Supreme Court Denies Leave In Tender Case – Refuses To Re-Write History

The Supreme Court of Canada has recently refused leave to appeal in Trevor Nicholas Construction Co. Ltd. v. Canada. In doing so, it has upheld the decisions of the Federal Court Trial Division and Federal Court of Appeal which declined to permit a bidder to rely on after-the-fact information to overturn an invitation to tender.  These decisions, and the Supreme Court’s decision not to allow an appeal, may signal a growing unwillingness of courts to disturb the tender process based upon facts or events occurring after the tender is completed.

Background Facts

This is a long story, starting 23 years ago in 1989. The summary judgment motion judge summarized the facts as follows.

In 1989 and 1990, Trevor Nicholas submitted the lowest bid on two invitations to tender for dredging contracts issued by Public Works Canada.  In each case, Public Works Canada advised Trevor Nicholas that it was “by-passed” in favour of the second lowest bidder based upon its previous work and apparent incapacity.  Trevor Nicholas submitted bids on three further projects between 1990 and 1993. It was the lowest bidder but was by-passed for the same reasons.

In 1995, Trevor Nicholas sued the federal Crown and alleged that the defendant had treated the plaintiff unfairly during the first four tenders.  Trevor Nicholas also claimed that the Crown had breached an implied term of the contracts which were created when the plaintiff delivered four fully qualified low tenders.

In May, 2001, the Federal Court granted summary judgment dismissing the plaintiff’s claim under the implied term theory.

In January 2011, the balance of the plaintiff’s claim was dismissed on summary judgment, on the ground that there was no genuine issue for trial with respect to the plaintiff’s claim that the defendant breached its obligation to treat the plaintiff fairly. The Federal Court of Appeal upheld that decision and the Supreme Court of Canada has now denied leave to appeal from that decision.

The Federal Court of Appeal’s decision

The Federal Court of Appeal quoted, and agreed with, the following portion of the trial judge’s reasons which stated the ingredients of the duty of fairness in an invitation to tender.  The Federal Court of Appeal underlined the concluding portion of the quote:

“The defendant’s implied obligation to treat the plaintiff fairly flows from its “obligation to treat all bidders fairly in the sense of not giving any of them an unfair advantage over the others” and not unfairly preferring one bidder over another… In assessing whether this obligation was breached, it must therefore be determined whether the plaintiff was treated unfairly, relative to other bidders. This assessment should include a determination as to whether the By-Pass Decisions were made on the basis of considerations that were extraneous to those set forth or implied in the tender documentation…. In my view, the assessment should also include a determination as to whether the defendant was biased against the plaintiff or made one or more of the By-Pass Decisions in bad faith, for example, by basing any of the By-Pass Decisions on facts that the defendant knew or ought to have known were untrue at the time those decisions were made. [underlining added]”

The central argument of Trevor Nicholas was that the Crown knew or should have known at the time of the tender that the information which the Crown relied upon to by-pass Trevor Nicholas was false.  Trevor Nicholas attempted to show the falsity of that information, and the Crown’s contemporary knowledge of it, through cross examination of witnesses on the summary judgment motion. Its difficulty was that all the facts that it relied upon were dated long after the invitation to tender.  Trevor Nicholas was attempting to show that, by virtue of those facts long after the tender, the Crown knew or should have known of the falsity at the time of the tender. But it had no information that the Crown did know that falsity at the time of the tender.

The trial judge and the Federal Court of Appeal were not prepared to allow Trevor Nicholas to proceed to trial on the issue of fairness when Trevor Nicholas based its case on facts occurring long after the tender, and sought to extrapolate backwards from those facts to show unfair conduct by the Crown at the date of the tender.  As the Federal Court of Appeal said:

“[T]he plaintiff had no direct evidence to show that when making his decision not to accept the plaintiff’s tenders, the decision-maker knew that the information before him was incorrect or based upon irrelevant factors. At best, the plaintiff’s evidence took issue with the accuracy of various opinions placed before the decision-maker…[T]he Judge wrote that there was nothing in the plaintiff’s motion record:

[…] that would indicate or suggest in any way that the defendant knew, at the time when it made the By-Pass Decisions, that any of the facts upon which it relied in making those decisions were false, erroneous or misleading. Despite my repeated requests during the oral hearing, the plaintiff was not able to identify any basis for this claim, other than its mere belief that the defendant knew that some of those facts were false.”

