McKinnon vs. Dauphin

A recent court decision faced the questions of what a Municipality must do at tendering time and when elected officials (councillors) may be held liable for defamatory statements. In McKinnon v Dauphin (RM) 108 Man. Reports (2nd) 163, Justice Clearwater discussed the duties of a Municipal Corporation during a contract tendering process and the consequences a Municipal Councillor and Municipal Corporation may face should statements made by a councillor during a council meeting be defamatory. A Municipality must act fairly in the tendering process but is not required to accept the lowest tender. Municipal Corporations may be liable for the defamatory statements made by its elected representatives if the statements were made maliciously and while the councillor was acting in the course of his/her duties.

The RM of Dauphin tendered a gravel contract. After tenders has closed, a committee of three Councillors reviewed the bids and recommended the acceptance of the lowest tender. Council met and a motion to accept the lowest tender from Donald McKinnon and Mervin Shingler (Plaintiffs) was defeated. The contract was awarded to the next lowest bidder. During discussions on the motion to accept the McKinnon/Shingler bid, comments were made by a Councillor regarding the ability of these individuals to properly fulfill the contract. McKinnon and Shingler subsequently sued for defamation and the loss of their business reputation. Also, Mr. McKinnon and Mr. Shingler sued for breach of contract, damages for the loss of profits, damages for breach of procedural fairness owed by the Municipality to them in failing to award the contract to them as the lowest tender.

Breach of Contract (no obligation to accept the lowest bid)
Mr. McKinnon and Mr. Shingler maintained that the RM of Dauphin was required to accept their tender as it was the lowest and the custom in the industry is to accept the lowest bid. Secondly, they maintained that the RM had implied the lowest bid would be accepted and they argued that there was an agreement to accept the lowest tender.

The Reeve of the RM of Dauphin met with Shingler and McKinnon at a coffee shop to answer questions about the tendering process. Shingle and McKinnon stated the Reeve implied that if he had anything to do with awarding the contract he would ensure the lowest tender was accepted. The exact words used by the Reeve were in dispute. The Court accepted it was most likely the Reeve had simply stated, "Things would be like in the past, that is, the lowest tender had always been accepted."

Shingler and MCKinnon referred to a BC case which suggested an industry custom was to accept the lowest qualified bid even where the tender has stated "Lowest or any Tender will not necessarily be accepted." Justice Clearwater found no custom existed in the RM of Dauphin, or any of the surrounding municipalities. The Justice preferred and Ontario Court Appeal decision which held accepting bids where it was stated, "The Lowest or any tender will not necessarily be accepted" gave the Municipality a right to reject the lowest bid.

Breach of a Duty of Procedural Fairness (an obligation to act fairly)
Justice Clearwater followed Hughes Land Co. v Manitoba (Minister of Government Services) and held that the RM of Dauphin owed a duty of procedural fairness to all bidders.

One of the main duties of the committee considering the bids was to investigate the viability of the companies. In the case of the Shingler/McKinnon bid, no real investigation took place. One Councillor went to a local garage and discussed McKinnon's Business with a distant cousin of McKinnon's. Another Councillor hear a rumour that McKinnon was financially stale. No further investigation was done. The Court did not hesitate to find that the committee did not investigate and this omission was negligent. The failure to investigate was held not to be fair to McKinnon and Shingler. However, given the terms of the advertisement upon which the bid was submitted, the lack of investigation was not sufficient to breach the duty of "procedural fairness."

Defamation (a defence of "Qualified Privilege")
McKinnon and Shingler sued for statements made by a councillor during the course of a council meeting. The statements were reported in the Dauphin Herald. Evidence during the trial confirmed the statements were accurately reported. The most damaging statement was that, "He (the councillor) heard rumors the company was not reliable." The RM defended the suit on two grounds. First, a Municipality was not liable for the comments of an elected official. Second, comments made during the course of a council debate carry with them a "Qualified Privilege."

Justice Clearwater referred to Rogers' The Law of Canadian Municipal Corporations and concluded:

"I am satisfied that in certain circumstances a municipal corporation is (and should be) liable for defamatory statements made by its elected representatives (providing the statements were made while acting in the course of their duties) as they were in this instance.

The court then considered the question of what is defamatory. The Court accepted a legal construction could not be placed on the words but rather what "meaning is that which the words would convey to ordinary persons." The Councillor's words that the Plaintiff's were "not reliable" went too far, although unintentionally. The court reviewed Friedman on The Law of Torts in Canada (1990) vol.2 where the author said individuals could be guilty of defamation even if it were unintentional.

"...a Defendant can be guilty of defamation if he makes a defamatory statement that is understood to refer to the Plaintiff, even if he has no intention of defaming and did not realize that he was doing so."

Justice Clearwater found the words "not reliable" to carry an ordinary meaning that the Plaintiffs could not be trusted... are not trustworthy, credible, responsible or honest. He found the Councillor was not deliberate in what he said, but was negligent in saying it.

The Justice, however, determined a defence of qualified privilege applied in the circumstances of this defamatory statements. The Councillor, and all councillors, had an obligation and duty to debate and discuss the relative merits and abilities of all bidders. In these circumstances, a public council meeting was such an occasion for a qualified privilege. While finding the Councillor's words negligent, Justice Clearwater could not infer malice or a degree of recklessness to infer malice and therefore the defence of qualified privilege remained intact. The Court upheld the Councillor's right to participate in a debate of issues properly before the Council and dismissed the claim in defamation.

Justice Clearwater reduced the costs to be awarded to the RM by 50 per cent notwithstanding their success. The lack of investigation done by the Committee was the reason. In addition, the Justice felt an apology was owed by the RM to Shingler and McKinnon.

This case confirms that Manitoba Courts will accept the defence of qualified privileges. However, this defence is not as strong as it appears. The defence can only be claimed if the comment was made in good faith and with honest belief in its truth. If a Plaintiff can prove malice, the defence will fail. Malice can be found where the Defendant recklessly makes an untrue defamatory statement, without considering or caring whether it be true or not.

The finding of recklessness can simply be a matter of a judge's perspective and a slight twist on the evidence may give rise to a concern by the judge that the person was reckless. If recklessness is found, the Councillor and the Municipality can be found liable. In this case, Justice Clearwater did not find the Councillor reckless. He found that the Councillor could not have believed his statement that the pair were "not reliable" but that it was an innocent belief and not made recklessly. However, a different Judge on a different day could have found recklessness and, therefore, malice.

What to consider from this case
While you can't prevent every law suit, steps can be taken to prevent an appearance before a Court both for the Council and Councillors:

1. Advertise tenders with words to the effect that, "Lowest or any tender will not necessarily be accepted."
2. Note in your ad that a local preference rule will not be in effect if you do prefer local businesses. Generally, this means a local contractor within 10 per cent of the lowest bid will be favoured.
3. If your committees are mandated to investigate, make sure it is done properly. This may mean contacting the tendering directly to discuss their viability. If you have concerns, ask for references.
4. Try not to meet privately with individuals who are tendering. Provide an information sheet so they may have their questions answered without approaching an individual Councillor. Meeting with an individual privately raises questions about what was said and makes it difficult for the Councillor later. Also, others who are tendering may believe there was preferential treatment.
5. Be careful with your comments during public hearings. If you have a concern regarding the viability of a company, ask that your concerns be investigated by either a committee or your CAO.