This article is an excerpt from Government Procurement, which is available for purchase.
In its October 2014 decision in North End Community Health Assn. v. Halifax (Regional Municipality), the Nova Scotia Court of Appeal reversed a September 2014 Nova Scotia Supreme Court judgment that had granted a community organization’s judicial review application and struck down the decision made by Halifax Region to sell surplus school property to a land developer. In a prior March 2012 judgment, the community organization, North End Community Health, had obtained an injunction to stop the land sale from proceeding until the resolution of the judicial review application. In the judicial review trial court judgment, the Nova Scotia Supreme Court found that the decision to enter into an agreement for the sale of the property pursuant to an RFP process was governed by a statutory framework and that the framework was not referred to in the RFP:
On June 28, 2011, HRM issued a Request for Proposals (the RFP), seeking proposals for “a comprehensive and integrated” use of the Property “through the restoration and re-use of the existing building or the re-development of the property for various commercial, institutional and other land uses, which are complementary to existing developments in the surrounding area, and which generally enhance the community.” There were four scoring criteria for the assessment of proposals. These included (1) understanding the intent and objectives, with a maximum score of 30; (2) qualifications and experience, with a maximum score of 25; (3) the proponent’s financial capability, with a maximum score of 25; and (4) the financial offer, with a maximum score of 20. The closing date for proposals was August 26, 2011.
The RFP stated that legislation permitted “the sale of surplus municipal property at less than market value to registered non-profit organizations.” In the event that a sale at less than market value was recommended, a public hearing would be required. Proponents of a sale at less than market value would be required to “demonstrate how their program and service delivery aligns with HRM’s jurisdictional mandate or organizational priorities …”. Such a motion before Council would require a two-thirds majority vote. The RFP did not refer to the Procedure, nor did it provide for special consideration for bidders which were “local community groups”, as set out in the Procedure. (paras. 10-11)
The Nova Scotia Supreme Court determined that Halifax Regional Council owed the applicant community group a duty of procedural fairness under the statutory framework. That framework specified that land had to be sold for market value unless it was sold to non-profit organizations carrying on activities beneficial to the municipality. The court also found that Council’s decisions under the statutory framework had to be made in a reasonable fashion and that, by failing to obtain market value, Council made an unreasonable decision which should be struck down:
The HRM Charter provides that Council may not sell municipal property at less than market value unless the sale is to a non-profit organization. To sell the property for a price less than a willing buyer was willing to pay amounted to a sale at less than market value. In other words, the price ultimately agreed to was lower than the price the buyer had expressed a willingness to pay for the property “as is.” The HRM Charter did not permit Council to sell the property at this price in these circumstances. In these circumstances, “market value” was not the estimate, but the amount a willing buyer would pay.
The market price for the property was $4 million. The agreed selling price of $3 million was therefore an amount less than market value.
Keeping in mind that the standard of review with respect to Council’s determination of price is reasonableness, I am not satisfied that Council met that standard. The materials before Council made it explicit that the buyer was willing to pay $4 million for the property. In these circumstances, I do not believe “market price” could reasonably be regarded as any amount less than this. Council’s decision to sell the property for $3 million was not within a reasonable range of decisions in circumstances where the buyer had informed Council that it was prepared to pay $4 million. (paras. 102-104)
This decision was appealed by Jono Developments Ltd., the private developer whose bid to buy the land was originally selected by Halifax Region before that contract award was quashed by the trial court. The Court of Appeal agreed with the trial judge’s finding that Halifax Region owed a duty of procedural fairness to the community groups who were bidding on the land against the land developer. However, after applying the five-part analysis for defining the duty of procedural fairness established by the Supreme Court of Canada in it the 1999 Baker v. Canada (Minister of Citizenship and Immigration) decision written by Justice L’Heureux-Dubé, the Court of Appeal concluded that the trial court had erred in its analysis of the duty of fairness:
53 In Baker, supra, Justice L’Heureux-Dubé set out what have become the guiding principles to define the content of the duty:
21 The existence of a duty of fairness, however, does not determine what requirements will be applicable in a given set of circumstances. As I wrote in Knight v. Indian Head School Division No. 19,
[1990] 1 S.C.R. 653, at p. 682, “the concept of procedural fairness is eminently variable and its content is to be decided in the specific context of each case”. …22 … I emphasize that underlying all these factors is the notion that the purpose of the participatory rights contained within the duty of procedural fairness is to ensure that administrative decisions are made using a fair and open procedure, appropriate to the decision being made and its statutory, institutional, and social context, with an opportunity for those affected by the decision to put forward their views and evidence fully and have them considered by the decision-maker. [Emphasis added]
She then goes on to describe five non-exhaustive factors to consider, which can be summarized as follows:
the nature of the decision being made and the process followed in making it;
the nature of the statutory scheme and the “terms of the statute pursuant to which the body operates;”
the importance of the decision to the individual or individuals affected;
the legitimate expectations of the person challenging the decision; and
the choices of procedure made by the agency itself, particularly when the statute leaves to the decision-maker the ability to choose its own procedures, or when the agency has an expertise in determining what procedures are appropriate in the circumstances.