The Crown led evidence to show that, at the time of the tenders, it retained and relied upon independent experts to evaluate the bids.  The tender documents explicitly stated the past performance of bidders, and the similarity of work previously undertaken by bidders to the proposed work, would be considered.  The summary motion judge concluded that, in all the circumstances, Trevor Nicholas had not shown that there was any genuine issue for trial on the issue of fairness. The Federal Court of Appeal agreed.


The decision brings to an end 23 years of disputes and litigation over tenders. There have been 20 reported decisions in the two actions brought by Trevor Nicholas over these tenders. This is a remarkable amount of unsuccessful litigation.

One can well understand the frustration of a contractor repeatedly losing out on invitations to tender on which it was the low bidder.  This frustration is then fed by discovering later facts which demonstrate, in its view, that the decisions to by-pass it were unjustified.  In invitations to tender, bidders are outsiders to the decision-making process.  When they are excluded for subjective reasons, such as unsuitability or incapacity, there is a natural tendency to blame the process and to jump to the conclusion that the process was unfair.

But the invitation to tender process cannot be run by “monday morning quarterbacking.”  Business is business, and courts are not going to paralyze the tender process by raising the spectre of penalizing owners if facts are later discovered which call into question the wisdom of the tendering decision.  Fairness will be judged by the fairness of the process, and the later discovery of new facts does not render a prior process unfair.

See Heintzman and Goldsmith on Canadian Building Contracts (4th ed.), Chapter 1, section 1§1(f)    

Trevor Nicholas Construction Co. Ltd. v. Canada, 2012 FA 110

Building Contracts  –  Tenders  –  Fairness  –  Duty of Care  –  Remedies

Thomas G. Heintzman O.C., Q.C., FCIArb                                                                                                                          December 9, 2012       

Does An Interim Lender To A Construction Project Owe A Duty of Care?

Construction projects don’t often proceed without a lender. And often there is an interim lender which provides financing pending the advancement of funds by the final lender. In this circumstance, two questions arise:

First:  Does the interim lender owe a duty of care to the owner or purchaser of the project?

Second:  If the interim lender makes representations to the owner or purchaser, does that lender owe a duty to make those representations carefully?

In Condominium Corporation No. 0321365 v MCAP Financial Corporation, the Alberta Court of Appeal recently answered Yes to the first question, but Maybe to the second question.

The MCAP decision is important because different answers were given to these two questions. The different answers highlight the difference between the duties of a lender, acting strictly as a lender, and the duties which a lender may assume if it makes representations to the owner or purchasers.

The answers to these questions become even more problematic when the interim lender receives vital information about the safety of the construction, or if the interim lender or its agents are arguably performing statutory duties. Can the lender ignore the impending safety risks? Can it ignore the potential application of statutory duties? If the lender receives vital information about the safety of the structures and makes representations to third parties about those matters, does it assume a duty of care which it would not otherwise have?

Background Facts

MCAP was the interim lender to a condominium construction project in Fort McMurray, Alberta. MCAP provided interim construction financing to the developer of the project.

The commitment letter between MCAP and the developer of the project stated that a soils test report by a professional engineer would be provided, demonstrating that the proposed construction and site improvements of the project were feasible under existing soil conditions. The commitment letter also required the lender’s cost consultant to verify the costs of the condominium project.

The commitment letter stated that, prior to the initial advance a project and budget review report would confirm that project has been designed in accordance with a geotechnical engineer’s report, and that all requests by the developer for advances would include an inspection certificate from the lender’s cost consultant confirming that the work to date was in accordance with the plans and specifications. The commitment letter also stated that if actual costs exceeded the budgeted and approved costs, then the developer would contribute the excess before receiving any further advances.

MCAP retained a cost consultant and parts of the commitment letter were attached to the contract between MCAP and the cost consultant. Effectively, the key provisions of the contract between MCAP and the developer were mirrored in the contract between MCAP and the cost consultant. The purchaser alleged that MCAP’s cost consultant was the “cost consultant” of the developer under section 14 of the Alberta Condominium Property Act (the Act). The purchasers accordingly argued that MCAP and its consultant had statutory duties with respect to certifying the cost to complete the project before funds were released to the developer.

