Article

Note: Contractor, Northland Road Services (Robson) Ltd. bid for a road service contract from the Provincial Government of British Columbia, Canada. Bid must comply with the conditions set forth in a Request for Proposals (RFP), which included submission of RFP required documents by the stated deadline.

The required documents included an irrevocable letter of credit from a bank in a form prescribed by regulation. Among its provisions was the following paragraph:

"8) We covenant to hold the Beneficiary, its employees, agents and representatives safe from any and all claims for costs or damages which may arise out of any act, error or omission related to the handling, storage or presentation of this irrevocable Letter of Credit # ______."

Contractor prepared a bid and submitted it on the deadline with the exception of a required Statutory Declaration which was submitted on the next day. Moreover, the letter of credit omitted paragraph 8.

When its bid was rejected, Contractor petitioned for an order quashing the Province's decision to reject its proposal, or alternatively, for an order declaring the process by which its bid was rejected illegal.

The British Columbia Supreme Court, Curtis J., dismissed Contractor's petition for an order quashing the Province's decision to reject its proposal, or alternatively, for an order that the bidding process is illegal. It ruled that Contractor's failure to comply with the clearly stated requirements left it in the Province's discretion to reject the proposal. It also ruled that the bid process in the RFP is not illegal because it was carefully developed to determine competitive costs for the performance of work and therefore it has not failed to satisfy the statutory requirements that an alternative to the standard government tender process, such as the RFP, be determined by the Provincial Minister of Transportation to result in competitive costs.

Comment: While the decision is correct, it is no wonder that the contractor was unable to find a bank willing to issue a standby with the required statement. It contains an undertaking by the issuer to indemnify the beneficiary for any "act, error or omission related to the handling, storage or presentation" of the LC. While its meaning is not entirely clear, it may prevent the issuer from asserting that a presentation fails to comply with the terms of the credit even if documents do not comply or are presented after expiry. While this undertaking may be a letter of credit, it is a most unusual one and not one that a bank would be happy to issue or have bank supervisors find.

[JEB/lhd]

COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE

The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.