SUPREME
COURT OF CANADA
Citation: Tercon Contractors
Ltd. v. British Columbia (Transportation and Highways), 2010
SCC 4, [2010] 1 S.C.R. 69
|
Date: 20100212
Docket: 32460
|
Between:
Tercon Contractors
Ltd.
Appellant
and
Her
Majesty The Queen in Right of the Province of British
Columbia,
by her Ministry of Transportation and Highways
Respondent
‑ and ‑
Attorney General
of Ontario
Intervener
Coram: McLachlin C.J. and Binnie, LeBel, Deschamps, Fish,
Abella, Charron, Rothstein and Cromwell JJ.
Reasons for
Judgment:
(paras. 1 to 80)
Dissenting
Reasons:
(paras. 81 to 142)
|
Cromwell J. (LeBel, Deschamps, Fish and Charron JJ.
concurring)
Binnie J. (McLachlin C.J. and
Abella and Rothstein JJ. concurring)
|
______________________________
Tercon Contractors Ltd. v. British Columbia (Transportation
and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69
Tercon Contractors Ltd. Appellant
v.
Her Majesty
The Queen in Right of the Province of British
Columbia, by her Ministry of Transportation and Highways Respondent
and
Attorney General of Ontario Intervener
Indexed as: Tercon Contractors Ltd. v. British
Columbia (Transportation and Highways)
2010 SCC 4
File No.: 32460.
2009: March 23; 2010: February 12.
Present: McLachlin C.J. and Binnie, LeBel,
Deschamps, Fish, Abella, Charron, Rothstein and Cromwell JJ.
on appeal from the court of appeal
for british columbia
Contracts — Breach of terms — Tender — Ineligible
bidder — Exclusion of liability clause — Doctrine of fundamental breach —
Province issuing tender call for construction of highway — Request for
proposals restricting qualified bidders to six proponents — Province accepting
bid from ineligible bidder — Exclusion clause protecting Province from
liability arising from participation in tendering process — Whether Province
breached terms of tendering contract in entertaining bid from ineligible bidder
— If so, whether Province’s conduct fell within terms of exclusion clause — If
so, whether court should nevertheless refuse to enforce the exclusion clause
because of unconscionability or some other contravention of public policy.
The Province of British Columbia issued a request for
expressions of interest (“RFEI”) for the design and construction of a highway.
Six teams responded with submissions including Tercon and Brentwood. A few
months later, the Province informed the six proponents that it now intended to
design the highway itself and issued a request for proposals (“RFP”) for its
construction. The RFP set out a specifically defined project and contemplated
that proposals would be evaluated according to specific criteria. Under its
terms, only the six original proponents were eligible to submit a proposal;
those received from any other party would not be considered. The RFP also
included an exclusion of liability clause which provided: “Except as expressly
and specifically permitted in these Instructions to Proponents, no Proponent
shall have any claim for 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.” As it lacked expertise in
drilling and blasting, Brentwood entered into a pre‑bidding agreement
with another construction company (“EAC”), which was not a qualified bidder, to
undertake the work as a joint venture. This arrangement allowed Brentwood to
prepare a more competitive proposal. Ultimately, Brentwood submitted a bid in
its own name with EAC listed as a “major member” of the team. Brentwood and
Tercon were the two short‑listed proponents and the Province selected
Brentwood for the project. Tercon successfully brought an action in damages
against the Province. The trial judge found that the Brentwood bid was, in
fact, submitted by a joint venture of Brentwood and EAC and that the Province,
which was aware of the situation, breached the express provisions of the
tendering contract with Tercon by considering a bid from an ineligible bidder
and by awarding it the work. She also held that, as a matter of construction,
the exclusion clause did not bar recovery for the breaches she had found. The
clause was ambiguous and she resolved this ambiguity in Tercon’s favour. She
held that the Province’s breach was fundamental and that it was not fair or
reasonable to enforce the exclusion clause in light of the Province’s breach.
The Court of Appeal set aside the decision, holding that the exclusion clause
was clear and unambiguous and barred compensation for all defaults.
Held (McLachlin C.J.
and Binnie, Abella and Rothstein JJ. dissenting): The appeal should be
allowed. The Court agreed on the appropriate framework of analysis but divided
on the applicability of the exclusion clause to the facts.
The Court: With respect
to the appropriate framework of analysis the doctrine of fundamental breach
should be “laid to rest”. The following analysis should be applied when a
plaintiff seeks to escape the effect of an exclusion clause or other
contractual terms to which it had previously agreed. The first issue is
whether, as a matter of interpretation, the exclusion clause even applies to
the circumstances established in evidence. This will depend on the court’s
interpretation of the intention of the parties as expressed in the contract.
If the exclusion clause applies, the second issue is whether the exclusion
clause was unconscionable and thus invalid at the time the contract was made.
If the exclusion clause is held to be valid at the time of contract formation
and applicable to the facts of the case, a third enquiry may be raised as to
whether the court should nevertheless refuse to enforce the exclusion clause
because of an overriding public policy. The burden of persuasion lies on the
party seeking to avoid enforcement of the clause to demonstrate an abuse of the
freedom of contract that outweighs the very strong public interest in their
enforcement. Conduct approaching serious criminality or egregious fraud are
but examples of well‑accepted considerations of public policy that are
substantially incontestable and may override the public policy of freedom to
contract and disable the defendant from relying upon the exclusion clause.
Despite agreement on the appropriate framework of analysis, the court divided
on the applicability of the exclusion clause to the facts of this case as set
out below.
Per LeBel, Deschamps,
Fish, Charron and Cromwell JJ.: The Province breached the express
provisions of the tendering contract with Tercon by accepting a bid from a
party who should not even have been permitted to participate in the tender
process and by ultimately awarding the work to that ineligible bidder. This
egregious conduct by the Province also breached the implied duty of fairness to
bidders. The exclusion clause, which barred claims for compensation “as a
result of participating” in the tendering process, did not, when properly
interpreted, exclude Tercon’s claim for damages. By considering a bid from an
ineligible bidder, the Province not only acted in a way that breached the
express and implied terms of the contract, it did so in a manner that was an
affront to the integrity and business efficacy of the tendering process.
Submitting a compliant bid in response to a tender call
may give rise to “Contract A” between the bidder and the owner. Whether a
Contract A arises and what its terms are depends on the express and implied
terms and conditions of the tender call and the legal consequences of the
parties’ actual dealings in each case. Here, there is no basis to interfere
with the trial judge’s findings that there was an intent to create contractual
obligations upon submission of a compliant bid and that only the six original
proponents that qualified through the RFEI process were eligible to submit a
response to the RFP. The tender documents and the required ministerial
approval of the process stated expressly that the Province was contractually
bound to accept bids only from eligible bidders. Contract A therefore could
not arise by the submission of a bid from any other party. The trial judge
found that the joint venture of Brentwood and EAC was not eligible to bid as
they had not simply changed the composition of their team but, in effect, had
created a new bidder. The Province fully understood this and would not
consider a bid from or award the work to that joint venture. The trial judge
did not err in finding that in fact, if not in form, Brentwood’s bid was on
behalf of a joint venture between itself and EAC. The joint venture provided
Brentwood with a competitive advantage in the bidding process and was a
material consideration in favour of the Brentwood bid during the Province’s
evaluation process. Moreover, the Province took active steps to obfuscate the
reality of the true nature of the Brentwood bid. The bid by the joint venture
constituted “material non‑compliance” with the tendering contract and breached
both the express eligibility provisions of the tender documents, and the
implied duty to act fairly towards all bidders.
When the exclusion clause is interpreted in harmony with
the rest of the RFP and in light of the commercial context of the tendering
process, it did not exclude a damages claim resulting from the Province
unfairly permitting an ineligible bidder to participate in the tendering
process. The closed list of bidders was the foundation of this RFP and the
parties should, at the very least, be confident that their initial bids will
not be skewed by some underlying advantage in the drafting of the call for
tenders conferred only upon one potential bidder. The requirement that only
compliant bids be considered and the implied obligation to treat bidders fairly
are factors that contribute to the integrity and business efficacy of the
tendering process. The parties did not intend, through the words found in this
exclusion clause, to waive compensation for conduct, like that of the Province
in this case, that strikes at the heart of the tendering process. Clear
language would be necessary to exclude liability for breach of the implied
obligation, particularly in the case of public procurement where transparency
is essential. Furthermore, the restriction on eligibility of bidders was a key
element of the alternative process approved by the Minister. When the
statutory provisions which governed the tendering process in this case are
considered, it seems unlikely that the parties intended through this exclusion
clause to effectively gut a key aspect of the approved process. The text of
the exclusion clause in the RFP addresses claims that result from
“participating in this RFP”. Central to “participating in this RFP” was participating
in a contest among those eligible to participate. A process involving other
bidders — the process followed by the Province — is not the process called for
by “this RFP” and being part of that other process is not in any meaningful
sense “participating in this RFP”.
Per McLachlin C.J.
and Binnie, Abella and Rothstein JJ. (dissenting): The Ministry’s
conduct, while in breach of its contractual obligations, fell within the terms
of the exclusion compensation clause. The clause is clear and unambiguous and
no legal ground or rule of law permits a court to override the freedom of the
parties to contract with respect to this particular term, or to relieve Tercon
against its operation in this case. A court has no discretion to refuse to
enforce a valid and applicable contractual term unless the plaintiff can point
to some paramount consideration of public policy sufficient to override the
public interest in freedom of contact and defeat what would otherwise be the
contractual rights of the parties. The public interest in the transparency and
integrity of the government tendering process, while important, did not render
unenforceable the terms of the contract Tercon agreed to.
Brentwood was a legitimate competitor in the RFP process
and all bidders knew that the road contract would not be performed by the
proponent alone and required a large “team” of different trades and personnel
to perform. The issue was whether EAC would be on the job as a major sub‑contractor
or identified with Brentwood as a joint venture “proponent” with EAC. Tercon
has legitimate reason to complain about the Ministry’s conduct, but its
misconduct did not rise to the level where public policy would justify the
court in depriving the Ministry of the protection of the exclusion of
compensation clause freely agreed to by Tercon in the contract.
Contract A is based not on some abstract externally
imposed rule of law but on the presumed (and occasionally implied) intent of
the parties. At issue is the intention of the actual parties not what the
court may project in hindsight would have been the intention of reasonable
parties. Only in rare circumstances will a court relieve a party from the
bargain it has made.
The exclusion clause did not run afoul of the statutory
requirements. While the Ministry of Transportation and Highways Act favours
“the integrity of the tendering process”, it nowhere prohibits the parties from
negotiating a “no claims” clause as part of their commercial agreement and
cannot plausibly be interpreted to have that effect. Tercon — a sophisticated
and experienced contractor — chose to bid on the project, including the risk
posed by an exclusion of compensation clause, on the terms proposed by the
Ministry. That was its prerogative and nothing in the “policy of the Act”
barred the parties’ agreement on that point.
The trial judge found that Contract A was breached when
the RFP process was not conducted by the Ministry with the degree of fairness
and transparency that the terms of Contract A entitled Tercon to expect. The
Ministry was at fault in its performance of the RFP, but the process did not
thereby cease to be the RFP process in which Tercon had elected to participate.
The interpretation of the majority on this point is
disagreed with. “[P]articipating in this RFP” began with “submitting a
Proposal” for consideration. The RFP process consisted of more than the final
selection of the winning bid and Tercon participated in it. Tercon’s bid was
considered. To deny that such participation occurred on the ground that in the
end the Ministry chose a Brentwood joint venture (an ineligible bidder) instead
of Brentwood itself (an eligible bidder) would be to give the clause a strained
and artificial interpretation in order, indirectly and obliquely, to avoid the
impact of what may seem to the majority ex post facto to have been an
unfair and unreasonable clause.
Moreover, the exclusion clause was not unconscionable.
While the Ministry and Tercon do not exercise the same level of power and
authority, Tercon is a major contractor and is well able to look after itself
in a commercial context so there is no relevant imbalance of bargaining power.
Further, the clause is not as draconian as Tercon portrays it. Other remedies
for breach of Contract A were available. The parties expected, even if they
did not like it, that the “no claims” clause would operate even where the
eligibility criteria in respect of the bid (including the bidder) were not
complied with.
Finally, the Ministry’s misconduct did not rise to the
level where public policy would justify the court in depriving the Ministry of
the protection of the exclusion of compensation clause freely agreed to by
Tercon in the contract.
Cases Cited
By Cromwell J.
Applied: M.J.B.
Enterprises Ltd. v. Defence Construction (1951) Ltd., [1999] 1 S.C.R. 619; Martel Building Ltd. v. Canada, 2000
SCC 60, [2000] 2 S.C.R. 860; considered: Hunter Engineering Co. v.
Syncrude Canada Ltd., [1989] 1 S.C.R. 426; Cahill (G.J.) & Co.
