A supplier you have dealt with over the years launches a legal challenge and you wind up in court defending your organization’s conduct in a lengthy and acrimonious proceeding. What is your recourse? Are you able to bar litigious bidders from future competitions? This age old question faced by procurement professionals was first unpacked by the BC Court of Appeal in Sound Contracting v City of Nanaimo, 2000 BCCA 312. In that case the court held that organizations can bar companies with whom they are in litigation from being successful proponents as long as the clause is part of the company’s overall policy rather than a clause focusing on a specific target. It seems this issue has resurfaced, however, in the recent case of J Cote & Son Excavating Ltd v City of Burnaby, 2017 BCSC 2323.

The City of Burnaby (“the City”), as do many municipalities, uses an open bidding process to contract for the construction of public sector projects. In August 2012, the City entered into a sewer construction contract with J. Cote & Son Excavating Ltd. (“Cote”), a company specializing in excavation for utility and road maintenance. Most of Cote’s work is with municipalities, and since 2005 approximately a quarter of its revenues came from contracts with the City. In October of 2012, a dispute arose regarding a workplace accident in which one of Cote’s employees died. Efforts to settle the dispute out of court failed, and Cote filed an action to the British Columbia Supreme Court in December 2013 to recover funds from the City.

Three months later, in February 2014, the City added a new clause to its invitations to tender:

Tenders will not be accepted by the City of Burnaby (the “Owner”) from any person, corporation, or other legal entity (the “Party”) if the Party, or any officer or director of a corporate Party […] is, or has been within a period of two years prior to the tender closing date, engaged either directly or indirectly through another corporation or legal entity in a legal proceeding initiated in any court against the Owner in relation to any contract with, or works or services provided to, the Owner, and any such Party is not eligible to submit a tender. [Emphasis in original.]

Cote noticed the clause shortly after it was added, and the company’s principal, Jamie Cote, decided that this clause effectively banned Cote from contracting with the City for two years following the resolution of the action regarding the workplace death, which was at that point still ongoing. Following the insertion of the clause, Cote did not bid on many of the City’s tendered projects because the company felt it could not afford to submit bids if they would simply be rejected. Jamie Cote claimed that had he known the City would add this clause, he would not have filed the December 2013 action since he stood to lose much more by being ineligible than by recovering from the City in relation to the workplace death. At some point between 2014 and the current case, Cote and the City resolved the workplace death issue, but since Jamie Cote felt he now had ‘nothing to lose’ he challenged the clause in court.

Cote filed a notice of civil claim beginning this proceeding in December 2014. Originally, Cote sought a number of declarations – meaning that it requested that the court publicly state these things to be true – regarding the clause, namely that the clause violated the Constitutionally protected rule of law and right of access to courts, as well as that the clause was contrary to public policy, and thus that it was of no force and effect. The City filed their response in March, and three years later, in January 2017, removed the clause from their invitations to tender. However, this litigation continued.

In March of 2017, Cote amended their notice of civil claim by adding that they sought another declaration: that the clause prevented access to the courts in a manner that infringed section 96 of the Constitution Act, 1867. In July, Cote added another claim stating that it additionally sought Charter damages under section 24(1) of the Charter. While Cote was primarily focused on the constitutional and public policy claims, according to Jamie Cote, the company also decided that it should seek compensation for the alleged breach of its rights.

In this application, Cote sought to sever the constitutional and public policy declaration requests from the Charter damages request. The City argued that a summary trial for this matter was not appropriate, and ultimately the hearing – at this point – concerned only the preliminary matter that the City claimed that the actions begun by Cote were moot, meaning that their actions should be summarily dismissed. The City’s argument turned, in part, on the fact that the Canadian Construction Association (“CCA”) had agreed with Cote to assume conduct of this litigation as a ‘test case’ and to cover any costs that might be payable by Cote in proceeding with the action. The CCA represents approximately 20,000 member contracting firms across Canada, and testified to the ‘growing prevalence’ of these types of clauses, and the concerns this caused to its members.

Ultimately, the judge ruled that the constitutional and Charter claims raised by the amended notice of civil claim are not moot, and that while the public policy issue raised is moot, the judge exercises discretion to allow that matter to proceed to a determination. The judge based this on a finding that while Cote’s path to a Charter remedy may be tenuous, as claimed by the Attorney General who provided submissions regarding the constitutional aspects of the case, the path still remains, and cannot be assessed on this preliminary application. In exercising discretion to allow the public policy issue to be further assessed despite being found to be moot, the judge found that an adversarial process was clearly present, that many issues will be determined in a full hearing and including public policy in those issues will not drain judicial resources, and that addressing these kinds of clauses may well have practical effects – a kind of special circumstance – on contractors such as Cote. This matter will thus proceed to a full hearing.

The validity and enforceability of such ‘reprisal clauses’, therefore, appears to be far from resolved. Does context matter when deciding whether such clauses are enforceable? You will recall that in Sound Contracting the municipal owner was concerned about issues with previous contract performance by potential bidders, whereas the Cote case involved litigation over an entirely unrelated matter. Given the widespread use of such clauses, we will be watching this litigation unfold with interest, and we will keep you updated on developments!

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.