Montreal not required to pay back $1M to recycling company Ricova

Quebec's Court of Appeal has reversed a lower court's decision requiring the City of Montreal to reimburse $1 million to recycling company Ricova after the company failed to fulfill its contract with the borough of Côte-des-Neiges—Notre-Dame-de-Grâce (CDN-NDG) in 2017.

The Court of Appeal's ruling on Wednesday centers on penalties the city imposed on the recycling giant for ending its contract to collect waste in the borough.

Ricova Services Inc. obtained the contract after the city put out a call for tenders with incorrect data about the work that needed to be done — information that was soon after corrected but contributed to Ricova's inability to hold up its end of the agreement. 

Ricova filed a lawsuit in 2019, seeking reimbursement in the amount of $1,014,903 for penalties it claimed were "unlawfully collected" by the city after the company ended its agreement due to an inability to fulfill its obligations.

A Quebec Superior Court judge ruled in 2024 that Montreal must reimburse Ricova because it had led the recycling company to think it would be released from its obligations once a new contract was awarded to a third-party company.

In his testimony in the lower court proceedings, Ricova president and CEO Dominic Colubriale said Montreal was told the company would go out of business if it stayed in the contract.

"The option to continue the contract wasn't really an option, because number one, we didn't have the trucks. Number two, we were going to go out of business," Colubriale said.

Ricova terminated the agreement in 2018, citing losses 

Shortly after the city launched a call for tenders on March 27, 2017, it noticed that it had incorrectly entered only half of the average number of loads, doors and trucks in CDN-NDG​​​​​, the ruling says. The city corrected the mistake on March 30.

However, Sansfaçon found that Ricova placed a bid on a contract with the borough and calculated its pricing without taking into account the corrections.

Ricova first struggled to meet demands in the borough in December 2017.

The multinational company based on Montreal's South Shore drew ire for allowing recycling to pile up for weeks while having a contract to collect household waste and compost with many Montreal boroughs.

By February 2018, the company submitted to Montreal a notice of termination of the agreement, citing a "considerable loss of revenue."

"It is difficult for an SME (Small to Medium-sized Enterprise) to be able to endure such considerable losses in the long term," an excerpt of the notice reads. "We would certainly have liked to continue our services in the -- borough had it not been for these losses."

In 2018, CDN-NDG had fined the company more than $60,000 for allowing recycling to accumulate on streets.

'Contractor had to bear the consequences,' says judge

On Wednesday, Judge Stéphane Sansfaçon said in his decision that the City of Montreal "never gave Ricova a false sense of security " or led the company to believe that it would waive penalties for breaking the contract.

"Given the previously stated conclusion that Ricova's mistake was inexcusable, the contractor had to bear the consequences," the ruling reads.

The sum the city received represents the difference between the price in Ricova's bid and the price of the contract awarded to a third-party company.

In 2022, the City of Montreal banned Ricova from bidding on future contracts after the city's inspector general issued a report in March of that year alleging the company did not pay Montreal about $1 million of recycling profits.

Sansfaçon wrote that the expenses were justified because they "address the shortcomings in Ricova's execution of the contract." 

However, he ordered the City of Montreal to reimburse Ricova $8,971.32 with interest and additional compensation after concluding that the company had "no other choice but to attempt to terminate the contract" to minimize future losses.