(1979) Ltd. v. Newfoundland and Labrador (Minister of Municipal and Provincial
Affairs), 2005 NLTD 129, 250 Nfld. & P.E.I.R. 145; Guarantee Co. of
North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423; Fraser
Jewellers (1982) Ltd. v. Dominion Electric Protection Co. (1997), 34 O.R.
(3d) 1; referred to: Canadian Pacific Hotels Ltd. v. Bank
of Montreal, [1987] 1 S.C.R. 711; Double N Earthmovers Ltd. v. Edmonton
(City), 2007 SCC 3, [2007] 1 S.C.R. 116; Hillis Oil and Sales Ltd. v.
Wynn’s Canada, Ltd., [1986] 1 S.C.R. 57.
By Binnie J. (dissenting)
Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] 1 S.C.R. 426; The Queen in right of Ontario v. Ron
Engineering & Construction (Eastern) Ltd., [1981] 1 S.C.R. 111; M.J.B.
Enterprises Ltd. v. Defence Construction (1951) Ltd., [1999] 1 S.C.R. 619; Naylor
Group Inc. v. Ellis‑Don Construction Ltd., 2001 SCC 58, [2001] 2 S.C.R.
943; Martel Building Ltd. v. Canada, 2000 SCC 60, [2000] 2 S.C.R. 860; Double
N Earthmovers Ltd. v. Edmonton (City), 2007 SCC 3, [2007] 1 S.C.R. 116; Tercon
Contractors Ltd. v. British Columbia (1993), 9 C.L.R. (2d) 197, aff’d
[1994] B.C.J. No. 2658 (QL); Karsales (Harrow) Ltd. v. Wallis,
[1956] 1 W.L.R. 936; Guarantee Co. of North America v. Gordon Capital Corp.,
[1999] 3 S.C.R. 423; ABB Inc. v. Domtar Inc., 2007 SCC 50, [2007] 3
S.C.R. 461; Re Millar Estate, [1938] S.C.R. 1; Plas‑Tex Canada
Ltd. v. Dow Chemical of Canada Ltd., 2004 ABCA 309, 245 D.L.R. (4th) 650.
Statutes and Regulations Cited
Ministry
of Transportation and Highways Act, R.S.B.C. 1996,
c. 311, ss. 4, 23.
Authors Cited
Hall, Geoff R. Canadian Contractual
Interpretation Law. Markham, Ont.: LexisNexis, 2007.
Kain, Brandon, and Douglas T. Yoshida. “The
Doctrine of Public Policy in Canadian Contract Law”, in Todd L. Archibald
and Randall Scott Echlin, eds., Annual Review of Civil Litigation, 2007.
Toronto: Thomson Carswell, 2007, 1.
McCamus, John D. The Law of Contracts.
Toronto: Irwin Law, 2005.
Waddams, S. M. The Law of
Contracts, 5th ed. Aurora, Ont.: Canada Law Book, 2005.
APPEAL from a judgment of the British Columbia Court of
Appeal (Donald, Mackenzie and Lowry JJ.A.), 2007 BCCA 592, 73 B.C.L.R.
(4th) 201, 40 B.L.R. (4th) 26, 289 D.L.R. (4th) 647, [2008] 2 W.W.R. 410, 249
B.C.A.C. 103, 414 W.A.C. 103, 66 C.L.R. (3d) 1, [2007] B.C.J. No. 2558
(QL), 2007 CarswellBC 2880, setting aside a decision of Dillon J., 2006
BCSC 499, 53 B.C.L.R. (4th) 138, [2006] 6 W.W.R. 275, 18 B.L.R. (4th) 88, 51
C.L.R. (3d) 227, [2006] B.C.J. No. 657 (QL), 2006 CarswellBC 730. Appeal
allowed, McLachlin C.J. and Binnie, Abella and Rothstein JJ.
dissenting.
Chris R. Armstrong, Brian G.
McLean, William S. McLean and Marie‑France Major,
for the appellant.
J. Edward Gouge,
Q.C., Jonathan Eades and Kate Hamm, for the respondent.
Malliha Wilson and
Lucy McSweeney, for the intervener.
The judgment of LeBel, Deschamps, Fish, Charron and
Cromwell JJ. was delivered by
Cromwell J. —
I. Introduction
[1]
The Province accepted a bid from a bidder who was not eligible to
participate in the tender and then took steps to ensure that this fact was not
disclosed. The main question on appeal, as I see it, is whether the Province
succeeded in excluding its liability for damages flowing from this conduct
through an exclusion clause it inserted into the contract. I share the view of
the trial judge that it did not.
[2]
The appeal arises out of a tendering contract between the
appellant, Tercon Contractors Ltd., who was the bidder, and the respondent, Her
Majesty the Queen in Right of the Province of British Columbia, who issued the
tender call. The case turns on the interpretation of provisions in the
contract relating to eligibility to bid and exclusion of compensation resulting
from participation in the tendering process.
[3]
The trial judge found that the respondent (which I will refer to
as the Province) breached the express provisions of the tendering contract with
Tercon by accepting a bid from another party who was not eligible to bid and by
ultimately awarding the work to that ineligible bidder. In short, a bid was
accepted and the work awarded to a party who should not even have been
permitted to participate in the tender process. The judge also found that this
and related conduct by the Province breached the implied duty of fairness to
bidders, holding that the Province had acted “egregiously” (2006 BCSC 499, 53
B.C.L.R. (4th) 138, at para. 150). The judge then turned to the Province’s
defence based on an exclusion clause that barred claims for compensation “as a
result of participating” in the tendering process. She held that this clause,
properly interpreted, did not exclude Tercon’s claim for damages. In effect,
she held that it was not within the contemplation of the parties that this
clause would bar a remedy in damages arising from the Province’s unfair
dealings with a party who was not entitled to participate in the tender in the
first place.
[4]
The Province appealed and the Court of Appeal reversed (2007 BCCA
592, 73 B.C.L.R. (4th) 201). Dealing only with the exclusion clause issue, it
held that the clause was clear and unambiguous and barred compensation for all
defaults.
[5]
On Tercon’s appeal to this Court, the questions for us are
whether the successful bidder was eligible to participate in the request for proposals
(“RFP”) and, if not, whether Tercon’s claim for damages is barred by the
exclusion clause.
[6]
In my respectful view, the trial judge reached the right result
on both issues. The Province’s attempts to persuade us that it did not breach
the tendering contract are, in my view, wholly unsuccessful. The foundation of
the tendering contract was that only six, pre-selected bidders would be
permitted to participate in the bidding. As the trial judge held, the Province
not only acted in a way that breached the express and implied terms of the
contract by considering a bid from an ineligible bidder, it did so in a manner
that was an affront to the integrity and business efficacy of the tendering
process. One must not lose sight of the fact that the trial judge found that
the Province acted egregiously by “ensuring that [the true bidder] was not
disclosed” (para. 150) and that its breach “attacke[d] the underlying premise
of the [tendering] process” (para. 146), a process which was set out in detail
in the contract and, in addition, had been given ministerial approval as
required by statute.
[7]
As for its reliance on the exclusion clause, the Province submits
that the parties were free to agree to limitations of liability and did so.
Consideration of this submission requires an interpretation of the words of the
clause to which the parties agreed in the context of the contract as a whole.
My view is that, properly interpreted, the exclusion clause does not protect
the Province from Tercon’s damage claim which arises from the Province’s
dealings with a party not even eligible to bid, let alone from its breach of
the implied duty of fairness to bidders. In other words, the Province’s
liability did not arise from Tercon’s participation in the process that the
Province established, but from the Province’s unfair dealings with a party who
was not entitled to participate in that process.
[8]
I would allow the appeal and restore the judgment of the trial
judge.
II. Brief Overview of the Facts
[9]
I will have to set out more factual detail as part of my
analysis. For now, a very brief summary will suffice. In 2000, the Ministry
of Transportation and Highways (also referred to as the “Province”) issued a
request for expressions of interest (“RFEI”) for designing and building a
highway in northwestern British Columbia. Six teams made submissions,
including Tercon and Brentwood Enterprises Ltd. Later that year, the Province
informed the six proponents that it now intended to design the highway itself
and would issue a RFP for its construction.
[10]
The RFP was formally issued on January 15, 2001. Under its
terms, only the six original proponents were eligible to submit a proposal.
The RFP also included a clause excluding all claims for damages “as a result of
participating in this RFP” (s. 2.10).
[11]
Unable to submit a competitive bid on its own, Brentwood teamed
up with Emil Anderson Construction Co. (“EAC”), which was not a qualified
bidder, and together they submitted a bid in Brentwood’s name. Brentwood and
Tercon were the two short-listed proponents and the Ministry ultimately
selected Brentwood as the preferred proponent.
[12]
Tercon brought an action seeking damages, alleging that the
Ministry had considered and accepted an ineligible bid and that, but for that
breach, it would have been awarded the contract. The trial judge agreed and
awarded roughly $3.5 million in damages and prejudgment interest. As noted,
the Court of Appeal reversed and Tercon appeals by leave of the Court.
III. Issues
[13]
The issues for decision are whether the trial judge erred in
finding that:
1. the Province breached the tendering
contract by entertaining a bid from an ineligible bidder.
2. the exclusion clause does not bar
the appellant’s claim for damages for the breaches of the tendering contract
found by the trial judge.
IV. Analysis
A. Was the Brentwood Bid Ineligible?
[14]
The first issue is whether the Brentwood bid was from an eligible
bidder. The judge found that the bid was in substance, although not in form,
from a joint venture of Brentwood and EAC and that it was, therefore, an
ineligible bid. The Province attacks this finding on three grounds:
(i) a joint venture is not a legal
person and therefore the Province could not and did not contract with a joint
venture;
(ii) it did not award the contract to
EAC and EAC had no contractual responsibility to the Province for failure to
perform the contract;
(iii) there was no term of the RFP that
restricted the right of proponents to enter into joint venture agreements with
others; this arrangement merely left Brentwood, the original proponent, in
place and allowed it to enhance its ability to perform the work.
[15]
While these were the Province’s main points, its position became
more wide-ranging during oral argument, at times suggesting that it had no
contractual obligation to deal only with eligible bidders. It is therefore
necessary to take a step back and look at that threshold point before turning
to the Province’s more focussed submissions.
1. The Province’s Contractual Obligations
in the Bidding Process
[16]
The judge found, and it was uncontested at trial, that only the
six original proponents that qualified through the RFEI process were eligible
to submit a response to the RFP. This finding is not challenged on appeal,
although there was a passing suggestion during oral argument that there was no
contractual obligation of this sort at all. The trial judge also held, noting
that this point was uncontested, that a joint venture between Brentwood and EAC
was ineligible to bid. This is also not contested on appeal. These two
findings are critical to the case and provide important background for an issue
that is in dispute, namely whether the Brentwood bid was ineligible. It is,
therefore, worth reviewing the relevant background in detail. I first briefly
set out the legal framework and then turn to the trial judge’s findings.
2. Legal Principles
[17]
Submitting a compliant bid in response to a tender call may give
rise to a contract — called Contract A — between the bidder and the owner, the
express terms of which are found in the tender documents. The contract may
also have implied terms according to the principles set out in Canadian
Pacific Hotels Ltd. v. Bank of Montreal, [1987] 1 S.C.R. 711; see also
M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., [1999] 1
S.C.R. 619, and Martel Building Ltd. v. Canada, 2000 SCC 60, [2000] 2
S.C.R. 860. The key word, however, is “may”. The Contract A/Contract B
framework is one that arises, if at all, from the dealings between the
parties. It is not an artificial construct imposed by the courts, but a
description of the legal consequences of the parties’ actual dealings. The
Court emphasized in M.J.B. that whether Contract A arises and if it
does, what its terms are, depend on the express and implied terms and
conditions of the tender call in each case. As Iacobucci J. put it, at para.
19:
What is important . . . is that the submission of a
tender in response to an invitation to tender may give rise to contractual
obligations, quite apart from the obligations associated with the construction
contract to be entered into upon the acceptance of a tender, depending upon
whether the parties intend to initiate contractual relations by the submission
of a bid. If such a contract arises, its terms are governed by the terms
and conditions of the tender call. [Emphasis added.]
3. The Trial Judge’s Findings Concerning
the Existence of Contract A
[18]
The question of whether Tercon’s submission of a compliant bid
gave rise to contractual relations between it and the Province was contested by
the Province at trial. The trial judge gave extensive reasons for finding
against the Province on this issue. We are told that the Province did not
pursue this point in the Court of Appeal but instead premised its submissions
on the existence of Contract A. The Province took the same approach in its
written submissions in this Court. However, during oral argument, there was
some passing reference in response to questions that there was no Contract A.
In light of the position taken by the Province on its appeal to the Court of
Appeal and in its written submissions in this Court, it is now too late to
revisit whether there were contractual duties between Tercon and the
Province. Even if it were open to the Province to make this argument now, I
can see no error in legal principle or any palpable and overriding error of
fact in the trial judge’s careful reasons on this point.
