Harvela Investments v Royal Trust Co of Canada [1986] AC 207

KEY POINTS

• An invitation to participate in the tendering process constitutes a unilateral contract wherein the offeror states, "if you submit the highest bid, I will sell to you at that price."

• In this case, the terms of this unilateral contract (involving secret bids) were breached because it became impossible to determine what one’s bid was without referring to another’s bid, thereby undermining the "secrecy" element.

FACTS

• Harvela Investments Limited (Harvela) participated in a bid process initiated by Royal Trust Company of Canada (Royal Trust) for the sale of shares in a company called RDC.

• Harvela submitted a bid at $2,175,000 while Sir Leonard Outerbridge bid at “2,100,000 or $101,000 more than whatever fixed price was bid by Harvela.” Royal Trust accepted Sir Leonard’s bid at a total sum of $2,276,000.

• Thereafter, Harvela sued for breach of contract, claiming that the invitation to the tender process must have been for fixed bids. Otherwise, both parties could offer excesses on the other's bids, resulting in neither side winning, or only one side would get to bid (as was the case here). Alternatively, the company could end up worse off, as without the option to make a referential bid, one would have to place a higher bid to increase the chances of winning.

• The issue is whether Sir Leonard’s referential bid was valid.

JUDGMENT

• The Court ruled in favour of Harvela Trust.

COMMENTARY

• This case underscores the significance of upholding the terms and conditions in unilateral contracts and respecting the integrity of the tendering process. It clarifies that, in a unilateral contract, the acceptance is manifested through the offeree's performance of the specified condition (submitting the highest bid), creating a binding obligation on the offeror (Royal Trust) to fulfil its promise.

ORIGINAL ANALYSIS

• A was selling shares and invited B and C to “tender” (i.e. bid) bids for the shares which wouldn’t be disclosed to the other party. B offered one amount and C offered a lesser amount OR a sum on top of whatever B was offering. A accepted C’s bid.

• HL held that the invitation to the process must have been for fixed bids (lest both parties offer excesses on the other’s bids, which would lead to neither side winning; or only one side gets to bid (as here) or the company end up worse off, since without the option to make a referential bid, one would have to make a higher bid to increase chances of winning) and therefore C’s offer was not valid and couldn’t be accepted.

• That A’s acceptance letter did not create a second new contract per se but was simply a mistaken acceptance of an invalid offer and had no effect.

• There is a unilateral contract between the seller and all bidders that the seller accepts the highest offer, as well as, in most cases, the final contract of sale with the highest bidder (a “dual-contract” approach) 

Lord Diplock

• An invitation to enter the tendering process is a unilateral contract (if you submit the highest bid, I will sell to you at that price).

Lord Bridge

• Points out that the terms of this unilateral contract (secret bids) were broken because it was impossible to determine what C’s bid was, without referring to the B’s bid, and therefore to accept C’s bid is to undermine the point of the “secrecy” element: that the bids should be made independent of each other.