[1] This is an appeal from a decision of the Federal Court dealing with a tender by the appellant to lease premises to the Crown. The Crown disqualified the appellant's tender because, in the view of the Crown, it did not comply with the Crown's Lease Tender Documentation Package (bid package) in that the appellant's tender did not comply with zoning laws, which the Crown says was a requirement of the bid package. The appellant says that it was in compliance with the bid package and being the lowest bidder the Crown was required to accept its tender; by not doing so, the Crown was in breach of its contractual obligation to the appellant and the appellant suffered damages as a result. The Federal Court judge ruled that the Crown did not breach the contract when it disqualified the appellant's tender as being non-compliant.

[2] The cross-appeal by the Crown involves the disposition of costs by the Federal Court judge.

FACTS

[3] On November 14, 2001, the Crown published an advertisement in the Windsor Star titled "Information Requested on Space Available for Lease, Windsor, Ontario" for the purpose of soliciting proposals from firms that wished to be invited to submit a tender to provide the required premises. The space to be leased would have to offer approximately 2,140 usable square metres of basic office space for occupancy by Citizenship and Immigration Canada. The term of the lease was to be five years and the boundaries of the required geographic location were set forth. The appellant responded to the request. On February 27, 2002, the appellant, together with a number of other parties, was qualified to be invited by the Crown to submit a tender. The Crown delivered the bid package at the same time.

[4] The tenders closed on April 9, 2002. The appellant, together with seven other interested parties, submitted a tender.

[5] The specific lands proposed by the appellant for use by the Crown were within the specified geographic location but were zoned M1.1, which is light manufacturing. On June 26, 2002, the Crown notified the appellant that its bid was found to be non-compliant because in the Crown's opinion, the zoning on the property did not permit basic office use, which the Crown said was a condition specified in the bid package.

[6] Although in this appeal the Crown does not concede the point, the appellant says that the Crown admitted that had the appellant's proposal complied with the zoning requirement, the appellant's tender was the most favourable and would have been accepted by the Crown.

ISSUE

[7] The issue is whether the Crown's bid package contained a requirement that the proposed lands be zoned for basic office use. The appellant agrees that if the bid package is construed as requiring lands zoned for basic office use, its appeal must fail.

ANALYSIS

[8] The basis of the appellant's position is that the federal Crown is not bound by municipal zoning laws and that nothing in the bid package required that the premises comply with such laws. The Crown concedes that as a matter of law, it is not bound by municipal zoning laws. Nevertheless it says the bid package did require that tenders comply with municipal zoning laws and that the appellant's did not.

[9] In my opinion, the issue must be resolved in favour of the Crown. Section 8.1 of Part 2 of the bid package provides:

The Offeror represents that the Lands, Building in which the Leased Premises is located, and the Leased Premises, and the Lessee's intended use thereof, comply in all respects with the requirements of all applicable laws. (emphasis added)

[10] The Crown argues that the underlined words must be interpreted to mean that the Crown's intended use had to comply with zoning laws. Otherwise these words would be gutted of all meaning.

[11] Section 8.1 is a broad provision. Among other things, it envisages that the Crown's intended use of the premises complies with the requirements of all applicable laws. Zoning laws are laws that are generally applicable to the use of lands and premises. It was suggested that the Crown may have wished to comply with zoning laws that are generally applicable or that the Crown might want to have the flexibility to sublease the premises to a non-Crown tenant to whom the zoning laws would apply. The appellant has not suggested what meaning is to be given to these words other than that they include municipal zoning laws. On the other hand, the Crown concedes that it is not bound by municipal zoning laws. Read in isolation, therefore, the words of section 8.1 are not beyond doubt.

[12] It is therefore necessary to consider other provisions of the bid package to determine if they clarify the ambiguity.

[13] Section 8.3(i) of Part 1 of the bid package requires that the tenderer's "Offer shall include...proof of zoning". The appellant submits that this simply means that the tenderer must include information as to the zoning of the relevant land, not that the Crown's intended use of the premises must comply with the relevant zoning law. It is suggested that the purpose may merely be to advise the Crown of other potential uses of adjacent land which could bear upon the Crown's evaluation of the appellant's tender.

[14] Even reading section 8.3(i) in isolation, I think that interpretation is strained. It is difficult to think that the words "proof of zoning" were intended just to inform the Crown of possible uses of adjacent lands or indeed just for general information. The requirement to provide proof of zoning suggests that to the Crown zoning was material to its use of the premises it was going to lease.

