An agreed statement of facts was filed and some witnesses were called. I summarize the facts as set out in the judgment of the learned trial judge.

Transcription

1 Court of Appeal of Alberta Calgary v. Northern Construction Co. Division of Morrison-Knudsen Co. Inc. et al. Date: (Calgary Appeal No ) 11th December 1985, McDermid J.A. (HARRADENCE J.A. concurring): This is an appeal from the judgment of Waite J. [23 Alta. L.R. (2d) 338, [1992] A.W.L.D. 1103] dismissing the action of the appellant (plaintiff), the city of Calgary, against the respondents Northern Construction Company Division of Morrison-Knudsen Company, Inc., Northern Construction Company Ltd., and Morrison-Knudsen Company, Inc. and The Canadian Indemnity Company. An action for liquidated damages of $395,000 was brought by the city for the failure of the respondent Northern Construction Company Ltd. to complete a construction contract for which it had tendered and which had been awarded to it by the city. The trial judge dismissed the action. An agreed statement of facts was filed and some witnesses were called. I summarize the facts as set out in the judgment of the learned trial judge. In November 1978 the city of Calgary advertised for tenders for the general contract for the Anderson Road yard and shop complex for its Light Rail project. The respondent Northern Construction Company Ltd. (whom I shall hereinafter refer to as "the contractor") filed a form of tender for the project in the form supplied by the city. The tender submitted by the contractor provided that it was to remain open and valid for acceptance until 23rd February 1979 only. When the tender documents were opened on 26th January 1979, the contractor was the lowest of nine bidders or tenderers. Its bid was $9,342,000 and the next lowest bid by Pigott Construction was $9,737,000, or a little more than 4 per cent higher. The estimate prepared for the city by its project engineers had been $9,400,000. The contractor had a representative present when the tenders were opened by the city and she reported the outcome of the opening to her employer. The contractor then reviewed its bid and found that an error of $181,274 had been made by which its bid had been underestimated.

2 On the same day that the bids were opened this error was reported to the city and a request was made for a meeting with the city. On 12th February 1979 the city forwarded a letter to the contractor advising it that the Board of Commissioners had awarded the contract to it for the price set out in the tender documents submitted. Enclosed with that letter were the contract and city clerk's copies of the seven volumes making up the contract document. At that time the city advised the contractor that if it did not execute the contract within five days after delivery, the city would be obliged to take the contractor's failure to execute the contract as an indication that they did not consider themselves bound by the acceptance of the tender. On 13th February 1979 the city further gave the contractor an official acceptance of its tender. It was agreed and found as fact by the trial judge that the tender submitted by the contractor was a lump-sum tender and the error that was made was not apparent on the face of the tender and that at the time the tenders were opened neither the contractor nor the city was aware that an error existed in the tender submitted by the contractor. It was also agreed that there was no bad faith on the part of the contractor and that it had made an honest error. Prior to the city accepting the contractor's tender, it was aware of the nature and extent of the contractor's error. The contractor was always prepared to perform the work under the contract but not at the price it had bid. It wanted and requested an adjustment of an additional $181,274 and was prepared to perform the work if that amount was added to its tender. If it was not granted such right to add the additional $181,274, it requested that it be allowed to withdraw its tender. The city refused such request. The instant case is governed on the main question of liability by the judgment of the Supreme Court of Canada in R. in Right of Ont. v. Ron Engr. & Const. (Eastern) Ltd., [1981] 1 S.C.R. 111, 13 B.L.R. 72, 119 D.L.R. (3d) 267, 35 N.R. 40. The unanimous judgment of the court was delivered by Estey J. In that case a contractor sought to recover a deposit of $150,000 from an owner of a proposed construction project. The contractor had made an error in its bid which it discovered within an hour and a quarter after the tenders were opened and it brought that error to the attention of the owner and requested it be allowed to withdraw its tender. The

