Executive Summary: Key Legal and Evidentiary Issues

• Ongoing applicability of the BSDQ Code after refusal of the sole bid filed in a recall of tenders and whether a second recall was required.
• Contractual nature of the BSDQ Code as a collective framework imposing obligations of at least result on a signatory general contractor.
• Breach arising from awarding a BSDQ-covered subcontract for interior systems directly to a non-signatory (Lanoue) outside the BSDQ process.
• Characterisation and enforcement of the 5% clause pénale under articles 1622–1623 C.c.Q., including the threshold for judicial reduction.
• Allocation and discharge of the burden of proof regarding prima facie prejudice to ACQ and alleged abusiveness or disproportionality of the penalty.
• Use of documentary evidence and circumstantial proof to show that Lavacon had effectively agreed with Lanoue before the BSDQ recall concluded.

Facts of the case

The case centres on a school construction project undertaken for the Commission scolaire des Trois-Lacs, which chose to submit the project to the Bureau des soumissions déposées du Québec (BSDQ) so that the tender process would be governed by the BSDQ Code. The BSDQ is a private body created by three industry groups: the Association de la construction du Québec (ACQ), the Corporation des maîtres électriciens and the Corporation des maîtres mécaniciens en tuyauterie. Its Code de soumission sets common rules for the submission of bids and the award of contracts for those who adhere by signing a formal engagement. Lavacon, acting as general contractor, signed the engagement referred to in article C-2 of the Code and was therefore bound by the BSDQ rules for this project. Within this framework, Lavacon submitted its general contractor bid for the school construction through the BSDQ and, as the lowest compliant bidder, was awarded the main contract by the Commission scolaire. As is typical on such projects, Lavacon intended to subcontract various portions of the work, including the “systèmes intérieurs” (interior systems), a specialty subject to the BSDQ regime. It received two BSDQ bids for this subcontract package but took the position that both were non-compliant with the plans and specifications and were priced at unreasonable levels compared to its own internal estimate. On that basis, Lavacon requested from the BSDQ’s Comité spécial a recall of tenders (rappel d’offres) for the interior systems package. The Committee authorised this recall, but only on the ground of non-conformity of the two original bids; it did not rule on whether their prices were unreasonable. A new closing date for the recall was then fixed. When the recall closed, only one subcontractor, one of the initial two, submitted a new bid via the BSDQ. Lavacon refused this single recall bid and deliberately did not take possession of it, even though it claimed to be convinced that the price was unreasonable; as a result, it never even saw the actual figure.

The BSDQ Code and the parties’ contractual framework

Parallel to the BSDQ recall process, Lavacon had been exploring options outside the BSDQ system. Construction Pascal Lanoue inc. (Lanoue) provided Lavacon with a direct bid for the same interior systems work. Lanoue was not a signatory to the BSDQ engagement contemplated by article C-1/C-2 and did not submit any bid through the BSDQ on this project. Despite this, after refusing the sole recall bid, Lavacon proceeded to award the interior systems subcontract directly to Lanoue and later signed a written subcontract with Lanoue. The ACQ sued Lavacon to enforce the contractual penalty provided in its BSDQ engagement, seeking 5% of the price of the subcontract concluded with Lanoue on the basis that this contract had been awarded in breach of the Code. The Court began its analysis by characterising the BSDQ Code as a “contrat collectif” embedded with rules that are, in effect, of public order for the participating construction market. Its stated objectives include facilitating comparison of bids, ensuring serious efforts to offer the best price, establishing common rules for all tenders, and protecting project owners and the public against abuses in the tender and contract award process. By signing the engagement under article C-2, Lavacon expressly bound itself to comply with this framework and accepted in advance the possibility of a stipulated penalty in case of contravention. The Court treated this engagement as a voluntary but robust contractual commitment: the Code is not simply a guideline but a binding instrument that structures how bids must be transmitted, how recalls must be requested and processed, and how subcontracts must be awarded where the BSDQ applies.

