This article is an extract from the 5th edition of Government Procurement.
In its November 2019 decision in Montréal (Ville) v. Octane Stratégie inc., the Supreme Court of Canada ruled that a contract between the City of Montreal and one of its suppliers was void due the municipality’s failure to obtain proper contract approvals. However, the Supreme Court also ruled that the municipality had to pay the contractor for the work under equitable principles of unjust enrichment. The dispute dealt with public relations and communications services procured by the municipality to promote a new municipal transportation plan. The contractor, Octane Stratégie inc (“Octane”), provided the services but was refused payment by the municipality for some of its subcontractor costs because the services in question were not awarded according to proper contracting procedures and did not receive the required approval from the City Council.
As the Supreme Court summarized, Octane provided the services based on instructions received from the mayor and senior municipal officials during in-person meetings with those municipal representatives:
On April 27, a second meeting was held at city hall to discuss the organization of the event. In addition to Mr. Guillot-Hurtubise and Louis Aucoin — another partner at Octane — several members of the City’s administration and of the mayor’s office staff were present, including Mr. Lavallée and his political attaché, Mr. Blanchet, Mr. Thériault, who at the time was the director of communications and administration in the office of the mayor, as well as the coordinator of communications for the office of the mayor and of the executive committee, the communications officer and operations manager in the communications branch, and the communications officer for transportation and the plan. On that occasion, the City’s representatives shared their vision of the event and emphasized how important it was that the launch concept be imaginative and that the event be a [TRANSLATION] “landmark” event that was “lavish” and “glitzy”. The individuals responsible for liaising with Octane and the various municipal actors who were to play a role in the project were chosen. According to the evidence accepted by the trial judge, Mr. Thériault, with the agreement of everyone present, asked Octane to prepare a concept that would live up to their expectations.
However, the municipality later refused to pay for some of the subcontractor fees incurred for that event because those services were not procured by the municipal officials in accordance with the municipality’s contracting procedures. The Supreme Court ultimately found that no valid contract came into existence due to the failure to follow proper procedures and it overturned the lower court rulings that found that a valid contract was formed between the parties:
The bottom line is that the mandate on which Octane’s action is based was never approved by a resolution passed by the City’s municipal council or by an officer authorized by a valid delegation of powers. The Superior Court therefore erred in finding that a contract had been entered into by Octane and the City on the basis of the representations made by Mr. Thériault, and the Court of Appeal erred in according deference to a finding that was wrong in law. Absent any expression of the City’s will to be bound by such an agreement, no contractual relationship could arise between the parties.
However, the Supreme Court also ruled that Octane never intended to provide those services for free (or by “liberal intention” as referred to in the relevant statutory provision that governs statutory remedies against Quebec municipalities), so the municipality could not rely on that statutory provision to shield it from making payment:
Octane provided services for the production of the City’s launch event even though, in law, no agreement had been entered into because the City had not passed a resolution or by-law to express its will to bind itself by contract. As a result, the obligation that Octane believed it was performing did not exist. Given that liberal intention is not presumed, the City had to show that Octane provided those services knowing that it was not bound to do so. The City’s arguments on this point do not support a conclusion that Octane had a purely liberal intention. In these circumstances, Octane is entitled to recovery for the services provided.
As the Supreme Court determined, based on the evidence, “it cannot be concluded that Octane had a liberal intention to provide services to the City in the absence of a debt; quite the contrary…. [t]he trial judge in fact found that Mr. Thériault had given Octane a mandate for the production of the event and had reassured it several times that it would be paid for the costs incurred.” In fact, the Supreme Court found that the Octane had assumed that the mayor had the authority to contract for the services and had expected to be paid for them:
This testimony shows that Octane sincerely believed that, given the urgency of the situation, the mayor’s office had the prerogative to approve a budget and then circulate the information to the City department responsible for the project (testimony of J. Battah, ibid., at pp. 34-35, 40-41 and 60-61; testimony of Louis Aucoin, A.R., vol. VIII, at pp. 53-54 and 73-74). This explains why Octane [TRANSLATION] “assumed that the mayor’s office was passing on the information through its machinery to say that this was an event that was important to the City’s administration” (testimony of J. Battah, ibid., at p. 54). In light of these extracts, we cannot conclude that Octane would have intended to provide the services in question if it had known that its obligation to the City did not exist in law.
While the Supreme Court determined that no valid contract was formed between the parties, it ultimately determined that Octane was entitled to restitution under the common law principles of unjust enrichment:
With regard to the judicial discretion to refuse restitution or to modify the scope or modalities of restitution under para. 2 of art. 1699 C.C.Q., the City has not satisfied us that the findings of the courts below on this point should be disturbed. We have already rejected the City’s central argument that a court should systematically exercise its discretion to refuse restitution where the procedure for awarding municipal contracts has not been complied with. And in this case, the City has not proved that full restitution would accord an undue advantage to Octane. As the Court of Appeal noted, the trial judge found that the services provided by Octane for the transportation plan launch were of good quality and benefited the City (C.A., at para. 63; Sup. Ct., at paras. 159-60). The Court of Appeal also noted that the City was not disputing the fact that it had received the full benefit of those services (para. 64). Indeed, it is clear that refusing restitution for the value of the services rendered here would instead confer an undue advantage on the City. By benefiting from services that it received entirely for free without any right, it would be enriched at the expense of Octane, which would suffer a loss corresponding to that unjust gain.
The Supreme Court therefore restored the trial judgment that awarded Octane $82,898.63 for the unpaid work. This case serves as another cautionary tale against doing business with government based on a handshake from elected officials or other senior staff and underscores the importance of managing internal governance practices to avoid tainting the validity of contract awards through political interference. As this case illustrates, contracting parties should ensure that their commitments are well-documented and that contracts are awarded in accordance with applicable contracting procedures since the failure to follow proper practices can undermine the validity of a contract award and result in protracted legal disputes.