[19]
The trial judge did not mechanically impose the Contract
A/Contract B framework, but considered whether Contract A arose in light of her
detailed analysis of the dealings between the parties. That was the right
approach. She reviewed in detail the provisions of the RFP which supported her
conclusion that there was an intent to create contractual relations upon
submission of a compliant bid. She noted, for example, that bids were to be
irrevocable for 60 days and that security of $50,000 had to be paid by all
proponents and was to be increased to $200,000 by the successful proponent.
Any revisions to proposals prior to the closing date had to be in writing,
properly executed and received before the closing time. The RFP also set out
detailed evaluation criteria and specified that they were to be the only
criteria to be used to evaluate proposals. A specific form of alliance
agreement was attached. There were detailed provisions about pricing that were
fixed and non-negotiable. A proponent was required to accept this form of
contract substantially, and security was lost if an agreement was not executed.
The Ministry reserved a right to cancel the RFP under s. 2.9 but in such event
was obliged to reimburse proponents for costs incurred in preparing their bids
up to $15,000 each. Proponents had to submit a signed proposal form, which
established that they offered to execute an agreement substantially in the form
included in the RFP package. Further, they acknowledged that the security
could be forfeited if they were selected as the preferred proponent and failed
to enter into good faith discussions with the Ministry to reach an agreement
and sign the alliance agreement.
[20]
In summary, as the trial judge found, the RFP set out a
specifically defined project, invited proposals from a closed and specific list
of eligible proponents, and contemplated that proposals would be evaluated
according to specific criteria. Negotiation of the alliance construction
contract was required, but the negotiation was constrained and did not go to
the fundamental details of either the procurement process or the ultimate
contract.
[21]
There is, therefore, no basis to interfere with the judge’s
finding that there was an intent to create contractual obligations upon submission
of a compliant bid. I add, however, that the tender call in this case did not
give rise to the classic Contract A/Contract B framework in which the bidder
submits an irrevocable bid and undertakes to enter into Contract B on those
terms if it is accepted. The alliance model process which was used here was
more complicated than that and involved good faith negotiations for a Contract
B in the form set out in the tender documents. But in my view, this should not
distract us from the main question here. We do not have to spell out all of
the terms of Contract A, let alone of Contract B, so as to define all of the
duties and obligations of both the bidders and the Province. The question here
is much narrower: did contractual obligations arise as a result of Tercon’s
compliant bid and, if so, was it a term of that contract that the Province
would only entertain bids from eligible bidders? The trial judge found offer,
acceptance and consideration in the invitation to tender and Tercon’s bid.
There is no basis, in my respectful view, to challenge that finding even if it
were open to the Province to try to do so at this late stage of the litigation.
4. The Trial Judge’s Finding Concerning
Eligibility
[22]
It was not contested at trial that only the six original
proponents that qualified through the RFEI process were eligible to bid. This
point is not in issue on appeal; the question is what this eligibility
requirement means. It will be helpful, therefore, to set out the background
about this limited eligibility to bid in this tendering process.
[23]
To begin, it is worth repeating that there is no doubt that the
Province was contractually bound to accept bids only from eligible bidders.
This duty may be implied even absent express stipulation. For example, in M.J.B.,
the Court found that an implied obligation to accept only compliant bids was
necessary to give business efficacy to the tendering process, noting, at para.
41, that a bidder must expend effort and incur expense in preparing its bid and
must submit bid security and that it is “obvious” that it makes “little sense”
for the bidder to comply with these requirements if the owner “is allowed, in
effect, to circumscribe this process and accept a non-compliant bid”. But
again, whether such a duty should be implied in any given case will depend on
the dealings between the parties. Here, however, there is no need to rely on
implied terms. The obligation to consider only bids from eligible bidders was
stated expressly in the tender documents and in the required ministerial
approval of the process which they described.
[24]
As noted, in early 2000, the Province issued a RFEI based on a
design-build model; the contractor would both design and build the highway.
The RFEI contemplated that a short list of three qualified contractors, or
teams composed of contractors and consultants, would be nominated as
proponents. Each was to provide a description of the legal structure of the
team and to describe the role of each team member along with the extent of
involvement of each team member as a percentage of the total scope of the
project and an organization chart showing each team member’s role. Any change
in team management or key positions required notice in writing to the Province
which reserved the right to disqualify the proponent if the change materially
and negatively affected the ability of the team to carry out the project.
[25]
Expressions of interest (“EOI”) were received from six teams
including Tercon and Brentwood. The evaluation panel and independent review
panel recommended a short list of three proponents with Tercon topping the
evaluation. Brentwood was evaluated fifth and was not on the short list.
Brentwood was known to lack expertise in drilling and blasting and so its EOI
had included an outline of the key team members with that experience. EAC did
not participate and had no role in the Brentwood submission. The results of
this evaluation were not communicated and the process did not proceed because
the Province decided to design the project itself and issue an RFP for an alliance
model contract to construct the highway.
[26]
It was clear from the outset that only those who had submitted
proposals during the RFEI process would be eligible to submit proposals under
the RFP. This was specified in the approval of the process by the Minister of
Transportation and Highways (“Minister”) before the RFP was issued. It is
worth pausing here to briefly look at the Minister’s role.
[27]
Pursuant to s. 23 of the Ministry of Transportation and
Highways Act, R.S.B.C. 1996, c. 311, the legislation in force at the
relevant time, the Minister was required to invite public tenders for road
construction unless he or she determined that another process would result in
competitively established costs for the work. The section provided:
23 (1) The minister must invite tenders by public
advertisement, or if that is impracticable, by public notice, for the
construction and repair of all government buildings, highways and
public works, except for the following:
. . .
(c) if the minister determines that an alternative contracting
process will result in competitively established costs for the performance of
the work.
(2) The minister must cause all tenders received to be opened in
public, at a time and place stated in the advertisement or notice.
(3) The prices must be made known at the time the tenders are
opened.
(4) In all cases where the minister believes it is not
expedient to let the work to the lowest bidder, the minister must report to and
obtain the approval of the Lieutenant Governor in Council before passing by the
lowest tender, except if delay would be injurious to the public interest.
. . .
[28]These provisions make clear that
the work in this case had to be awarded by public tender, absent the Minister’s
approval of an alternative process, and had to be awarded to the lowest bidder,
absent approval of the Lieutenant Governor in Council. As noted, ministerial
approval was given for an alternative process under s. 23(1)(c). The Minister
issued a notice that, pursuant to that section, he approved the process set out
in an attached document and had determined it to be an alternative contracting
process that would result in competitively established costs for the
performance of the work. The attached document outlined in seven numbered
paragraphs the process that had been approved.
[29]The document described the
background of the public RFEI (which I have set out earlier), noting that only
those firms identified through the EOI process would be eligible to submit
proposals for the work and that they would receive invitations to do so.
The Minister’s approval in fact referred to the firms who had been short-listed
from the RFEI process as being eligible. If this were taken to refer only to
the three proponents identified by the evaluation process of the RFEI, Tercon
would be included but Brentwood would not. However, no one has suggested that
anything turns on this and it seems clear that ultimately all six of the RFEI
proponents — including both Tercon and Brentwood — were intended to be
eligible. The ministerial approval then briefly set out the process. Proposals
“by short-listed firms” were to be evaluated “using the considerations set out
in the RFP”.
[30]It is clear, therefore, that
participation in the RFP process approved by the Minister was limited to those
who had participated in the RFEI process.
[31]The Province’s factum implies
that the Minister approved inclusion of the exclusion clause in the RFP.
However, there is no evidence of this in the record before the Court. The
Minister’s approval is before us. It is dated as having been prepared on
August 23, 2000 and signed on October 19, 2000, and approves a process outlined
in a two-page document attached to it. It says nothing about exclusion of the
Province’s liability. The RFP, containing the exclusion clause in issue here,
is dated January 15, 2001 and was sent out to eligible bidders under cover of a
letter of the same date, some three months after the Minister’s approval.
[32]The RFP is a lengthy document,
containing detailed instructions to proponents, required forms, a time schedule
of the work, detailed provisions concerning contract pricing, a draft of the
ultimate construction contract and many other things. Most relevant for our
purposes are the terms of the instructions to proponents and in particular the
eligibility requirements for bidders.
[33]The RFP reiterates in unequivocal
terms that eligibility to bid was restricted as set out in the ministerial
approval. It also underlines the significance of the identity of the
proponent. In s. 1.1, the RFP specifies that only the six teams involved in
the RFEI would be eligible. The term “proponent”, which refers to a bidder, is
defined in s. 8 as “a team that has become eligible to respond to the RFP as
described in Section 1.1 of the Instructions to Proponents”.
Section 2.8(a) of the RFP stipulates that only the six proponents
qualified through the RFEI process were eligible and that proposals received
from any other party would not be considered. In short, there were
potentially only six participants and “Contract A” could not arise by the
submission of a bid from any other party.
[34]The RFP also addressed material
changes to the proponent, including changes in the proponent’s team members and
its financial ability to undertake and complete the work. Section 2.8(b) of
the RFP provided in part as follows:
If in the opinion of the Ministry a material change has occurred to the
Proponent since its qualification under the RFEI, including if the composition
of the Proponent’s team members has changed . . . or if, for financial or other
reasons, the Proponent’s ability to undertake and complete the Work has changed,
then the Ministry may request the Proponent to submit further supporting
information as the Ministry may request in support of the Proponent’s
qualification to perform the Work. If in the sole discretion of the Ministry
as a result of the changes the Proponent is not sufficiently qualified to
perform the Work then the Ministry reserves the right to disqualify that
Proponent, and reject its Proposal.
[35]The proponent was to provide an
organization chart outlining the proponent’s team members, structure and
roles. If the team members were different from the RFEI process submission, an
explanation was to be provided for the changes: s. 4.2(b)i). A list of
subcontractors and suppliers was also to be provided and the Ministry had to be
notified of any changes: s. 4.2(e).
[36]The RFP provided proponents with
a mechanism to determine whether they remained qualified to submit a proposal.
If a proponent was concerned about its eligibility as a result of a material
change, it could make a preliminary submission to the Ministry describing the
nature of the changes and the Ministry would give a written decision as to
whether the proponent was still qualified: s. 2.8(b).
[37]Brentwood tried to take advantage
of this process. The trial judge thoroughly outlined this, at paras. 17-23 of
her reasons. In brief, Brentwood lacked expertise in drilling and blasting and
by the time the RFP was issued, it faced limited local bonding capacity due to
commitments to other projects, a shorter construction period, the potential
unavailability of subcontractors and limited equipment to perform the work. It
in fact considered not bidding at all. Instead, however, it entered into a
pre-bidding agreement with EAC that the work would be undertaken by a joint
venture of Brentwood and EAC and that upon being awarded the work, they would
enter into a joint venture agreement and would share 50/50 the costs, expenses,
losses and gains. The trial judge noted that it was common in the industry for
contractors to agree to a joint venture on the basis of a pre-bid agreement
with the specifics of the joint venture to be worked out once the contract was
awarded and that Brentwood and EAC acted consistently throughout in accordance
with this industry standard.
[38]Brentwood sent the Province’s
project manager, Mr. Tasaka, a preliminary submission as provided for in s.
2.8(b) of the RFP, advising of a material change in its team’s structure in
that it wished to form a joint venture with EAC. This was done, the trial judge
found, because Brentwood thought it would be disqualified if it submitted a
proposal as a joint venture without the Ministry’s prior approval under this
section of the RFP. The Province never responded in writing as it ought to
have according to s. 2.8(b).
[39]It seems to have been assumed by
everyone that a joint venture of Brentwood and EAC was not eligible because
this change would not simply be a change in the composition of the bidder’s
team, but in effect a new bidder. Without reviewing in detail all of the
evidence referred to by the trial judge, it is fair to say that although
Brentwood ultimately submitted a proposal in its own name, the proposal in
substance was from the Brentwood/EAC joint venture and was evaluated as such.
As the trial judge concluded:
The substance
of the proposal was as a joint venture and this must have been apparent to
all. The [project evaluation panel] approved Brentwood/EAC as joint venturers
as the preferred proponent. The [panel] was satisfied that Tercon had the
capacity and commitment to do the job but preferred the joint venture
submission of Brentwood/EAC. [para. 53]
[40]There was some suggestion by the
Province during oral argument that the trial judge had wrongly imposed on it a
duty to investigate Brentwood’s bid, a duty rejected by the majority of the
Court in Double N Earthmovers Ltd. v. Edmonton (City), 2007 SCC 3,
[2007] 1 S.C.R. 116. In my view, the trial judge did no such thing. As her
detailed findings make clear, the Province: (1) fully understood that the
Brentwood bid was in fact on behalf of a joint venture of Brentwood and EAC;
(2) thought that a bid from that joint venture was not eligible; and (3) took
active steps to obscure the reality of the situation. No investigation was
required for the Province to know these things and the judge imposed no duty to
engage in one.