Whether the BSDQ Code still applied after refusal of the sole recall bid

Lavacon’s central legal argument was that once it refused the unique bid submitted in the recall process, it was in a kind of regulatory vacuum not contemplated by the Code. It argued that the BSDQ Code did not expressly regulate this scenario and that, as a result, the Code simply ceased to apply, freeing it to proceed however it deemed commercially reasonable. The Court rejected this view. It pointed to article I-1 of the Code, which expressly allows a recall of tenders where only a single bid has been filed. Critically, nothing in that text limits the number of possible recalls; the provision describes the circumstances that justify a recall but does not say it can occur only once. The judge then addressed Lavacon’s reliance on article 1432 C.c.Q., which instructs that in case of doubt a contract is interpreted in favour of the party who undertook the obligation or the adhering or consumer party. That rule applies only where there is genuine ambiguity. Here, the Court found the Code clear: its language, structure and preamble all show that it governs the entire tender and award process for covered specialties until a subcontract is actually and validly awarded in accordance with its rules. Because the interior systems subcontract had not been awarded through a Code-compliant process when Lavacon refused the sole recall bid, the BSDQ framework remained in force. In practical terms, the Court held that Lavacon, confronted with what it saw as an “impasse”, had a concrete option within the Code: it could and should have sought another recall of tenders, this time relying on the pathway in article I-1 (single bid situation) and, if necessary, article I-1.1(c) to raise the issue of unreasonable price once it had taken possession of the recall bid. Simply declaring the Code inapplicable and contracting outside the system was not a lawful option.

Breach in awarding the subcontract outside the BSDQ

On the question of breach, the factual picture was not seriously disputed. The project was submitted to BSDQ. Lavacon had used the BSDQ system to obtain and secure the main contract. For the interior systems package, Lanoue was not a BSDQ signatory and did not file a bid via BSDQ, while the one recall bid that did come through BSDQ was refused. Against that backdrop, the Court examined key Code provisions. Article J-2 provides that the general contractor (“entrepreneur destinataire”) is obliged to award the subcontract for a covered specialty to the lowest compliant bidder who has sent its bid through the BSDQ and whose bid the contractor has taken possession of, subject to narrow exceptions. The second paragraph further states that the contractor cannot award the contract except to a bidder who has addressed a compliant bid through the BSDQ, at the prices and conditions of that BSDQ bid. Article D-2 adds that all bids for covered specialties must be transmitted exclusively via the BSDQ’s electronic tendering system and that no bidder may submit a bid directly to the contractor. Taken together, these clauses make it clear that Lavacon had no right to accept a direct bid from Lanoue or to award the interior systems subcontract otherwise than through the BSDQ process. The Court then considered the nature of Lavacon’s obligations. For signatory general contractors, the duty to proceed through BSDQ is not an obligation of mere diligence: it is at least an obligation of result, if not of guarantee. Once a subcontract is awarded outside the BSDQ process in a covered project, fault is presumed. The contractor cannot defend itself by showing that it took reasonable care; it must instead invoke and prove exceptional exonerating causes such as force majeure or, in some instances, the creditor’s interference. Lavacon did not allege or prove any such cause. The judge therefore concluded that Lavacon had committed a contractual fault by awarding the subcontract to Lanoue without BSDQ intermediation, in direct violation of articles J-2 and D-2 and of its engagement under article C-2.

Enforceability and quantum of the 5% penalty clause

The Court then turned to the clause pénale at the heart of the monetary claim. Under the engagement corresponding to article C-2, Lavacon agreed that, in case of contravention of the Code, it would pay, as liquidated damages fixed in advance, a penalty equal to 5% of the price of the contract or contracts concluded in violation of the Code. The judge held that this clearly meets the definition of a penalty clause under article 1622 C.c.Q., since it anticipates and liquidates in advance the damages arising from non-performance of contractual obligations. Lavacon asked the Court to annul this clause or, failing that, to reduce the amount of the penalty. On annulment, the Court was categorical: article 1623 C.c.Q. empowers courts to reduce the stipulated penalty where there is partial performance that benefits the creditor or where the penalty is abusive, but it does not allow total nullification. Nullity of abusive clauses is governed instead by article 1437 C.c.Q., which applies to consumer or adhesion contracts. Following established case law on the BSDQ framework, the judge held that the BSDQ Code and its engagement clauses do not constitute a consumer contract and are not the kind of adhesion contract targeted by article 1437; as such, annulment for abuse was not available. On reduction, the Court analysed the burden of proof under article 1623(1). A creditor invoking a penalty clause is entitled to the stipulated amount without proving its actual loss, once it shows prima facie that some prejudice has occurred. The ACQ satisfied this threshold by pointing to the time, effort and financial resources it devotes to developing, maintaining and enforcing the BSDQ regime. This shifted the onus to Lavacon to show either that the ACQ suffered no real prejudice or that the 5% penalty was abusive in light of the harm and circumstances. The Court noted that a penalty can be abusive if there is a clear disproportion between the penalty and the probable loss, or if its application is unreasonable in context. However, it emphasised that a penalty clause has both compensatory and punitive (or “comminatory”) functions: it is designed not only to compensate but to deter breaches and encourage ex ante compliance. For that reason, the mere fact that a penalty might exceed the precisely provable loss does not, by itself, render it abusive. In this case, Lavacon failed to demonstrate that ACQ suffered no prejudice or that the 5% penalty was grossly disproportionate. Nor did the surrounding circumstances justify reduction. The Court rejected Lavacon’s arguments based on scheduling pressure, the supposed futility of a second recall, alleged legal advice, and the existence of another lawsuit by a disgruntled bidder, finding that none of these factors undercut the reasonableness of enforcing the penalty as agreed.

