Tercon Heads For Supreme Court Showdown
The Supreme Court of Canada (“SCC”) recently granted leave to appeal in Tercon Contractors Ltd v British Columbia (Transportation and Highways), 2007 BCCA 592 [Tercon]. The British Columbia Court of Appeal’s (“BCCA”) controversial decision in Tercon raises a fundamental question: If the courts take a “hands-off” approach to tendering infractions, who will protect the integrity of the bidding process? The following case comment revisits the far-ranging implications of a case that has sent tendering law into a tailspin of uncertainty.
The BCCA decision enforced a limitation of liability provision contained in a government tender call and reversed a trial decision that had originally awarded over $3 million in damages against the government.
The original March 2006 decision of the British Columbia Supreme Court overrode a limitation of liability clause in the government’s tender call and found the British Columbia government liable for $3.3 million for awarding a contract to a non-compliant bidder.
The case involved a tender call for the construction of a gravel highway in the Nass Valley of British Columbia. One of the unsuccessful bidders sued, alleging that the contract was awarded to a non-compliant competitor. The tender call rules clearly prohibited joint venture bids. Notwithstanding this rule, the government awarded the contract to a low bid submitted by a joint venture. While the awarded contract was styled to reflect only one of the two joint venture parties as the prime contractor, the trial court saw through the government’s attempted bid repair.
The trial court determined that the bid was made by a non-compliant joint venture and found that the government breached its tendering law duties. It then considered the applicability of the following limitation of liability provision contained in the tender call:
Except as expressly and specifically permitted in these Instructions to Proponents, no Proponent shall have any claim for any compensation of any kind whatsoever, as a result of participating in this RFP, and by submitting a proposal each proponent shall be deemed to have agreed that it has no claim.
The trial court noted that the courts have discretion to limit the enforceability of such exclusionary clauses: (a) within the tendering context due to policy considerations; and (b) more generally under contract law based on doctrines such as fundamental breach, unconscionability, unfairness and unreasonableness. The trial court then concluded that it would not allow the government to shield its conduct behind the exclusionary clause contained in the tender call. However, in December 2007, the BCCA granted the government’s appeal and reversed the trial decision’s finding of liability. The BCCA found the above noted limitation of liability clause to be enforceable and allowed the government to avoid liability after accepting the non-compliant bid.
With respect to the significant public policy implications of allowing government institutions to receive binding bids while contracting out of their corresponding legal duties, the BCCA concluded that the solution rested in bidders opting out of such tendering processes rather than in further judicial intervention. Yet, allowing purchasers to avoid their fairness duties in formal tendering processes by relying on limitation of liability provisions seems to fly in the face of the more nuanced treatment of privilege clauses in prior decisions. For example, in its April 1999 decision in MJB Enterprises Ltd v Defence Construction (1951) Ltd,  1 SCR 619 [MJB] the SCC limited the scope of the privilege clause (which typically reserves the right to “reject any and all tenders, low bid not necessarily accepted”) by finding that it did not permit the purchaser to accept non-compliant bids.
As MJB illustrates, a purchaser’s discretion is typically limited to the pool of compliant bids and tempered by its overarching duty to act fairly and in good faith. This protects the integrity of the bidding process and recognizes the rights of compliant bidders. However, the Tercon BCCA decision purports to allow a purchaser to receive binding bids and to then bypass fairness obligations or judicial scrutiny by using a broad limitation of liability provision. This judicial “hands off” approach seems at odds with the traditional role of the court as protector of the integrity of the bidding process. It will now be left for the SCC to clarify how the balanced approach to reserved rights and implied duties reflected in the MJB decision can be reconciled with the BCCA’s Tercon reversal, which apparently empowers purchasers to dispense with any duties by simply substituting a limitation of liability provision in place of a traditional privilege clause. Until these matters are reconciled, this will serve as a source of significant uncertainty for purchasers and bidders alike in the years to come.