In April 2018 we reported on J.Cote & Son Excavating Ltd v City of Burnaby 2017 BCSC 2323 in which the BC Supreme Court dismissed a summary application by the City of Burnaby, and ordered the matter to proceed to trial. Essentially the case revolves around the insertion of a ‘reprisal clause’ into City of Burnaby (“City”) tenders, which reads in part:
“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.]”
This clause first appeared in City tenders in February 2014, approximately three months after J. Cote and Son Excavating Ltd. (“Cote”) initiated litigation to recover disputed funds arising from a workplace accident that had occurred in 2012. The impact of the clause on Cote, which earned approximately 25% of its revenue from City contracts, was to effectively ban them from contracting with the City for two years following resolution of the claim.
Cote did not bid on many of the City’s tendered projects after the clause appeared, because the company felt it could not afford to submit bids that 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 to bid than by recovering from the City in relation to the workplace accident. At some point between 2014 and the current case, Cote and the City resolved the workplace accident issue, but since Jamie Cote felt he now had ‘nothing to lose’ he challenged the clause in court. Cote argued that such clauses impose ‘undue hardship’ by preventing companies from bidding when they have a legitimate legal challenge on a totally unrelated matter.
On August 31, 2018 the BC Supreme Court released its decision on the fuller analysis of whether such clauses are unconstitutional, or otherwise void for public policy reasons representing an unreasonable restriction on access to justice, in J.Cote & Son Excavating Ltd v City of Burnaby 2018 BCSC 1491.
After a lengthy analysis of cases considering the extent to which access to justice is protected under the Charter of Rights and Freedoms and the Constitution Act, 1867, the BC Supreme Court confirmed that Cote would have to prove ‘undue hardship’ in order to have such a clause declared unconstitutional and therefore unenforceable. Although Cote provided some evidence suggesting some business loss, the Court concluded that Cote had provided insufficient evidence that any alleged losses amount to undue hardship.
In dismissing J. Cote’s application to have the clause declared invalid or of no force and effect, the BC Supreme Court concluded, at paragraph 84, “…that a municipality is entitled to insert a term as part of its public bidding process which bars bids from contractors who are engaged in litigation with the municipality, as long as there is no indication of bad faith and the clause lies within the municipality’s power. In such cases, the clause is valid and not contrary to public policy”.
An Appeal Notice was filed in September, with involvement of the BC Roadbuilders Association and the Canadian Construction Association, and decision on the appeal was released May 16, 2019. In J.Cote & Son Excavating Ltd v City of Burnaby 2019 BCCA 168 the BC Court of Appeal dismissed the appeal, concluding that the appellant J.Cote & Sons Excavating Ltd. failed to establish a denial of the limited protection of access to the superior courts provided by the Constitution Act, 1867. The clause in question simply purports to exclude bids from companies involved with court proceedings with the City within the previous two years – it does not deny access to the courts.
So where does this leave us? For now, it appears that the courts continue to take a non-interventionist approach to such reprisal clauses, which may provide owners with important protections. As always, however, the devil is in the detail. While the clause in this case refers to a ‘legal proceeding initiated in any court’, will this be enough to exclude bids from companies that are currently in arbitration, or some other less formal dispute resolution process, for example? Further, the clause in this case prohibited a bid due to a litigation process that appears wholly unrelated to contractor performance on construction projects. Might this language exacerbate an already tight market where quality construction contractors are proving hard to come by?
In speaking with counsel acting for the appellant in this case, we understand that leave to appeal to the Supreme Court of Canada is in the works so this may not be the end of the discussion. In the meantime, procurement professionals must continue to weigh both the legal and practical implications of including such clauses in solicitation documents. Stay tuned to the Legal Edge as we continue to follow this case.
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.