Legal Case Summary
Harvela Investments v Royal Trust Co of Canada [1986] AC 207
FORMATION OF CONTACT
Facts
The first defendant held shares in company. By means of a telex communication they invited the claimant and the second defendant to make an offer to purchase shares by sealed tender. They stated in this invitation that they bound themselves to accept the highest offer. The claimant made a bid for a fixed sum; the second defendant made a bid for a fixed sum or alternatively for ‘$101,000 in excess of any other offer’, whichever was to be higher. The first defendant accepted the bid made by the second defendant, despite the fact that the fixed sum which they offered was lower than that offered by the claimant.
Issue
The issue was whether the second defendant’s referential bid was invalid, and by extension whether the first defendant was bound to accept the claimant’s offer as the highest valid bid.
Decision/Outcome
The House of Lords held that the referential bid was invalid, and as such, the first defendant was bound to accept the claimant’s offer. It reasoned that to allow a referential bid would create the possibility of conflicting obligations for the first defendant (had both parties made a bid offering a certain sum in excess of any other offer), in which case the offeror would be bound by the terms of its own promise to accept both offers. This would therefore be an unreasonable construction of the invitation to tender. It would also undermine the purpose of a sealed tender, which is to prevent a bid being made based on the sum offered by the competitor.
Updated 19 March 2026
This summary of Harvela Investments Ltd v Royal Trust Co of Canada (CI) Ltd [1986] AC 207 remains legally accurate. The House of Lords decision has not been overruled or materially qualified by subsequent case law, and no statutory changes affect its application to the law of contract formation. The case continues to be cited as good authority on the validity of referential bids in sealed tender processes and the construction of invitations to tender. One minor point of terminology: the article refers to a ‘claimant’, but as this was a House of Lords appeal decided before the Civil Procedure Rules 1998 came into force, the correct historical term would be ‘plaintiff’. This does not affect the legal accuracy of the summary.
