Canada: Tendering Law Post-Bhasin: Questions About Honest Contract Performance

Last Updated: April 10 2016
Article by Matthew Kuhl (Student-at-Law)

Introduction

The Supreme Court of Canada's ("SCC") recent decision in Bhasin v Hrynew ("Bhasin")1, creating a general duty of fairness in Canadian contract law, may have implications for the law of tendering in Canada.

By establishing a duty of fairness and honest contract performance as a general doctrine of law (that limits freedom to contract), Bhasin could make it more challenging for Owners to avoid their obligations in Canada's Contract A/Contract B tendering framework.

The Ron Engineering Framework and Subsequent Developments

The SCC first established the Contract A/Contract B tendering framework in R. v. Ron Engineering and Construction (Eastern) Ltd.2 ("Ron Engineering"). According to this framework, submitting a bid in a tender process for a construction contract (Contract B) leads to an implied contract (Contract A) between each bidder and the issuer (typically an Owner, but potentially general contractors or major subcontractors as well). Contract A leaves unsuccessful bidders with a contractual remedy against an owner that does not follow the bidding rules outlined in the tender documents.3

The Ron Engineering framework is important because it protects the integrity of the bidding process by imposing a duty on the bid issuer to treat all bidders fairly and equally in Contract A.4 This duty often leads courts to find an implied term in Contract A that bid issuers will only consider compliant bids. Without this implied term, it would make little sense for a contractor to undergo the expense of making a bid that strictly follows the rules, if the Owner could simply turn around and accept any bid, regardless of whether it follows the rules.5

After Ron Engineering, the SCC issued two decisions that narrowed the Contract A remedies available to contractors.

First, in MJB Enterprises Ltd. v. Defence Construction (1951) Ltd ("MJB"),6 the SCC held owners could rely on privilege clauses to expressly avoid implied terms in Contract A, if the language of the privilege clause was sufficiently clear. While the SCC did not hold that the privilege clause in MJB was sufficiently clear, the implication was clear, and Owners started wording privilege clauses more clearly and expansively to reserve more discretion for accepting bids.

Second, in Tercon Contractors Ltd v British Columbia (Minister of Transportation & Highway) ("Tercon"),7 the SCC, once again, adopted a framework in which express contractual language could be used to oust any implied terms from Contract A. In particular, the SCC held that a clearly worded exclusion clause could prevent a contractor from recovering any damages against an Owner.

Enter Bhasin: Honest Contractual Performance as a Principle of Law

At first glance, Bhasin (which is not a construction case and does not specifically address tendering) may not appear to have any application for construction disputes. However, a closer look reveals that Bhasin could raise Owners' fairness obligation to bidders, and limit their ability to rely on privilege and exclusion clauses in tender documents.8

Both MJB and Tercon established that clearly-worded, express contractual terms in bid documents could override any implied fairness obligations arising from the Ron Engineering Contract A/Contract B framework. Given the obvious implications, commentators raised concerns that these decisions threatened to undermine the Ron Engineering framework by allowing Owners to contract out of implied fairness obligations. In the absence of such implied terms, there would be no legal framework to protect the integrity of the tendering process,9 which is necessary to ensure bidders have the financial certainty to submit bids in the first place.

In Bhasin, the SCC may have created a remedy for this exact concern. By establishing that the duty of honest performance is more than an implied term—it is a doctrine of contract law—Bhasin imposes an obligation of honest contractual performance as a minimum standard that operates regardless of the intentions of the parties.10 Unlike implied terms, this duty cannot be avoided by express contractual terms. On this basis, contractors could argue that Bhasin closes the doors that MJB and Tercon were opening.

On the other hand, not being a tendering decision, Owners can submit that Bhasin supports the proposition that clearly worded privilege clauses and exclusion clauses are enforceable, if the Owner otherwise honestly performs its Contract A obligations.

Some Developments After Bhasin—Tilting Towards Bidders?

The Alberta Court of Queen's Bench had the opportunity to apply Bhasin to the tendering process in Elan Construction Limited v South Fish Creek Recreational Association("Elan").11 The Owner, South Fish Create Recreational Association ("SFCRA"), set out a points-based system to assess each bid, and was to award the bid to the bidder with the most points. Points were awarded for total cost, completion date, experience and references.

SFCRA awarded the contract to a contractor, which had a higher cost and later completion date than Elan Construction, but excellent experience and references. However, evidence revealed that SFCRA assessed the completion date and experience components with considerations that were not disclosed in the bid documents.

The Court noted that the interpretation of Contract A must reflect the parties' reasonable expectations in the tendering process. Applying Bhasin, the Court found a breach of Elan Construction's reasonable expectations, and therefore Contract A, when the SFCRA considered factors that were not disclosed in the bid documents. The Court then commented on exclusion and privilege clauses as follows:

Accordingly, I find that SFCRA breached the Bid Contract in respect of its evaluations of both substantial completion and experience. I find also that SFCRA is not relieved from liability for those breaches by the exclusion and privilege clauses in the Bid Documents. The case law set out above demonstrates that such clauses do not obviate an owner's obligation to treat all bidders fairly and equally and to disclose all criteria by which bids will be evaluated.12

Elan suggests that Alberta courts will be inclined to find that Bhasin has raised Owners obligations to contractors in the tendering process.

Concluding Thoughts

  • Bhasin creates a general duty of fairness in Canadian contract law that has implications for owners and developers who issue calls for tender.
  • Contract A (or the bid contract that is created between a bidder and the issuer of the tender when a bid is submitted) must reflect the parties' reasonable expectations in the tendering process to treat all bidders fairly and equally and to disclose all criteria by which bids will be evaluated.
  • Selecting the winning bid using criteria that departs from what is disclosed in the tender documents could lead to damage claims for alleged breaches of Contract A.
  • Post-Bhasin it will likely be more challenging for Owners to shield themselves from liability relating to breaches of Contract A through express contractual terms, including privilege and exclusion of liability clauses.
  • Prior to issuing calls for tenders, Owners should pay very close attention to the bid criteria to ensure they are willing and able to judge bids solely in accordance with this disclosed criteria.

Footnotes

1. 2014 SCC 71. [Bhasin]

2. [1981] 1 SCR 111. [Ron Engineering]

3. Tercon Contractors Ltd v British Columbia (Minister of Transportation & Highways), 2010 SCC 4, at para 87. [Tercon].

4. Martel Building Ltd v R, 2000 SCC 60, at para 88.

5. MJB Enterprises Ltd v Defence Construction (1951) Ltd, [1999] 1 SCR 619, at para 41. [MJB]

6. MJB, supra, note 5.

7. Tercon, supra, note 3.

8. Privilege clauses reserve the right of the bid issuer to accept a bid even if it is not the lowest bid, or even if it does not otherwise comply with certain terms of the bid documentation. Exclusion clauses limit and/or exclude any damages for which an owner may be liable to a contractor for a breach of Contract A.

9. See e.g., Jassmine Girgis, "Tercon Contractors: The Effect of Exclusion Clauses on the Tendering Process", (2010) 49 Can Bus LJ 187 at 190.

10. Bhasin, supra note 1 at para 74.

11. 2015 ABQB 330.

12. Ibid. at para 97.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Alexander Holburn Beaudin + Lang LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Alexander Holburn Beaudin + Lang LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions