## Facts

- Royal Trust, acting as trustee of shares, circulated an invitation for sealed bids among interested purchasers.
- The invitation stated that the trustee would sell the shares to the “highest offer” received by a specified deadline and that bids had to be made in writing and remain open for acceptance for a short period.
- Harvela, one of the invitees, submitted a fixed monetary bid expressed in clear terms.
- Outerbridge, another invitee, instead submitted a referential bid: it offered either a specific sum or “\$101,000 in excess of any other offer,” whichever was higher.
- The invitation did not expressly forbid referential bids, nor did it outline a mechanism for resolving competing formula bids.
- After opening the envelopes, Royal Trust treated Outerbridge’s referential formula as producing the highest figure and resolved to accept it.
- Harvela challenged this approach, contending that the trustee was contractually obliged to accept the highest valid fixed bid and that the referential bid was invalid.

## Issues

1. Does an invitation to participate in a sealed-bid tender constitute a unilateral offer to sell to the compliant highest bidder, thereby creating contractual obligations once bids are submitted?
2. In a sealed-bid context, is a referential bid—one whose amount is defined by reference to other bids—valid when the invitation is silent on the point?
3. If referential bids are invalid, what consequences follow for the inviter’s decision, and how should the bids be ranked?

## Decision

- The House of Lords held that the invitation was a unilateral contractual offer to sell to the person who submitted the highest compliant bid by the deadline. Accordingly, once compliant bids were received, the inviter was bound to award the contract to the highest of those bids.
- Referential bids were held invalid in this setting for two primary reasons:
  - They introduce an element of contingency that prevents all bidders from knowing, at the point of submission, the amount of their commitment.
  - They distort the competitive equality that sealed bids are designed to achieve, because the referential bidder is safeguarded against being out-bid without bearing the burden of fixing a firm price.
- Since Outerbridge’s bid did not comply with the implied term that bids must state a fixed monetary amount, it could not be considered. Harvela’s fixed bid therefore ranked first and had to be accepted.
- Royal Trust was ordered to complete the sale in favour of Harvela at the price stated in its bid.

## Legal Principles

- Offer and acceptance in tendering: Where an invitation promises to accept the highest bid, it may itself amount to an offer of a unilateral contract. Bidders accept that offer by submitting a conforming bid.
- Implied term of fixed-sum bidding: Even if the invitation is silent, the very nature of a sealed-bid tender implies that bids must be unconditional and capable of immediate comparison.
- Equality of opportunity: For sealed bids to remain fair, each participant must bid without knowledge of competitors’ figures and without any mechanism to adjust after the fact; referential bids defeat this premise.
- Certainty: A contract requires certainty of terms. A formula tied to “any other offer” leaves the final price indeterminate at the moment of purported acceptance and therefore cannot give rise to a binding sale.
- Trustee duties and tender obligations: A trustee who has undertaken to follow a specified tender process must comply with it. Acting outside those confines may not only breach contract but also fiduciary duty by preferring an invalid bid.

## Conclusion

The judgment clarifies that a sealed-bid invitation promising to accept the highest bid creates enforceable contractual duties toward compliant bidders. Referential bids, unless expressly allowed, do not satisfy the requirement of a fixed, certain offer and thus cannot displace a proper fixed-sum bid. Royal Trust, having promised to sell to the highest valid bidder, was bound to complete the transaction with Harvela. The ruling strengthens the need for precision and equality in competitive tender processes and confirms that courts will give effect to implied terms necessary to protect those objectives.


Harvela Investments Ltd v Royal Trust Co of Canada (CI) Ltd [1986] AC 207 (HL)