Case Facts
The vendors, Royal Trust Company of Canada (CI) Ltd, acting in their capacity as trustees and registered owners of shares in Harvey & Co Ltd, sought to sell those shares by way of a sealed tender process. On 15 September 1981, they sent a telex in identical terms to two prospective purchasers: Harvela Investments Ltd and Sir Leonard Outerbridge. The telex invited each party to submit a sealed tender or confidential telex by 3pm on 16 September 1981, offering to purchase the shares for a single sum of money expressed in Canadian dollars. The vendors undertook to accept the higher offer received.
Harvela submitted a fixed bid of $2,175,000. Sir Leonard submitted what is known as a referential bid, offering $101,000 in excess of any higher offer received from Harvela. The vendors purported to accept Sir Leonard's referential bid, which, calculated against Harvela's fixed offer, would have amounted to $2,276,000.
Harvela commenced proceedings, contending that Sir Leonard's referential bid was invalid and that the vendors were obliged to accept their fixed offer as the highest valid tender. The Court of Appeal found in favour of Sir Leonard, holding that the referential bid was valid. Harvela appealed to the House of Lords, which reversed that decision unanimously.
Held
The House of Lords held, unanimously allowing Harvela's appeal, that Sir Leonard's referential bid was invalid and that the vendors were contractually obliged to accept Harvela's fixed bid of $2,175,000 as the highest valid tender.
The telex of 15 September 1981 was not a mere invitation to treat or an invitation to negotiate. Its legal nature was that of a unilateral contract — indeed, two separate unilateral contracts in identical terms, one between the vendors and Harvela, and the other between the vendors and Sir Leonard. Each unilateral contract came into existence at the moment the respective promisee received the invitation. Under each such contract, the vendors' obligation to sell arose conditionally upon receipt of a sealed tender or confidential telex containing an offer to purchase the shares for a fixed sum in Canadian dollars.
The condition subject to which the vendors' obligations arose could only be fulfilled by a self-contained offer expressed as a fixed sum of money, not requiring reference to offers made by any other bidder for its quantification. The business purpose of a sealed tender process is precisely that each participant independently determines the maximum sum the property is worth to them, in ignorance of competing bids. A referential bid fundamentally defeats that purpose, because the amount it represents cannot be ascertained without reference to the sealed tenders submitted by other participants, which the bidder is kept in ignorance of. Sir Leonard's bid therefore failed to fulfil the condition stipulated in the unilateral contracts and was invalid.
On the second issue — the "second contract question" — the House of Lords rejected Sir Leonard's contention that a fresh synallagmatic contract had been formed by the vendors' telex of 29 September 1981, which purported to accept his referential bid. For such a fresh contract to arise, it was necessary that each party had manifested to the other an intention to assume fresh contractual obligations. No such mutual intention was established on the facts.
The Court of Appeal's decision in favour of the referential bid was reversed, and the vendors were ordered to complete the sale to Harvela.
Ratio Decidendi
The ratio of this case rests on two interconnected propositions.
First, an invitation to submit sealed competitive tenders addressed to a defined and limited class of invitees, accompanied by a clear undertaking to accept the highest offer received, does not constitute a mere invitation to treat. Rather, it constitutes a unilateral contract — or, where sent to two parties in identical terms, two simultaneous unilateral contracts. Each such unilateral contract becomes binding at the moment the invitation is received by the promisee. The legal analysis is not that the invitation to treat is capable of transforming into a contractual offer under certain conditions; the invitation is itself a unilateral contract from the outset.
Second, a referential bid — one expressed as a sum exceeding any competing offer rather than as a fixed, self-contained sum — is inherently incapable of fulfilling the condition upon which the vendor's obligation to sell is predicated. The sealed tender process is designed to elicit independent valuations from each participant. Its utility depends upon each bidder submitting a fixed figure determined by their own assessment of value, without knowledge of what others have offered. A referential bid cannot discharge that condition because its monetary value cannot be determined in isolation; it is wholly dependent upon the figure submitted by a competing bidder. Such a bid is therefore invalid as a matter of law, regardless of whether it would, if treated as valid, produce a higher monetary outcome for the vendor.
The decision is of practical significance in the law of contract formation, particularly in the context of tender processes in commercial, property, and public procurement settings. It establishes that the legal character of an invitation to tender depends upon its precise terms: where the inviting party binds itself to accept the highest offer from a defined class of invitees, the invitation transcends the category of invitation to treat and assumes the character of a unilateral contract. It also confirms that the integrity of the sealed tender mechanism is protected as a matter of law, such that bids which undermine its purpose will be treated as invalid. This case should be contrasted with Blackpool and Fylde Aero Club v Blackpool Council [1990], in which the Court of Appeal held that an invitation to tender can give rise to a collateral contract obliging the invitor to consider conforming tenders, though without necessarily binding it to accept the highest.
Obiter Dicta
Not applicable.