This article is an excerpt from Government Procurement, which is available for purchase.
In its February 2010 decision in Tercon Contractors Ltd. v. British Columbia, the Supreme Court of Canada struck down a liability disclaimer and held that the British Columbia government liable for $3.3 million in lost profit damages for awarding to a non-compliant bidder.
The case involved a tender call for the construction of a gravel highway in the Nass Valley of British Columbia. The tender call rules clearly prohibited joint venture bids. Notwithstanding this rule, the government awarded the contract to a low bid submitted by a joint venture. One of the unsuccessful bidders sued, alleging that the contract was awarded to a non-compliant competitor. While the awarded contract was styled to reflect only one of the two joint venture parties as the prime contractor, the trial court saw through the government’s attempted bid repair. The government was found to be in breach of its tendering law duties.
The trial court then considered the applicability of the following limitation of liability provision contained in the tender call:
Except as expressly and specifically permitted in these Instructions to Proponents, no Proponent shall have any claim for any compensation of any kind whatsoever, as a result of participating in this RFP, and by submitting a proposal each proponent shall be deemed to have agreed that it has no claim.
The trial court noted that the courts have discretion to limit the enforceability of such exclusionary clauses: (a) within the tendering context due to policy considerations; and (b) more generally under contract law based on doctrines such as fundamental breach, unconscionability, unfairness and unreasonableness. The trial court concluded that it would not allow the government to shield its conduct behind the exclusionary clause contained in the tender call.
To allow purchasers to avoid their fairness duties in formal tendering processes by relying on limitation of liability provisions seemed to fly in the face of the more nuanced treatment of privilege clauses in prior decisions. For example, in its April 1999 decision in M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., the Supreme Court of Canada had limited the scope of the privilege clause (which typically reserves the right to “reject any and all tenders, low bid not necessarily accepted”) by finding that it did not permit the purchaser to accept non-compliant bids. M.J.B confirmed that the purchaser’s discretion is typically limited to the pool of compliant bids and tempered by its overarching duty to act fairly and in good faith, which protects the integrity of the bidding process and safeguards the rights of compliant bidders.
However, in an alarming decision reached in 2007, the British Columbia Court of Appeal reversed the trial judge’s ruling. Its decision purported to allow a purchaser to receive binding bids under a formal bidding process and to then bypass fairness obligations and judicial scrutiny by using a broad limitation of liability provision. This judicial “hands off” approach was at odds with the traditional role of the court as protector of the integrity of the bidding process. It left the law of tenders in a state of uncertainty since it was unclear how the balanced approach to reserved rights and implied duties reflected in the M.J.B. decision could be reconciled with the “anything goes” approach from the British Columbia Court of Appeal’s Tercon reversal.
In its controversial, February 2010 five-to-four split decision, the Supreme Court of Canada restored the trial judgment, struck down the liability disclaimer and found the British Columbia government liable for $3.3 million in damages. With future lost profit claims hanging in the balance, the level of protection offered to purchasing institutions under their tender disclaimers remains highly untested and unclear.
