Date: Tue, 13 Sep 2005 10:19:28 -0400

From: David Cheifetz

Subject: Mistakes in Tendering

John,

Fast and loose with the law, too, since none of rescission or any other (equitable or legal) remedy / basis for relieving Ron Engineering from compliance with a valid contract A were argued. The SCC even said, specifically, that it wasn't dealing with penalty / relief from forfeiture issues because they hadn't been raised. So, the only issue in Ron was whether contract A came into existence. To imply otherwise, as the CA did in para 32 of Gottardo is unfortunate, to say the least.

I disagree with David’s suggestion that some solution might lie in unconscionability: the problem is not that there is any unfairness in the transaction. The unfairness comes, as I have said, from the courts’ refusal to deal sensibly with a problem that really isn’t very hard to solve.

My unconscionability reference went to the issue of relieving from the consequences of enforcing valid contract A, not the issue of whether contract A came into existence. My apologies as it seems I didn't make that clear. The posting was rushed.

On the enforceability issue:

If the finding is that contract A came into force, but the issue is whether the owner will be allowed to enforce contract A, - to keep the deposit, to collect on the bid bond, to sue for the difference between the contract price under the lower bid and the higher price ultimately paid - and that's a valid question, then aren't we asking ourselves under what circumstances the courts will relieve against the performance of an otherwise valid contract? If that's so, if there's a unifying principle to all of the remedies, doesn't it now lie in some concept of unconscionability?

Going back to Gottardo, assume there'd been a cash deposit (rather than a bid bond) which the TTC had been holding and it refused to return. (It shouldn't make a difference, of course, that it was a bid bond that the TTC claimed on, since there was finding that payment was due under the bond.) Assume Gottardo had sued the TTC arguing that the TTC would be unjustly enriched if it was permitted to keep the deposit. We have enrichment and corresponding deprivation. Is there a juristic reason for allowing the TTC to keep the money? If there is, what would it be? Saving money for the over-burdened TTC? As you said, it isn't clear what motivated the CA.

And, if we can make the argument that way, isn't another indication that unconscionability, whatever it means, is lurking somewhere in the background?

Regards,

David Cheifetz

----- Original Message -----
From: John Swan
Sent: Tuesday, September 13, 2005 9:15 AM
Subject: ODG: Mistakes in Tendering

I can understand and agree with David's anger at the Court of Appeal’s decision in Gottardo.

First, this is (at least) the second time this year in which the Court of Appeal has played fast and loose with a trial judge's findings of fact and done a bad job of justifying it. The other case is Amertek Inc. v. Canadian Commercial Corp. It is not clear to me what motivated the Court in each case.

Second, in dealing with the issues of Ron Engineering — one of the most dreadful decisions of the Supreme Court — it is important to notice what both the CCDC and the rules of the various Bid Depositaries provide. They provide that a contractor or subcontractor who makes a mistake can withdraw its bid but may not submit another. This solution is both fair and reasonable. The owner or general contractor cannot claim to have relied on the mistaken bid (except when the subcontractor’s bid is incorporated into the general contractor’s tender; see Northern Construction Co. Ltd. v. Gloge Heating & Plumbing Ltd. (1985), 27 D.L.R. (4th) 264, [1986] 2 W.W.R. 649) and denying relief for the tenderer‘s mistake simply gives the owner a windfall. It’s the pointlessness of that windfall in Ron Engineering, Gottardo and many other cases that is so upsetting. This fact was recognized by Kerans J.A. in Calgary v. Northern Construction Co. Division of Morrison- Knudsen Company Inc., [1986] 2 W.W.R. 426, 42 Alta. L.R. (2d) 1, 67 A.R. 95, 32 B.L.R. 81, aff'd, [1987] 2 S.C.R. 757, [1988] 2 W.W.R. 193, 56 Alta. L.R. (2d) 193.

When Estey J. in Ron Engineering was talking about maintaining the "integrity of the bidding process", he was doing all that he could to subvert it and to provide an incentive for an owner to seek to profit from a mistake made by a contractor when the owner had suffered no loss.

A large part of the tragedy of Ron Engineering is the fact that until the Supreme Court got its hands on the question, the courts of appeal, particularly the Ontario Court of Appeal, had been doing a very good job in working out fairly and sensibly how to deal with mistakes in tendering. The construction industry was aghast at the decision in Ron Engineering and could hardly believe that the Supreme Court could have been so unaware of what the industry did.

The result is, of course, that we have all the problems that one would expect from a dreadful decision, constant efforts of trial judges to reach fair results and no serious or coherent efforts from courts of appeal to undo the damage.

By the way, does anyone know what Iacobucci J. had in mind when he said that he wasn’t sure about the Contract A analysis of Ron Engineering in M.J.B. Enterprises? The problem with the result in Ron Engineering and Gottardo has nothing to do with the Contract A analysis, but everything with the courts’ blindness to sensible solutions to a common problem when there are readily available satisfactory models to choose from.

I disagree with David’s suggestion that some solution might lie in unconscionability: the problem is not that there is any unfairness in the transaction. The unfairness comes, as I have said, from the courts’ refusal to deal sensibly with a problem that really isn’t very hard to solve.

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