SCC upends Quebec jurisprudence in requiring municipality to pay for services despite null contract

The City of Montreal is liable for paying a business it contracted with for services that the business procured from a third party, even though municipal contract procedures were not followed, the Supreme Court of Canada ruled today in a judgment that upsets years of Quebec jurisprudence.

In Montréal (Ville) v. Octane Stratégie inc., the majority of the Supreme Court found that, even in the absence of a valid contract, restitution could nonetheless be ordered to a contractor when a municipality had received a payment that was not due — in this case a payment in kind for events services the contractor provided through a third party.

“In our field of practice, this is a revolution,” says municipal lawyer Pier-Olivier Fradette of Lavery Lawyers, in Quebec City.

“This is the first time the [Supreme] Court has said something of such importance,” he says, as the decision, which upheld the lower court decisions, goes against decades of Quebec jurisprudence that has held that no payment is owed where the contract is null.

“What’s at stake here is, on the municipal side, now town councils or municipal officers, those who are elected, cannot hide behind the law in simply saying that ‘the town council didn’t authorize this, so I can simply not pay.’ That cannot be done anymore. There’s a lot of modifications in the practices and the behavior of the municipalities, towns, cities that will have to be made.”

The City of Montreal retained Octane Stratégie inc., a public relations and communications firm, to prepare for the launch of its transportation plan a month before the planned launch date of May 17, 2007. At a meeting with Octane Stratégie at city hall the month before, Richard Thériault, the director of communications and administration in the office of the mayor, allegedly awarded four mandates to Octane, two of which involved preparing the concept for the launch and organizing the event. Octane Stratégie then engaged Productions Gilles Blais (PGB) to produce the event and subsequently paid it nearly $83,000 for its successful completion.

In May 2010, when Octane had still not been paid its final invoice for work performed (including the services of PGB), it filed a motion to institute proceedings which it served in October 2010. In October 2011 Octane sent a formal notice to Thériault to pay it the amount of $82,898.63, and amended its motion the following month to add Thériault as a defendant. Octane Stratégie had been paid by the city for its own services rendered, but not for the event production services that it had subcontracted to PGB.

Quebec’s Superior Court granted Octane’s motion to institute proceedings and ordered the city to pay the amount demanded, plus interest and the additional indemnity. The alternative motion to institute proceedings against Thériault was dismissed. The Court of Appeal dismissed the city’s appeal; Octane’s appeal against Thériault was declared to be moot.

In today’s judgment the Supreme Court found that the trial judge and Court of Appeal had erred in finding that there was 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,” wrote Chief Justice Richard Wagner and Justice Clément Gascon in joint reasons, with Justices Rosalie Abella, Andromache Karakatsanis, Malcolm Rowe and Sheilah Martin concurring.

However, the majority agreed “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,” and payment must therefore be restored to Octane.

“Here, the court says contractors are … losing in this type of situation, because they offer the services, do the work, the city benefits from it but then does not pay for it,” says Fradette.

Noting that the events of the case date back to 2007, Fradette says this type of situation would be less likely to occur today, since Quebec’s contract management bylaw was introduced into the province’s Cities and Towns Act in 2010. This bylaw requires every municipality to identify one person in the municipality who will be mandated to communicate between the city and any person wishing to conduct business with the city, Fradette adds.

Today, communications between parties to a municipal contract have been restricted to just one person on the municipal side, who “is specialised, knows the rules of engagement, the rules of contract awarding, knows the implications of awarding extras, and the modification of contracts,” says Fradette.

“What’s at stake here is on the municipal side, now town councils or municipal officers, those who are elected, cannot hide behind the law in simply saying that ‘the town council didn’t authorize this, so I can simply not pay.’ That cannot be done anymore,” Fradette says. “There’s a lot of modifications in the practices and the behaviour of the municipalities, towns, cities that will have to be made.

“On the enterprise side, this is a major judgement, because it’s a revolution. …  It’s like a safe haven, where in good circumstances, where the contractor — where he acted properly, … asked the right questions, dealt with right person, and made sure that the person in front of him had the right authorization — in those circumstances is in the right to believe he will be paid for what he does for the city. That’s what’s happened here in this judgement.”

In dissenting reasons Justices Suzanne Côté and Russell Brown, also writing for Justice Michael Moldaver, concluded that Octane had not “paid” the city of Montreal in error, and that it “knew the rules governing the formation and awarding of municipal contracts, and it therefore knew that it had no contract with the City at the time of payment.” Those rules stipulate that calls for tender must be made for any project valued at $25,000 or higher.