The trial judge held that the owner had not breached its duty to act in good faith and to deal fairly with the bidder when evaluating its compliant bid. As well, he held that the appellant had waived its right to “commence and prosecute the action” based on the waiver clause in the bid documents.

Express or implied obligations to bidders not breached by owner

Cherubini Metal Works Ltd. v. New Brunswick Power Corp.

Cherubini Metal Works Ltd. is a structural steel and miscellaneous metals fabricator that constructs buildings and bridges in Atlantic Canada and New England.

In 2002, the New Brunswick Power Corp. solicited bids with respect to the construction of a series of buildings at the Coleson Cove Generating Station. Three bids were received. Cherubini submitted the lowest bid but the contract was awarded to the second lowest bidder (Ocean Steel & Construction Ltd.) which had bid $300,000 more than Cherubini. The successful bid was for $18,385,860.

The bidding contract (Contract A) contained a clause acknowledging that the respondent retained the "sole unfettered discretion" to accept any bid it "deems most advantageous to itself". It also stated that while price would be the main evaluation criterion, NB Power was entitled to consider other factors such as scheduling and past experience of similar work by the contractor and subcontractors.

Finally, the bidding contract provided for a "waiver clause" which obliged the bidder to waive "any right, or cause of action against [NB Power], its officers, directors, employees or agents by reason of [the owner’s] failure to accept the Tender submitted by the Tenderer". The waiver clause went on to stipulate that the waiver applied "whether such right or cause of action arises in contract, negligence, bad faith or otherwise".

In evaluating the bids, NB Power was advised by an engineering firm, the Coleson Power Group, which had the task of recommending to the owner the most advantageous compliant bids. In that regard, the evaluation team was concerned with the fact that the appellant would be subcontracting the erection aspect of the work to a third party, Emflo Erectors Ltd.

Before making its recommendation, the team sought information with respect to the past experience of Emflo. Ultimately, the engineers expressed concern over the subcontractor's lack of experience on similar projects. After meeting with Cherubini and the subcontractor, the team concluded that "Cherubini's [subcontractor's] lack of experience on projects of this size carries a potential risk to the project schedule" and that the cost of a one-day delay attributable to inexperience would easily surpass the $300,000 difference in contract prices. NB Power agreed with this assessment and awarded the contract to Ocean Steel.

Cherubini sued NB Power for breach of its implied contractual obligations and claimed damages for loss of anticipated profits ($2.8 million). The trial judge dismissed Cherubini’s action while making a provisional assessment of damages, just in case ($1.5 million). The trial judge held that NB Power had not breached its duty to act in good faith and to deal fairly with the bidder when evaluating its compliant bid. As well, he held that the appellant had waived its right to "commence and prosecute the action" based on the waiver clause in the bid documents.

Cherubini appealed.

Before the Court of Appeal, Cherubini pursued two principal arguments. The first argument attempted to short-circuit the unchallenged fact that its subcontractor, Emflo, lacked the requisite experience: Cherubini argued that the evaluation team mistakenly assumed that the subcontractor would be supervising the erection of the steel when, in fact, Cherubini would be responsible for this task. Cherubini argued that, as it had the requisite past experience, there could be no valid objection to its bid based on the criterion of past experience.

The second ground of appeal involved the allegation that the respondent based its ultimate decision on undisclosed criteria: (1) scheduling, and (2) the owner's past experience with the successful bidder, Ocean Steel.

The Court of Appeal found that Cherubini was unable to establish palpable and overriding error on the part of the trial judge in concluding that, as a matter of fact, supervision of the subcontract was to be undertaken by Emflo and not by Cherubini. NB Power acted on the reasonable assumption that the relationship between the bidder and Emflo was the typical contractor/subcontractor relationship in which supervision of the erection portion of the contract would rest with the subcontractor.

Furthermore, the facts as found by the trial judge fully supported the owner’s contention that until the parties “got to the steps of the court house”, there was never any doubt about who was to supervise what: Emflo was going to supervise steel erection.

Cherubini’s argument that the contract was awarded on the basis of undisclosed criteria also failed. First, the argument that scheduling was employed as the main criterion had no merit. It just happened that scheduling considerations tipped the balance in favour of the successful bidder.

The Court also found no merit to the argument that the evaluators failed to evaluate the past experience of each bidder with respect to "similar work" and instead relied on NB Power’s past experience with Ocean Steel as the successful bidder on other contracts.

It is true, stated the Court, that an owner is not entitled to base its decision to award Contract B on the fact that it had past dealings or previous experience with a particular bidder. That would effectively favour one bidder. However, in this case, NB Power relied on its past experience with the successful bidder solely with a view to assessing whether it had done similar work in the past, which it had.

This was not a case where it is alleged that the owner invariably awards all of its tendered contracts to one bidder and employs the tendering process as a means of ensuring that this favoured contractor will continue to submit competitive bids. So, this ground of appeal also failed.

Cherubini also challenged the trial judge's assessment of provisional damages and his finding that the waiver clause insulated the owner from any action in contract for breach of its Contract A obligations.

There being no basis on which to interfere with the trial judge's ultimate finding that NB Power did not breach any express or implied obligation arising out of Contract A, it was unnecessary for the Court of Appeal to decide whether the trial judge erred in his provisional assessment of damages or in concluding that the "waiver clause" was effective for the purpose of insulating NB Power from liability for damages for breach of Contract A:

The extent to which a waiver clause is enforceable at law is a complex one. The law is by no means settled and the extent to which the doctrine of fundamental breach assists in the legal analysis is a matter best left to another day.

Cherubini’s action was therefore dismissed.

New Brunswick Court of Appeal
   Robertson, Daigle and Turnbull
   December 22, 2008