeals, claiming that the trial judge erred in not finding that it was entitled to damages for economic loss or for loss of profits.
The following issues arise on this appeal:
(1) Whether the trial judge erred in finding that D.S.S. made a negligent misrepresentation upon which Arrow relied to its detriment.
(2) Whether the trial judge erred in finding that D.S.S. was in the circumstances "negligent" in not accepting the lowest bid overall, thereby rendering it liable to Arrow in damages.
(3) Whether the trial judge erred in his assessment of damages.
NEGLIGENT MISREPRESENTATION:
At the outset, it must be noted that although Arrow alleged in its statement of claim that there was a contractual relationship between it and D.S.S., it is not now suggested that such was the case. The parties had no contractual relationship and the inquiry is limited to whether there was a breach of duty in tort.
Underlying the trial judge's finding that there was liability, is his finding that on the weight of the evidence EPDM and PVC were equal materials. In my opinion, this was an inquiry on which he should not have become sidetracked.
The trial developed into a contest between the experts and other witnesses as to the comparative merits of EPDM and PVC. A great deal of evidence was led on this subject, and the trial judge devoted 15 pages of his decision to a review of it and his finding based thereon that PVC and EPDM were equal materials. This was the position strongly taken by E. Michael Byrne, an architect who gave evidence on behalf of Arrow. Byrne did not like the decision not to use the more costly of the two materials, PVC and EPDM, which he considered to be equals.
Nowhere in the tender or contract documents are PVC and EPDM referred to as equals. D.S.S. never considered them as such. It could have, but it did not choose to do so. Its preference was clear from the very beginning.
M. H. Frank Harrington, the architect who testified on behalf of the appellant, referred to a number of handbooks published by organizations in the construction industry. These dealt with selection by the owner of various building materials and the manner in which they could be specified in a tender call. One of the them - The Architect's Handbook of Preferred Practice - defines "Base Bid" as the amount of money stated in the bid as the sum for which the bidder offers to perform the work described in the bidding documents, exclusive of adjustments for alternative bids. Another handbook, to which the trial judge referred, The Construction Specifiers Handbook - C.S.C., discusses the purpose of base bid specification:
Using the base bid approach, it is possible for the specifier to choose and be reasonably sure he will get, material which he has carefully evaluated in terms of its adequacy and ability to perform its function.
The text goes on to state that the effect of a base bid specification results in the naming of a single product to the exclusion of all others. There are two methods available to promote competition: (1) pre-selection of the products of other manufacturers as "approved equals"; or, (2) stating "approved alternatives" and then requiring bidders to indicate the addition or deduction from the base bid tender price. Equivalents are identified as products and methods having almost identical properties or function with the specified item. Alternates are identified as products and methods having similar functions to a specified item.
D.S.S. chose the latter alternative. The trial judge, having heard evidence on the merits of these two products, imposed the former alternative upon D.S.S. and thereby amended the tender documents.
D.S.S. made its choice in the first instance to go with PVC. That was its prerogative. After the preferred bidder - Lindsay - was ascertained, D.S.S. made a choice for the alternative - again in favour of PVC - even though it was slightly more costly. D.S.S. never promised that it would select the cheaper alternative. It only stated that "bidders shall be evaluated on the base bid price" and that "after determination of preferred bidder consideration will be given to alternates and bid price adjustments". It gave consideration, as MacKinley's memorandum to Stonehouse demonstrates. Then it chose white PVC.
The trial judge reasoned that because he found EPDM and PVC to be equals (after weighing much engineering evidence), D.S.S. was bound to award the contract to the party offering the less costly of these equals. He said he saw no basis, where the alternate materials are equal, for providing that the contract should be awarded to the lowest base price bidder.
It should be awarded to the bidder which bid the lowest price overall rather than the best base price bid.
The trial judge was thus rewriting the tender call on the basis of his engineering judgment that EPDM and PVC were equals. With respect, I know of no authority for such judicial review of engineering decisions in the process of awarding a tender and there is no place for such a process which would introduce chaos into the courts and into the construction trades.
