On January 17, 2024, the Superior Court of Qu\u00e9bec clarified the duty of good faith owed by public bodies at every step of the tendering process in Ricova Services v. City of Montr\u00e9al<\/em>,[1]<\/a> a case that stemmed from a critical pricing error by the bidder.<\/p>\n\n\n\n In March 2017, the City of Montr\u00e9al (the \u201cCity<\/strong>\u201d) issued a public tender for the collection of recyclable materials in five boroughs, including C\u00f4te-des-Neiges\u2013Notre-Dame-de-Gr\u00e2ce (\u201cCDN\/NDG<\/strong>\u201d). <\/p>\n\n\n\n The tender documents included a table outlining key information for each borough, such as the number of serviced addresses, annual tonnage, average number of trucks, collection days, and frequency.<\/p>\n\n\n\n Shortly after issuing the tender documents, the City realized it had made an error, mistakenly attributing data for the Lasalle borough to CDN\/NDG. To rectify the error, the City issued Addendum No. 1 (the \u201cAddendum<\/strong>\u201d), which provided the corrected data for CDN\/NDG.<\/p>\n\n\n\n In April 2017, Ricova Services Inc. (\u201cRicova\u201d) bid on four boroughs, including CDN\/NDG. However, Ricova based its calculations on the original tender documents, overlooking the corrected data provided in the Addendum. As a result, Ricova\u2019s bid price was substantially lower than its competitors.<\/p>\n\n\n\n Despite this significant pricing discrepancy,[2]<\/a> the City awarded the CDN\/NDG collection contract (the \u201cContract<\/strong>\u201d) to Ricova.<\/p>\n\n\n\n The Contract took effect in December 2017, and Ricova struggled from the outset.<\/p>\n\n\n\n It soon discovered that it had under-allocated collection trucks for the borough, resulting in monthly losses of $70,000 to $100,000.<\/p>\n\n\n\n In January 2018, Ricova\u2019s president requested an emergency meeting with the City, claiming that the municipal estimates were flawed. However, it soon became clear that Ricova had in fact made the mistake. The parties met several times to try to find a solution, but failed to agree on a price adjustment or fulfillment of the original Contract terms.<\/p>\n\n\n\n They then explored a third option: restarting the tender process. The City was willing to consider this, provided that Ricova continue to provide services in the meantime. These discussions continued, and in February 2018, Ricova sent notice of termination for the Contract. The City replied that the termination would only take effect when the new contractor\u2019s agreement began.<\/p>\n\n\n\n In April 2018, the City relaunched the tender process and awarded the contract to Derichebourg Canada Environment Inc. (\u201cDerichebourg<\/strong>\u201d). However, this new contract could not be finalized until August 2018. Meanwhile, Ricova continued to struggle to fulfill its obligations, leading the CDN\/NDG borough to impose penalties. Ricova contested these penalties, but the City offset them by withholding equivalent amounts from payments owed to Ricova under other contracts.<\/p>\n\n\n\n Eventually, the CDN\/NDG borough brought in municipal workers to address Ricova\u2019s service gaps and there was talk of awarding a temporary contract at Ricova\u2019s expense. In July 2018, the City informed Ricova that it had awarded a temporary contract to Derichebourg, pending City council\u2019s approval of the new collection contract. On August 21, 2018, the City approved the new contract and formally terminated its Contract with Ricova.<\/p>\n\n\n\n In October 2018, Ricova demanded payment for services provided in the other boroughs. The City\u2019s response stated that it had withheld the cost of the penalties and municipal workers, the difference in cost between Derichebourg\u2019s temporary contract and Ricova\u2019s original agreement, and the difference between Ricova\u2019s original bid and the new contract with Derichebourg. <\/a><\/p>\n\n\n\n In total, the City withheld $1,182,178.18, consisting of $98,394.73 from Ricova\u2019s performance bond and $1,083,783.45 from its other contracts. <\/p>\n\n\n\n In May 2019, Ricova initiated legal proceedings, seeking to cancel the imposed penalties and recover the amounts withheld for municipal workers and from its performance bond. It also claimed repayment of the damages retained by the City, representing the difference between Ricova\u2019s original bid and Derichebourg\u2019s two contracts, minus the amount already withheld from the performance bond.