Municipal Law in Québec: Contracts

Montréal (Ville) v. Octane Stratégie inc., 2019 SCC 57 (38066) (38073)

“In April 2007, the City’s director of transportation made use of the services of Octane, a public relations and communications firm, to create an event concept for the launch of the City’s transportation plan that was to take place on May 17, 2007. The launch was held on the scheduled date and was a success. Following the event, Octane sought payment for the costs incurred for the services provided by a subcontractor to produce and organize the event, but the City was slow to pay. In view of the City’s failure to act, Octane finally sent it an invoice in October 2009. In May 2010, nearly three years after the launch was held, the invoice was still unpaid and Octane instituted an action against the City. The City countered by stating that it had in fact never authorized the mandate, which, for that matter, had not been granted as a result of the tendering process required by law. Octane therefore amended its pleading to add T, a member of the political staff of the mayor’s office, as a defendant, arguing that he had given it a mandate to produce the event and had assured it many times that the City would pay the costs incurred.

The Superior Court allowed Octane’s action against the City and dismissed the alternative claim against T. It was of the view that T had indeed given Octane a mandate but that the contract was null because it had been awarded in contravention of the rules of public order for awarding municipal contracts. However, it found that the rules on restitution of prestations set out in the Civil Code of Québec (“C.C.Q.”) apply in the municipal context, and it ordered restitution by equivalence for the services provided in the amount of $82,898.63. The Court of Appeal dismissed the City’s appeal as well as Octane’s appeal against T, which it found to be moot. It upheld the Superior Court’s findings on the issue of the nullity of the contract between Octane and the City and on the application of the rules on restitution of prestations in the municipal context.”

The S.C.C. held (6:3): the appeal is dismissed and Octane’s appeal is moot.

Chief Justice Wagner and Justice Gascon wrote as follows (at paras. 5-6, 59-67, 88):

“In our view, the City’s appeal must be dismissed. This makes it unnecessary to rule on Octane’s appeal. While we agree with the Court of Appeal’s conclusions with respect to the application of the rules on restitution of prestations in the municipal context, we are of the opinion that it erred in according deference to the trial judge’s findings concerning the existence of a contract between the City and Octane. The mandate given to Octane was not authorized by a resolution of the municipal council or by an officer acting under a delegation of powers, with the result that the City simply never expressed its will to be bound by contract to Octane. This leads to another conclusion: no contract for the production of the launch event came into existence between the City and Octane. Because it is not possible to annul a juridical act that never came into existence, the trial judge erred in ordering that the parties be restored to their previous positions on this basis.

We agree, however, with the majority of the Court of Appeal that the rules on receipt of a payment not due apply in this case, which means that the restitution of prestations is nonetheless necessary. Octane provided services to the City through its subcontractor even though it had no contract with the City. The City therefore received and benefited from services that were not due to it. Unless Octane had a liberal intention, which cannot be presumed, that payment must be restored to it. Since the City has not shown that the trial judge erred in assessing the fair value of the services provided or in declining to exercise his discretion to refuse restitution or to modify its scope or modalities under para. 2 of art. 1699 of the Civil Code of Québec (“C.C.Q.” or “Civil Code”), there is no basis for reviewing his conclusion in this regard. The City must therefore restore the sum of $82,898.63 to Octane.

…Where a municipality has not expressed its will to be bound by contract, there is simply no contract to annul. That is the case here.

This being established, some additional remarks are necessary with regard to the City’s position. The City argues that, in order for a contract to arise, it is not enough for a municipality to express its will to be bound through a resolution or by‑law; the procedures for awarding municipal contracts set out in ss. 573 et seq. C.T.A. must also be followed. The City thus contends that those rules are not merely conditions for the validity of the contract. Rather, they govern the expression of a municipality’s will, and their violation therefore prevents an agreement that binds the municipality from even coming into existence. We do not accept this argument. Although the City correctly emphasizes the distinction between the existence and the validity of a contract, we cannot agree that compliance with the rules for awarding contracts is necessary for a municipality to express its will to contract.

As we have said, a contract is defined as an agreement of wills by which one or several persons obligate themselves to one or several other persons (art. 1378 para. 1 C.C.Q.). Without such an agreement of wills, there is no contract. Where there is no offer, where an offer to contract is refused or where there is no acceptance, the end result is the same: the proposal to enter into a contract fails and therefore a contract never comes into existence (arts. 1386 and 1387 C.C.Q.). This is what we mean here by the non‑existence of a contract.