5. The Province’s Submissions
[41]I will address the Province’s
first two points together:
(i) a joint venture
is not a legal person and therefore the Province could not and did not contract
with a joint venture; and
(ii) it did not award
the contract to EAC and EAC had no contractual responsibility to the Province
for failure to perform the contract.
[42]I cannot accept these
submissions. The issue is not, as these arguments assume, whether the Province
contracted with a joint venture or whether EAC had contractual obligations to
the Province. The issue is whether the Province considered an ineligible bid;
the point of substance is whether the bid was from an eligible bidder.
[43]At trial there was no contest
that a bid from a joint venture involving an ineligible bidder would be
ineligible. The Province’s position was that there was no need to look beyond
the face of the bid to determine who was bidding: the proposal was in the name
of Brentwood and therefore the bid was from a compliant bidder. Respectfully,
I see no error in the trial judge’s rejection of this position. There was a
mountain of evidence to support the judge’s conclusions that first, Brentwood’s
bid, in fact if not in form, was on behalf of a joint venture between itself
and EAC; second, the Province knew this and took the position that it could not
consider a bid from or award the work to that joint venture; third, the
existence of the joint venture was a material consideration in favour of the
Brentwood bid during the evaluation process; and finally, that steps were taken
by revising and drafting documentation to obfuscate the reality of the
situation.
[44]Brentwood was one of the original
RFEI proponents and was of course eligible to bid, subject to material changes
in the composition of its team. EAC had not submitted a proposal during the
RFEI process. It had been involved in advising the Ministry in relation to the
project in 1998 and, in the fall of 2000, the Ministry had asked EAC to prepare
an internal bid for comparison purposes (although EAC did not do so) as EAC was
not entitled to bid on the Project.
[45]As noted earlier, after the RFP
was issued, Brentwood and EAC entered into a pre-bidding agreement that
provided that the work would be undertaken in the name of Brentwood/Anderson, a
joint venture, that the work would be sponsored and managed by the joint
venture and that upon being awarded the contract, the parties would enter into
a joint venture agreement. Brentwood advised the Ministry in writing that it
was forming a joint venture with EAC “to submit a more competitive price”; this
fax was in effect a preliminary submission contemplated by s. 2.8(b) of the RFP
and was written, as the trial judge found, because Brentwood assumed that it
could be disqualified if it submitted a proposal as a joint venture unless
prior arrangements had been made. The Province never responded in writing to
this preliminary submission, as required by s. 2.8(b). There were, however,
discussions with the Province’s project manager, Mr. Tasaka who, the trial
judge found, understood that a joint venture from Brentwood and EAC would not
be eligible. As the judge put it, the Province’s position appears to have
been that the Brentwood/EAC proposal could proceed as long as the submission
was in the name of Brentwood.
[46]In the result, EAC was listed in
the ultimate submission as a “major member” of the team. The legal
relationship with EAC was not specified and EAC was listed as a subcontractor
even though, as the trial judge found, their relationship bore no resemblance
to a standard subcontractor agreement. The trial judge found as facts — and
these findings are not challenged — that Brentwood and EAC always intended
between themselves to form a joint venture and to formalize that arrangement
once the contract was secured, and further, that the role of EAC was purposefully
obfuscated in the bid to avoid an apparent conflict with s. 2.8(a) of the RFP.
[47]During the selection process, it
became clear that the bid was in reality on behalf of a joint venture. The
project evaluation panel (“PEP”) requested better information than provided in
the bid about the structure of the business arrangements between Brentwood and
EAC. Brentwood responded by disclosing the pre-bid agreement between them to
form a 50/50 joint venture if successful. The PEP understood from this that
Brentwood and EAC had a similar interest in the risk and reward under the
contract and that this helped satisfy them that the “risk/reward” aspect of the
alliance contract could be negotiated with them flexibly. The PEP clearly did
not consider EAC to be a subcontractor although shown as such in the bid. In
its step 6 report, the PEP consistently referred to the proponent as being a
joint venture of Brentwood and EAC or as “Brentwood/EAC” and the trial judge
found that it was on the basis that they were indeed a joint venture that PEP
approved Brentwood/EAC as the preferred proponent. This step 6 report was
ultimately revised to refer only to the Brentwood team as the official
proponent. The trial judge found as a fact that this revision was made because
“it was apparent that a joint venture was not eligible to submit a proposal”
(para. 56).
[48]The findings of the trial judge
and the record make it clear that it was no mere question of form rather than a
matter of substance whether the bidder was Brentwood with other team members
or, as it in fact was, the Brentwood/EAC joint venture. As she noted, at para.
121 of her reasons, the whole purpose of the joint venture was to allow
submission of a more competitive price than it would have been able to do as a
proponent with a team as allowed under s. 2.8(b) of the RFP. The joint venture
permitted a 50/50 sharing of risk and reward and co-management of the project
while at the same time avoiding the restrictions on subcontracting in the
tendering documents. As the judge put it, the bid by the joint venture
constituted “material non-compliance” with the tendering contract: “. . . the
joint venture with EAC allowed Brentwood to put forward a more competitive
price than contemplated under the RFEI proposal. This went to the essence of
the tendering process” (para. 126).
[49]The Province suggests that the
trial judge’s reasons allow form to triumph over substance. In my view, it is
the Province’s position that better deserves that description. It had a bid
which it knew to be on behalf of a joint venture, encouraged the bid to proceed
and took steps to obfuscate the reality that it was on behalf of a joint
venture. Permitting the bid to proceed in this way gave the joint venture a
competitive advantage in the bidding process, and the record could not be
clearer that the joint venture nature of the bid was one of its attractions
during the selection process. The Province nonetheless submits that so long as
only the name of Brentwood appears on the bid and ultimate Contract B, all is
well. If ever a submission advocated placing form above substance, this is it.
[50]It is true that the Province had
legal advice and did not proceed in defiance of it. However, the facts as
found by the trial judge about this legal advice hardly advance the Province’s
position. The judge found that the Province’s lawyer was not aware of the
background relevant to the question of whether the Brentwood bid was eligible,
never reviewed the proponent eligibility requirements in the RFP and was not
asked to and did not direct his mind to the question of eligibility. As the
trial judge put it, the lawyer “appears to have operated on the assumption that
Brentwood had been irreversibly selected” (para. 70).
[51]The Brentwood/EAC joint venture
having been selected as the preferred proponent, negotiations for the alliance
contract ensued. The trial judge found that by this time, all agreed that a
joint venture was not an eligible proponent and the Ministry was taking the
position that the contract could not be in the name of the joint venture.
Brentwood and EAC executed a revised pre-contract agreement that provided,
notwithstanding the letter of intent from the Ministry addressed to Brentwood
indicating that the legal relationship between them would be
contractor/subcontractor, the contract would be performed and the profits
shared equally between them. The work was to be managed by a committee with
equal representation, the bond required by the owner was to be provided by both
parties and EAC indemnified Brentwood against half of any loss or cost incurred
as a result of performance of the work. According to schedule B4 of the RFP,
all subcontracts were to be attached to the RFP but no contract between
Brentwood and EAC was ever provided or attached to the proposal.
[52]The Province has identified no
palpable and overriding error in these many findings of fact by the trial
judge. I conclude, therefore, that we must approach the case on the basis of
the judge’s finding that the bid was in fact, if not in form, submitted by a
joint venture of Brentwood and EAC, that the Ministry was well aware of this,
that the existence of the joint venture was a material consideration in favour
of the bid during the evaluation process and that by bidding as a joint
venture, Brentwood was given a competitive advantage in the bidding process.
[53]I reject the Ministry’s
submissions that all that matters is the form and not the substance of the
arrangement. In my view, the trial judge’s finding that this bid was in fact on
behalf of a joint venture is unassailable.
[54]I turn to the Province’s third
point:
(iii) there was no term of the RFP that
restricted the right of proponents to enter into joint venture agreements with
others; this arrangement merely left Brentwood, the original proponent in place
and allowed it to enhance its ability to perform the work.
[55]This submission addresses the
question of whether the joint venture was an eligible bidder. The Province
submits that it is, arguing that s. 2.8(b) of the RFP shows that the RFP
contemplated that each proponent would be supported by a team, that the
composition of the team might change and that the Province under that section
retained the right to approve or reject changes in the team of any proponent.
I cannot accept these submissions.
[56]Section 2.8 must be read as a
whole and in light of the ministerial approval which I have described earlier.
Section 2.8(a), consistent with that approval, stipulates that only the six
proponents qualified through the RFEI process were eligible to submit responses
and that proposals from any other party “shall not be considered”. The word
“proponent” is defined in s. 8 as a team that has become eligible to respond to
the RFP. The material change provisions in s. 2.8(b) should not be read as
negating the express provisions of the RFP and the ministerial approval of the
process. When read as a whole, the provisions about material change do not
permit the addition of a new entity as occurred here. The process actually
followed was not the one specified in the bidding contract and was not
authorized by the statute because it was not the one approved by the Minister.
[57]Moreover, even if one were to
conclude (and I would not) that this change from the Brentwood team that
participated in the RFEI to the Brentwood/EAC joint venture by whom the bid was
submitted could fall within the material change provisions of s. 2.8(b), the
Province never gave a written decision to permit this change as required by
that provision. As the trial judge noted, in fact the Province’s position was
that such a bid would not be eligible and its agents took steps to obfuscate
the true proponent in the relevant documentation.
[58]The trial judge also found that
there was an implied obligation of good faith in the contract and that the
Province breached this obligation by failing to treat all bidders equally by
changing the terms of eligibility to Brentwood’s competitive advantage. This
conclusion strongly reinforces the trial judge’s decision about eligibility.
Rather than repeating her detailed findings, I will simply quote her summary at
para. 138:
The whole of [the Province’s] conduct leaves me with
no doubt that the [Province] breached the duty of fairness to [Tercon] by
changing the terms of eligibility to Brentwood’s competitive advantage. At
best, [the Province] ignored significant information to its [i.e. Tercon’s]
detriment. At worst, the [Province] covered up its knowledge that the
successful proponent was an ineligible joint venture. In the circumstances
here, it is not open to the [Province] to say that a joint venture was only
proposed. Nor can the [Province] say that it was unaware of the joint venture
when it acted deliberately to structure contract B to include EAC as fully
responsible within a separate contract with Brentwood, so minimizing the
[Province’s] risk that the contract would be unenforceable against EAC if
arrangements did not work out. . . . The [Province] was . . . prepared to take
the risk that unsuccessful bidders would sue: this risk did materialize.
[59]To conclude on this point, I find
no fault with the trial judge’s conclusion that the bid was in fact submitted
on behalf of a joint venture of Brentwood and EAC which was an ineligible
bidder under the terms of the RFP. This breached not only the express
eligibility provisions of the tender documents, but also the implied duty to
act fairly towards all bidders.
B. The
Exclusion Clause
1. Introduction
[60]As noted, the RFP includes an
exclusion clause which reads as follows:
2.10 .
. .
Except as expressly and specifically permitted in these Instructions to
Proponents, no Proponent shall have any claim for 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.
[Emphasis added.]
[61]The trial judge held that as a
matter of construction, the clause did not bar recovery for the breaches she
had found. The clause, in her view, was ambiguous and, applying the contra
proferentem principle, she resolved the ambiguity in Tercon’s favour. She
also found that the Province’s breach was fundamental and that it was not fair
or reasonable to enforce the exclusion clause in light of the nature of the
Province’s breach. The Province contends that the judge erred both with respect
to the construction of the clause and her application of the doctrine of
fundamental breach.
[62]On the issue of fundamental
breach in relation to exclusion clauses, my view is that the time has come to
lay this doctrine to rest, as Dickson C.J. was inclined to do more than 20
years ago: Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] 1
S.C.R. 426, at p. 462. I agree with the analytical approach that should be
followed when tackling an issue relating to the applicability of an exclusion
clause set out by my colleague Binnie J. However, I respectfully do not agree
with him on the question of the proper interpretation of the clause in issue
here. In my view, the clause does not exclude Tercon’s claim for damages, and
even if I am wrong about that, the clause is at best ambiguous and should be
construed contra proferentem as the trial judge held. As a result of my
conclusion on the interpretation issue, I do not have to go on to apply the
rest of the analytical framework set out by Binnie J.
[63]In my view, the exclusion clause
does not cover the Province’s breaches in this case. The RFP process put in
place by the Province was premised on a closed list of bidders; a contest with
an ineligible bidder was not part of the RFP process and was in fact expressly
precluded by its terms. A “Contract A” could not arise as a result of
submission of a bid from any other party. However, as a result of how the
Province proceeded, the very premise of its own RFP process was missing, and
the work was awarded to a party who could not be a participant in the RFP
process. That is what Tercon is complaining about. Tercon’s claim is not
barred by the exclusion clause because the clause only applies to claims
arising “as a result of participating in [the] RFP”, not to claims resulting
from the participation of other, ineligible parties. Moreover, the words of
this exclusion clause, in my view, are not effective to limit liability for
breach of the Province’s implied duty of fairness to bidders. I will explain my
conclusion by turning first to a brief account of the key legal principles and
then to the facts of the case.