In 2002, conversations occurred between a consultant acting for the purchasers of the condominium units and MCAP. According to the purchasers, in those conversations MCAP represented to the purchasers’ consultant that the terms and conditions of the commitment letter would be enforced for the benefit of the purchasers of units in the condominium project and that MCAP’s cost consultant would be the “cost consultant” under the Act.

In September 2001, the purchaser’s consultant wrote letters to MCAP’s cost consultants, copying MCAP, and set out various alleged serious deficiencies in the design and construction of the condominium project, including suspected Alberta Building Code, development permit and contractual deficiencies. It was the purchasers’ position that these letters signalled grave concerns that the units and related common property in the project were not in fact substantially completed as contemplated by the Act. The purchasers said that the suspected construction and design deficiencies required that statutory holdbacks be maintained to cover these deficiencies.

In late September 2003, a number of the purchases of the condominium units were completed and the developer received payment of the purchase prices. That money was used by the developer to reduce the loan from MCAP. In the closings, the developer’s lawyers gave undertakings about maintaining holdbacks pursuant to section 14 of the Act. In those undertakings, the developer’s lawyers referred to MCAP’s cost consultant as the developer’s costs consultant.

The purchasers and the condominium corporation then sued the developer and MCAP for damages. They alleged that the condominium was a disaster and was sinking into the ground due to numerous construction faults including the failure of the footings, improper compaction of fill and excessive moisture. The purchasers alleged that MCAP owed them a duty of care and had breached it by its failure and that of its cost consultant to take any steps to address the safety concerns of which they were well aware. The purchasers also alleged that MCAP had made negligent misrepresentations by effectively telling the purchasers that MCAP would enforce the commitment letter and that MCAP’s cost consultant would perform the duties of the “cost consultant” under the Act, and then failing to do either.

MCAP brought a motion to dismiss the action against it, asserting that it owed no duty of care to the purchasers, and that it owed no duty with respect to the statements which it or its cost consultant had allegedly made to the purchasers. The motion judge agreed with MCAP and dismissed the action against it. The purchasers then appealed.

The Decision

The Court of Appeal agreed that, apart from any duty arising from representations made by it, MCAP owed no general duty of care to the purchasers. The Court held that the purchasers’ assertion of such a duty failed on virtually every account.

First, the lender was entitled to waive defaults and give extensions in its own interest, and the existence of a duty to the purchasers would contradict that entitlement.

Second, the class of persons to whom the alleged duty was owed was indefinite as the circumstances relating to each purchaser could be different and the units could be “flipped”, making unfeasible for MCAP to consult with the class to which it allegedly owed a duty.

Third, the business interests of MCAP and the purchasers might well be different.

Fourth, the commitment letter was between MCAP and the developer and, as third parties to that letter, the purchasers had no legal rights in that letter.

Finally, policy reasons dictated that no such duty was owed. As the Court said: “The deleterious effects that recognizing this novel duty of care would have on commerce and the financial industry and in turn economic development are obvious.”

However, the Court of Appeal held that the purchasers had a potential claim against MCAP arising from negligent misrepresentation. The Court reversed the motion judge’s decision on this issue and directed that the action proceed to trial.

The Court held that the purchasers had a viable claim that MCAP had impliedly represented that it would enforce the commitment letter and that it had retained a cost consultant which would perform the duties of a “cost consultant” under the Act, and that MCAP had done neither. The Court of Appeal held that, on a disputed evidentiary record, the motion judge was not entitled to make factual findings as to the existence and scope of any alleged representations made by MCAP, the existence of any special relationship between MCAP and the purchasers and whether the purchasers reasonably relied on any statements of MCAP. Those were factual matters that must go to trial.

The Court of Appeal distinguished the two torts as follows:

“I agree that an interim lender owes no duty of care to purchasers of units in a project it is financing to ensure that the project it is financing is completed in accordance with the lending agreement. I have explained why that is so earlier. However, the court cannot use the absence of a duty of care based on a lender-purchaser relationship to determine whether the specific facts and circumstances of a particular case created or gave rise to a special relationship between the lender and purchasers and a corresponding duty of care sufficient to ground an action in negligent misrepresentation.”

