Harvela Investments Ltd v Royal Trust Co of Canada (CI) Ltd
House of Lords
Citations: [1986] AC 207; [1985] 3 WLR 276; [1985] 2 All ER 966; (1985) 82 LSG 3171; (1985) 135 NLJ 730; (1985) 128 SJ 522; [1985] CLY 388.
Facts
The three parties were shareholders in a particular company. The parties entered into negotiations to buy D1’s shares. This would give the buyer control of the company. D1 invited the claimant and D2 to submit sealed bids to their solicitors by 3pm on the 16th of September. They undertook to accept the highest compliant bid, and their solicitors would keep the bids confidential until 3pm.
The claimant bid C$2,175,000. D2 bid ‘”C$2,100,000, or C$101,000 in excess of any other offer… expressed as a fixed monetary amount, whichever is the higher’. D1 told D2 that they had won the bid. The claimant sued, arguing that their bid should have been accepted. They applied for an order of specific performance.
D2 argued that they had made an offer to D1 when they submitted their bid, which D1 accepted by telling them their bid had won. Therefore, they argued, if D1 was ordered to sell the shares to the claimant, they would be in breach of their contract to sell to D2. As such, if the court granted the claimant specific performance, they thought that they would be entitled to damages for breach against D1.
Issue(s)
- What was the nature of D1’s invitation for bids?
- Could D1 validly choose D2’s bid over the claimant’s bid?
- Was there a contract between D1 and D2 allowing D2 to claim damages?
Decision
The House of Lords held in favour of the claimant. The invitation for bids was a unilateral offer to accept the highest compliant bid, accepted by the submission of bids. The circumstances indicated that D1 objectively intended the parties to submit only fixed bids. D2’s bid was therefore non-compliant. D1 was bound to accept the claimant’s bid.
As for D2’s claim, the House of Lords held that D2’s bid was an acceptance of the unilateral offer. It was not a separate offer to buy the shares. D1, therefore, did not accept any offer when they told D2 that they had won the bid. There was no contract between D1 and D2, so D2 was not entitled to damages. It did not matter that both D1 and D2 subjectively thought that there was a contract between them.
This Case is Authority For…
What a unilateral offer requires depends on what a reasonable bystander would understand the offeror to mean. Whether a person is inviting fixed bids or allowing bidders to adjust their bids by reference to other bids (a referential bid) depends on what that person objectively appears to have intended. Relevant circumstances include:
- Whether the person undertakes to accept the highest offer (this indicates that they want fixed bids);
- How anxious the person is for a sale (referential bids are less likely to lead to sales);
- Who the invitations are extended to and whether they are extended on the same terms;
- Whether the terms of the invitation hide each bidder’s bids from each other.
Lord Templeman thought that the courts will not treat referential bids as permissible in a confidential bidding process unless the invitation for bids expressly allows this.
The parties’ subjective understanding of their obligations is not relevant: contracts and contractual negotiations must be interpreted objectively.
Other
Lord Diplock explained that the purpose of specific performance is to put the parties in the position they would have been in had the contract been properly performed. It should therefore not be applied in a manner which would overcompensate the innocent party.