2. Legal Principles
[64]The key principle of contractual
interpretation here is that the words of one provision must not be read in
isolation but should be considered in harmony with the rest of the contract and
in light of its purposes and commercial context. The approach adopted by the
Court in M.J.B. is instructive. The Court had to interpret a privilege
clause, which is somewhat analogous to the exclusion clause in issue here. The
privilege clause provided that the lowest or any tender would not necessarily
be accepted, and the issue was whether this barred a claim based on breach of
an implied term that the owner would accept only compliant bids. In
interpreting the privilege clause, the Court looked at its text in light of the
contract as a whole, its purposes and commercial context. As Iacobucci J.
said, at para. 44, “the privilege clause is only one term of Contract A and
must be read in harmony with the rest of the tender documents. To do otherwise
would undermine the rest of the agreement between the parties.”
[65]In a similar way, it is necessary
in the present case to consider the exclusion clause in the RFP in light of its
purposes and commercial context as well as of its overall terms. The question
is whether the exclusion of compensation for claims resulting from
“participating in this RFP”, properly interpreted, excludes liability for the
Province having unfairly considered a bid from a bidder who was not supposed to
have been participating in the RFP process at all.
3. Application to This Case
[66]Having regard to both the text of
the clause in its broader context and to the purposes and commercial context of
the RFP, my view is that this claim does not fall within the terms of the
exclusion clause.
[67]To begin, it is helpful to recall
that in interpreting tendering contracts, the Court has been careful to
consider the special commercial context of tendering. Effective tendering
ultimately depends on the integrity and business efficacy of the tendering
process: see, e.g., Martel, at para. 88; M.J.B., at para. 41; Double
N Earthmovers, at para. 106. As Iacobucci and Major JJ. put it in Martel,
at para. 116, “it is imperative that all bidders be treated on an equal footing
. . . . Parties should at the very least be confident that their initial bids
will not be skewed by some underlying advantage in the drafting of the call for
tenders conferred upon only one potential bidder.”
[68]This factor is particularly
weighty in the context of public procurement. In that context, in addition to
the interests of the parties, there is the need for transparency for the public
at large. This consideration is underlined by the statutory provisions which
governed the tendering process in this case. Their purpose was to assure
transparency and fairness in public tenders. As was said by Orsborn J. (as he
then was) in Cahill (G.J.) & Co. (1979) Ltd. v. Newfoundland and
Labrador (Minister of Municipal and Provincial Affairs), 2005 NLTD 129, 250
Nfld. & P.E.I.R. 145, at para. 35:
The owner — in this case the government — is in
control of the tendering process and may define the parameters for a compliant
bid and a compliant bidder. The corollary to this, of course, is that once the
owner — here the government — sets the rules, it must itself play by those
rules in assessing the bids and awarding the main contract.
[69]One aspect that is generally seen
as contributing to the integrity and business efficacy of the tendering process
is the requirement that only compliant bids be considered. As noted earlier,
such a requirement has often been implied because, as the Court said in M.J.B.,
it makes little sense to think that a bidder would comply with the bidding
process if the owner could circumscribe it by accepting a non-compliant bid.
Respectfully, it seems to me to make even less sense to think that eligible
bidders would participate in the RFP if the Province could avoid liability for
ignoring an express term concerning eligibility to bid on which the entire RFP
was premised and which was mandated by the statutorily approved process.
[70]The closed list of bidders was
the foundation of this RFP and there were important competitive advantages to a
bidder who could side-step that limitation. Thus, it seems to me that both the
integrity and the business efficacy of the tendering process support an
interpretation that would allow the exclusion clause to operate compatibly with
the eligibility limitations that were at the very root of the RFP.
[71]The same may be said with respect
to the implied duty of fairness. As Iacobucci and Major JJ. wrote for the
Court in Martel, at para. 88, “[i]mplying an obligation to treat
all bidders fairly and equally is consistent with the goal of protecting and
promoting the integrity of the bidding process.” It seems to me that clear
language is necessary to exclude liability for breach of such a basic
requirement of the tendering process, particularly in the case of public
procurement.
[72]The proper interpretation of the
exclusion clause should also take account of the statutory context which I have
reviewed earlier. The restriction on eligibility of bidders was a key element
of the alternative process approved by the Minister. It seems unlikely,
therefore, that the parties intended through this exclusion clause to
effectively gut a key aspect of the approved process. Of course, it is true
that the exclusion clause does not bar all remedies, but only claims for
compensation. However, the fact remains that as a practical matter, there are
unlikely to be other, effective remedies for considering and accepting an
ineligible bid and that barring compensation for a breach of that nature in
practical terms renders the ministerial approval process virtually
meaningless. Whatever administrative law remedies may be available, they are
not likely to be effective remedies for awarding a contract to an ineligible
bidder. The Province did not submit that injunctive relief would have been an
option, and I can, in any event, foresee many practical problems that need not
detain us here in seeking such relief in these circumstances.
[73]The Province stresses Tercon’s
commercial sophistication, in effect arguing that it agreed to the exclusion
clause and must accept the consequences. This line of argument, however, has
two weaknesses. It assumes the answer to the real question before us which is:
what does the exclusion clause mean? The consequences of agreeing to the
exclusion clause depend on its construction. In addition, the Province’s
submission overlooks its own commercial sophistication and the fact that
sophisticated parties can draft very clear exclusion and limitation clauses
when they are minded to do so. Such clauses contrast starkly with the curious
clause which the Province inserted into this RFP. The limitation of liability
clause in Hunter, for example, provided that “[n]otwithstanding any
other provision in this contract or any applicable statutory provisions neither
the Seller nor the Buyer shall be liable to the other for special or
consequential damages or damages for loss of use arising directly or indirectly
from any breach of this contract, fundamental or otherwise” (p. 450). The
Court found this to be clear and unambiguous. The limitation clause in issue in
Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R.
423, provided that legal proceedings for the recovery of “any loss hereunder
shall not be brought . . . after the expiration of 24 months from the discovery
of such loss” (para. 5). Once again, the Court found this language clear. The
Ontario Court of Appeal similarly found the language of a limitation of
liability clause to be clear in Fraser Jewellers (1982) Ltd. v. Dominion
Electric Protection Co. (1997), 34 O.R. (3d) 1. The clause provided in
part that if the defendant “should be found liable for loss, damage or injury
due to a failure of service or equipment in any respect, its liability shall be
limited to a sum equal to 100% of the annual service charge or $10,000.00,
whichever is less, as the agreed upon damages and not as a penalty, as the
exclusive remedy” (p. 4). These, and many other cases which might be referred
to, demonstrate that sophisticated parties are capable of drafting clear and
comprehensive limitation and exclusion provisions.
[74]I turn to the text of the clause
which the Province inserted in its RFP. It addresses claims that result from
“participating in this RFP”. As noted, the limitation on who could participate
in this RFP was one of its premises. These words must, therefore, be read in
light of the limit on who was eligible to participate in this RFP. As noted
earlier, both the ministerial approval and the text of the RFP itself were unequivocal:
only the six proponents qualified through the earlier RFEI process were
eligible and proposals received from any other party would not be considered.
Thus, central to “participating in this RFP” was participating in a contest
among those eligible to participate. A process involving other bidders, as the
trial judge found the process followed by the Province to be, is not the
process called for by “this RFP” and being part of that other process is not in
any meaningful sense “participating in this RFP”.
[75]The Province would have us
interpret the phrase excluding compensation “as a result of participating in
this RFP” to mean that compensation is excluded that results from “submitting a
Proposal”. However, that interpretation is not consistent with the wording of
the clause as a whole. The clause concludes with the phrase that “by
submitting a Proposal each Proponent shall be deemed to have agreed that it has
no claim”. If the phrases “participating in this RFP” and “submitting a
Proposal” were intended to mean the same thing, it is hard to understand why
different words were used in the same short clause to express the same idea.
The fact that the Minister had approved a closed list of participants
strengthens the usual inference that the use of different words was deliberate
so as not to exclude compensation for a departure from that basic eligibility
requirement.
[76]This interpretation of the
exclusion clause does not rob it of meaning, but makes it compatible with other
provisions of the RFP. There is a parallel between this case and the Court’s
decision in M.J.B. There, the Court found that there was compatibility
between the privilege clause and the implied term to accept only compliant
bids. Similarly, in this case, there is compatibility between the eligibility
requirements of the RFP and the exclusion clause. Not any and every claim
based on any and every deviation from the RFP provisions would escape the
preclusive effect of the exclusion clause. It is only when the defect in the
Province’s adherence to the RFP process is such that it is completely outside
that process that the exclusion clause cannot have been intended to operate.
What is important here, in my view, is that the RFP in its conception, in its
express provisions and in the statutorily required approval it was given, was
premised on limiting eligibility to the six proponents in the RFEI process.
Competition among others was not at all contemplated and was not part of the
RFP process; in fact, the RFP expressly excluded that possibility. In short,
limiting eligibility of bidders to those who had responded to the RFEI was the
foundation of the whole RFP. As the judge found, acceptance of a bid from an
ineligible bidder “attacks the underlying premise of the process” established
by the RFP: para. 146. Liability for such an attack is not excluded by a
clause limiting compensation resulting from participation in this RFP.
[77]This interpretation is also
supported by another provision of the RFP. Under s. 2.9, as mentioned earlier,
the Province reserved to itself the right to unilaterally cancel the RFP and
the right to propose a new RFP allowing additional bidders. If the exclusion clause
were broad enough to exclude compensation for allowing ineligible bidders to
participate, there seems to be little purpose in this reservation of the
ability to cancel the RFP and issue a new one to a wider circle of bidders. It
is also significant that the Province did not reserve to itself the right to
accept a bid from an ineligible bidder or to unilaterally change the rules of
eligibility. The RFP expressly did exactly the opposite. None of this, in my
opinion, supports the view that the exclusion clause should be read as applying
to the Province’s conduct in this case.
[78]To hold otherwise seems to me to
be inconsistent with the text of the clause read in the context of the RFP as a
whole and in light of its purposes and commercial context. In short, I cannot
accept the contention that, by agreeing to exclude compensation for
participating in this RFP process, the parties could have intended to exclude a
damages claim resulting from the Province unfairly permitting a bidder to participate
who was not eligible to do so. I cannot conclude that the provision was
intended to gut the RFP’s eligibility requirements as to who may participate in
it, or to render meaningless the Minister’s statutorily required approval of
the alternative process where this was a key element. The provision, as well,
was not intended to allow the Province to escape a damages claim for applying
different eligibility criteria, to the competitive disadvantage of other
bidders and for taking steps designed to disguise the true state of affairs. I
cannot conclude that the parties, through the words found in this exclusion
clause, intended to waive compensation for conduct like that of the Province in
this case that strikes at the heart of the integrity and business efficacy of
the tendering process which it undertook.
[79]If I am wrong about my
interpretation of the clause, I would hold, as did the trial judge, that its
language is at least ambiguous. If, as the Province contends, the phrase
“participating in this RFP” could reasonably mean “submitting a Proposal”, that
phrase could also reasonably mean “competing against the other eligible
participants”. Any ambiguity in the context of this contract requires that the
clause be interpreted against the Province and in favour of Tercon under the
principle contra proferentem: see, e.g., Hillis Oil and Sales Ltd. v.
Wynn’s Canada, Ltd., [1986] 1 S.C.R. 57, at pp. 68-69. Following this
approach, the clause would not apply to bar Tercon’s damages claim.
V. Disposition
[80]I conclude that the judge did not
err in finding that the Province breached the tendering contract or in finding
that Tercon’s remedy in damages for that breach was not precluded by the
exclusion clause in the contract. I would therefore allow the appeal, set
aside the order of the Court of Appeal and restore the judgment of the trial
judge. The parties advise that the question of costs has been resolved between
them and that therefore no order in relation to costs is required.
The reasons of McLachlin C.J. and Binnie, Abella and Rothstein JJ. were
delivered by
[81]Binnie
J. (dissenting) — The important legal issue raised by this appeal is
whether, and in what circumstances, a court will deny a defendant contract
breaker the benefit of an exclusion of liability clause to which the innocent
party, not being under any sort of disability, has agreed. Traditionally, this
has involved consideration of what is known as the doctrine of fundamental
breach, a doctrine which Dickson C.J. in Hunter Engineering Co. v. Syncrude
Canada Ltd., [1989] 1 S.C.R. 426, suggested should be laid to rest 21 years
ago (p. 462).
[82]On this occasion we should again
attempt to shut the coffin on the jargon associated with “fundamental breach”.