3 owner did not formally accept the tender so submitted but, instead, submitted to the contractor a construction contract for signature, which the contractor declined to sign. The owner then retained the tender deposit and awarded the contract to the second lowest bid and the action was commenced by the contractor to recover its deposit. In his analysis, Estey J. referred to the contract created by the advertisement asking for tenders, which was the offer, and the acceptance by the tenderer, that is when the tender was filed, as contract A, and the construction contract that was to be completed pursuant to contract A, as contract B. In the present case, the provisions contained in the "Form of Tender" and "Information to Tenderers" were incorporated as the terms of contract A. The relevant clauses are as follows: FORM OF TENDER 2. Execution of Contract, Delivery of Bond and insurance Material If the offer contained in this Tender is accepted the Tenderer will execute the Contract Documents and identify the Drawings, if any, in a form and manner acceptable to the City Solicitor and deliver the documents and Drawings together with a performance guarantee bond in the form and substance prescribed by the Contract Documents completed and executed in a manner satisfactory to the City Solicitor and with the insurance material required by the said Contract Documents within five (5) days from the time when the Contract Documents are made available to the Tenderer at the office of the Solicitor or are delivered or mailed to the Tenderer. 6. Tender Not to be Withdrawn Until Considered by Council This Tender is under seal as the Tenderer' s deed and subject to any limitation placed in the Tender as to the time by which the Tender must be accepted, the Tenderer will not withdraw the offer contained herein after the official opening of the said Tender until it has been considered by Council unless it has been awarded earlier by the City Commissioners and the Tender for all purposes is irrevocable until the Contract has been awarded to a successful Tenderer and a formal Contract has been executed in respect thereof. 7. Forfeiture of Deposit for Withdrawal If the Tenderer withdraws the Tender after the Tenders have been officially opened but before it is considered by Council or by the City Commissioners and a Contract awarded on the project the amount of the deposit on the Tender may be forfeited to the City as liquidated damages. 10. City's Rights on Failure or Default of Tenderer If the Tenderer for any reason whatsoever fails or defaults in respect of any matter or thing which is an obligation of the Tenderer on the Terms of this Tender, the City at its option may either: consider the Tenderer has abandoned the offer made or the Contract in the offer has been accepted, whereupon the acceptance, if any of the City shall be null and void and the City entitled to retain the deposit accompanying the Tender as

4 liquidated damages, or require the Tenderer to pay the City the difference between the offer made in this Tender and any other Tender which the City accepts if the same is for a larger amount and any cost which the City may incur by reason of recalling the Tender, and further the Tenderer will fully indemnify and save harmless the City, its officers, employees, and agents from all loss, damage, liability, cost, charge and expense whatever which it, they or any of them may suffer, incur or be put to by reason of such default or failure of the Tenderer. The Tenderer forwards herewith a certified cheque or Bid Bond in the amount of ten percent (10%) of the Contract Price payable to the City of Calgary, and the Tenderer agrees this amount may be forfeited as liquidated damages in the event that the Tenderer fails to comply with the provisions of this Tender. In any other case the cheque or if the same is requested in writing the Bid Bond shall be returned to the Tenderer after a Contract is completed with the person whom the Tender is awarded, whether it shall be the Tenderer or any other person,.. INFORMATION TO TENDERERS 8. Tenders Irrevocable The Form of Tender provided in the Contract Documents is to be executed as a specialty instrument and once the tenders have been officially opened the tender shall be, subject to any limitation placed in the tender on the time by which the tender must be accepted, be irrevocable until it is considered by the Council of the City of Calgary unless it has been awarded earlier by the City Commissioners and the deposit accompanying this tender may be retained by the City as liquidated damages on withdrawal of this tender prior to the date it is so considered. Until the time the tenders are officially opened any tenderer may withdraw its tender without penalty or forfeiture, Such withdrawal must be made before the first of the tenders submitted is opened. The facts of the Ron Engr. case were compared by the learned trial judge with the present case when he said [p. 349]: The similarities between the case at bar and Ron Engr, are numerous and include: 1. The contractor's error in completing the formal tender was clerical in nature; 2. The error was not apparent on the face of the tender; 3. The error was promptly reported to the owner by the contractor; 4.The error was an honest one, committed unwittingly, and the conduct of the contractor was free from improper or dishonest motive; 5. The formal tender was irrevocable within the stated time period; 6. The contractor did not purport to withdraw its tender at any time. He then went on to say that there were two dissimilarities that distinguished the two cases [p. 350]: 1. The city of Calgary accepted the contractor's tender. That fact removes this case from a contract A situation and creates the contract B situation not considered by the Supreme Court of Canada in Ron Engr.