In addition to that irrelevant inquiry, the findings of fact by the trial judge also had their genesis in an irrelevant inquiry he entered into respecting the operation of the D.S.S. tendering system. This happened because Arrow placed before the court a great body of evidence from Arrow's witnesses as to the type of tendering system they preferred. The trial judge then concluded that he should expound on the flaws he perceived in the tendering system. He stated:
I find that the tendering system which was in place was poor. It was conceptually flawed and pitted with defects. I find no evidence of fixed policies until 1993; of guidelines required to be followed by drafters of specifications; of controls to ensure fair and consistent compliance with existing practices; and of procedures for periodic review and revision of the process. I find nothing requiring that complete and balanced research be carried out before preparation of specifications for a project. There was also nothing to indicate who was responsible for the contents of specifications, nothing to prevent hidden preferences, nothing to ensure that a contract was awarded to the lowest bidder, and nothing to define what might constitute justification for not awarding a contract to the lowest bidder. There was a need for provisions dealing with such matters as the value of warranties, the specification of alternate as opposed to equal materials, and the limits of the practice of awarding contracts to the lowest base bid tender rather than the lowest overall tender; but, none of those matters were prescribed.
This inquiry and these findings were irrelevant to the issue before him as to whether or not D.S.S. had made a negligent representation to Arrow. I would note that immediately following this litany of lack of guidelines, the trial judge stated:
I find that the tendering process followed in this particular case was not the fairest, did not yield the greatest competition, and did not reveal a valid reason why the low tender did not win. I also find that the circumstances surrounding the drafting and issue of the original specification of materials, Addendum No. 1, and the award of the tender for the use of PVC material casts doubt upon the integrity of the process.
The appellant has urged us to set aside the adverse findings of the trial judge with respect to the testimony of MacKinley and Lohnes. Since I consider the trial judge's findings respecting their choice of PVC to be irrelevant, it is not necessary to consider whether we can do so. I can only add that on reading the transcript of their testimony, they did articulate their reasons for making the choice they did. The choice was theirs, not that of the court or the witnesses who were critical of them.
D.S.S. made clear to bidders how it would proceed. In entering the marketplace, it had complete freedom to specify whatever material it chose. It allowed bidders to submit white EPDM as an alternate along with white PVC. This was done at the request of Arrow. At no time did D.S.S. represent that EPDM was an equal to PVC or that it would consider it to be such.
The trial judge, in noting the small difference in price between PVC as chosen and the alternate EPDM ($1,800"), made the statement; "great oaks of waste grow from little acorns of unnecessary expenditure". This conclusion was premised on the trial judge's opinion that these two materials were equals. Perhaps they were, but as I have said, that judgment is not for the courts but for the party calling the tender.
It is clear from the evidence that D.S.S. considered that a savings of $1,800" was not justified in view of its concerns about seam failure in the winter application of EPDM. These were concerns that led it to call for a base bid on PVC in the first place. These were concerns which found support in literature, even though the trial judge accepted the two materials as equals on the basis of other evidence.
There was ample material in the evidence - even though the trial judge did not accept it - to support the conclusion that PVC was the superior material for use in this application. The question is who is to be the judge as to which is the better material, the owner or the courts? I have already expressed my opinion that the owner is entitled to make a choice of building materials free from judicial review. The trial judge's criticism of the D.S.S. library in that it "consisted of sparse and unbalanced materials, supplied almost exclusively by manufacturers of PVC membranes, and little if any literature of manufacturers of EPDM membranes" is beside the point. The evidence was that various suppliers and manufacturers provided their literature to the D.S.S. library. Lohnes testified that Pottie regularly supplied material on behalf of Arrow. He testified that it was up to the suppliers to see that materials relating to their product were updated. If this library material was unbalanced, it would appear that the manufacturers of EPDM membranes did not care to make as much literature available to D.S.S. D.S.S. was entitled to be the judge of the literature upon which it intended to rely in the selection of building materials.
The trial judge then found:
. . . These provisions of the instructions to bidders and of Addendum No. 1, together with the act of issuing Addendum No. 1, in total constitute a representation to Arrow Construction that the Department of Supply and Services, in evaluating the bids received in response to the tender call, would give fair consideration to the use of EPDM material for the project and would award the contract for the project to the lowest overall tender. I accept the opinion of Ernie Porter of Lindsay Enterprises that the original requirement for evaluation of tenders on the basis of base bid price was changed, by the inclusion in Addendum No. 1 of the statement that consideration would be given to alternatives, to an implied requirement that the contract would be awarded to the low bidder.
(Emphasis Added)
. . .
When the contract was awarded for PVC material, Arrow Construction saw its efforts wasted and lost the opportunity to gain the profit it would otherwise have gained from the sale of its materials. I hold that Arrow Construction relied to its detriment upon the representation made to it.
The trial judge erred in accepting the opinion Ernie Porter, Manager of Roof Systems for Lindsay, that the requirement to assess tenders on the base bid process was changed by Addendum No. 1 to "an implied requirement that the contract would be awarded to the low bidder". It is difficult to see how the trial judge could have accepted a legal opinion from a person untrained in the law with respect to the interpretation of contract documents.
