CG Acquisition Inc v P1 Consulting Inc, Ontario Infrastructure and Lands Corporation, and Liquor Control Board of Ontario, 2018 ONSC 4089

On September 4, 2014, the Crown corporation Ontario Infrastructure and Lands Corporation (“IO”) issued a Request for Proposals to identify companies that would negotiate with the Liquor Control Board of Ontario (“LCBO”; together with IO, the “Sponsors”) and, if successful, execute an agreement for redeveloping waterfront property in Toronto. The plan was that the successful bidder would buy the land, develop it to include a new LCBO office and retail location, and lease those spaces back to LCBO.

The third defendant, P1 Consulting Inc (“P1”), was hired by the Sponsors to act as a third-party Fairness Monitor. In brief, P1 contracted with IO to observe the procurement process and provide impartial observers on whether the process was conducted fairly. P1 did not provide legal or even quasi-legal advice, but rather provided a contracted advisory service to the Sponsors.

CG Acquisition Inc (“CG”), the plaintiff, is a real estate development company who submitted a proposal to the Sponsors following the RFP. However, CG ended up disqualified from the procurement process for including a so-called Ineligible Person as one of its design team members.

In September 2014, CG received an information flyer with the key project details. CG registered to receive the RFP documents and decided to participate in the three-stage RFP. Before receiving the RFP documents, CG’s vice-president, Sidney Lew, contacted Michael McClelland, who worked at ERA Architects Inc (“ERA”), as the project would require a heritage consultant. Shortly after that discussion, CG received the RFP documents, which listed ERA as an Ineligible Person due to ERA’s position on the Sponsors’ team.

Once CG had received the RFP documents, Mr. Lew reviewed them and knew that ERA was ineligible. However, CG did not make any attempts to contact any other potential heritage consultants. On September 30, 2014, Mr. Lew and another representative from CG attended a meeting about the RFP where ERA’s involvement in the project was made expressly clear.

In mid-October 2014, CG hired a third-party consultant, Hersh Tencer, to have primary responsibility to prepare the Stage One Proposal. Mr. Tencer was chosen by CG because of his familiarity with IO, given his former employment there. Mr. Lew was still responsible for reviewing Mr. Tencer’s work prior to submitting the Proposal to the Sponsors.

Mr. Lew provided a list of the consultants to hire to Mr. Tencer, and despite knowing that ERA was an Ineligible Person, advised Mr. Tencer to include ERA in the Proposal. This was an inadvertent mistake on Mr. Lew’s part – he admitted that he did know about ERA’s ineligibility, but did not recall if he had simply forgotten about it at the time he gave Mr. Tencer the list of consultants. Mr. Tencer did not check the list against the Ineligible Persons List, and though prior to submission he and Mr. Lew reviewed the Proposal, did not catch that ERA was still listed.

In November 2014, the RFP was put on hold for unrelated reasons, and the submission date was delayed to April 17, 2015. On that date, CG submitted their Proposal, which still included ERA as a consultant. Despite that Mr. Lew had only briefly met with Mr. McClelland at ERA, the Proposal stated that CG had conducted several meetings with each member of its team in order to make sure that each team member had a solid understanding of both CG’s and the Sponsors’ expectations. The RFP also stated that each design team member had been carefully selected.

Following the RFP deadline, the Sponsors’ review team, which reviewed all seven submissions, determined that CG’s Proposal was non-compliant on the basis of the inclusion of ERA. The review team presented its findings to the Evaluation Committee on April 23, 2015, and that Committee reviewed all seven proposals along with P1, the fairness consultant. The decision to disqualify CG was officially made the next day.

The Evaluation Committee did consider two alternatives to CG’s disqualification: first, the Proposal could have been considered in its entirety and then disqualification considered. Second, the Committee considered inviting CG to explain the role of ERA. Both alternatives were ultimately rejected: the first because it would likely create an appearance of bias, and the second because the inclusion of ERA was unambiguous and clarification would be unfair to the other proposals.

On April 30, 2015, the Sponsors wrote to CG advising of its disqualification due to the breach of conflict of interest shown by its inclusion of ERA in the RFP. CG, through its legal counsel, wrote to IO on May 6, 2015, asking that the disqualification be reconsidered as the inclusion of the Ineligible Person was inadvertent, harmless, and not in violation in the principles and values underlying the Ineligible Persons List. CG provided affidavits along with the letter explaining their position.

The Sponsors reconsidered, but ultimately maintained that they were right to disqualify CG. The Sponsors decided that along with the issues already identified, CG’s letter and affidavits showed additional problems: the inclusion of ERA had not been a simple error, such as a typographical mistake; CG stated that they had consulted with ERA at great length when they had not; and CG had included ERA as a team member without ERA’s consent.

The Sponsors consulted with the fairness consultant, P1, who concurred with the decision. On May 13, 2015, IO sent CG a letter outlining the Sponsors’ reasons for disqualifying them from the procurement process.

In their arguments, CG conceded that the initial disqualification was reasonable, but that the Sponsors owed CG a duty of fairness during the procurement process that required the Sponsors and P1 to reconsider CG’s disqualification properly and adequately. As CG claims that this was not done, CG submits that all three defendants were negligent having breached a duty of care owed to CG, and also had breached a duty of fairness owed to CG. Specifically, CG’s main complaint was that the Sponsors made their decision prior to consulting with P1 and without talking to CG.

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The judge dismissed CG’s claims, ruling in favour of the three defendants. First, the judge held that none of the three defendants owed CG any duty of fairness. Without a contract, the duty of fairness does not exist in the RFP context unless the RFP documents explicitly say that the duty is present. Unless and until Contract A is formed by a valid bid, there is no duty of fairness between a proponent and a sponsor.

Second, the judge held that CG was also not owed a duty of care – one of the required elements to succeed in a claim of negligence. The two-stage test for a duty of care outside of a contract comes from the Supreme Court of Canada case Childs v Desormeaux, 2006 SCC 18. The first step asks if a duty of care not already found in law should arise between the parties, and if one is found, the second considered whether policy concerns advise against recognizing that particular duty. Here the judge held that there was no reasonable expectation that the Sponsors or P1 owed a duty of care to potential non-compliant bidders because the relationship between a proponent and a non-compliant bidder is simply not close enough to have this duty imposed on the proponent.

Finally, the judge considered that even if the defendants were under a duty to CG, they were not negligent. There was no obligation for the Sponsors to contact CG to obtain further information, and while the judge stated that it may have been better to engage with P1 before reaching a decision in the reconsideration, the issue is irrelevant because the Sponsors did come to a reasonable decision. The judge also decided that the defendants were entitled to their costs.

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