Olympic Construction Ltd. v. Eastern Regional
Integrated Health Authority [Olympic]1 In 2009, Eastern Regional Integrated Health Authority invited bids for the construction of an extension to the Janeway Hospital in St. John’s, Newfoundland. The bid documents called for a mandatory site meeting on June 11, with the bid closing date on June 29 of that year.
Only Redwood Construction Limited attended that meeting. The owner, Eastern, then approached Olympic Construction Limited and another contractor, and suggested that they bid on the project. Olympic wrote to the owner, requesting an extension of the bid closing and another site meeting so that it could be a compliant bidder. Eastern agreed, and issued Addendum #5 that set up a site meeting for June 22. The word “mandatory” that characterized the first site meeting did not appear in Addendum #5.
Olympic attended the second meeting, and so did Redwood, but no other contractor.
Once the bids were submitted, Olympic’s bid price was the lowest. However, Redwood then wrote to the owner, claiming that Olympic should be disqualified because it did not attend the mandatory meeting on June 11. Eastern apparently agreed and awarded the contract to Redwood. Olympic sued.
At trial, Eastern admitted that but for Redwood’s letter, the award would have gone to Olympic. Its bid was rejected because the June 11 meeting was mandatory, and since Olympic did not attend that meeting, its bid was non-compliant.
The central issue at trial was, in the words of Justice Dymond, “whether the second site meeting [of June 22, 2009] was intended [by Eastern] to be a substitute for the mandatory site meeting” of June 11. Justice Dymond saw three possible answers:
- There was one mandatory meeting set for June 11; if you did not attend that meeting your bid would not comply.
- There were two meetings; if you attended either of them, you would be in compliance with the bid documents.
- The second site meeting replaced the first site meeting; as such, all contractors would have to attend that meeting or be unable to bid.
The trial judge decided on the second answer. He also found that the three possible interpretations of the site meeting requirements proved that the bid documents were ambiguous. To resolve this ambiguity and to determine whether Contract A had been breached, he decided to look at the context and the circumstances surrounding the preparation of the bid documents to determine the intent of the parties.
It was clear that Eastern intended to have a valid second site visit. Eastern certainly benefitted from a meeting that allowed more contractors to bid.
The second meeting was mandatory for only those potential bidders who did not attend the first meeting. If Redwood had not attended the second meeting, it would not have been disqualified because it had attended the first meeting. Olympic relied on its understanding of the validity of the June 22 meeting and submitted a bid. Redwood complained about the process only after the two meetings had been completed, bids submitted, accepted, and then opened in a public forum.
Justice Dymond found Olympic would not have bothered to spend time and money engaging in a bid process unless it had known that it would have been a compliant bidder, and Eastern’s subsequent acceptance and opening of Olympic’s bid, along with Redwood’s, showed that Eastern regarded Olympic’s bid as compliant with Contract A, the bid contract.
The judge concluded: “If the bid process is to have any integrity at all, good faith by owners has to start to mean something”. There is no good faith, he added, in a bid process that encourages bidders to spend money on a bid process only to be denied the fruits of their bids at the end of the day.
He awarded Olympic damages for its loss of profit and prejudgment interest.
Eastern appealed. It alleged (1) that the trial judge erred in law by looking beyond the actual written contract to determine the intention of the parties, and (2) that, in any event, no breach of the bid contract had occurred: Addendum #5 did not rescind the clause in the bid documents that made the first site meeting mandatory.
The reasons for judgment of a unanimous Newfoundland and Labrador Court of Appeal were delivered by Justice Hoegg.
For many years, he said, the law has permitted courts in certain situations to receive evidence extrinsic to contract documents themselves in order to assist in the interpretation of a contract or some other written instrument. One such situation is where ambiguity is found in the contract at issue.
As the term is used in the law of contracts, ambiguity implies that the parties knew fundamentally what they were contracting for or about but did not express it clearly when they put their intentions and agreement into writing.
