Does a strong exclusion of liability clause trump Contract A and other implied obligations of fairness? When will an exclusion clause be voided for public policy reasons? Does a poorly documented evaluation process weaken the protection such clauses are designed to provide? Those are the interesting questions canvassed in the recent case of Mega Reporting Inc. v. Government of Yukon, 2017 YKSC 69.

The RFP

In January 2013, the Government of Yukon (“Yukon”) issued an RFP for court transcription services using a two-envelope system. Information related to the bidders’ experience and performance (Envelope One) was to be assessed first, and only those proposals meeting a stipulated minimum score would proceed to pricing evaluation (Envelope Two). The RFP included a comprehensive waiver that stipulated, in part:

Except for a claim of costs of preparation of its Proposal or other costs awarded in a proceeding under the Bid Challenge Process… each proponent, by submitting a Proposal irrevocably waives any claim, action, or proceeding against the Government of Yukon… for damages, expenses or costs including costs of Proposal preparation, loss of profits, loss of opportunity or any consequential loss for any reason including: any actual or alleged unfairness on the part of the Government of Yukon…

The RFP also stipulated that Yukon was not obliged to accept the lowest-priced – or indeed any – bid.

The Evaluation

The Yukon evaluation committee concluded that the proposal by Mega Reporting Inc. (“Mega”) did not achieve the minimum score on Envelope One and therefore Mega’s Envelope Two was not opened. Yukon went on to evaluate and subsequently award the contract to the only other proponent, eventually extending that contract from one year to three years in duration. As it turns out, Mega had a proposed a lower price than had the successful proponent.

The Yukon evaluation committee had not made contemporaneous records of its discussions while evaluating Mega’s proposal, nor did it record reasons for its decision in relation to any component of the evaluation. Weeks later, in response to a request for debriefing by Mega, one member of the evaluation committee prepared a typed document that purported to record the scores given to Mega’s proposal by the evaluation committee, based on this member’s own recollections and some handwritten notes. Mega initiated legal action claiming over $500,000 in damages from Yukon. When examined for discovery, this individual conceded that the written document did not reflect what had actually occurred during the evaluation of Mega’s proposal, and that he could not recall the conversation among committee members that led to Mega’s Envelope One scores.

The Analysis

The Supreme Court of Yukon determined on summary trial that Yukon had not fulfilled its obligations to evaluate Mega’s proposal in a fair, accountable, and transparent manner, emphasizing the importance of proper recordkeeping. Mega’s entitlement to damages, therefore, turned on whether the exclusion clause barred its claim, as Yukon alleged.

Although the clause in question was extremely comprehensive, the court reinforced what we learned from Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4: namely, that not every waiver is effective to bar proposed claims. As Legal Edge readers know, in Tercon the Supreme Court of Canada set out a three-pronged analysis:

  1. Does the clause, as drafted, apply to the facts?
  2. Is the clause unconscionable and therefore unenforceable?
  3. Should the clause be voided due to public policy reasons?

The court in the Mega v. Yukon case found it unnecessary to consider the first two prongs, as it concluded that under the circumstances the clause failed the third prong. For the following reasons, the court concluded that certain public policy reasons should lead the court to refuse to enforce the waiver. Those reasons, in the court’s analysis, “outweigh the very strong public interest in the enforcement of contracts” (para 33).

The Impact of Legislation

The tendering process in question was subject to the Contracting and Procurement Regulation (“the Regulation”) and the Yukon Ministry of Highways and Public Works Contracting and Procurement Directive (“the Directive”). The Regulation was issued pursuant to the provision of the Financial Administration Act (“the Act”). These documents commit Yukon to fairness (to observe procedural policies free of bias, personal interest, and conflict of interest), openness, transparency (to create the maximum number of competitive procurement opportunities, and to be transparent in the way business is conducted), and accountability (to be willing and able to account for the way contracting and procurement activities have been conducted). The Deputy Minister of Highways and Public Works had issued a public letter attaching both the Regulation and the Directive, confirming that these principles apply to procurement by Yukon.

The court concluded that public policy will generally prevent a government from using a waiver clause to restrict access to benefits created by its own legislation. The court confirmed the wording of the court in Health Care Developers Inc. v. Newfoundland, (1996) 141 Nfld & PEIR 34, namely that “the policies of the [relevant legislation] would be completely undermined if the Government could, by a term of Contract A, avoid the very thing the Legislature intended to accomplish” (para 63). While acknowledging that the Directive was not technically ‘legislation,’ the Yukon Supreme Court found that it was issued by powers created by statute, and was thus represented by the Deputy Minister (in the letter attaching the Directive and Regulation) as being statutory. No provision of the Act, Regulations, or Directive permits Yukon to contract out of its duties of fairness in the procurement process, and the waiver clause therefore fails the third prong of the Tercon test.

Decision

After some adjustments to the amounts claimed, Yukon was found liable to Mega for damages in the amount of $335,844.33 plus interest. Yukon has appealed the decision.

Editor’s Note

Regardless of the outcome of the eventual appeal, this is another in a long line of cases that reinforce the adage stating, “Justice must not only be done, it must be seen to be done.” In procurement terms that means, “It is not enough to do the right thing, you must be able to demonstrate that you did the right thing.” In its 2011 ruling in Almon Equipment Ltd. v. Canada, reported in The Legal Edge Issue 97 and expressly referenced in the Mega v. Yukon case, the CITT stated that “faulty record keeping fails both purchasers and suppliers and poses serious challenges to the Tribunal’s procurement review mandate. In short, it fails the public procurement system as a whole” (para 27).

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.