In the March 28, 2018 issue of this newsletter, we reported on the case of Mega Reporting Inc v Yukon (Government of) 2017 YKSC 69. As you may recall, that case involved a claim by an unsuccessful respondent to a government RFP for court reporting services. On November 16, 2017 the Yukon Supreme Court agreed with the Plaintiff, Mega Reporting Inc. (“Mega”), that the government had breached its obligations to conduct a fair and transparent procurement process, resulting in damages of over $335,000 payable to Mega. Click here to read the article we previously published on March 28th covering this case .
Aside from the implications of the common law surrounding the Contract A analysis, in this case both the Yukon Contracting and Procurement Regulation and the Contracting and Procurement Directive, incorporated by reference into the RFP, promised fairness and transparency in government procurement processes. Both the Regulation and the Directive were found to amount to legislative assurances of fairness.
At trial, one of the key arguments by the Yukon government hinged on an exclusion of liability clause in the RFP, which read, in part, as follows:
Except for a claim for 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 including… 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 at any stage of the Request for Proposal process.
Mega argued that allowing Yukon to privately contract out of the protections under the Regulations and Directive was inconsistent with the protection of the public interest in ensuring public procurement is transparent.
In analyzing the impact of this waiver, the trial judge applied the three-pronged test from Tercon Contractors Ltd v British Columbia (Transportation and Highways), 2010 SCC 4 (“Tercon”):
- Whether as a matter of interpretation the exclusion clause even applies to the circumstances based on the intention of the parties;
- Whether the clause was unconscionable at the time the contract was made; and
- Whether the Court should nevertheless refuse to enforce the valid clause because of the existence of an overriding public policy that outweighs the very strong public interest in the enforcement of contract, the proof of which lies on the party seeking to avoid enforcement.
The Yukon Supreme Court in the Mega case held that the text of the waiver in the RFP spoke ‘so directly’ to the principles in the Directive that it was intended to nullify the effect of that legislation. Therefore, giving effect to the waiver would allow Yukon to represent to the public that it engages in fair procurement without suffering any consequences for failing to do so. Based on this analysis, the trial judge held that it would be contrary to public policy to allow the waiver of liability clause in the RFP to bar Mega’s claim.
On June 16, 2018 the Yukon Court of Appeal overturned the trial judge decision. While acknowledging that the waiver clause in the Mega case was sufficiently clear and unambiguous, the Yukon Court of Appeal found that the government’s conduct was not egregious enough to interfere with the long-established principle of Freedom of Contract. Citing cases where waiver clauses have been struck down under this three-pronged test where there was conduct amounting to criminal negligence, fraud, or violation of human rights legislation, the Yukon Supreme Court noted that in the Mega case there was no evidence that Yukon knowingly acted in breach of its procurement principles or otherwise in bad faith towards Mega. The Court found Mega to be a sophisticated commercial party that elected to participate in the RFP despite its awareness of the clause.
Although upholding the trial judge’s finding that the clause was intended to exclude liability for breaches of the duties of fairness contained in the Directive, the Yukon Court of Appeal held that there was no ‘substantially incontestable’ public policy rationale that justified overriding a clear and specific exclusion clause. This illustrates the difficult balancing act faced by courts when deciding between certainty and business efficacy in upholding contractual exclusions, and requirements of procedural fairness and transparency of process – arguably also designed to facilitate certainty.
The appeal was allowed, the award of damages set aside, and the claim dismissed, with costs to Yukon.
So where does this leave us? The long-established principle of Freedom of Contract means that sophisticated commercial parties should be able to rely on the express terms of a contract freely entered into, without interference by the courts. From this line of cases it appears that our courts will allow public procurement professionals to expressly contract out of duties of fairness and transparency, as long as there is no conduct that would amount to an offense of public policy considerations. Where that line is drawn will vary depending on the facts of the particular case under consideration. Will RFP respondents become more discerning about the opportunities they respond to as a result of this case? Only time will tell.
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.