The Court noted that the British Columbia Court of Appeal had held that, in the particular circumstances of that case, a lender did owe a duty to a third party not to make negligent misrepresentations and was liable to that third party.

The Court of Appeal also held that the other claims against MCAP should also proceed to trial. Those claims were based on knowing assistance in a breach of trust by the developer and unjust enrichment. MCAP had accepted the monies paid from the developer. Those monies were paid to the developer by the purchasers and were trust funds under the Act. MCAP received payment at the very time that the costs consultants under the Act should, arguably, have ensured that those monies were set aside to properly complete the project and correct the deficiencies. In these circumstances, the Court held that there were arguable claims of knowing assistance in breach of trust and unjust enrichment.


Even though the decision in MCAP arose on a summary judgment motion, it demonstrates the pitfalls which may face a lender to a building project. These pitfalls are magnified if the lender learns of facts which raise real concerns about the safety of the project or building, and if there are statutory duties relating to the project. Since building projects are subject to a number of statutory regimes, including construction lien and building code legislation, the role of the lender may not be a happy one.

This decision should alert lenders to a variety of potential claims that can be made against them. Indeed, the claims asserted in the MCAP action are a good shopping list to consider, both for project lenders and purchasers and owners of allegedly defective buildings.

Two precautions for lenders arise from the decision:

First, be very circumspect in any dealings with third parties to a lending agreement and avoid any conduct which could be construed as a representation to the third parties or the assumption of statutory duties.

Second, be aware of the trust fund legislation applicable to monies held by a borrower, and be very careful in accepting monies which may be trust fund monies.

Condominium Corporation No. 0321365 v MCAP Financial Corporation, 2012 ABCA 26

Building Contracts – Consultants – Negligence and Negligent Misrepresentations – Knowing Assistance – Unjust Enrichment

Thomas G. Heintzman O.C., Q.C., FCIArb                                                                                                         June 20, 2012


An Owner Owes No Duty Of Care To A Subcontractor In A Bid Depository System

The Newfoundland and Labrador Court of Appeal has recently held that an owner does not owe a duty of care to a subcontractor arising from the normal operation of a bid depository system: Defence Construction (1951) Limited v. Air-Tite Sheet Metal Limited.

The Background:

The owner, Defence Construction, a wholly owned subsidiary of the government of Canada, entered into a contract with N. M. Dobbin Limited for the construction of an aircraft hanger in Labrador.  Dobbin in turn entered into a subcontract with Air-Tite for the installation of the heating system.  Those contracts were awarded through a bid depository system. The heating system was designed by Shawmont Newfoundland Design Associates.

The heating system did not work properly.  As a result, Dobbin terminated Air-Tite’s subcontract and retained another company to perform corrective work.  Later, it was determined that the fault was due to the negligent design of Shawmont, not the defective work of Air-Tite.

Defence Construction sued Shawmont and Dobbin for damages and Dobbin commenced third party proceedings against Air-Tite.  In a separate action, Air-Tite sued Dobbin and Defence Construction for damages as a result of the wrongful termination of Air-Tite’s contract with Dobbin and the failure of Dobbin to award the corrective work to Air-Tite.

The Trial:

The trial judge held that Shawmont had been negligent in the design of the air conditioning system and awarded damages in favour of Defence Construction against Shawmont.  The trial judge dismissed Defence Construction’s claim against Dobbin on the ground that Dobbin had followed the Shawmont design and had not itself been negligent.

The trial judge also held that Defence Construction was negligent in the supervision of the contract between Dobbin and Air-Tite and awarded Air-Tite damages against Dobbin and Defence Construction.  The negligence alleged against Defence Construction was that it granted permission to Dobbin to terminate the sub-contract to Air-Tite and award the corrective work to the third party without taking reasonable care to inquire as to whether the failings in the heating system were due to the fault of Air-Tite.

The Court of Appeal:

The Newfoundland and Labrador Court of Appeal allowed the appeal so far as Air-Tite’s claim in negligence against Defence Construction.  Applying the decision of the Supreme Court of Canada in Design Services Ltd. v. Canada, [2008] 1 S.C.R. 737, the Court held that the owner, Defence Construction, owed no duty of care to the subcontractor Air-Tite.

