The recent case of M.G. Logging & Sons Ltd. v. British Columbia (Forests, Lands & Natural Resource Operations), 2015 BCCA 526 emphasizes the strict standards required for compliance in the tendering context, highlights the benefits and drawbacks of a discretion clause, and holds that owners do not have an obligation to resolve ambiguities in non-compliant bids.
The case arose out of a tender process established by the Ministry of Forests, Lands and Natural Resource Operations (the “Ministry”) for a license to harvest timber on Crown land. Only a registered BC Timber Sales Enterprise (“BCTSE”) was eligible to bid for the license. Each registered BCTSE has a unique registration number.
Mr. Goncalves elected to bid for the license. He was the principal of two related companies: M.G. Logging & Sons Ltd. (“Sons”, a party to this case) and M.G. Logging Ent. Ltd. (“Enterprise”). Sons is a registered BCTSE, but Enterprise is not. Mr. Goncalves mistakenly submitted a bid in Enterprise’s name without including an incorporation number, but included Sons’ unique BCTSE registration number.
The Ministry initially announced that Sons was the successful bidder, but quickly changed course and refused to award it the license on the basis that the tender application was in the name of Enterprise, an ineligible bidder. Sons sued for breach of contract. The parties agreed to proceed by way of summary trial and the Ministry also applied for summary judgment. The trial judge held that the case was not suitable for summary determination due to credibility concerns about whether the Ministry knew Sons was the intended bidder. Both parties appealed and submitted that the trial judge erred by not summarily deciding the case in their favour.
Discretion Clauses & Bid Compliance
In determining whether or not the bid was compliant, the Court reviewed some general principles of the law of tendering. The Court began by emphasizing that the unique and stringent framework designed to protect the tendering process must not be disregarded in favour of what might appear reasonable in any one particular case and that doing so would create unfairness and uncertainty in the tendering process.
The Court then discussed discretion clauses. Most owners insert a discretion clause into their tendering documents, thereby enabling them to accept a bid containing minor omissions or defects that are not material. In the absence of a discretion clause, strict compliance is required and an owner cannot accept a non-compliant bid. If the owner relies on a discretion clause, only substantive compliance is required.
However, the Ministry had a policy of avoiding discretion clauses to reduce the potential for litigation by eliminating the issue of whether an error was material or not. The Court rejected Sons’ argument that a term in the tendering documents imposing liability under the Forest Act, R.S.B.C. 1996, c. 157 for material misrepresentations in bids amounted to a discretion clause. Instead, it empowered the Ministry to impose statutory penalties outside the tendering process.
As a result, Sons was required to strictly comply with the terms of the tender documents. The Court accepted the trial judge’s finding that Mr. Goncalves’ bid was non-compliant due to the missing incorporation number and ambiguity in the bidder’s identity. The Court held that the identity of the bidder was an essential term of the contract and that it would be open to other bidders to protest the award of the license to a company other than the named applicant.
The Ministry’s Obligations
Sons argued that the Ministry was required to resolve the ambiguity in the bid, either as a result of Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4 or a term in the tendering documents providing that a Ministry representative would take steps necessary to satisfy himself or herself of an applicant’s identity.
The Court rejected both arguments. It distinguished Tercon, holding that it prevented an owner from turning a blind eye to the true identity of an applicant, but did not require an owner to take steps determine a bidder’s identity when it was ambiguous. The Court found that the obligation on the Ministry representative to examine applications only arose on the submission of a compliant bid and the corresponding creation of a contract between the Ministry and the bidder. As Sons did not submit a compliant bid, it did not have a contract with the Ministry and the Ministry did not owe it a contractual duty of fairness.
Finally, the Court rejected Sons’ argument that the initial post-bid conduct of the Ministry – announcing Sons as the winning bidder – demonstrated that the Ministry determined who the intended bidder was. The Court confirmed that the compliance of a bid is determined objectively at the time of the bid’s submission and that the Ministry’s post-bid conduct and views could not be taken into account.
In the result, the Court found that Sons could not succeed on any of its claims and granted the Ministry’s appeal for summary disposition in its favour.
This case confirms that owners do not owe a contractual duty of fairness to non-compliant bidders. As a result, owners are not required to investigate a bid that is non-compliant by reason of ambiguity.
For bidders, this case provides an important reminder of the need to strictly comply with terms imposed by the tendering documents. In the absence of a discretion clause, even a non-material defect will render a bid non-compliant.
Date of Decision: December 30, 2015