It’s been a very interesting year for Canadian procurement professionals, with several new and impactful court cases, implementation of new requirements related to the two new trade agreements, as well as some emerging innovative strategies for maximizing the value that procurement can bring to the table. Subsequent articles will explore the trade agreement nuances and innovative strategies that are emerging, and below we highlight some of the significant legal developments from 2018.
Along with the usual sad tales of inadequate spec drafting, confusing mandatory requirements and suspect evaluation practices, there are a few particularly relevant cases that we will continue to watch closely.
The issue of whether an owner can include a so-called ‘reprisal clause’ in its solicitation barring bids from companies currently in litigation with the owner resurfaced this year in the case of J Cote & Sons Excavating Ltd. v City of Burnaby. The City inserted such a clause into its standard tender document following initiation of litigation by J. Cote related to a previous workplace incident. J. Cote objected to the clause, claiming a 25% reduction in their overall business as a result of no longer being able to bid on City of Burnaby projects. Although the City removed the clause after the litigation was commenced, J. Cote pressed on to have the matter dealt with by the BC Supreme Court, claiming among other things that such a clause represents an unreasonable infringement on its constitutional right to access justice. This is particularly so, J. Cote argued, as the ongoing litigation is totally unrelated to any current or future bidding opportunities at the City. The Trial Judge upheld the clause, determining that J. Cote had failed to establish the ‘undue hardship’ required to strike down such a clause. Following the release of this decision we spoke with counsel acting for J. Cote (supported by both the Construction and the Roadbuilders Associations), who advised us that they will be taking this important issue to the BC Court of Appeal. His best guess for when this might be heard is June 2019. We will post an update as soon as it becomes available.
For a number of reasons, our ‘case of the year’ is the Mega Reporting Inc. v Yukon Government. On the surface, this appears to be a standard case of a government being taken to task for insufficient documentation related to proposal evaluations, and relying on a broad limitation of liability clause in the RFP as a complete defence. Unlike in the Tercon Contractors Ltd. v BC Government case that went to the Supreme Court of Canada in 2010, the clause in the Mega case was much more expansive. The Yukon government clause purported to have bidders waive their right to seek judicial review, significant in its own right, and to relieve the government from all manner of conduct including “… any actual or alleged unfairness on the part of Government”. This is the first case where we have seen a judge fully explore the impact of the three-pronged test for enforceability of such clauses set out in Tercon.
- Does the clause, as drafted, apply to the facts?
- Is the clause unconscionable and therefore unenforceable?
- Should the clause be voided due to public policy reasons?
As you may recall, in Tercon the analysis did not get past the first prong of the test, as the majority of the Supreme Court of Canada found that the clause in question was not specific enough to apply to the facts of the case. The trial judge in Mega found the clause did apply to the facts, was not unconscionable, but should not be upheld due to public policy reasons. The Yukon Court of Appeal overturned that finding and dismissed Mega’s claim, suggesting that conduct amounting to criminal negligence, fraud, or violation of human rights legislation (cases cited) would be required to invoke the third prong of the Tercon test.
It appears as though this matter will be proceeding to the Supreme Court of Canada.
One of the most interesting aspects of this case, in our opinion, is the finding by the Trial Judge that the Procurement Directive issued by management board, along with the attendant Regulations, amounted to a ‘legislative assurance of fairness’ that the government could not contract out of. The Court of Appeal did not comment on this finding, instead focusing on the level of conduct that would be required to interfere with the principle of Freedom of Contract – the principle that legally capable parties should be entitled to rely on contracts freely entered into, without interference from the courts.
If this matter indeed proceeds to the Supreme Court of Canada, will we get further clarify on precisely when such specifically crafted clauses will be upheld, and when they will be struck down as void against public policy? Will we see the emergence of a new aspect of challenge to competitive procurement under the heading of ‘legislative assurances of fairness’? A finding that government Directives and Regulations, while not technically legislation, can amount to such assurance that cannot be contracted out of would open an entirely new avenue of legal challenge to public procurement. As Canadian organizations continue to embed ‘no Contract A’ language into their solicitation documents, does this represent the new common law frontier for challenge?
We indeed live in interesting times. We will continue to follow the legal developments into 2019 and in particular these two decisions, so stay tuned to our newsletter.
We at NECI wish you all the best for a successful, healthy and challenge-free 2019!
Readers are cautioned not to rely upon this article as legal advice nor as an exhaustive discussion of the topic or case. For any particular legal problem, seek advice directly from your lawyer or in-house counsel. All dates, contact information and website addresses were current at the time of original publication.