Evidentiary assessment of Lavacon’s conduct and intention

The evidentiary record was important in shaping the Court’s view of Lavacon’s conduct. Lavacon claimed that by the time of the recall in February 2020, it was under intense pressure from the project architects to finalise the interior systems subcontract because the structural work was advancing and any delay threatened the school’s timely completion. Its president, Luigi Pallotta, testified that these circumstances pushed him to conclude the subcontract with Lanoue. The Court, however, found that Lavacon’s own delay contributed to this time pressure: it had waited until 29 November 2019—around three and a half months after receiving the original two bids in mid-August—before asking for a recall. Had it acted sooner, the scheduling constraints would have been less acute. The judge also noted that, by refusing to take possession of the sole recall bid, Lavacon deprived itself of the possibility of invoking article I-1.1(c) to seek a further recall on the ground of unreasonable price, a route that would have kept it within the BSDQ system. On the alleged legal advice, the evidence showed at most that Lavacon’s lawyer commented that the situation was not explicitly addressed in the Code. There was no clear, positive opinion that Lavacon could safely ignore the BSDQ process and contract directly with a non-signatory. This fell short of a good-faith legal-opinion defence. Lavacon further argued that it believed Lanoue was a BSDQ signatory. Yet, in cross-examination, Pallotta admitted that by the time of the recall, it was evident Lanoue had not signed any BSDQ engagement, since Lanoue did not participate in the recall via BSDQ. Nonetheless, Lavacon signed the subcontract with Lanoue only days after the recall deadline, fully aware of Lanoue’s status. The Court attached particular importance to documents demonstrating that an arrangement between Lavacon and Lanoue effectively pre-dated the recall process. On 21 November 2019, Lanoue sent Lavacon a direct bid for the interior systems work on the school project at a given price. That price later appeared as the contract price in the written subcontract between them. On 5 December 2019, Lanoue formally notified the Commission scolaire of a subcontract with Lavacon at that same price, with copies sent to Lavacon and its surety, Intact. On 9 December 2019, a supplier notified Lavacon of a materials contract entered into with Lanoue for the same project, again copying Lavacon and Intact. The Court considered these documents to be serious, precise and concordant circumstantial evidence that Lavacon and Lanoue had already agreed, in substance, on the interior systems subcontract before the BSDQ recall was held and before the sole recall bid was refused. This supported the conclusion that Lavacon’s breach was deliberate: it obtained the main contract as the lowest BSDQ-compliant bidder but then sought to restore the project’s profitability by stepping outside the BSDQ process to secure a lower-priced subcontract aligned with its own optimistic internal estimate.

Final ruling and monetary outcome

On the basis of this legal and evidentiary analysis, the Court fully granted the ACQ’s claim. It held that the BSDQ Code continued to apply after Lavacon refused the sole recall bid, that Lavacon breached the Code by awarding the interior systems subcontract directly to a non-signatory outside the BSDQ mechanism, and that the 5% penalty clause in the engagement was valid, enforceable and not abusive. As a result, the Court condemned Les Constructions Lavacon inc. to pay the Association de la construction du Québec a contractual penalty of 119,980 dollars, corresponding to 5% of the price of the subcontract concluded with Lanoue in violation of the Code, together with interest and the additional indemnity provided by article 1619 C.c.Q. from 23 May 2022, plus judicial costs. The successful party is therefore the Association de la construction du Québec, in whose favour a principal amount of 119,980 dollars was ordered, along with interest, the statutory additional indemnity and costs, although the exact total monetary value of interest, indemnity and costs cannot be determined from the text of the judgment alone.