Categorizing a contract breach as “fundamental” or “immense” or “colossal” is
not particularly helpful. Rather, the principle is that a court has no
discretion to refuse to enforce a valid and applicable contractual exclusion
clause unless the plaintiff (here the appellant Tercon) can point to some
paramount consideration of public policy sufficient to override the public
interest in freedom of contact and defeat what would otherwise be the
contractual rights of the parties. Tercon points to the public interest in the
transparency and integrity of the government tendering process (in this case,
for a highway construction contract) but in my view such a concern, while
important, did not render unenforceable the terms of the contract Tercon agreed
to. There is nothing inherently unreasonable about exclusion clauses. Tercon
is a large and sophisticated corporation. Unlike my colleague Justice
Cromwell, I would hold that the respondent Ministry’s conduct, while in breach
of its contractual obligations, fell within the terms of the exclusion clause.
In turn, there is no reason why the clause should not be enforced. I would
dismiss the appeal.
I. Overview
[83]This appeal concerns a contract
to build a $35 million road in the remote Nass Valley of British Columbia (the
“Kincolith project”). The respondent Ministry accepted a bid from Brentwood
Enterprises Ltd. that did not comply with the terms of tender. Tercon, as the
disappointed finalist in the bidding battle, seeks compensation equivalent to
the profit it expected to earn had it been awarded the contract.
[84]Tercon alleged, and the trial
judge found, that although the winning bid was submitted in the name of
Brentwood (an eligible bidder), Brentwood in fact intended, with the Ministry’s
knowledge and encouragement, to do the work in a co-venture with an ineligible
bidder, Emil Anderson Construction Co. (“EAC”). The respondent Ministry raised
a number of defences including the fact that the formal contract was signed in
the name of Brentwood alone. This defence was rejected in the courts below.
The Ministry’s substantial defence in this Court is that even if it failed to
abide by the bidding rules, it is nonetheless protected by an exclusion of
compensation clause set out clearly in the request for proposals (“RFP”). The
clause provided that “no Proponent shall have any claim for compensation of any
kind whatsoever, as a result of participating in this RFP” and that “by
submitting a Proposal each Proponent shall be deemed to have agreed that it has
no claim” (s. 2.10 of the RFP).
[85]The appeal thus brings into
conflict the public policy that favours a fair, open and transparent bid
process, and the freedom of contract of sophisticated and experienced parties
in a commercial environment to craft their own contractual relations. I agree
with Tercon that the public interest favours an orderly and fair scheme for
tendering in the construction industry, but there is also a public interest in
leaving knowledgeable parties free to order their own commercial affairs. In
my view, on the facts of this case, the Court should not rewrite — nor should
the Court refuse to give effect to — the terms agreed to by the parties.
[86]I accept, as did the courts
below, that the respondent Ministry breached the terms of its own RFP when it
contracted with Brentwood, knowing the work would be carried out by a
co-venture with Brentwood and EAC. The addition of EAC, a bigger contractor
with greater financial resources than Brentwood, created a stronger competitor
for Tercon than Brentwood alone. However, I also agree with the B.C. Court of
Appeal that the exclusion of compensation clause is clear and unambiguous and
that no legal ground or rule of law permits us to override the freedom of the
parties to contract (or to decline to contract) with respect to this particular
term, or to relieve Tercon against its operation in this case.
II. The Tendering Process
[87]For almost three decades, the law
governing a structured bidding process has been dominated by the concept of
Contract A/Contract B initially formulated in The Queen in right of Ontario
v. Ron Engineering & Construction (Eastern) Ltd., [1981] 1 S.C.R. 111.
The analysis advanced by Estey J. in that case was that the bidding process, as
defined by the terms of the tender call, may create contractual relations
(“Contract A”) prior in time and quite independently of the contract that is
the actual subject matter of the bid (“Contract B”). Breach of Contract A may,
depending on its terms, give rise to contractual remedies for non-performance
even if Contract B is never entered into or, as in the present case, it is
awarded to a competitor. The result of this legal construct is to provide
unsuccessful bidders with a contractual remedy against an owner who
departs from its own bidding rules. Contract A, however, arises (if at all) as
a matter of interpretation. It is not imposed as a rule of law.
[88]In Ron Engineering, the
result of Estey J.’s analysis was that as a matter of contractual
interpretation, the Ontario government was allowed to retain a $150,000 bid
bond put up by Ron Engineering even though the government was told, a little
over an hour after the bids were opened, that Ron Engineering had made a
$750,058 error in the calculation of its bid and wished to withdraw it. Estey
J. held:
The contractor was not asked to sign a contract which diverged in any way
from its tender but simply to sign a contract in accordance with the
instructions to tenderers and in conformity with its own tender. [p. 127]
In other words,
harsh as it may have seemed to Ron Engineering, the parties were held to their
bargain. The Court was not prepared to substitute “fair and reasonable” terms
for what the parties had actually agreed to.
[89]In M.J.B. Enterprises Ltd. v.
Defence Construction (1951) Ltd., [1999] 1 S.C.R. 619, Contract A included
a “privilege” clause which stated that the owner was not obliged to accept the
lowest or any tender. The Court implied a term, based on the presumed
intention of the parties, that notwithstanding the privilege clause, only
compliant bids were open to acceptance. While the owner was not obliged to
accept the lowest compliant bid, the privilege clause did not, as a matter of
contractual interpretation, give the owner “the privilege” of accepting a
non-compliant bid. M.J.B. stops short of the issue in the present
appeal because in that case, there was a breach of Contract A but no
clause purporting to exclude liability on the part of the owner to pay
compensation in the event of a Contract A violation.
[90]In Naylor Group Inc. v.
Ellis-Don Construction Ltd., 2001 SCC 58, [2001] 2 S.C.R. 943, the Court
enforced the rules of the bid depository system against a contractor whose bid
was based on what turned out to be a mistaken view of its collective bargaining
status with the International Brotherhood of Electrical Workers. The Court
again affirmed that “[t]he existence and content of Contract A will depend on
the facts of the particular case” (para. 36). Ellis-Don sought relief from its
bid on the basis of a labour board decision rendered subsequent to its bid that
upheld, to its surprise, the bargaining rights of the union. This Court held
that no relief was contemplated in the circumstances under Contract A and none
was afforded, even though this was a costly result when viewed from the
perspective of Ellis-Don.
[91]In Martel Building Ltd. v.
Canada, 2000 SCC 60, [2000] 2 S.C.R. 860, citing M.J.B., the Court
implied a term in Contract A obligating the owner to be fair and consistent in
the assessment of tender bids. On the facts, the disappointed bidder’s claim
of unfair treatment was rejected.
[92] Finally, in Double N Earthmovers
Ltd. v. Edmonton (City), 2007 SCC 3, [2007] 1 S.C.R. 116, the unsuccessful
bidder claimed that Edmonton had accepted, in breach of Contract A, a
competitor’s non-compliant bid to provide heavy equipment of a certain age to
move refuse at a waste disposal site. The Court refused to imply a term
“requiring an owner to investigate to see if bidders will really do what they
promised in their tender” (para. 50). Accepting the existence of a duty of
“fairness and equality”, the majority nevertheless held that “[t]he best way to
make sure that all bids receive the same treatment is for an owner to weigh
bids on the basis of what is actually in the bid, not to weigh them on the
basis of subsequently discovered information” (para. 52). In other words, the majority’s
interpretation of the express terms of Contract A was enforced despite Double N
Earthmovers’ complaint of double dealing by the owner.
[93]On the whole, therefore, while Ron
Engineering and its progeny have encouraged the establishment of a fair and
transparent bidding process, Contract A continues to be based not on some
abstract externally imposed rule of law but on the presumed (and occasionally
implied) intent of the parties. Only in rare circumstances will the Court
relieve a party from the bargain it has made.
[94]As to implied terms, M.J.B.
emphasized (at para. 29) that the focus is “the intentions of the actual
parties”. A court, when dealing with a claim to an implied term, “must be
careful not to slide into determining the intentions of reasonable
parties” (emphasis in original). Thus, “if there is evidence of a contrary
intention, on the part of either party, an implied term may not be found on
this basis”.
[95]Tercon is a large and experienced
contractor. As noted by Donald J.A. in the B.C. Court of Appeal, it had
earlier “successfully recovered damages from the [Ministry] on a bidding
default in a previous case” (2007 BCCA 592, 73 B.C.L.R. (4th) 201, at para.
15). See Tercon Contractors Ltd. v. British Columbia (1993), 9 C.L.R.
(2d) 197 (B.C.S.C.), aff’d [1994] B.C.J. No. 2658 (QL) (C.A.). Thus Tercon
would have been more sensitive than most contractors to the risks posed by an
exclusion of compensation clause. It nevertheless chose to bid on the project
on the terms proposed by the Ministry.
III. Tercon’s Claim for Relief From the
Exclusionary Clause It Agreed to
[96]In these circumstances, the first
question is whether there is either a statutory legal obstacle to, or a
principled legal argument against, the freedom of these parties to contract out
of the obligation that would otherwise exist for the Ministry to pay
compensation for a breach of Contract A. If not, the second question is
whether there is any other barrier to the court’s enforcement of the exclusionary
clause in the circumstances that occurred. On the first branch, Tercon relies
on the Ministry of Transportation and Highways Act, R.S.B.C. 1996, c.
311 (“Transportation Act” or the “Act”). On the second branch, Tercon
relies on the doctrine of fundamental breach.
A. The Statutory Argument
[97]Section 4 of the Transportation
Act provides that before awarding a highway contract, “the minister must
invite tenders in any manner that will make the invitation for tenders
reasonably available to the public”, but then provides for several exceptions:
“The minister need not invite tenders for a project . . . if . . . (c) the
minister believes that an alternative contracting process will result in a
competitively established cost for the project”. Here the required ministerial
authorization was obtained for an “alternative process”. The reason is as
follows. As noted by Cromwell J., the Ministry’s original idea was to use a
“design-build” model where a single contractor would design and build the
highway for a fixed price. The Ministry issued a request for expressions of
interest (“RFEI”) which attracted six responses. One was from Tercon. Another
was from Brentwood. EAC declined to bid because it did not think the
“design-build” concept was appropriate for the job.
[98]On further reflection, the
Ministry decided not to pursue the design-build approach. It decided to design
the highway itself. The contract would be limited to construction, as EAC had
earlier advocated. EAC was not allowed to bid despite the Ministry coming
around to its point of view on the proper way to tender the project. The
Ministry limited bidding on the new contest to the six respondents to the
original RFEI, all of whom had been found capable of performing the contract.
But to do so, it needed, and did obtain, the Minister’s s. 4 approval.
[99]A question arose during the
hearing of the appeal as to whether the Minister actually approved an
“alternative process” that not only restricted eligibility to the six participants
in the RFEI process (an advantage to Tercon and the other five participants),
but also contained the “no claims” clause excluding compensation for
non-observance of its terms (no doubt considered a disadvantage). In its
factum, the Ministry states:
In this case, the Minister approved an alternate process under [s. 4(2)
of the B.C. Transportation Act]. That process was set out in the
Instructions to Proponents, which included the No Claim Clause. Having been
approved by the Minister, the package (including the No Claim Clause) complied
with section 4 of the Transportation Act. [para. 70]
[100]
Tercon argued at the hearing of this appeal that as a matter of law,
Contract A could not have included the exclusion clause because
[t]he policy of the [Transportation Act] is to ensure that the
Ministry is accountable; to preserve confidence in the integrity of the
tendering process. To ensure that is so and that the Minister is accountable,
the Ministry must be held liable for its breach of Contract A in considering
and accepting a proposal from the joint venture . . . .
.
. .
MADAM JUSTICE ABELLA: Can I just ask you one question. Is it
your position, sir, that you can never have -- that a government can never have
a no claims clause?
MR. McLEAN: Yes. Under this statute because of
the policy of the statute. [Transcript, at p. 27]
[101]
While it is true that the Act favours “the integrity of the
tendering process”, it nowhere prohibits the parties from negotiating a “no
claims” clause as part of their commercial agreement, and cannot plausibly be
interpreted to have that effect.
[102]
In the ordinary world of commerce, as Dickson C.J. commented in Hunter,
“clauses limiting or excluding liability are negotiated as part of the general
contract. As they do with all other contractual terms, the parties bargain for
the consequences of deficient performance” (p. 461). Moreover, as Mr. Hall
points out, “[t]here are many valid reasons for contracting parties to use
exemption clauses, most notably to allocate risks” (G. R. Hall, Canadian
Contractual Interpretation Law (2007), at p. 243). Tercon, for example, is
a sophisticated and experienced contractor and if it decided that it was in its
commercial interest to proceed with the bid despite the exclusion of
compensation clause, that was its prerogative and nothing in the “policy of the
Act” barred the parties’ agreement on that point.
[103]
To the extent Tercon is now saying that as a matter of fact
the Minister, in approving the RFP, did not specifically approve the exclusion
clause, and that the contract was thus somehow ultra vires the Ministry,
this is not an issue that was either pleaded or dealt with in the courts
below. The details of the ministerial approval process were not developed in
the evidence. It is not at all evident that s. 4 required the Minister
to approve the actual terms of the RFP. It is an administrative law point that
Tercon, if so advised, ought to have pursued at pre-trial discovery and in the
trial evidence. We have not been directed to any exploration of the matter in
the testimony and it is too late in the proceeding for Tercon to explore it now.