Nothing in the language of Addendum No. 1 constituted an implied requirement that the contract would be awarded to the low bidder. Much less did it repeal the provision in the instruction to bidders that bidders would be evaluated on the base bid price. Taking the documents together, it is clear that the evaluation would be on the base bid with alternatives to be subsequently considered by the owner. It follows that a reasonable person in the position of Arrow could not, on reviewing the tender documents, conclude that D.S.S. represented that it would award the contract to the lowest tenderer or that it would award the contract to a bidder using EPDM.
These are but examples of palpable and overriding errors made by the trial judge that formed the basis from which he made the critical finding that D.S.S. had made a negligent misrepresentation. I cannot accept the argument of counsel for Arrow that the trial judge's conclusions from the facts were insulated from review by this Court.
In The Queen v. Cognos Inc. (1993), 99 D.L.R. (4th) 626 (S.C.C.), Iacobucci, J. said at p. 643:
The required elements for a successful Hedley Byrne claim have been stated in many authorities, sometimes in varying forms. The decisions of this court cited above suggest five general requirements:
(1) there must be a duty of care based on a "special relationship" between the representor and the representee;
(2) the representation in question must be untrue, inaccurate, or misleading;
(3) the representor must have acted negligently in making said misrepresentation;
(4) the representee must have relied, in a reasonable manner, on said negligent misrepresentation; and
(5) the reliance must have been detrimental to the representee in the sense that damages resulted.
There is no need to decide if there was a special relationship between D.S.S. and Arrow. Nor is it necessary to decide if Arrow meets the third requirement. Arrow clearly fails to pass the test of the second and fourth requirements. There were no untrue, inaccurate or misleading statements made by D.S.S. How could Arrow reasonably contend that it relied on an untrue, inaccurate or misleading statement that EPDM would be chosen? How could it reasonably contend that it relied on an untrue, inaccurate or misleading statement that EPDM would receive a judicial or quasi judicial hearing from D.S.S. based on considerations of "fairness"? How could Arrow, in view of the terms of the tender documents, be said to have relied in a reasonable manner on the addendum as a representation that D.S.S. would award the contract to the lowest overall tenderer?
My view of the addendum in the context of all the evidence is not that D.S.S. made any representation of fact, but rather a statement that it would give consideration to the alternatives and the bid price adjustments. The Hedley Byrne Principle deals with representations, not promises. It is important to distinguish between a representation and a promise. A representation is a statement relating to some existing fact or past event. A promise is a statement of intention to do something in the future. The distinction was referred to by this Court in Electrical Distributors Limited v. W. C. I. Canada Inc. (1992), 112 (2d) 300 at pp. 307 to 309. In The Queen v. Cognos Inc., supra, Iacobucci, J. at p. 657 referred to a number of authorities that supported the view that only representations of existing facts and not those relating to future occurrences can give rise to actionable negligence. Assuming without deciding that this view of the law was correct, Iacobucci, J. considered the representations in the case before him as not relating to future matters, but a matter of existing fact. See also British Columbia Hydro and Power v. B. G. Checo International Limited, [1993] 1 S.C.R. 12 per Iacobucci, J. (dissenting in part) at pp. 46, 73 and 81.
It may be a matter of debate in any given case whether a representation is, in substance, one of existing fact or of future intention. In this case, I have no difficulty in characterizing the representation regarding consideration of alternatives as being in the latter category. D.S.S. said it would give consideration to EPDM. After the bids were in, it did just that. It is a play on words to say that it falsely stated its real intention respecting a preference for PVC or EPDM.
In my opinion, the trial judge erred in concluding that there was negligent misrepresentation.
NEGLIGENCE BASED ON LACK OF FAIRNESS IN NOT ACCEPTING THE LOWEST BID:
The trial judge stated:
I have already found that the contract should have been awarded to the lowest bidder which, on the basis of Alternative No. 1 would have been Lindsay Enterprises using white EPDM material. I have also found that the contract was not awarded to the lowest bidder. As will be seen from the case law, in view of the hidden preference for PVC, this finding is not affected by the provision in the instruction to bidders that the Minister reserves the right to accept or reject any or all offers or to accept any offer deemed most satisfactory.
I disagree with the trial judge's characterization of D.S.S.'s preference for PVC as hidden. The respondent and the intervenor gave emphatic endorsement to this finding. The specifications accompanying the tender call contain a six page section dealing with the supply and installation of PVC. Nothing is said there of EPDM. While Addendum No. 1 indicated a willingness to consider alternatives, it does not constitute a repeal of this clearly stated preference.