The Court held that subcontractors do not fall within a recognized category of persons to whom a duty of care in negligence is owed by owners.  Nor were there good policy reasons to create a new category of persons, namely subcontractors, to which owners owed a duty of care.

Main Contract Creates No Duty Of Care

Air-Tite relied upon a provision in the main contract between Defence Construction and Dobbin (Article 4.6) which prohibited Dobbin from changing the subcontractor without the permission of Defence Construction.

The terms of the main contract were incorporated into the contract between Air-Tite and Dobbin.  The trial judge had held that Article 4.6 created a duty of care between Defence Construction, as owner, and Air-Tite, as subcontractor, requring Defence Construction to use reasonable care in consenting to Dobbin terminating the subcontract with Air-Tite and replacing it with another subcontractor.

The Court of Appeal rejected this proposition.  The Court of Appeal held that the terms of the main contract could not, by themselves, create a duty of care by the owner to the subcontractor. Rather those terms were the “means for Defence Construction to oversee the manner in which Dobbin executed its part of the bargain.”  These considerations worked against, not for, a conclusion that the main contract created proximity of relationship between the owner and the subcontractor.  In the Court’s view, Air-Tite’s arguments were an attempt “to shift responsibility for Dobbin’s wrongful termination of its contract with Air-Tite to Defence Construction when the latter was not privy to the subcontract.”

Bid Depository System Creates No Duty Of Care

The Court of Appeal also rejected that Air-Tite’s submission that a duty of fairness arose from the tender process and created a duty of care from the owner to the subcontractor.

As the Court said:

“While such a duty of fairness may have been a general expectation of Air Tite, there is no basis on which to conclude that Defence Construction and Air-Tite had a relationship that, as between those parties, created expectations or reliance which would impose the duties suggested by Air-Tite on Defence Construction.”

Nor could the bid depository system, without more, establish subcontractors as a new class of persons to whom owners owe a duty of care, particularly in relation to the alleged wrongful termination by the contractor.

The Court continued:

“This is not a situation that fits within or is analogous to a relationship previously recognized as imposing a duty of care between the parties.  Neither is it a situation where a new duty of care should be established.”

Damages For Breach Of The Subcontract

The Court of Appeal also dismissed Dobbins appeal from the trial judgment holding it liable to Air-Tite for not retaining Air-Tite to perform the additional remedial work.  The Court held that Air-Tite had no right to be awarded that work as Dobbin’s contractual right to make changes in the work encompassed the right to assign the remedial work to another subcontractor and not Air-Tite.  Nevertheless, the Court held that Dobbin had wrongfully terminated the subcontract and that, had that not occurred, Air-Tite “would have been retained to do the work that was contracted” to the third party.

This latter conclusion is open to question.  The amount of damages to be awarded for breach of contract is not based upon the probabilities of what the defendant “would have done” but upon what the defendant was entitled to do.  Even if Dobbin wrongfully terminated the subcontract, its liability for damages cannot be greater than the amount it would have had to pay Air-Tite had it acted in accordance with the subcontract:  Hamilton v. Open Window Baker Ltd., [2004] 1 S.C.R. 303.  Accordingly, if Dobbin was entitled to award the additional work to another subcontractor – as the court found – then it should not have been liable to Air-Tite based upon whether or not it might have or would have awarded the additional work to Air-Tite.

The Important Issue:  No duty of care by an owner to a tendering subcontract

The first point in this decision is of considerable importance.  The Newfoundland and Labrador Court of Appeal has held that, as a matter of principle, a bid depository system does not create a duty of care by the owner in favour of the subcontractor.  This decision extends and solidifies the decision by the Supreme Court of Canada in Design Services.  In the latter case, the subcontractor was given the option to join a joint venture with the contractor.  The Supreme Court of Canada held that, in that circumstance and when the subcontractor did not take up that option, there could be no duty of care between the subcontractor and the owner.

The decision of the Newfoundland and Labrador Court of Appeal shows that the principle in Design Services is of general application.  In the absence of specific facts giving rise to a special relationship, an owner has no duty of care to a subcontractor arising from a bid depository system.

Construction Law –  Duty of Owner to Subcontractor – Tendering

 Defence Construction (1951) Limited v. Air-Tite Sheet Metal Limited, 2011 NLCA 67

Thomas G. Heintzman, O.C., Q.C.                                                                                                     October 14, 2011