Accordingly, I proceed on the basis that the exclusion clause did not run
afoul of the statutory requirements.
B. The Doctrine of the Fundamental Breach
[104]
The trial judge considered the applicability of the doctrine of
fundamental breach. Tercon argued that the Ministry, by reason of its
fundamental breach, had forfeited the protection of the exclusion of
compensation clause.
[105]
The leading case is Hunter which also dealt with an
exclusion of liability clause. The appellants Hunter Engineering and Allis-Chalmers
Canada Ltd. supplied gearboxes used to drive conveyor belts at Syncrude’s tar
sands operations in Northern Alberta. The gearboxes proved to be defective.
At issue was a broad exclusion of warranty clause that limited time for suit
and the level of recovery available against Allis-Chalmers (i.e. no recovery
beyond the unit price of the defective products). Dickson C.J. observed: “In
the face of the contractual provisions, Allis-Chalmers can only be found liable
under the doctrine of fundamental breach” (p. 451).
[106]
This doctrine was largely the creation of Lord Denning in the
1950s (see, e.g., Karsales (Harrow) Ltd. v. Wallis, [1956] 1
W.L.R. 936 (C.A.)). It was said to be a rule of law that operated
independently of the intention of the parties in circumstances where the
defendant had so egregiously breached the contract as to deny the plaintiff
substantially the whole of its benefit. In such a case, according to the
doctrine, the innocent party was excused from further performance but the
defendant could still be held liable for the consequences of its “fundamental”
breach even if the parties had excluded liability by clear and express
language. See generally S. M. Waddams, The Law of Contracts (5th ed.
2005), at para. 478; J. D. McCamus, The Law of Contracts (2005), at pp.
765 et seq.
[107]
The five-judge Hunter Court was unanimous in the result
and gave effect to the exclusion clause at issue. Dickson C.J. and Wilson J.
both emphasized that there is nothing inherently unreasonable about exclusion
clauses and that they should be applied unless there is a compelling reason not
to give effect to the words selected by the parties. At that point, there was
some divergence of opinion.
[108]
Dickson C.J. (La Forest J. concurring) observed that the doctrine
of fundamental breach had “spawned a host of difficulties” (p. 460), the most
obvious being the difficulty in determining whether a particular breach is
fundamental. The doctrine obliged the parties to engage in “games of
characterization” (p. 460) which distracted from the real question of what
agreement the parties themselves intended. Accordingly, in his view, the
doctrine should be “laid to rest”. The situations in which the doctrine is
invoked could be addressed more directly and effectively through the doctrine
of “unconscionability”, as assessed at the time the contract was made:
It is preferable to interpret the terms of the contract, in an attempt to
determine exactly what the parties agreed. If on its true construction the
contract excludes liability for the kind of breach that occurred, the party in
breach will generally be saved from liability. Only where the contract is
unconscionable, as might arise from situations of unequal bargaining power
between the parties, should the courts interfere with agreements the parties
have freely concluded. [p. 462]
Dickson C.J.
explained that “[t]he courts do not blindly enforce harsh or unconscionable
bargains” (p. 462), but “there is much to be gained by addressing directly the
protection of the weak from over-reaching by the strong, rather than relying on
the artificial legal doctrine of ‘fundamental breach’” (p. 462). To enforce an
exclusion clause in such circumstances could tarnish the institutional
integrity of the court. In that respect, it would be contrary to public
policy. However, a valid exclusion clause would be enforced according
to its terms.
[109]
Wilson J. (L’Heureux-Dubé J. concurring) disagreed. In her view,
the courts retain some residual discretion to refuse to enforce exclusion
clauses in cases of fundamental breach where the doctrine of pre-breach
unconscionability (favoured by Dickson C.J.) did not apply. Importantly, she
rejected the imposition of a general standard of reasonableness in the judicial
scrutiny of exclusion clauses, affirming that “the courts . . . are quite
unsuited to assess the fairness or reasonableness of contractual provisions as
the parties negotiated them” (p. 508). Wilson J. considered it more desirable
to develop through the common law a post-breach analysis seeking a
“balance between the obvious desirability of allowing the parties to make their
own bargains . . . and the obvious undesirability of having the
courts used to enforce bargains in favour of parties who are totally
repudiating such bargains themselves” (p. 510).
[110]
Wilson J. contemplated a two-stage test, in which the threshold
step is the identification of a fundamental breach where “the foundation of the
contract has been undermined, where the very thing bargained for has not been
provided” (p. 500). Having found a fundamental breach to exist, the exclusion
clause would not automatically be set aside, but the court should go on
to assess whether, having regard to the circumstances of the breach, the party
in fundamental breach should escape liability:
Exclusion clauses do not automatically lose their validity in the event
of a fundamental breach by virtue of some hard and fast rule of law. They
should be given their natural and true construction so that the meaning and
effect of the exclusion clause the parties agreed to at the time the contract
was entered into is fully understood and appreciated. But, in my view, the
court must still decide, having ascertained the parties’ intention at the time
the contract was made, whether or not to give effect to it in the context of
subsequent events such as a fundamental breach committed by the party
seeking its enforcement through the courts. . . . [T]he question essentially
is: in the circumstances that have happened should the court lend its aid to A
to hold B to this clause? [Emphasis added; pp. 510-11.]
[111]
Wilson J. reiterated that “as a general rule” courts should give
effect to exclusion clauses even in the case of fundamental breach (p.
515). Nevertheless, a residual discretion to withhold enforcement exists:
Lord Wilberforce [in Photo Production Ltd. v. Securicor Transport Ltd.,
[1980] A.C. 827 (H.L.)] may be right that parties of equal bargaining power
should be left to live with their bargains regardless of subsequent events. I
believe, however, that there is some virtue in a residual power residing in the
court to withhold its assistance on policy grounds in appropriate
circumstances. [Emphasis added; p. 517.]
Wilson J. made
it clear that such circumstances of disentitlement would be rare. She
acknowledged that an exclusion clause might well be accepted with open eyes by
a party “very anxious to get” the contract (p. 509). However, Wilson J. did
not elaborate further on what such circumstances might be because she found in Hunter
itself that no reason existed to refuse the defendant Allis-Chalmers the
benefit of the exclusion clause.
[112]
The fifth judge, McIntyre J., in a crisp two-paragraph judgment,
agreed with the conclusion of Wilson J. in respect of the exclusion clause
issue but found it “unnecessary to deal further with the concept of fundamental
breach in this case” (p. 481).
[113]
The law was left in this seemingly bifurcated state until Guarantee
Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423. In that
case, the Court breathed some life into the dying doctrine of fundamental
breach while nevertheless affirming (once again) that whether or not a
“fundamental breach prevents the breaching party from continuing to rely on an
exclusion clause is a matter of construction rather than a rule of law” (para.
52). In other words, the question was whether the parties intended at
the time of contract formation that the exclusion or limitation clause would
apply “in circumstances of contractual breach, whether fundamental or
otherwise” (para. 63). The Court thus emphasized that what was important was
not the label (“fundamental or otherwise”) but the intent of the contracting
parties when they made their bargain. “The only limitation placed upon
enforcing the contract as written in the event of a fundamental breach”, the Court
in Guarantee Co. continued,
would be to
refuse to enforce an exclusion of liability in circumstances where to do so
would be unconscionable, according to Dickson C.J., or [note the
disjunctive “or”] unfair, unreasonable or otherwise contrary to public policy,
according to Wilson J. [Emphasis added; para. 52.]
(See also para. 64.)
What has given
rise to some concern is not the reference to “public policy”, whose role in the
enforcement of contracts has never been doubted, but to the more general ideas
of “unfair” and “unreasonable”, which seemingly confer on courts a very broad
after-the-fact discretion.
[114]
The Court’s subsequent observations in ABB Inc. v. Domtar Inc.,
2007 SCC 50, [2007] 3 S.C.R. 461, should be seen in that light. Domtar was
a products liability case arising under the civil law of Quebec, but the Court
observed with respect to the common law:
Once the existence of a fundamental breach has been
established, the court must still analyse the limitation of liability clause in
light of the general rules of contract interpretation. If the words can
reasonably be interpreted in only one way, it will not be open to the court, even
on grounds of equity or reasonableness, to declare the clause to be
unenforceable since this would amount to rewriting the contract negotiated by
the parties. [Emphasis added; para. 84.]
While the Domtar
Court continued to refer to “fundamental breach”, it notably repudiated any
judicial discretion to depart from the terms of a valid contact upon vague
notions of “equity or reasonableness”. It did not, however, express any doubt
about the residual category mentioned in Guarantee Co., namely a
refusal to enforce an exclusion clause on the grounds of public policy.
[115]
I agree with Professor Waddams when he writes:
[I]t is surely inevitable that a court must reserve the ultimate power to
decide when the values favouring enforceability are outweighed by values that
society holds to be more important. [para. 557]
[116]
While memorably described as an unruly horse, public policy is
nevertheless fundamental to contract law, both to contractual formation and
enforcement and (occasionally) to the court’s relief against
enforcement. As Duff C.J. observed:
It is the duty
of the courts to give effect to contracts and testamentary dispositions
according to the settled rules and principles of law, since we are under a
reign of law; but there are cases in which rules of law cannot have their
normal operation because the law itself recognizes some paramount consideration
of public policy which over-rides the interest and what otherwise would be the
rights and powers of the individual.
(Re Millar Estate, [1938] S.C.R. 1, at p. 4)
See generally B.
Kain and D. T. Yoshida, “The Doctrine of Public Policy in Canadian Contract
Law”, in T. L. Archibald and R. S. Echlin, eds., Annual Review of Civil
Litigation, 2007 (2007), 1.
[117]
As Duff C.J. recognized, freedom of contract will often, but not
always, trump other societal values. The residual power of a court to decline
enforcement exists but, in the interest of certainty and stability of
contractual relations, it will rarely be exercised. Duff C.J. adopted the view
that public policy “should be invoked only in clear cases, in which the harm to
the public is substantially incontestable, and does not depend upon the
idiosyncratic inferences of a few judicial minds” (p. 7). While he was
referring to public policy considerations pertaining to the nature of the entire
contract, I accept that there may be well-accepted public policy
considerations that relate directly to the nature of the breach, and
thus trigger the court’s narrow jurisdiction to give relief against an
exclusion clause.
[118]
There are cases where the exercise of what Professor Waddams
calls the “ultimate power” to refuse to enforce a contract may be justified,
even in the commercial context. Freedom of contract, like any freedom, may be
abused. Take the case of the milk supplier who adulterates its baby formula
with a toxic compound to increase its profitability at the cost of sick or dead
babies. In China, such people were shot. In Canada, should the courts give
effect to a contractual clause excluding civil liability in such a situation?
I do not think so. Then there are the people, also fortunately resident
elsewhere, who recklessly sold toxic cooking oil to unsuspecting consumers,
creating a public health crisis of enormous magnitude. Should the courts
enforce an exclusion clause to eliminate contractual liability for the
resulting losses in such circumstances? The answer is no, but the contract
breaker’s conduct need not rise to the level of criminality or fraud to justify
a finding of abuse.
[119]
A less extreme example in the commercial context is Plas-Tex
Canada Ltd. v. Dow Chemical of Canada Ltd., 2004 ABCA 309, 245 D.L.R. (4th)
650. The Alberta Court of Appeal refused to enforce an exclusion clause where
the defendant Dow knowingly supplied defective plastic resin to a customer who
used it to fabricate natural gas pipelines. Instead of disclosing its prior
knowledge of the defect to the buyer, Dow chose to try to protect itself by
relying upon limitation of liability clauses in its sales contracts. After
some years, the pipelines began to degrade, with considerable damage to
property and risk to human health from leaks and explosions. The court
concluded that “a party to a contract will not be permitted to engage in unconscionable
conduct secure in the knowledge that no liability can be imposed upon it
because of an exclusionary clause” (para. 53). (See also McCamus, at p. 774,
and Hall, at p. 243.) What was demonstrated in Plas-Tex was that the
defendant Dow was so contemptuous of its contractual obligation and reckless as
to the consequences of the breach as to forfeit the assistance of the court.
The public policy that favours freedom of contract was outweighed by the public
policy that seeks to curb its abuse.
[120]
Conduct approaching serious criminality or egregious fraud are
but examples of well-accepted and “substantially incontestable” considerations
of public policy that may override the countervailing public policy that
favours freedom of contract. Where this type of misconduct is reflected in the
breach of contract, all of the circumstances should be examined very carefully
by the court. Such misconduct may disable the defendant from hiding behind the
exclusion clause. But a plaintiff who seeks to avoid the effect of an
exclusion clause must identify the overriding public policy that it says
outweighs the public interest in the enforcement of the contract. In the
present case, for the reasons discussed below, I do not believe Tercon has
identified a relevant public policy that fulfills this requirement.
