Harvela Investments Ltd v Royal Trust Co of Canada (CI) Ltd

An undertaking to accept the highest confidential offer ordinarily creates a fixed bidding process. Each bidder must submit an independent, self-contained fixed sum. A referential bid calculated by reference to another confidential bid is invalid unless the invitation expressly establishes and controls such a process.

Communications intended merely to perform supposed existing obligations do not create a fresh contract when the parties have mistaken the legal effect of their earlier transaction.

When specific performance is ordered after delayed completion, equity may require the purchaser to pay interest on the retained purchase money while receiving the fruits of the property. This prevents overcompensation and places the parties, so far as possible, in the position that timely performance would have produced.

The vendors invited Harvela Investments Ltd and Sir Leonard Outerbridge to submit confidential offers for shares carrying effective control of a company. They undertook to accept the highest compliant offer. Harvela offered a fixed C$2,175,000. Sir Leonard offered C$2,100,000 or C$101,000 more than any competing fixed offer.

Peter Gibson J held that Harvela was entitled to the shares, although he considered that the vendors' later telex created a second contract with Sir Leonard: [1984] 2 All ER 65; [1985] Ch 103. The Court of Appeal held in favour of Sir Leonard: [1985] 1 All ER 263; [1985] Ch 103.

The House considered whether the invitation permitted a referential bid, whether the later telex created an independent contract with Sir Leonard, and whether Harvela had to pay interest as a condition of specific performance.

1. The appeal was allowed unanimously. Lord Templeman delivered the principal speech. Lord Diplock stated that the Appellate Committee was unanimous on all three issues. Lord Fraser, Lord Edmund-Davies and Lord Bridge agreed with the conclusions and proposed orders.

2. Per Lord Templeman and Lord Diplock, the invitation created unilateral contracts under which the vendors undertook to sell to the bidder submitting the highest compliant offer. Construed as a whole, its confidentiality requirement, equal treatment of the two bidders and commitment to accept the highest offer established a fixed bidding sale. Each bid therefore had to state an independent fixed sum capable of being quantified without reference to a rival's confidential bid.

   Sir Leonard's referential bid was invalid. Permitting uncontrolled referential bids would frustrate confidentiality, deny a fixed bidder a genuine opportunity to succeed and risk an abortive or arbitrary result. Referential bidding could be permitted only through express provisions controlling its operation, including provision for a maximum bid. Lord Bridge additionally reasoned that quantifying Sir Leonard's bid before the deadline would breach confidentiality, while doing so afterwards would be too late.

3. The House followed South Hetton Coal Co v Haswell Shotton and Easington Coal and Coke Co [1898] 1 Ch 465. Its rule that a referential bid is incompatible with sealed competitive bidding was confirmed. Harvela's C$2,175,000 offer was consequently the highest valid offer, and the vendors became contractually bound to sell the shares to Harvela.

4. Per Lord Templeman and Lord Diplock, the vendors' telex of 29 September did not create an independent contract with Sir Leonard. Both parties intended to perform what they mistakenly believed were existing obligations under the invitation. Neither manifested an intention to undertake fresh contractual obligations. Beesly v Hallwood Estates Ltd [1960] 1 WLR 549 was applied.

5. Per Lord Templeman and Lord Diplock, the contractual penal rate of interest was unavailable because, as between the vendors and Harvela, completion failed through delay on the vendors' part. Equity nevertheless required an allowance for Harvela's continued use of the purchase money while it would receive the benefit of the shares and retained profits. As a condition of specific performance, Harvela had to pay interest at the short-term investment rate from the contractual completion date until payment, subject to an account for dividends and interest attributable to the shares.

6. The Court of Appeal's order was reversed. Specific performance and consequential accounts and inquiries were ordered, together with the stated costs orders.

1. House of Lords: The appeal was allowed unanimously. The Court of Appeal's order was reversed, and specific performance was ordered in favour of Harvela.
2. Court of Appeal: Waller, Oliver and Purchas LJJ found in favour of Sir Leonard: [1985] 1 All ER 263; [1985] Ch 103.
3. High Court: Peter Gibson J found that Harvela was entitled to the shares, but considered that a second contract had arisen between the vendors and Sir Leonard: [1984] 2 All ER 65; [1985] Ch 103.