See Baker, supra, at para 23-28. In Canada (Attorney General) v. Mavi, [2011] 2 S.C.R. 504, Justice Binnie reiterated that this list is non-exhaustive (para42).
54 The reviewing judge presented the positions of the parties for each factor set out in Baker, but did not conduct his own analysis or indicate where on the spectrum he believed the duty fell. Failure to do so led him to conclude that the duty of fairness could only be satisfied by adherence to the Procedure. In my view both his approach and his ultimate conclusion on the scope of the duty of fairness were incorrect. I will explain further in the course of reviewing each of the Baker factors.
After applying the above-noted five-part Baker analysis to the specific situation, the Nova Scotia Court of Appeal concluded that the duty of procedural fairness simply required Halifax Region to give the community groups an opportunity to participate in the competition and that Halifax Region had honoured that duty:
Summary on the Content of Procedural fairness owed
106 The foregoing analysis suggests that a significant degree of fairness was owed to the Community Groups, which included participation in the disposal process. I agree with Jono’s submission that the duty owed to the Community Groups amounted, in the circumstances, to an opportunity to advance a proposal and to have the proposal considered by HRM on criteria other than simply the price offered for the property.
Was there a Breach of the duty of fairness?107 I turn now to an application of the above principles to the circumstances of this case to determine whether the procedures followed respected the duty of procedural fairness owed to the Community Groups.
108 As established above, deviations from the Procedure in the RFP process were not substantial enough as to constitute a breach of the procedural fairness duty on the ground of legitimate expectations. I further find that the process as followed afforded sufficient procedural rights as to satisfy the duty owed to the Community Groups.
109 First, the RFP process was consistent and predictable, as HRM had used it to sell 16 of 18 surplus schools in the past decade. HRM consistently represented by conduct and communications, to both the general public and the Community Groups specifically, that the Municipality would follow the RFP process that was, in fact, used for the sale of the Property.
110 Further, the RFP was advertised on the HRM website and in the Chronicle Herald as HRM’s chosen process for the sale of the Property. The Community Groups were duly notified and able to put forth meaningful offers.
111 Third, the Community Groups were afforded participatory rights substantially similar to those contemplated by the Procedure.
112 In conclusion, I am satisfied that the RFP process followed was sufficient to discharge the duty of procedural fairness owed to the Community Groups. The process was consistent and predictable, the Community Groups were duly notified and made aware of the process, the RFP granted the Community Groups participatory rights in a substantial way and their proposals were considered on more than just a financial basis.
113 I would allow this ground of appeal.
The Nova Scotia Court of Appeal also found that the trial court had erred in its conclusion that Halifax Region had failed to obtain fair market value in accepting Jono’s $3 million bid:
121 The reasoning of the reviewing judge has a fatal flaw. There were no competing bids. A conditional bid would require adjustment downward to account for the impact of the conditions before it can be considered as comparable evidence of what a willing buyer would pay on the open market. Jono was not a willing buyer at $4 million. Jono’s Option “A” bid was for $3 million. Jono’s willingness to pay any more than that was conditional on the existence of bids higher than $3 million. In order for Jono to be a “willing buyer” at $4 million, there would have to be a competing bid of at least $3,925,000. This condition was not met and, consequently, Jono’s bid of $3 million was evidence of what a willing buyer would pay for the Property.
122 The reviewing judge’s finding that the “market value” was established by Jono’s apparent willingness to buy at $4 million misses an important point. The willingness was conditional and the condition was never fulfilled. It cannot be reflective of the open market.