5 The second difference related to the deposit: in the Ron Engr. case, the owner was seeking to forfeit the deposit of the tenderer, while in this case the owner, the city, is suing for damages. With respect, I disagree that contract B ever came into existence. In the Ron Engr. case it does not appear that the owner ever formally advised the contractor that its tender had been accepted but rather, the owner sent to the contractor a construction contract to be signed by the latter, i.e., the documents constituting contract B. This would constitute an election by the owner to accept the tender of, and to grant the construction contract to, the contractor. Estey J. did say at p. 119: Later in these reasons this initial contract is referred to as contract A to distinguish it from the construction contract itself which would arise on the acceptance of a tender, and which I refer to as contract B. I do not think Estey J. intended to decide that contract B came into existence immediately the tender was accepted, for on the facts of that case I am of the opinion the tender was accepted when the form of contract B was sent by the owner to the contractor for execution and yet it was decided that it was only contract A that was in existence. Earlier at the same p. 119 Estey J. said: Clearly on the documentary record the owner called upon the contractor to enter into the construction contract in the manner provided for in the tender documents and the construction contract did not come into being solely by reason of the contractor's refusal to execute the form of contract forwarded to the contractor by the owner. In referring to para. 14 of contract A, Estey J. at pp says: In short, the provision is concerned entirely with the second stage of the contracting procedure, the construction contract, a stage not here reached and with which we are not concerned. To apply the analysis of the Supreme Court in Ron Engr. to the case at bar, a contract A was formed between the city and each tenderer. These contracts A provided that the city could select one of the tenderers and enter into a contract B with the tenderer so selected. Upon the city so doing, the tenderers other than the one selected would be discharged from any obligation under contract A. The tenderer selected, however, would then be required to enter into contract B with the city. However, I think contract B would not come into force until executed by both parties. The failure of either party, after the city had accepted Northern's

6 tender, to execute contract B would be a breach of its obligation under contract A. The entering into contract B would be, in actuality, a mere formality, for all of its terms were provided for in contract A expressly or by reference to other documents. Unless a contractor knew all of the terms that were to be incorporated into contract B, he would be unable to determine a bid price. By virtue of the terms of contract A, the city had the right to elect as to what contractor it would select to do the construction or in fact it could have refused to select any. Rather than considering the terminology of contract law and considering the tender of Northern as an offer and the city's selection of Northern as the acceptance of an offer, thus forming a new contract B, I think the situation, as I have said, is that the city was exercising a right granted it by contract A. One writer has compared the situation with a lease which grants an option to purchase. I think it may be also compared to where a manufacturer grants to a purchaser the right to purchase a manufactured article with rights of the purchaser to elect to purchase additional units of the article at a set price. If a mistake were made by the lessor or manufacturer in setting the purchase price which was not apparent at the time the contract was made, surely the time to consider whether the contract was enforceable was the time that it was made and not the time of the exercise of the option or right to purchase. If this is the correct view, the contractor is placed in a dilemma, for if he executes contract B I do not think he could then raise the question of mistake, while if he does not do so, he is in breach of contract A. In my opinion, therefore, contract B, the construction contract, would not come into being until such time as it was actually executed by both parties. In this case, contract B never came into being, for Northern refused to execute the construction contract sent it by the city. Therefore, we are only concerned with contract A and, with respect, I think the trial judge was in error in considering contract B as having come into effect. I note that in contract A in this case there are references to the tenders being offers and the acceptance of a tender by the city being an acceptance which constituted the contract. Either this form of contract was drawn before Ron Engr. was decided and never changed or the draftsman did not appreciate what I consider was decided by Ron Engr. In my opinion, Ron Engr. is authority for the proposition that the city made an offer when it advertised for

