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YOU BE THE JUDGE: Privilege Clause Again Under Scrutiny in Nova Scotia – You be the Judge

This article was originally published on March 2, 2016 in The Legal Edge

Test your understanding of substantial compliance with this recent decision in Winbridge Construction Ltd. v. Halifax Regional Water Commission, 2015 NSSC 275.

The facts of this case are fairly straightforward. In March 2010, the Halifax Regional Water Commission (HWC) issued a tender call for upgrading of secondary clarifiers at its Mill Cove waste water treatment facility. Three bids were received, ranging from a low bid of $1,787,150 from L&R Construction Ltd. to a high bid of $2,690,850 from Amber Contracting Limited. The bid price from Winbridge Construction Ltd. was in the middle, at $2,235,708.85.

The tender documents, which exceeded 400 pages, included a “mandatory site meeting” to be held at 10:00 a.m. on March 25, 2010 at the Mill Cove site. L&R, which did not pick up the tender package until after March 25, requested and was given a separate site meeting, during which the same information from March 25 was provided. L&R was awarded the contract.

Winbridge challenged the contract award to L&R on the basis of L&R’s non-attendance at the March 25 site visit. By not attending that mandatory visit, Winbridge alleged, L&R was non-compliant with the tender requirements, so its bid was incapable of acceptance by HWC. Winbridge further alleged that HWC allowing a second, undisclosed site meeting was a breach of Contract A with the compliant bidders. As the lowest-priced compliant bidder on the project, Winbridge sought damages of up to $884,000 (several different calculations).

As always, the Court examined the terms of the tender call to determine the precise obligations of the parties. HWC pointed to several broad privilege clauses, including:

18.1 … the “right to accept or reject any or all Tenders, including without limitation the lowest Tender, and to award the Contract to whomever OWNER in its sole and absolute discretion deems appropriate notwithstanding any custom of the trade nor anything contained in the Contract Document or herein.”

Clause 18.3 gave the owner a very wide list of criteria upon which it could evaluate and award, and 18.4 gave HWC sole and absolute discretion to re-tender the project, or negotiate a contract “with anyone or more persons whatsoever, including one or more of the Tenderers.”

After reviewing the voluminous body of litigation concerning privilege and exclusion clauses in tendering, the Nova Scotia Supreme Court confirmed that broad rights to reject any or all bids do not allow an owner to award to a non-compliant bidder. Such a move would undermine the integrity of the tendering process (in the absence of a clear right to accept non-compliant bids, as was the case in Kinetic Construction Ltd. v. Comox-Strathcona (Regional District), [2004] BCCA 485). Procedural non-compliance, such as failure to attend a mandatory site visit, is usually fatal to a bid’s compliance, and thus to the owner’s ability to accept it.

The question for the Court, therefore, was whether or not the privilege clauses affected the owner’s liability in this case, and whether or not Winbridge would be entitled to damages, even if HWC did accept a materially non-complaint bid.

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The Nova Scotia Supreme Court concluded that HWC did not have the right to grant a second site meeting without issuing an addendum – in other words, a second site meeting that was not disclosed to the other bidders. The Court was careful to note that granting a site visit without an addendum did not make the process unfair (there was no suggestion that additional or different information was discussed at the second visit), but it was a breach of HWC’s Contract A with the plaintiff, Winbridge.

The Court then turned to Winbridge’s assessment of damages for breach of Contract A, noting that being “a party to Contract A does not establish an entitlement to an award of Contract B. Rather the evaluation and award of Contract B depends upon the interpretation of the Tender Documents and the application of the facts to that interpretation.” In particular, the Court looked at the privilege clauses in the HWC tender call.

Citing the test of whether privilege or exclusion clauses are enforceable as outlined by the Supreme Court of Canada in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 S.C.C. 4, the Court pointed to the three questions:

  1. Does the exclusion clause apply to the circumstances established in evidence?
  2. If yes, was the exclusion clause unconscionable at the time the contract was made (not when breached)?
  3. If no, whether the court should refuse to enforce the exclusion clause because of an overriding public policy concern which outweighs the strong public interest in the enforcement of contracts?

The Court quickly determined that the clauses in the HWC tender call did apply to the circumstance of this case and were not unconscionable (“connotes a grossly improvident bargain based on a defendant knowingly taking advantage of a vulnerable plaintiff”). The Court went on to state that question 3 should be narrowly defined and rarely applied. In particular, the Court found that it should not be applied to deal with unfairness, and confirmed that “Certainty and stability of contractual relations and the upholding of freedom of contract are important public policies.”

The Court heard from various witnesses on behalf of HWC, accepting evidence that Winbridge’s bid of $2,235,708.85 was about $586,000 or 35% above the amount allocated for the contractor and about $450,000 above the amount that included HWC’s contingency allocation. The evidence also revealed that it was not imperative that the project proceed in 2010, and that if HWC had rejected L&R’s bid, it would have deferred or re-tendered the project. Given the significant amount by which the Winbridge bid exceeded the approved funding, the Court concluded that HWC would not have embarked on negotiations with Winbridge in an attempt to reduce costs.

The test for damage entitlement is whether HWC’s breach of Contract A caused Winbridge to lose a reasonable expectation of Contract B. Because its bid was so significantly higher than HWC’s budget, and because of the broad discretion not to award the contract to the lowest compliant bidder, the Court dismissed Winbridge’s claim. Costs were left to be dealt with by written submissions.

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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.