<\/p>\n\n\n\n The Court began by explaining the concept of error in contracting. It distinguished between excusable and inexcusable bidding errors, noting that an inexcusable error does not invalidate consent unless it involves fraud.<\/p>\n\n\n\n The Court held that an inexcusable error may be deemed excusable if the other contracting party breaches its duty of good faith. This includes failing to disclose relevant information.<\/p>\n\n\n\n In this regard, the Court notes that the duty to disclose lays two complementary obligations on contracting parties: a positive duty to disclose for one party and a corresponding duty to inquire for the other.<\/p>\n\n\n\n Relying on three prior decisions,[3]<\/a> the Court observed that a client who knowingly contracts with a bidder who has made an error, with the intention of exploiting the situation, acts in bad faith. This conduct may justify annulment of the contract, even where the error is inexcusable, although such cases are rare.<\/p>\n\n\n\n Applying these principles to the present case, the Court held that Ricova\u2019s failure to account for the Addendum in its bid constituted an inexcusable error. It pointed out that the tendering process aims to ensure sound management of public funds and procurement of the best services at the best price. It emphasized, however, that this objective is not achieved by automatically accepting the lowest bid, as neither the City nor its citizens benefit from a bidder being forced to fulfill a contract that was awarded based on an error.<\/p>\n\n\n\n The Court found that Ricova\u2019s error was not readily apparent, particularly given the company\u2019s history of aggressive bidding, but that the City should still have looked into the substantial difference between Ricova\u2019s bid, competing bids, and the City\u2019s own estimate, especially given the flawed initial tender call. However, this did not relieve Ricova of the consequences stemming from its inexcusable error.<\/p>\n\n\n\n The Court also found that the City did not accept Ricova\u2019s bid with the intention of exploiting the situation or taking advantage of the company\u2019s error. As a result, although the error remained inexcusable, it did not justify Ricova\u2019s unilateral termination of the Contract. The Court explained that contractors may only terminate a contract for a serious reason, and that an inexcusable error does not meet this threshold.<\/p>\n\n\n\n The Court found that by late 2017 or January 2018, the City was aware of Ricova\u2019s error and its consequences, including monthly losses of $70,000 to $100,000, insufficient resources, and inadequate labour to perform the work, all of which placed Ricova in a precarious position.<\/p>\n\n\n\n Citing the Supreme Court\u2019s decision in Churchill Falls<\/em>,[4]<\/a> the Court first established that good faith does not require contract renegotiation when unforeseen circumstances arise. A party is under no obligation to revise the agreement simply because the other party encounters difficulties. The Court then emphasized the duty of collaboration and cooperation between the parties, which requires them to seek solutions when problems arise. It also stressed the duty of disclosure, which obliges each party to inform the other of events that affect the performance of the contract, and the duty of consistency, which prohibits a party from acting in contradiction to expectations expressed to its contractual partner during their relationship.<\/p>\n\n\n\n In light of these principles, the Court examined the City\u2019s conduct in managing the Contract, focusing on:<\/p>\n\n\n\n The Court found that the City did not breach its duty of good faith regarding the delay in awarding the new contract. The contract had to be approved by the Commission and City council, which took time. Notably, the delay between the decision to reissue the call for tenders in January 2018 and the contract award in August 2018 was similar to the timeframe for the 2017 tender process.<\/p>\n\n\n\n The Court declined to order that the penalties imposed on Ricova be reimbursed. Although Ricova did its best under challenging circumstances, it had to accept responsibility for its own inexcusable error. Furthermore, Ricova must bear the consequences of breaching its commitment to fulfill the Contract until a new one was awarded. Despite assurances to the City that it would honour the Contract during the transition period, Ricova failed to do so.