7 tenders and each of the nine tenderers accepted that offer when its tender was deposited with the city and not withdrawn. Certainly, prior to Ron Engr. I was of the opinion that the Canadian law was that an advertisement for tenders was not an offer but merely an invitation to the tenderers to submit offers. Submission of the tender constituted the offer, which offer would then be accepted or rejected in accordance with the invitation to tender: see, for example Belle River Community Arena Inc. v. W.J.C. Kaufmann Co. (1978), 20 O.R. (2d) 477,4 B.L.R. 231,87 D.L.R. (3d) 761 (C.A.); McMaster Univ. v. Wilchar Const. Ltd., [1971] 3 O.R. 801, 22 D.L.R. (3d) 9 (H.C.). This remains the conventional approach in England: Hudson's Building and Engineering Contracts, 20th ed. (London: Sweet & Maxwell, 1970), p. 216; 9 Hals. (4th) 101, para However, in Canada, the decision of the Supreme Court in Ron Engr. has clarified the law and given it an interpretation in conformity with commercial practice. To sum up my view as to the question as to mistake, it is only relevant at the time the tenders are opened and not when the owner elects as to whether he will accept a tender, for as stated by Estey J. in the Ron Engr. case at p. 123: There is no question of a mistake on the part of either party up to the moment in time when contract A came into existence. The employee of the respondent intended to submit the very tender submitted, including the price therein stipulated. Indeed, the President, in instructing the respondent's employee, intended the tender to be as submitted. However, the contractor submits that as the tender was the product of a mistake in calculation, it cannot form the basis of a construction contract since it is not capable of acceptance and hence it cannot be subject to the terms and conditions of contract A so as to cause a forfeiture thereunder of the deposit. The fallacy in this argument is twofold. Firstly, there was no mistake in the sense that the contractor did not intend to submit the tender as in form and substance it was. The city sued for liquidated damages pursuant to cl. 10, ante, in the Form of Tender. Counsel for the contractor argues that this is the penalty clause. Even if this be so, the penalty or amount claimed by the city was in fact a fair estimate of the damages suffered by it. As stated by Dickson J. (now C.J.C.), giving the judgment in Elsley y. J.G. Collins Ins. Agencies, [1978] 2 S.C.R. 916 at 937, 3 B.L.R. 183, 36 C.P.R. (2d) 65, 83 D.L.R. (3d) 1, 20 N.R. 1: It is now evident that the power to strike down a penalty clause is a blatant interference with freedom of contract and is designed for the sole purpose of providing relief against oppression for the party having to pay the stipulated sum. It has no place where there is no oppression. If the actual loss turns out to exceed the penalty, the normal rules of enforcement of contract should apply to allow recovery of only the agreed sum. The party imposing the penalty should not be able to obtain the benefit of whatever

8 intimidating force the penalty clause may have in inducing performance, and then ignore the clause when it turns out to be to his advantage to do so. A penalty clause should function as a limitation on the damages recoverable, while still being ineffective to increase damages above the actual loss sustained when such loss is less than the stipulated amount. As expressed by Lord Ellenborough in Wilbeam v. Ashton: "Beyond the penalty you shall not go; within it, you are to give the party any compensation which he can prove himself entitled to." Of course, if an agreed sum is a valid liquidated damages clause, the plaintiff is entitled at law to recover this sum regardless of the actual loss sustained. The contractor argued that if the court allowed damages, the city would have been under a duty to mitigate its damages. In mitigating its damages, it should have accepted the offer of the contractor to carry out the construction for its original offer of $9,342,000 plus the amount of the clerical error made of $181,000. Therefore, the damages should be accordingly reduced. Undoubtedly the city had the duty to mitigate its damages but to accept the argument of the contractor would be to change the tendering system to that of an auction. The city granted a construction contract to the second lowest bidder when the contractor refused to execute the construction contract sent it by the city. This would appear to have been the reasonable thing for the city to do, considering the amount of the bid made by the second lowest bidder. To accept the submission of the contractor would allow any contractor who made a low bid to refuse the contract but to offer to do the work for less than the second low bidder and then argue the city must accept such offer in mitigation of its damages. The city was under no such duty and the contractor has not proven any failure of the city to mitigate. As the amount claimed as liquidated damages, even assuming it is a penalty, is the same amount as the actual damages proven by the city, it should be allowed as it is not oppressive. Accordingly, I would allow the appeal with costs here and below and award the city damages of $395,000. KERANS J.A.: I have read the reasons for judgment of McDermid J.A. and I concur. I think, however, that we must also deal with an issue about quantum. In the ordinary course, the damages for a breach by the builder of a construction contract is the cost of completion less the agreed price. To apply that formula here, McDermid J.A. uses the tender price as the agreed price. My difficulty is that the tender price did not become the agreed price because the city did not seek to enforce the construction contract (contract B), as he in my view correctly finds. Nevertheless, the viability of that contract