[121]
The present state of the law, in summary, requires a series of
enquiries to be addressed when a plaintiff seeks to escape the effect of an
exclusion clause or other contractual terms to which it had previously agreed.
[122]
The first issue, of course, is whether as a matter of
interpretation the exclusion clause even applies to the circumstances
established in evidence. This will depend on the Court’s assessment of the
intention of the parties as expressed in the contract. If the exclusion clause
does not apply, there is obviously no need to proceed further with this
analysis. If the exclusion clause applies, the second issue is whether the
exclusion clause was unconscionable at the time the contract was made, “as
might arise from situations of unequal bargaining power between the parties” (Hunter,
at p. 462). This second issue has to do with contract formation, not breach.
[123]
If the exclusion clause is held to be valid and applicable, the
Court may undertake a third enquiry, namely whether the Court should
nevertheless refuse to enforce the valid exclusion clause because of the
existence of an overriding public policy, proof of which lies on the party
seeking to avoid enforcement of the clause, that outweighs the very strong
public interest in the enforcement of contracts.
IV. Application
to the Facts of This Case
[124]
I proceed to deal with the issues in the sequence mentioned above.
A. Did the Ministry Breach Contract A?
[125]
The trial judge found that the parties intended to create
contractual relations at the bidding stage (i.e. Contract A): 2006 BCSC 499, 53
B.C.L.R. (4th) 138, at para. 88. I agree with that conclusion. If there were
no intent to form Contract A, there would be no need to exclude liability for
compensation in the event of its breach.
[126]
The Ministry argued that Contract A was not breached. It was
entitled to enter into Contract B with Brentwood and it did so. There was no
privity between the Ministry and EAC. The Ministry would have had no direct
claim against EAC in the event of deficient performance. I accept as correct
that Brentwood, having obtained Contract B, was in a position of considerable
flexibility as to how and with whom it carried out the work. Nevertheless, it
was open to the trial judge to conclude, as she did, that the RFP process was
not conducted by the Ministry with the degree of fairness and transparency that
the terms of Contract A entitled Tercon to expect. At the end of an unfair process,
she found, Contract B was not awarded to Brentwood (the eligible bidder) but to
what amounted to a joint venture consisting of Brentwood and EAC. I therefore
proceed with the rest of the analysis on the basis that Contract A was
breached.
B. What Is the Proper Interpretation of the
Exclusion of Compensation Clause and Did the Ministry’s Conduct Fall Within Its
Terms?
[127]
It is at this stage that I part company with my colleague
Cromwell J. The exclusion clause is contained in the RFP and provides as
follows:
2.10 .
. .
Except as expressly and specifically permitted in these Instructions to
Proponents, no Proponent shall have any claim for 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.
In my view,
“participating in this RFP” began with “submitting a Proposal” for
consideration. The RFP process consisted of more than the final selection of
the winning bid and Tercon participated in it. Tercon’s bid was
considered. To deny that such participation occurred on the ground that in the
end the Ministry chose a Brentwood joint venture (ineligible) instead of
Brentwood itself (eligible) would, I believe, take the Court up the dead end
identified by Wilson J. in Hunter:
. . . exclusion clauses, like all contractual provisions, should be given
their natural and true construction. Great uncertainty and needless
complications in the drafting of contracts will obviously result if courts give
exclusion clauses strained and artificial interpretations in order, indirectly
and obliquely, to avoid the impact of what seems to them ex post facto
to have been an unfair and unreasonable clause. [p. 509]
Professor
McCamus expresses a similar thought:
. . . the law concerning exculpatory clauses is likely to be more rather
than less predictable if the underlying concern is openly recognized, as it is
in Hunter, rather than suppressed and achieved indirectly through the
subterfuge of strained interpretation of such terms. [p. 778]
[128]
I accept the trial judge’s view that the Ministry was at fault in
its performance of the RFP, but the conclusion that the process thereby ceased
to be the RFP process appears to me, with due respect to colleagues of a
different view, to be a “strained and artificial interpretatio[n] in order,
indirectly and obliquely, to avoid the impact of what seems to them ex post
facto to have been an unfair and unreasonable clause”.
[129]
As a matter of interpretation, I agree with Donald J.A. speaking
for the unanimous court below:
The [trial] judge said the word “participating” was
ambiguous. With deference, I do not find it so. The sense it conveys is the
contractor’s involvement in the RFP/contract A stage of the process. I
fail to see how “participating” could bear any other meaning. [Emphasis added;
para. 16.]
Accordingly, I
conclude that on the face of it, the exclusion clause applies to the facts
described in the evidence before us.
C. Was the Claim Excluding Compensation
Unconscionable at the Time Contract A Was Made?
[130]
At this point, the focus turns to contract formation. Tercon
advances two arguments: firstly, that it suffered from an inequality of
bargaining power and secondly, (as mentioned) that the exclusion clause
violates public policy as reflected in the Transportation Act.
(1) Unequal Bargaining Power
[131]
In Hunter, Dickson C.J. stated, at p. 462: “Only where the
contract is unconscionable, as might arise from situations of unequal
bargaining power between the parties, should the courts interfere with
agreements the parties have freely concluded.” Applying that test to the case
before him, he concluded:
I have no doubt that unconscionability is not an issue in this case.
Both Allis-Chalmers and Syncrude are large and commercially sophisticated
companies. Both parties knew or should have known what they were doing and
what they had bargained for when they entered into the contract. [p. 464]
While Tercon is
not on the same level of power and authority as the Ministry, Tercon is a major
contractor and is well able to look after itself in a commercial context. It
need not bid if it doesn’t like what is proposed. There was no relevant
imbalance in bargaining power.
(2) Policy of the Transportation Act
[132]
As mentioned earlier, Tercon cites and relies upon the policy of
the Act which undoubtedly favours the transparency and integrity of the bidding
process. I have already discussed my reasons for rejecting Tercon’s argument
that this “policy” operates as a bar to the ability of the parties to agree on
such commonplace commercial terms as in the circumstances they think
appropriate. In addition, the exclusion clause is not as draconian as Tercon
portrays it. Other remedies for breach of Contract A (specific performance or
injunctive relief, for example) were available.
[133]
In this case, injunction relief was in fact a live
possibility. Although Tercon was not briefed on the negotiations with other
bidders, the trial judge found that Glenn Walsh, the owner of Tercon, “had seen
representatives of EAC with Brentwood following [the Brentwood/EAC interviews
with the Ministry and Bill Swain of Brentwood]”, and when asked whether Tercon
was going to sue, Walsh had said “no” without further comment. Had Tercon
pushed for more information and sought an injunction (as a matter of private
law, not public law), at that stage the exclusion clause would have had no
application, but Tercon did not do so. This is not to say that estoppel or
waiver applies. Nor is it to say that injunctive relief would be readily
available in many bidding situations (although if an injunction had been sought
here, the unavailability of the alternative remedy of monetary damages might
have assisted Tercon). It is merely to say that the exclusion clause is
partial, not exhaustive.
[134]
The Kincolith road project presented a serious construction
challenge on a tight time frame and within a tight budget. Contract A did not
involve a bid for a fixed price contract but for the right to negotiate the bid
details once the winning proponent was selected. In such a fluid situation, all
participants could expect difficulties in the contracting process. Members of
the construction bar are nothing if not litigious. In the circumstances, the
bidders might reasonably have accepted (however reluctantly) the Ministry’s
need for a bidding process that excluded compensation, and adjusted their bids
accordingly. The taxpayers of British Columbia were not prepared to pay the
contractor’s profit twice over — once to Brentwood/EAC for actually building
the road, and now to Tercon, even though in Tercon’s case the “profit” would be
gained without Tercon running the risks associated with the performance of
Contract B. The Court should not be quick to declare such a clause, negotiated
between savvy participants in the construction business, to be “contrary to the
Act”.
D. Assuming the Validity of the Exclusion Clause
at the Time the Contract Was Made, Is There Any Overriding Public Policy That
Would Justify the Court’s Refusal to Enforce It?
[135]
If the exclusion clause is not invalid from the outset, I do not
believe the Ministry’s performance can be characterized as so aberrant as to
forfeit the protection of the contractual exclusion clause on the basis of some
overriding public policy. While there is a public interest in a fair and
transparent tendering process, it cannot be ratcheted up to defeat the
enforcement of Contract A in this case. There was an RFP process and
Tercon participated in it.
[136]
Assertions of ineligible bidders and ineligible bids are the
bread and butter of construction litigation. If a claim to defeat the
exclusion clause succeeds here on the basis that the owner selected a joint
venture consisting of an eligible bidder with an ineligible bidder, so also by
a parity of reasoning should an exclusion clause be set aside if the owner
accepted a bid ineligible on other grounds. There would be little room left
for the exclusion clause to operate. A more sensible and realistic view is
that the parties here expected, even if they didn’t like it, that the exclusion
of compensation clause would operate even where the eligibility criteria in
respect of the bid (including the bidder) were not complied with.
[137]
While the Ministry’s conduct was in breach of Contract A, that
conduct was not so extreme as to engage some overriding and paramount public
interest in curbing contractual abuse as in the Plas-Tex case.
Brentwood was not an outsider to the RFP process. It was a legitimate
competitor. All bidders knew that the road contract (i.e. Contract B) would
not be performed by the proponent alone. The work required a large “team” of
different trades and personnel to perform. The issue was whether EAC would be
on the job as a major sub-contractor (to which Tercon could not have objected)
or identified with Brentwood as a joint venture “proponent” with EAC. All
bidders were made aware of a certain flexibility with respect to the
composition of any proponent’s “team”. Section 2.8(b) of the RFP provided that
if “a material change has occurred to the Proponent since its qualification
under the RFEI, including if the composition of the Proponent’s team members
has changed, . . . the Ministry may request [further information and] . . .
reserves the right to disqualify that Proponent, and reject its Proposal”.
Equally, “[i]f a qualified Proponent is concerned that it has undergone a
material change, the Proponent can, at its election, make a preliminary
submission to the Ministry, in advance of the Closing Date, and before
submitting a Proposal. . . . The Ministry will, within three working days of
receipt of the preliminary submission give a written decision as to whether the
Proponent is still qualified to submit a Proposal.”
[138]
The RFP issued on January 15, 2001. The Ministry was informed by
Brentwood of a “proposed material change to our team’s structure” in respect of
a joint venture with EAC by fax dated January 24, 2001. From the Ministry’s
perspective, the change was desirable. EAC was a bigger company, had greater
expertise in rock drilling and blasting (a major part of the contract) and a
stronger balance sheet. EAC was identified in Brentwood’s amended proposal as
a sub-contractor. In the end, the Ministry did not approve the January 14,
2001 request, presumably because it doubted that a change in the “composition
of the Proponent’s team’s members” could , according to the terms of the RFP,
include a change in the Proponent itself.
[139]
The Ministry did obtain legal advice and did not proceed in
defiance of it. On March 29, 2001, the Ministry noted in an internal e-mail
that a Ministry lawyer (identified in the e-mail) had come to the conclusion
that the joint venture was not an eligible proponent but advised that Contract
B could lawfully be structured in a way so as to satisfy both Brentwood/EAC’s
concerns and avoid litigation from disappointed proponents.
[140]
I do not wish to understate the difference between EAC as a
sub-contractor and EAC as a joint-venturer. Nor do I discount the trial
judge’s condemnation of the Ministry’s lack of fairness and transparency in
making a Contract B which on its face was at odds with what the trial judge
found to be the true state of affairs. Tercon has legitimate reason to
complain about the Ministry’s conduct. I say only that based on the
jurisprudence, the Ministry’s misconduct did not rise to the level where public
policy would justify the court in depriving the Ministry of the protection of
the exclusion of compensation clause freely agreed to by Tercon in the
contract.
[141]
The construction industry in British Columbia is run by
knowledgeable and sophisticated people who bid upon and enter government
contracts with eyes wide open. No statute in British Columbia and no principle
of the common law override their ability in this case to agree on a tendering
process including a limitation or exclusion of remedies for breach of its
rules. A contractor who does not think it is in its business interest to bid
on the terms offered is free to decline to participate. As Donald J.A. pointed
out, if enough contractors refuse to participate, the Ministry would be forced
to change its approach. So long as contractors are willing to bid on such
terms, I do not think it is the court’s job to rescue them from the
consequences of their decision to do so. Tercon’s loss of anticipated profit
is a paper loss. In my view, its claim is barred by the terms of the contract
it agreed to.
V. Disposition
[142]
I would dismiss the appeal without costs.
Appeal allowed, McLachlin C.J.
and Binnie, Abella and Rothstein JJ. dissenting.
Solicitors for the appellant: McLean & Armstrong, West
Vancouver.
Solicitor for the respondent: Attorney General of British
Columbia, Victoria.
Solicitor for the intervener: Attorney General of Ontario,
Toronto.