The trial judge referred to the following line of cases dealing with the contractual relationship that arises when a tender is submitted to a public sector owner:
The line of cases referred to include the following: Her Majesty the Queen in Right of Ontario and the Water Resources Commission v. Ron Engineering & Construction (Eastern) Ltd., [1981] 1 S.C.R. 111; Chinook Aggregates Ltd. v. Abbotsford (Municipal District) (1989), 35 C.L.R. 241 (B.C.C.A.); Kencor Holdings Ltd. v. Saskatchewan, [1991] 6 W.W.R. 717 (Sask.Q.B.); Northeast Marine Services Ltd. v. Atlantic Pilotage Authority (1992), 57 F.T.R. 81; Tercon Contractors Ltd. v. British Columbia (1993), 9 C.L.R. (2d) 197 (B.C.S.C.); Zutphen Brothers Construction Ltd. v. Nova Scotia (Attorney General) (1993), 125 N.S.R. (2d) 34 (S.C.); D.J. Lowe (1980) Limited v. The Attorney General of Nova Scotia (unreported, 1991 S.AR. No. 00643, dated October 14, 1994).
These cases, which deal with the binding contractual relationship that arises when a tender is submitted to a public sector owner, established that, subject to provisions in the tender documents, the owner must award the contract to the lowest qualified tenderer. What the owner cannot do is rely on the customary provision that the lowest or any tender will not necessarily be accepted to impose an undisclosed term such as a secret preference for any particular bidder or class of bidders or a secret preference for any material. Northeast Marine Services Limited, supra, was reversed, (1995), 179 N.R. 17, because the consideration which led to the rejection of the lowest tender was considered by the majority of the Federal Court of Appeal to be a legitimate and relevant commercial consideration which the owner could, in the public interest, take into account.
I believe that the principle developed in these cases is applicable to all owners, not just those in the public sector.
The case of Zutphen Brothers Construction Ltd. v. Nova Scotia (Attorney General) (1993), 125 N.S.R. (2d) 34, dealt with a call for tenders by the Province to construct a bridge. Originally, tenders were limited to prestressed concrete, but this was amended to include tenders on a steel alternative. Concrete requires little maintenance whereas steel needs periodic painting to avoid corrosion. The last portion of the information to bidders dealing with the alternate bid based on structural steel stated:
To be acceptable a structural steel alternative must show a substantial saving over the precast, prestressed concrete design.
In the event, the Department awarded the contract to a steel bidder without ascertaining that such saving would result. An action for damages by the lowest concrete tenderer was allowed. Anderson, J. referred to Ron Engineering, supra, where Estey J. at p. 274 D.L.R. spoke of the unilateral contract between the tenderer and the tenderee. Anderson, J. found that there was a "contract A" between the plaintiff and the defendant when the plaintiff tendered and the defendant received the tender documents. The court found that because the Province did not demonstrate that it would realize "a substantial saving" over the precast, prestressed concrete design, contract A came into being between the plaintiff and the defendant. It was breached by the award of the contract to the steel bidder. The integrity of the bidding system was violated and "fairness" did not exist because the condition upon which the contract might be awarded for steel was not, in fact, met by the successful tenderer.
Zutphen, supra, is similar to such cases as Chinook Aggregates Ltd., supra, where the defendant Municipality had an undisclosed policy whereby if a local bidder was within 10% of the lowest bidder, the local bidder would be awarded the contract. There, the British Columbia Court of Appeal held that the privilege clause reserving the right to reject the lowest or any tender could not be relied upon. Legg, J.A. said at p. 247 (35 C.L.R.):
. . . But where the Appellant attaches a condition to its offer, as the appellant did in the case at Bar and that condition is unknown to the Respondent, the Appellant cannot successfully contend that the privilege clause made clear to the Respondent bidder that it had entered into a contract on the express terms of the wording of that clause. There was no consensus between the parties that the wording of the privilege clause governed. It would be inequitable to allow the Appellant to take the position that the privilege clause governed when the Appellant had reserved to itself the right to prefer a local contractor whose bid was within 10% of the lowest bid. By adopting a policy of preferring local contractors whose bids were within 10% of the lowest bid, the Appellant in effect incorporated an implied term without notice of that implied term to all bidders, including the Respondent. In so doing it was in breach of a duty to treat all bidders fairly and not to give any of them an unfair advantage over the others.