9 comes into issue because, by its damage claim, the city implicitly relies upon it. We must, as a result, decide if the city could have enforced it. This, is turn, raises the mistake issue. The nature of the claim by the city here distinguishes this case from Ron Engr. & Const. (Eastern) Ltd. v. R. in Right of Ont., 24 O.R. (2d) 332, 98 D.L.R. (3d) 548, 35 N.R. at 55 (C.A.), [reversed] [1981] 1 S.C.R. 111, 13 B.L.R. 72, 119 D.L.R. (3d) 267, 35 N.R. 40. In that case, the tenderer sued the owner (Ontario) for recovery of the deposit. Here the owner city sues for damages. If Ontario had brought an action against Ron Engineering, its claim would have been for $632,000, which was the difference between the errant bid of Ron Engineering and the next lowest tender. Instead, it merely forfeited the tender deposit of $150,000. The opposite is the situation here: the difference between the tender and the next lowest tender was $395,000, but the bid deposit was $934,200. The matter is further complicated by the fact that, unlike in Ron Engr., the tenderer here would have had the low bid in any event because, even after adjustment for its error of $181,274, its bid was the lowest by $213,726. The Supreme Court acknowledged this distinction in Ron Engr. Estey J. observes at p. 277: Nor are we concerned with the position of the parties where an action is brought upon a refusal to form contract B as was the case in McMaster, supra. It is true that the appellant-owner here has made a counterclaim for damages resulting from the refusal of the respondent to enter into the construction contract but such counter-claim was dismissed and the appeal herein is concerned only with the claim made by the respondent for the return of the tender deposit. I turn, therefore, to the question of mistake and the construction contract, contract B. First, the facts: It is common ground between the parties that a clerical error was made in the formation of the tender. Specifically, a clerk made a mistake doing sums. The tenderer's working papers included several pages of summaries of estimates received from subcontractors. According to the agreed statement of facts, "the individual who transposed such figures omitted to include the second page of the summaries" when calculating the total. The incorrect total was placed in the tender documents. The tender documents did not, however, include the working papers, and the error could not have been known from a perusal of the tender documents. Nor was the omission so obvious as to have telegraphed the error to the city.

10 The city was notified at 4:00 p.m. on Friday, 26th January, of the fact of an error; this was, however, after the tenders had been opened but before any offer had been accepted. Between that point and 12th February full particulars were shown to the city about the mistake, and it is common ground that this material demonstrates that the error was honest and innocent. All of this the city knew on 12th February when it purported to accept the offer and form contract B. The traditional contracts-based rule is that a unilateral mistake does not prevent the acceptance of an offer unless (1) the mistake is as to the terms of the contract (as opposed to motivation) and (2) the mistake is known to the offeree at the time of purported acceptance. See Smith v. Hughes (1871), L.R. 6 Q.B. 597, and the analysis in Anson's Law of Contract, 25th ed. (Oxford: Clarendon Press, 1979), at p A recent application of that rule can be found in Imp. Glass Ltd. v. Consol. Supplies Ltd. (1960), 22 D.L.R. (2d) 759 (B.C.C.A.). I am bound to say that the error here was as to motive and not terms. The tender sum sent to the city was the term which Northern intended to offer; it decided to offer that term because of a mistake, a mistake which offered it a false reason or motive to make the offer. By the traditional rule, then, the construction contract is enforceable notwithstanding this mistake. Therefore, no injustice is done by relying on that contract to fix damages. The traditional rule has been criticized, partly on the basis that the difference between a mistake as to term and a mistake as to motive is often unclear or arbitrary, and partly on the basis that the rule is unfairly restrictive. See the case comments (1961), 39 Can. Bar Rev. 625; (1981), 15 U.B.C. Law Rev. 447; (1982), 6 Can. Bus. L.J. 80; and (1982), 60 Can. Bar Rev The Ontario Court of Appeal in Belle River Community Arena Inc. v. W.J.C. Kaufmann (1978), 20 O.R. (2d) 477, 4 B.L.R. 231, 87 D.L.R. (3d) 761, seems to enlarge the traditional rule. In so doing, it understood that it was applying a rule first expressed in McMaster Univ. v. Wilchar Const. Ltd., [1971] 3 O.R. 801, 22 D.L.R. (3d) 9 (RC.), that one can give effect to a unilateral mistake which "affects a fundamental term of the contract". This rule can have, and in Belle River was given, a broader application than the traditional rule. Specifically, a mistake as to motive certainly affects a fundamental term while yet not being a mistake as to that term. The same court then affillued the new rule when it dismissed an appeal in Metro. Toronto v.