<\/p>\n\n\n\n The Court also ruled that the City\u2019s costs for hiring municipal workers and awarding a temporary contract were justified. From the start, the City had made it clear that these costs would be claimed from Ricova. The City never waived these claims or led Ricova to believe they would not be pursued. The Court found that these expenses were warranted due to Ricova\u2019s failure to meet its obligations during the transition period.<\/p>\n\n\n\n Conversely, the Court ordered the City to reimburse Ricova $1,079,604.68, the price difference between Ricova\u2019s Contract and Derichebourg\u2019s bid in the second call for tenders.<\/p>\n\n\n\n The Court found that the City\u2019s conduct led Ricova to believe it would be released from its obligations once the new contract was approved.<\/p>\n\n\n\n In February 2018, Ricova contacted the City to confirm this understanding. The City\u2019s response did not mention that Ricova would be liable for the difference between its erroneous bid and the new contract price if the contract were re-tendered.<\/p>\n\n\n\n In March 2019, the City acknowledged receipt of Ricova\u2019s notice of termination, stating merely that the termination would only take effect when the new contractor\u2019s agreement began and that it expected Ricova\u2019s full cooperation in fulfilling its obligations. Again, there was no indication that the City intended to claim damages if the new tender resulted in a higher price.<\/p>\n\n\n\n Although communication continued, the City did not mention the possibility of damages from termination until July 2018, and even then, the extent of liability remained unclear. It wasn\u2019t until October 2018, when Ricova sent the City a notice for outstanding amounts on other contracts, and the City responded that it had withheld payment to offset its own costs, that Ricova realized it would be held liable for damages.<\/p>\n\n\n\n The Court ruled that although the Contract permitted payment withholdings, the City\u2019s conduct was abusive. By requiring Ricova to work without payment on contracts unrelated to the dispute, while aware of its substantial monthly losses ($70,000 to $100,000 for seven months), the City fell short of the minimum standards of good faith. The Court emphasized that this conclusion was even more justified since Ricova was not informed that a withholding would be applied.<\/p>\n\n\n\n The Court also determined that the City had breached its duty of good faith by creating false expectations for Ricova, lacking transparency, and allowing a false sense of security to persist.<\/p>\n\n\n\n The Court ultimately ruled that the City had incurred some inconvenience, but no damages, from the termination, because preventing a city or its citizens from benefiting from a contractor\u2019s error does not constitute actual harm.<\/p>\n\n\n\n The Court upheld Ricova\u2019s claim for reimbursement, but only for the damages incurred for the price difference between the original Contract amount and the contract resulting from the second call for tenders. Consequently, the Court ordered the City to reimburse Ricova $1,088,576, the amount that it had withheld by offsetting payments due under other contracts.<\/p>\n\n\n\n This decision underscores the importance of good faith in contract performance, including the obligation to avoid creating false expectations. Public bodies cannot lead contractors to believe they will not claim price differences after contract termination and re-tendering, only to make such claims later, a practice the Court deemed calculated opportunism.<\/p>\n\n\n\n This judgment has been appealed, and the decision of the appellate court is pending.<\/p>\n\n\n\n [1]<\/a> Services Ricova inc. c. Ville de Montr\u00e9al<\/em>, 2024 QCCS 80.<\/p>\n\n\n\n [2]<\/a> Ricova\u2019s bid was $2,828,848.35. The next lowest bid was $4,595,453.66.<\/p>\n\n\n\nII. Facts<\/h2>\n\n\n\n
III. Issues in Dispute<\/h2>\n\n\n\n
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IV. Superior Court Decision<\/h2>\n\n\n\n
1. Good faith in awarding the Contract<\/h3>\n\n\n\n
2. Good faith in managing the Contract after discovering the error<\/h3>\n\n\n\n
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a) Delay<\/h4>\n\n\n\n
b) Penalties <\/h4>\n\n\n\n
c) Municipal workers and temporary contract <\/h4>\n\n\n\n
d) Price difference and amounts withheld<\/h4>\n\n\n\n
Conclusion<\/h2>\n\n\n\n
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