Fair and
Consistent
A 2014 decision of the Supreme Court of Canada dealing
with the question of good faith contractual performance,
and a more recent lower court decision
that applies its reasoning, could have a significant
impact on the way in which contracts created as part of the
tendering process are interpreted.
The law applicable to tendering disputes dates back to
the 1981 decision of the Supreme Court in Ontario v. Ron
Engineering & Construction (Eastern) Ltd. In an effort to ensure
that the integrity of the tendering process was preserved, the
court established a paradigm in which two contracts are said
to arise. The first such contract, Contract A, comes into existence
when a compliant bid is submitted in response to a
tender call. The actual construction contract, called Contract
B, arises when the bid is accepted.
Subsequent decisions of the Supreme Court refined and,
to a certain extent, modified the Contract A/Contract B
framework established in Ron Engineering. The most important
of these decisions was likely MJB Enterprises Ltd. v.
Defence Construction (1951) Ltd., in which the court stated
that the terms of so-called Contract A will depend on the
specific wording of the tender documents. Thereafter, in
Martel Building Ltd. v. Canada, the court held that, as part of
Contract A, “an implied term to be fair and consistent in the
assessment of tender bids is justified based on the presumed
intentions of the parties.”
The duty of good
faith in contractual
performance
By Dean G. Giles, Fillmore Riley LLP
In Bhasin v. Hrynew, the Supreme Court observed that
the common law in Canada in relation to good faith performance
of contracts was unsettled and piecemeal. To address
this concern, the following two incremental steps were determined
to be necessary:
• An acknowledgement that good faith contractual
performance is a general organizing principle of the
common law of contract which underpins and informs
the various rules in which the common law, in various
situations and types of relationships, recognizes obligations
of good faith contractual performance.
• A recognition that, as a further manifestation of this
organizing principle of good faith, there is a common
law duty which applies to all contracts to act honestly
in the performance of contractual obligations.
While Bhasin was not a construction case, the court
expressly noted that the good faith requirement applies in
the tendering process, stating as follows:
This court has also recognized that a duty of good faith,
in the sense of fair dealing, will generally be implied in fact in
the tendering context. When a company tenders a contract,
it comes under a duty of fairness in considering the bids submitted
under the tendering process, as a result of the expense
incurred by the parties submitting these bids.
Elan Construction Limited v. South Fish Creek Recreational
Association, decided earlier this year by the Alberta Court
WAVEBREAKMEDIA/SHUTTERSTOCK.COM
LEGAL
CONTINUED ON PAGE 73
PILING CANADA 71
/SHUTTERSTOCK.COM