Justice Cromwell, speaking for the Supreme Court of Canada in Tercon Contractors Ltd. v. B.C. (Transportation and Highways) [Tercon], discussed an exclusion of liability clause and commented:
The key principle of contractual interpretation here is that the words of one provision must not be read in isolation but should be considered in harmony with the rest of the contract and in light of its purposes and commercial context.
The trial judge in the Tercon case had decided that the exclusion clause in the bid documents, however strongly worded, did not excuse the Province of British Columbia from liability to Tercon, a compliant bidder. The Supreme Court agreed. It determined that the owner had breached the express provisions of its Contract A with Tercon as well as its implied duty to treat all bidders fairly.
In the case before the Court of Appeal, Justice Hoegg interpreted the words “in light of its purposes and commercial context” in the quote above to mean that the purposes and commercial context of any bid contract at issue should inform the interpretation of that contract in appropriate circumstances.
Olympic had submitted a bid to Eastern, which Eastern accepted and opened. Accordingly, Olympic and Eastern entered into Contract A. The terms of Contract A are found in the bid documents, including all of the Addenda.
The wording of the two contractual provisions respecting site meetings could admit of more than one meaning and thus did not clearly express the intentions and agreement of the parties to Contract A. Accordingly, the trial judge was entitled to consider evidence respecting the circumstances surrounding Olympic’s Contract A with Eastern, which were extrinsic to the bid documents themselves.
Eastern summarily rejected Olympic’s bid after Eastern had essentially invited, if not encouraged, Olympic to bid, and after Eastern had issued an Addendum in order to ensure that Olympic’s bid could be compliant. The rejection came after Eastern had secured the advantage of a competitive bid process.
Olympic relied on Addendum #5 as forming part of the bid contract and went to the effort and expense of submitting a bid, stated Justice Hoegg. This put Olympic into a Contract A with Eastern. Had Addendum #5 not been incorporated into the bid contract, Olympic would not have bothered to bid because the mandatory site meeting had already passed by the time Olympic was approached about the project. In these circumstances, concluded the judge, Eastern’s rejection of Olympic’s bid was a breach of its duty of fairness to Olympic:
The duty of fairness animates the law of public tendering, and to condone Eastern’s behaviour in this case would allow Eastern, as the owner in control of the tendering process and in a position to define the parameters for compliant bids and bidders, to make the rules and then break them.
Public bid law respecting the implied duty of fairness, founded in both policy and presumed intention, is now settled law. Therefore, decided Justice Hoegg, the trial judge did not err in finding that Eastern breached its Contract A with Olympic.
Award of Damages
The breach of Contract A proved expensive to Eastern. It could not show that the trial judge erred in awarding damages to Olympic for its loss of profits calculated at 13 per cent of its bid and amounting to $684,713 (plus HST). Accordingly, the Court of Appeal did not disturb the award.
To a construction industry observer, the decision will, no doubt, seem eminently reasonable and fully justified. The award of the construction contract to Redwood was unfair to Olympic. But had Eastern awarded the contract to Olympic, would not Redwood—the only bidder to attend the mandatory site meeting on June 11—have a good case to sue Eastern for breach of Contract A? Would Redwood not be entitled to its loss of profit?
Newfoundland and Labrador Supreme Court – Court of Appeal
Rowe, White, and Hoegg JJ.A.
April 9, 2014
1 The trial decision in this case was summarized in Construction Law Letter vol. 30, no. 1.
Revay and Associates Limited,
Founding Editor, Construction Law Letter
Note: Readers should not rely solely on the interpretation of a court decision summarised in this publication, but should consult their own solicitors as to the interpretation of the written reasons rendered by the court. The publishers and editors disclaim any liability which may arise as a result of a reader relying upon contents of this publication. The opinions expressed in the articles are those of the authors, and not necessarily those of the publishers and editors of the Construction Law Letter.