11 Poole Const. Ltd., Ont. H.C., 16th May 1979 [reported 10 M.P.L.R. 157]. Leave to appeal to the Supreme Court of Canada was denied in this last case, ironically on the very day of publication of the reasons in Ron Engr. Shall we follow the new rule? A necessary first question is whether the decision of the Supreme Court of Canada in Ron Engr. can be considered as authority for or against either, or any third position. The Ontario Court of Appeal in Ron Engr., after all, had given judgment in favour of the tenderer on invocation of the rule in Belle River. Estey J. makes this response at p. 274: Much argument was undertaken in this Court on the bearing of the law of mistake on the outcome of this appeal. In approaching the application of the principles of mistake it is imperative here to bear in mind that the only contract up to now in existence between the parties to this appeal is the contract arising on the submission of the tender whereunder the tender is irrevocable during the period of time stipulated in the contract. Contract B (the construction contract, the form of which is set out in the documents relating to the call for tenders) has not and did not come into existence. We are concerned therefore with the law of mistake, if at all, only in connection with contract A. He adds, at p. 275: There is no question of a mistake on the part of either party up to the moment in time when contract A came into existence. The employee of the respondent intended to submit the very tender submitted, including the price therein stipulated... At the point when the tender was submitted the owner had not been told about the mistake in calculation. By this view, neither of the two conditions for effective unilateral mistake existed and contract A was therefore enforceable. He distinguishes McMaster Univ. v. Wilchar Const., supra, on the basis that, in Ron Engr., there was "... nothing on the face of the tender to reveal an error" (p. 276), and thus hints that the result in McMaster could have been the same under the traditional rule. McMaster was a unique case. The tenderer inadvertently failed to include the entire first page of his tender, which included an important wage-escalator clause. The court refused to enforce the contract at the suit of the owner university. The evidence in the case justified a finding that the omission was as to the terms and was known to the other party because it was obvious to the owner from the very moment of delivery of the tender. In the end, I receive little help on this question from the Ron Engr. case. The difficulty is that, while the analysis of Estey J. was adequate to deal with the problem of mistake for contract A in the Ron Engr. case, it would not have been sufficient to deal with a suit for

12 enforcement of contract B. At the moment when Ontario purported to accept the offer of Ron Engineering, it well knew, as did the city here, of the mistake. A suit by Ontario, then, would, as does the suit by the city here, have raised the issue whether the traditional rule should be modified. It is argued that the very fact that Estey J. distinguishes Ron Engr. from McMaster is a hint that the new rule might be sound. A contrary interpretation, however, is also available: this is based on the description by Estey J. of the obligation of the tenderer under contract A (p. 275): The principal term of contract A is the irrevocability of the bid, and the corollary term is the obligation in both parties to enter into a contract (contract B) upon the acceptance of the tender. By this view, contract A is a species of option whereby the tenderer is bound to enter into contract B and can be forced to do so. If so, contract B is enforceable if contract A is enforceable. In my view, the traditional rule should not be changed. It deals with the formation of contracts. Mistake at common law is effective because there is no real agreement, no offer which can be or, in the case of mutual mistake, has been accepted. Unless, then, the mistake is both as to terms and is known to the offeree, it is not a mistake which affects the offer and the existence of a contract. In strict contract terms, an offer inspired by an error is nevertheless an offer and may be accepted with knowledge of the error. This was so in Belle River, in Ron Engr., and in this case. And the offer which was accepted was not to revoke, under any circumstances, the offer to enter into the construction contract. Contract A then, was a contract between the parties whereby all risks of possible mistake were to be borne by the tenderee. The Ontario Court of Appeal in Ron Engr., supra, seemed to find that it would be unconscionable for the tenderee in circumstances such as obtain in this case to accept the offer. It said (p. 551):... when that mistake is proven by the production of reasonable evidence, the person to whom the tender is made is not in a position to accept the tender or to seek to forfeit the bid deposit. Equity will intervene to refuse to enforce unconscionable contracts; but this is a rule quite separate from the rules respecting the formation of contracts. The remaining issue, then, is: would it be unconscionable for the city, in the circumstances of this case, to proceed to accept