[15] The provisions of section 8.3(i) of Part 1 and section 8.1 of Part 2 must be read together. Each provision provides context for the other. When they are both considered, it is apparent that proof of zoning under section 8.3(i) of Part 1 was required in order for the Crown to determine that its use of the premises would comply with generally applicable zoning laws in accordance with section 8.1 of Part 2 and whether tenders were compliant with its bid package.

[16] The appellant says that the contract at issue is one of adhesion and that the contra proferentum rule should apply to give the benefit of the ambiguity to the appellant. However, reading the bid package as a whole, it is not ambiguous in respect of compliance with zoning laws. Therefore, it is not necessary to apply the contra proferentum rule. (See: G.H.L. Fridman, The Law of Contracts in Canada, 4^th ed. (Toronto: Carswell, 1999) at 495 and H.G. Beale, ed., Chitty on Contracts, Volume 1: General Principles, 29^th ed. (London: Sweet and Maxwell, 2004) at 747.)

[17] The result is that there was no breach by the Crown when it determined that the appellant's tender was not compliant with the bid package. The Federal Court judge came to the same conclusion relying on the "privilege" clause of the bid package. In view of my conclusion that the bid package did require compliance with the zoning laws, it is not necessary for me to interpret and apply the privilege clause.

[18] The appeal should be dismissed.

CROSS APPEAL

[19] The Crown cross-appeals the Federal Court judge's disposition of costs. The judge found that the Crown had breached the contract contained in the bid package when it awarded the lease to another non-compliant bidder. On the basis of the split nature of his decision, he decided to make no order as to costs.

[20] The Crown argued that its awarding of the lease to another non-compliant bidder was irrelevant to the issue required to be decided by the Federal Court judge, namely whether the appellant's tender was or was not compliant.

[21] I agree. If the appellant's tender had been found to be compliant, it would have had an interest in the awarding of the lease by the Crown to a non-compliant bidder. But I do not see how the appellant, also a non-compliant bidder, had any interest in the awarding of the lease to a different non-compliant bidder. In other words, as a non-compliant bidder itself, it had no contract with the Crown and was not entitled to be awarded the lease. The Crown may have breached a contract or contracts with other compliant tenderers but that is of no assistance to the appellant. Therefore in deciding the question of costs, the Federal Court judge took into account an irrelevant consideration.

[22] It also appears that the Crown had made an offer to settle prior to the trial, which remained outstanding. The Federal Court judge was apprised of the offer. Nonetheless, he determined that any remaining cost issues, including those stemming from the outstanding offer to settle, could be raised in the damages portion of the proceedings.

[23] Once it was determined that the Crown did not breach any contract with the appellant when it decided that the appellant's tender was non-compliant, the matter was at an end. In other

words, there was no assessment of damages to take place. The judge had a duty to take account of the outstanding offer to settle in making his award of costs at the conclusion of the proceedings he had conducted.

[24] The Crown says that the appropriate costs at trial, inclusive of disbursements, amount to $11,700 and on appeal to $3,000. The appellant does not contest these figures. Accordingly, the cross-appeal should be allowed and the Crown should be entitled to costs of $14,700 inclusive of fees and disbursements for both the trial and the appeal of this matter.

"Marshall Rothstein"

J.A.

"I agree

A.M. Linden J.A."

"I agree

M. Nadon J.A."

FEDERAL COURT OF APPEAL

NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET: A-659-04

APPEAL AND CROSS-APPEAL FROM A JUDGMENT OR AN ORDER OF THE FEDERAL COURT DATED NOVEMBER 26, 2004, FEDERAL COURT FILE NO.

T-1208-02

STYLE OF CAUSE: 1243573 CANADA INC. v. HER MAJESTY

THE QUEEN IN RIGHT OF CANADA

PLACE OF HEARING: Ottawa, Ontario

DATE OF HEARING: October 11, 2005

REASONS FOR JUDGMENT BY: ROTHSTEIN J.A.

CONCURRED IN BY: LINDEN J.A.

NADON J.A.

DATED: November 4, 2005

APPEARANCES:

Myron W. Shulgan, Q.C. for the Appellant

Ms. Jacqueline Dais-Visca for the Crown

SOLICITORS OF RECORD:

Miller, Canfield, Paddock for the Appellant

and Stone. LLP

Windsor, Ontario

John H. Sims, Q.C. for the Crown

Deputy Attorney General of Canada

Ottawa, Ontario

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