There, the appellant’s (Tercon) compliant bid was rejected in a tendering process for the construction of a highway, and a non-compliant bid was accepted. In response to the appellant’s claim for breach of contract A, the respondent (the Province) relied on the exclusion clause, which read “…no Proponent shall have any claim for any compensation of any kind whatsoever, as a result of participating in this RFP [request for proposals], and by submitting a proposal each proponent shall be deemed to have agreed that it has no claim”.

In a 5-4 majority, the Supreme Court overturned the British Columbia Court of Appeal and found that the successful bid was ineligible and the exclusion clause did not protect the province from Tercon’s damage claim, which arose from the Province’s dealings with a party ineligible to bid and from its breach of the implied duty of fairness to bidders. Specifically, the majority found the claim was 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” (para. 63) and that both integrity and 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” (para. 70). Further, given the implied duty of fairness to treat all bidders fairly and equally that is inherent in the tendering process, an exclusion clause aimed at excluding liability for breach of that basic requirement needs to contain clear language, especially in cases of public procurement.

The dissent found that the Province did, in fact, breach the terms of its own RFP when it awarded the bid to an ineligible bidder but that the exclusion clause, being clear and unambiguous, operated to relieve against the operation of the clause requiring only eligible bidders to participate in the RFP. The dissent did not only consider whether the exclusion clause applied to the circumstances and if so, whether it was unconscionable at the time the contract was made; it went on to undertake a third enquiry, namely whether the exclusion clause violated an overriding public policy. It found that while there is a public policy in having a fair and transparent tendering process, it is not at a level grievous enough to engage an overriding public interest, as was the case in Plas-Tex Canada Ltd. v. Dow Chemical of Canada Ltd., [2004] ABCA 309 (a large petrochemical company knowingly sold defective polyethylene resin to the respondents without advising them and when the pipe cracked due to defective resin, and the escaping natural gas caused an explosion, the company relied on a limitation of liability clause, which limited damages for loss or damage resulting from the use of resin in the contract. The conduct was found to be unconscionable). Therefore, the public policy concern was not substantial enough to defeat the enforcement of Contract A in this case, a case involving sophisticated parties who were familiar with the bidding process.

On an interesting note, following MJB Enterprises' analysis as to implied terms and the emphasis to focus on the intent of the actual parties and not reasonable parties, the dissenting judgement noted that Tercon, being a large and experienced contractor, and one that had just successfully recovered damages from the Ministry on a bidding default on a previous case, would be more sensitive than most contractors to the risks posed by such an exclusion clause (paras. 94-95).

All the best,

Jassmine

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J. Girgis
Assistant Professor
Faculty of Law
University of Calgary
Ph: (403) 220-7251
Fax: (403) 282-8325