13 contract B after discovering that the offer was made as the result of an innocent and honest error of fact? The simple fact is that the only undeniable loss to the city here is $213,726, being the difference between the corrected bid of the tenderer and the next lowest tender. If the tenderer is to be relieved of its obligations, the city will pay out that amount extra to have the work done for no good reason. The balance of the claim of the city, however, is a windfall: it is the $181,274 by which the tenderer's bid was reduced by reason of the innocent error. No loss to the city arises except the loss of the change to take advantage of the mistakes of others. Nevertheless, the preponderance of authority is that equity will not intervene to protect a party from a bad bargain unless it can see that one contracting party held unequal bargaining power. See Aylesford (Earl) v. Morris (1873), 8 Ch. App. 484 at , where it is said that equity only intervenes in... those cases, which, according to the language of Lord Hardwicke, raise "from the circumstances or conditions of the parties contracting weakness on one side, usury on the other, or extortion, or advantage taken of that weakness" a presumption of fraud. Fraud does not here mean deceit or circumvention; it means an unconscientious use of the power arising out of these circumstances and conditions; and when the relative position of the parties is such as prima facie to raise this presumption, the transaction cannot stand unless the person claiming benefit of it is able to repel the presumption by contrary evidence, proving it to have been in point of fact fair, just, and reasonable. Inequality of bargaining power as a touchstone for intervention is accepted by most Canadian courts. See McKenzie v. Bank of Montreal (1976), 12 O.R. (2d) 719, 70 D.L.R. (3d) 113 (C.A.). See also Harry v. Kreutziger (1978), 9 B.C.L.R. 166, 95 D.L.R. (3d) 231 (C.A.), where at p. 237, McIntyre J.A. (as he then was) affirmed the old test: From these authorities this rule emerges. Where a claim is made that a bargain is unconscionable, it must be shown for success that there was inequality,in the position of the parties due to the ignorance, need or distress of the weaker, which would leave him in the power of the stronger, coupled with proof of substantial unfairness in the bargain. When this has been shown a presumption of fraud is raised and the stronger must show, in order to preserve his bargain, that it was fair and reasonable. Significantly, the tenderer here does not claim that the city had unequal bargaining power. Had the city sought to forfeit the deposit, and thus double the cost of its error to the tenderer, it might well have taken a different position. Of equal significance is the fact that the city here does not seek to forfeit the deposit. Just like Ontario in the Ron Engr. case, the city has asked for the least of the two possible claims. In the result, the actual price paid by the tenderers in both cases to be relieved of their errors is roughly the same.

14 Some early and some recent cases suggest that a grossly inadequate consideration alone will justify intervention. See, for example, Berney v. Pitt (1686), 2 Vern. 14, 2 Rep. Ch. 396, 23 E.R. 620; Nott v. Johnson & Graham (1687), 2 Vern. 27, 23 E.R See also the supplementary judgment of Lambert J.A. in Harry's case where he suggests this test (p. 241):... whether the transaction, seen as a whole, is sufficiently divergent from community standards of commercial morality that it should be rescinded. See also Peden, The Law of Unjust Contracts (Toronto: Butterworth, 1982), p. 25. I am of the view that it is not unconscionable for a tenderee with knowledge of motivational error to hold a tenderer to his bargain provided that his doing so does not impose a grossly disproportionate burden upon the tenderer. In my view, the burden here is not so disproportionate in the circumstances as to put the city in a situation where its claim is unconscionable. It is of some significance that no argument along these lines was made. I emphasize only that this conclusion arises here more or less by accident. I would not agree to a rule that the city could in all cases collect the difference between the tender price and the next lowest bid. For these reasons, I concur in the result arrived at by reasons of McDermid J.A. Appeal allowed. [ScanLII Collection]