This article is an excerpt from Government Procurement, which is available for purchase.
In its August 2012 decision in Bank of Nova Scotia v. Mustard Capital Inc., the Saskatchewan Court of Queen’s Bench approved the sale of assets to a bidder who submitted the best timely bid and rejected the claim of a subsequent bidder who submitted a better late bid. The case dealt with the bankruptcy of a dry mustard milling and cleaning business in Gravelbourg and Vanguard, Saskatchewan. A receiver eventually put the assets for sale to auctioneers. Grasswood Auctions put in the best bid. Memphis Stand, an affiliate the bankrupt’s landlord, put in a better offer, which the receiver rejected as late. Memphis Stand challenged the receiver’s decision but the court concluded that it would be inappropriate to bypass the best original bid in favour of a better late bid since this would create commercial chaos:
The touchstone decision in debates such as this is Cameron v. Bank of Nova Scotia (1981), 45 N.S.R. (2d) 303, 38 C.B.R. (N.S.) 1 (N.S.C.A.). The facts are not identical but it involves a debate over a receiver’s acceptance of a late bid. Macdonald J.A. opined at para.
36:
36 In my opinion if the decision of the receiver to enter into an agreement of sale, subject to court approval, with respect to certain assets is reasonable and sound under the circumstances at the time existing it should not be set aside simply because a later and higher bid is made. To do so would literally create chaos in the commercial world and receivers and purchasers would never be sure they had a binding agreement. On the contrary, they would know that other bids could be received and considered up until the application for court approval is heard – this would be an intolerable situation. Once a receiver puts a deadline on bids then he and other interested parties are entitled to assume that bids received after such deadline are not relevant. The receiver can safely accept the highest bid received before the deadline expires and enter into a binding agreement of sale subject to court approval. Such approval as above mentioned should not be refused simply because some person after the close of bids makes a higher offer.
At para. 37, Macdonald J.A. added:
… Court approval must involve the delicate balancing of competing interests and not simply a consideration of the interests of the creditors. It is for such reason that I hold the view that court approval should not be withheld simply because a higher bid has been received after the expiration of the deadline for submitting bids.
Cameron v. Bank of Nova Scotia was cited with approval in the Ontario Court of Appeal case of Royal Bank v. Soundair Corp. (1991), 4 O.R. (3d) 1, 83 D.L.R. (4th) 76. In addition to agreeing with the sentiments of Cameron v. Bank of Nova Scotia, the Court of Appeal also quoted from Re Selkirk (1987), 64 C.B.R. (N.S.) 140,
[1987] O.J. No. 2006 (QL) (Ont. S.C.), where at page 142 McRae J. expressed a similar view:The court will not lightly withhold approval of a sale by the receiver, particularly in a case such as this where the receiver is given rather wide discretionary authority as per the order of Mr. Justice Trainor and, of course, where the receiver is an officer of this court. Only in a case where there seems to be some unfairness in the process of the sale or where there are substantially higher offers which would tend to show that the sale was improvident will the court withhold approval. It is important that the court recognize the commercial exigencies that would flow if prospective purchasers are allowed to wait until the sale is in court for approval before submitting their final offer. This is something that must be discouraged.
(paras. 24-25)As the court explained in the passage cited above, only in situations where the reasonableness of the sale price is put into question will the courts reject a receiver’s recommendation to proceed with an asset sale to the best initial bid. In this instance, doing so would undermine the integrity of the bidding process since the better follow-up bid was submitted with the benefit of knowing the amount of the initial best bid:
In this instance, Bissma/Memphis Strand came into the knowledge of the precise bid submitted by Grasswood Auctions and accepted (subject to court approval) by the receiver. Bissma/Memphis Strand then bested that bid. If I allow the Memphis Strand bid to prevail, I am of the view that any reasonable observer would not regard the process as fair and reasonable or one characterized by integrity.
It is worth reiterating that Bissma was involved at all times throughout this process and could have submitted any number of bids. It submitted one, it was rejected. Bissma/Memphis Strand then through a court application for disclosure placed itself in a situation where it knew precisely the bid it had to better. Respectfully, to allow it to defeat Grasswood Auctions by reason of a court ordered disclosure process would not, in my opinion, yield a principled result. (paras. 31-32)
As this case demonstrates, the courts will put a high premium on preserving the integrity of the bidding process and will typically recognize the rights of the best timely bid over the status of better bids submitted after the prescribed bid deadline.
