Hub – When does the contractual duty of fairness arise in the context of a bid made in response to an invitation to tender?


Hub Excavating Ltd. v. Orca Estates Ltd. 2009 BCCA 167

Hub Excavating Ltd. bid to provide construction and excavation services for a multi-phase subdivision in Nanaimo. Hub submitted the lowest bid and shortly after bids closed, its representative had a conversation with the project engineer who made representations that led Hub to believe that it would be awarded the contract. As a result, Hub did not bid on a contemporaneous project in Comox. Ultimately, all bids for the Nanaimo project were rejected and the Defendants decided not to proceed with the project. At trial, the judge awarded Hub damages of $300,000.00 representing lost profit that it would have earned on the Comox project. This was based on finding that the Defendants had breached an implied contractual duty of fairness and that the developers’ representative had made a misrepresentation upon which the Plaintiff relied to its detriment.

On appeal, the Court of Appeal held that the trial judge erred in finding out that the contractual duty of fairness arose before the existence of the submission of the bid in response to an invitation to tender (referred to as Contract A). The contractual duty of fairness is an implied term of Contract A and thus only comes into existence when that contract is formed. There is no free-standing duty of fairness in the bidding process independent of that contractual duty.

Further, the Court of Appeal held that the Plaintiff could not have reasonably relied on the non-committal statements of the agent for the developers. Rather, the Plaintiff was faced with a business decision as to how to weigh the risk of bidding on the Comox project during the irrevocability period for the Nanaimo project. While the Plaintiff routinely bid on other jobs during a period of irrevocability, its representative was also aware that if it “cut and run” on owners, it was unlikely to be invited to bid again. Accordingly, the Plaintiff elected to take its chances with the developers and that gamble did not pay off, but it is not due to the representations made by the developers’ agent. Accordingly, the appeal was allowed and the award of damages was set aside.