However, once a contract crosses the threshold of legal existence (Quebec (Agence du revenu) v. Services Environnementaux AES inc., 2013 SCC 65, [2013] 3 S.C.R. 838, at para. 27), certain conditions must be met to ensure its validity (Cumyn, at Nos. 223‑24). In particular, the parties must have the capacity to consent and their consent must not be vitiated by error, the contract must have a cause and an object and, if the law requires, it must also have a particular form (art. 1385 C.C.Q.; Cumyn, at Nos. 223‑24). Where one of these conditions is not met, the contract may be annulled; it will then be deemed never to have existed (arts. 1416 and 1422 C.C.Q.; Cumyn, at No. 224; Lluelles and Moore, at No. 1087; Baudouin and Jobin, at No. 377; Gaudet, at p. 332). But this does not mean that the contract never actually existed. Logically, a contract must exist before it can be annulled: if a contract did not become a legal reality, it cannot be deemed never to have existed, because it does not in fact exist. The distinction is important: the non‑existence of a contract, unlike failure to meet a condition for validity, cannot be sanctioned by nullity (Gaudet, at pp. 331‑32), and where a contract does not exist, the obligation to restore a prestation that has been provided must therefore be justified on a different basis.

In our view, contrary to what the City argues, the rules for awarding contracts are not conditions for the existence of a municipal contract. The rules for awarding municipal contracts set out in ss. 573 et seq. C.T.A. do not concern the manner in which a municipality expresses its will to be bound by contract. Rather, these provisions require a municipality to observe certain formalities, including a call for tenders, in order to give all citizens an equal opportunity to contract with the municipality, in addition to protecting the public interest by favouring competition (Garant, at pp. 405‑08; Hétu and Duplessis, at paras. 9.9‑9.10; Giroux and Lemieux, at para. 5‑005; 2736‑4694 Québec inc. v. Carleton—St‑Omer (Ville de), 2006 QCCS 4726, aff’d 2007 QCCA 1789). The effect of these provisions is therefore to derogate from the principle of consensualism by limiting the method by which a municipality can choose the other party to certain types of contracts it enters into (Hétu and Duplessis, at para. 9.73; Giroux and Lemieux, at para. 5‑800; Langlois, at pp. 225‑28; G. Pépin and Y. Ouellette, Principes de contentieux administratif (2nd ed. 1982), at p. 537).

In this respect, calls for tenders and the rules for awarding contracts in general do not play the same role as resolutions or by‑laws in the formation of municipal contracts. Resolutions and by‑laws are the means by which a municipality expresses its will to be bound by contract, whereas the rules for awarding contracts establish the formalities that must be observed for a contract to be valid (Baudouin and Jobin, at No. 372; Giroux and Lemieux, at para. 5‑800; Hétu and Duplessis, at para. 9.73). The rules for awarding contracts do not exempt a municipality from having to pass a by‑law or resolution to express its will to contract, and if it does not do so, no contract will cross the threshold of legal existence. Conversely, a contract entered into by resolution or by‑law will in fact cross that threshold even if the rules for awarding contracts have been violated. It follows that failure to comply with the procedure for awarding contracts taints the validity of the act and thus requires it to be annulled. This interpretation is also consistent with the case law and academic literature on this point: the courts sanction non‑compliance with the rules for awarding contracts by annulling a contract, not by finding that it never existed (Autobus Dufresne inc., at para. 41; Construction Irebec inc., at para. 104; Centre de téléphone mobile (Québec) inc., at para. 32; Garant, at p. 476; Hétu and Duplessis, at para. 9.73; Giroux and Lemieux, at para. 5‑800; Baudouin and Jobin, at No. 372; Gaudet, at p. 361).

Although restitution cannot be based on the doctrine of nullity in the instant case given the non‑existence of a contract that could be annulled, this does not settle the matter. The rules on receipt of a payment not due can ground an obligation to restore the parties to their previous positions.

Although the Court of Appeal upheld the trial judge’s decision ordering the restitution of prestations on the basis of a juridical act that was declared null, the majority added that an obligation to restore the parties to their previous positions could also have been grounded in receipt of a payment not due. They noted that if they had found that no agreement had been entered into by the parties, they would have accepted that Octane had believed mistakenly, but in good faith, that it had been given a mandate by the City to organize the launch of May 17, 2007. Because Octane had provided services without any obligation and in error, that payment would have been recoverable (C.A., at paras. 49‑55).

We agree. Octane provided services for the production of the City’s launch event even though, in law, no agreement had been entered into because the City had not passed a resolution or by‑law to express its will to bind itself by contract. As a result, the obligation that Octane believed it was performing did not exist. Given that liberal intention is not presumed, the City had to show that Octane provided those services knowing that it was not bound to do so. The City’s arguments on this point do not support a conclusion that Octane had a purely liberal intention. In these circumstances, Octane is entitled to recovery for the services provided.

Lastly, the City argues that, in the absence of a contract between the parties, Octane’s action to recover a payment not due is necessarily extracontractual in nature. According to the City, the action is therefore prescribed because it was brought after the expiry of the six‑month period provided for in s. 586 C.T.A. The Superior Court and the Court of Appeal found that Octane’s action was not prescribed. In our view, the City’s argument must fail. It reflects a misunderstanding of the concept of restitution of prestations in Quebec civil law.”

Full Decision