Likewise, the case of Tercon Contractors Limited v. British Columbia (1993), 9 C.L.R. (2d) 197, relied on heavily by the intervenor, is distinguishable. That case dealt with a disappointed tenderer whose low bid to install steel culverts was rejected in favour of a higher bid for concrete. Both materials were listed as alternatives in the tender call and contractors were required to bid on both. The Ministry called for separate bids for the materials on the one hand and the installation on the other. The overall total of Tercon's two bids for materials and installation was lower than the overall total of the bids of the successful concrete tenderer. Tercon's bid for installation was higher. The Ministry awarded the contract to the bidder whose installation bid was lower but whose total bids (installation and material) were higher than Tercon's total.
This was not a case where the low base bid was specified. Rather, the governing legislation was s. 49 of the Ministry of Transportation and Highways Act of British Columbia which provided, with exceptions not material here, that the lowest tender should be accepted. The case turned on how this legislation should be interpreted in its application to the two bid system adopted by the Ministry. The Ministry contended that it should be interpreted in such a situation to permit the award of tender to the low base bid (for installation). The evidence was that the Ministry's project director had a preference for concrete from the outset which was not disclosed. The court interpreted the legislation as calling for the lowest bid overall on both bids and not the lowest base bid. Brenner, J. said at p. 207:
In my view, s. 49 of the Act required the [Ministry] to accept the lowest overall tender. To say, as the defendant does, that the Act required it to first select Dayross and then choose the culvert type is incongruous.
As an alternate ground of his decision, the trial judge held that the defendant's project director "had a bias in favour of concrete" from the very beginning. The director did not testify. The trial judge said that there may have been many good reasons for his bias, but in the absence of his testimony, it was difficult for the court to assess them.
The matter was taken to the British Columbia Court of Appeal. The appeal was dismissed, but solely for the reason that the statute required the Ministry to accept the overall total of the bids from each contractor that was lowest. Hollinrake, J.A. for the court adopted the trial judge's interpretation of the legislation and found it unnecessary to consider whether the trial judge was correct in concluding as he did on the alternative ground.
This case is of no assistance in the circumstances before us. It is only authority for the proposition that the governing statute there called for a formula for acceptance of the tenders which was different than the formula in the tender documents issued by D.S.S. here. Even if the trial judge's alternative ground for decision were accepted, it is again distinguishable because there, unlike here, the preference for concrete was not disclosed.
Assuming without deciding that the reasoning of these cases can be incorporated into the realm of tort law so as to require a duty of "fairness" on the part of the owner towards all potential subcontractors and suppliers, I am satisfied that there was no lack of "fairness" in this case. The trial judge's conclusion that D.S.S. failed to act with fairness to the respondent arose from his unwarranted inquiry into the merits of PVC and EPDM. His classification of these materials as equals was contrary to the characterization of them as alternates in Addendum No. 1 to the base bid requirement of blue PVC. By converting alternates into equals, the trial judge set the stage for his findings that there was misrepresentation, that the preference for PVC was a hidden preference, and that there was a lack of fairness. The trial judge ignored the express provisions of the tender call which stated that the bidders shall be evaluated on the base bid and that after determination of the preferred bidder consideration would be given to alternates and bid price adjustments. As I have already said, that is exactly what D.S.S. did. There was nothing unfair about the owner reserving to itself the right to give consideration to the alternates and the bid price adjustments.
The intervenor submitted that there was a duty to evaluate alternative products fairly or reasonably. I think it is the prerogative of an owner to make its own judgment on which alternative it chooses. The intervenor appears to disagree with this and says that D.S.S. had a duty to properly choose between the alternates "once the tendering process was underway". Such a submission would only warrant consideration if the documents in the tendering process imposed such a duty. To accept the intervenor's proposition would run the risk of rendering every engineering choice by an owner subject to judicial review, every disappointed bidder looking for ways to challenge an award of a tender in the courts. The argument of the intervenor confuses the right of choice of an owner with improper practices of calling for tenders with hidden preferences.
It is not necessary to address the issue of damages.
I would allow the appeal and set aside the decision and order of the trial judge.
I would dismiss the cross-appeal.
The trial judge characterized this case as a novel and difficult one to prepare and present. Accordingly, he set costs in accordance with Tariff A, Scale 4.
I agree that the novelty and difficulty of the case requires a departure from the norm in fixing costs. Civil Procedure Rule 63 gives a wide discretion to the court in the matter of costs. In addition to the novelty and difficulty of the case, the respondent sought a higher recovery in this Court. All of these factors justify special consideration here and I would reflect this by awarding a gross sum of $6,000 for the costs of the trial to the appellant, together with disbursements and as well, award the appellant $2,400, plus disbursements as costs of the appeal. The intervenor should also pay costs to the appellant of $1,500 all inclusive.
Chipman, J.A.
Concurred in:
Jones, J.A.
Hallett, J.A.