We thought you might be interested in knowing that the Supreme Court of Canada released its judgment in the case of Tercon Contractors Ltd. v. British Columbia this morning.

In the B.C. Supreme Court, Tercon had successfully argued that the Ministry of Transportation and Highways ("MoTH") breached a Contract A arising under a Request for Proposals ("RFP"). The Court concluded that the proposal of the proponent that was awarded the construction contract was non-compliant, as it was a submitted by a joint venture that had not been prequalified.

The B.C. Court of Appeal overturned the trial judgment by enforcing the exclusion clause in the RFP. That clause provided that:

… no Proponent shall have any claim for any compensation of any kind whatsoever, as a result of participating in this RFP, and by submitting a proposal each Proponent shall be deemed to have agreed that it has no claim.

While the trial judge had found that this clause could not have been intended to exclude liability for fundamental breach of Contract A, the Court of Appeal held that the words of the clause were so clear and unambiguous that it was inescapable that the parties intended it to cover all breaches of Contract A.

In a 5 to 4 decision, the Supreme Court of Canada granted Tercon’s appeal and restored the trial judgment, on the basis that the wording of the exclusion clause did not exclude a claim for damages for the egregious conduct of MoTH in this case which struck at the heart of the tendering process.

Specifically, 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, MoTH not only breached the express and implied terms of Contract A, it did so in a manner that was an affront to the integrity and business efficacy of the tendering process. MoTH’s liability did not arise from Tercon’s participation in the process but from MoTH’s unfair dealings with a party who was not entitled to participate in the process, and therefore the exclusion clause did not prevent Tercon’s claim. The Court stated that clearer language would be required in the exclusion clause to exclude liability for such conduct, particularly in the case of a public procurement where transparency is essential.

The dissenting judges concluded that the exclusion clause was clear and unambiguous and that the Court should enforce it to deny Tercon’s claim.

It is important to note that the Court easily concluded that a Contract A can, and in this case did arise in an RFP. In addition, the Court highlighted the importance of the requirement that only compliant bids be considered by the tendering authority.

The Supreme Court of Canada in this judgment sends a signal to the industry that it will continue to take an active interest in protecting the integrity of the bidding process. The fact that there was a significant dissenting judgment confirms that this area remains a risky one for owners as it is difficult to predict with certainty the court’s conclusion in a particular fact situation. However, it is clear that the duties on owners issuing procurement documents, especially public owners, remain high, and that the wording of the terms of the tender or RFP document is critical.

A complete copy of the reasons for judgment is available here.