123 Further, the reviewing judge’s reasons do not reveal any deference to HRM’s determination of market price.
More specifically, the Court of Appeal found that Halifax Region staff had selected a bid that had greatly exceeded prior estimates of the market price for the land in question:
130 The reviewing judge appears to ignore what I consider to be the very logical conclusion put forward in the Staff Report when it recommended the sale at $3 million. I will excerpt the relevant portions of that Staff Report:
The recommended offer of $3M by Jono Developments Limited is without limiting conditions. This offer will facilitate the sale of the subject property within a reasonable period following Council’s approval for the award.
An alternative offer that Jono Developments Limited presented was contingent on the approval of a Development Agreement with a value of $3,750,000.00. however, after considering the time value of money, municipal property holding costs, lost property tax revenue and a 5% contingency for the risk inherent in the process, the stronger financial return in today’s dollars is the recommended unconditional offer of $3M.
131 The Staff Report then goes on to value Jono’s total net present value offer at $3,110,965.00.
132 This is against the backdrop of the Colliers’ Report which estimated that the current market value of the property as is was $1 million. The market value, if it was partially redeveloped, was $3 million and the prospective market value if the entire property redeveloped was $4.3 million.
133 In these circumstances, Jono was offering the equivalent of approximately $3.1 million for the property “as is” which Colliers had estimated to be worth $1 million.
134 The logic of HRM’s decision to sell to Jono at $3 million is borne out by the record. There were no other bidders over and above $3 million. That in and of itself serves as the best evidence of market value of the property.
135 In my view, the reviewing judge’s failure to properly consider HRM’s rationale for selling to Jono at the $3 million price and his reliance on the conditional bid in determining the market price was an error.
The majority of the Nova Scotia Court of Appeal therefore allowed the appeal and set aside the trial judge’s decision. However, a dissenting judge took issue with the majority judgment, finding that Halifax Region had failed to meet the duty of fairness owed to the community groups. As the dissenting judge noted, contrary to its initial process commitments, Halifax Region failed to evaluate the $1 bids submitted by the community groups for community benefit factors prior to evaluating the financial offers of other bidders. In sum, the dissenting judge found that the community groups were not given a realistic chance of succeeding in the competition due to the weighting of the financial criteria and the failure to screen the merits of non-financial offers prior to proceeding with price evaluations:
151 I begin with this basic premise. The policy (although honoured in the breach) at a minimum recognized that non-profit community groups, such as the respondents, serve a positive purpose within the community. This would therefore command, at the very least, a reasonable chance of success when submitting proposals. Yet, in my view, the impugned process offered these groups little, if any, hope. In fact, I need look no further than the evaluation material and corresponding summary sheet to see that their efforts appeared doomed from the get-go:
152 Consider the four categories, beginning with the “financial” comprising 20%. It should come as a surprise to no one that the Community Groups got zeros in this category. They are not investors. This is a clear example of how the policy breach jeopardized the Community Groups’ chances. In clear language, the policy directed that proposals from non-profit groups be assessed separately and in advance. Here, by comparing them directly using this scoring sheet, the non-profit groups started a full 20 points behind Jono, the successful for-profit competitor.
The dissenting judge concluded that the land developer’s appeal should be dismissed since the community groups were denied a meaningful opportunity to compete for the land:
165 Of course I agree that a “significant degree of fairness” was owed here in light of the breached policy. However, my colleague’s parameters extend only to “an ability to participate” and to be judged “on criteria other than simply the price”. In my view, that does not go far enough. Instead, as I have explained above, the groups deserved a right to meaningful participation in the process and to not have a score card stacked against them. This they were denied.
Notwithstanding the dissenting judgment, the Nova Scotia Supreme Court judgment was ultimately overturned by the majority of the Nova Scotia Court of Appeal and Halifax Region’s contract award decision to the private developer was upheld.
As this case illustrates, when public bodies exercise statutory powers in the administration of a bidding process, their contract award decisions may be subject to judicial review challenges. Where the courts find that contract award decisions fail to follow the governing statutory framework or are otherwise made in an unreasonable fashion, those decisions can be struck down by the courts. Government decision-makers should be careful to conduct themselves in accordance with their statutory powers and with the implied administrative law principles of procedural fairness when making contract award decisions.
