This article is an excerpt from Government Procurement, which is available for purchase.
In its July 2014 decision in Asco Construction Ltd. v. Epoxy Solutions Inc., the Ontario Court of Appeal reversed a June 2013 Ontario Superior Court of Justice – Divisional Court judgment that found a defendant subcontractor not liable for failing to perform a contract won pursuant to a flawed bidding process. The case dealt with a tender call issued by a general contractor for the City of Kingston who had been retained to perform substantial renovations to the City’s Grand Theatre. The subcontractor’s bid contained a fundamental mistake based on a material misunderstanding of the performance requirements. A performance dispute arose between the general contractor and the defendant subcontractor over the performance specifications. The subcontractor failed to finish the project, which was ultimately awarded to another subcontractor. The general contractor sued the subcontractor for failing to honour its bid and to perform the tendered contract. The trial judge found the subcontractor liable. The subcontractor appealed.
The Ontario Divisional Court overturned the trial judgment, finding that the subcontractor’s bid contained a fundamental error since it was based on erroneous specifications contained in the tendering documents. That error was fatal to the validity of the bid and to the validity of the contract awarded pursuant to the bid, thereby absolving the subcontractor from liability for non-performance:
27 Both parties refused to budge from their positions. By their conduct, they walked away from any contractual obligations they had with each other. The positions they adopted arose from a common mistake. The sketch the appellant provided with the tender documents was not a detailed survey and failed to provide adequate information necessary to calculate accurately the costs of labour and materials required to do the work. The respondent did not become aware of the mistake until informed by its surveyor, almost ten months after submitting its bid, of the inadequacy of the sketch. We find that the mistake was so fundamental that it renders the contract between the parties void. No damages can flow from a contract that does not exist.
28 We find that the issue of mistake is a question of law for which the standard of review is correctness. Although the issue of mistake was not pleaded by either side and does not appear to have been addressed or argued at trial, we find it was the issue which should have determined the outcome of the trial. For that reason, the judgment of the trial judge cannot stand.
However, the Ontario Court of Appeal found that the Ontario Superior Court of Justice – Divisional Court judgment was flawed since it overturned the initial trial judgment based on grounds that were never argued by the parties in their pleadings:
5 The respondent appealed to the Divisional Court. The Divisional Court did not disturb the trial judge’s findings of fact. However, the Divisional Court on its own initiative determined that the doctrine of common mistake applied and rendered the contract void. The appeal was allowed.
6 The issue of common mistake was not pleaded or argued at any stage. The parties became aware of this theory for the first time when the decision of the Divisional Court was released.
7 For the following reasons, the appeal is allowed.
8 It is established law that the court should not decide matters on grounds which were not advanced by the parties: see Rodaro v. Royal Bank of Canada, (2002), 59 O.R. (3d) 74 (Ont. C.A.), at para 61. The issue of common mistake was not pleaded, no evidence was led on the point and no argument was made. The Divisional Court did not provide either party with the opportunity to address this issue.
As this case illustrates, institutions issuing tender calls should ensure that the technical specifications contained in their documents are thoroughly and accurately prepared since defects in tender call specifications can lead to contract performance disputes and, in some instances, protracted legal proceedings when the parties are unable to resolve their disputes during contract performance.
