The Supreme Court of Canada has refused J. Cote & Son Excavating Ltd.’s (“Cote”) application for leave to appeal the British Columbia Court of Appeal’s 2019 decision which upheld a reprisal clause in municipal tenders – thus ending a lengthy court battle previously reported in The Legal Edge.

In April, 2018 and May, 2019, we reported on developments in J. Cote & Son Excavating Ltd. v City of Burnaby 2018 BCSC 1491; 2019 BCCA 168 – a case that involved the City of Burnaby’s (“City”) inclusion of a reprisal clause in its tenders. The clause read:

“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.”

Cote had started litigation against the City related to a dispute about a sewer contract. A retaining wall had collapsed, causing an employee’s death. After non-binding dispute resolution, the City refused to pay Cote’s monetary claim. Approximately three months after Cote commenced its litigation, the City included the above clause in its tenders.

The clause effectively banned Cote from contracting with the City, from whom Cote garnered approximately 25% of its business, for a two year period. Cote argued that it would not have filed the litigation to recover money had it known that the clause would be included, as the two year ban cost it more than the initial claim.

The City removed the clause two years after Cote filed this action, using a new process with a pre-qualified list of contractors. Despite this removal, both the British Columbia Supreme Court and Court of Appeal rendered substantive judgments on the issues, refusing the City’s argument that the issues were moot.

Our previous articles, especially that of May, 2019 (click here to view) report fully on the courts’ judgments at both levels. Both courts rejected Cote’s argument that the reprisal clause effectively denied Cote’s access to the courts, reasoning that the right of access to justice is a limited constitutional right infringed only when legislation effectively denies access. Both courts characterized the reprisal clause as a matter of contract, not legislation. Also, Cote’s speculation as to possible business losses caused by exclusion from bids did not meet the high threshold of undue hardship required to prove such a clause unconstitutional.

In accordance with its usual practice, the Supreme Court of Canada gave no reasons for its refusal of leave to appeal (J. Cote & Son Excavating Ltd. v City of Burnaby 2019 CanLii 117831). The British Columbia Court of Appeal judgment is the current authority in British Columbia on this much-debated subject until new facts or circumstances prompt another challenge. For now, it seems clear that insertion of such reprisal clauses will be upheld by the courts. One must still, however, weigh the practical and business risks of excluding contractors under circumstances that may be unrelated to contract performance.

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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.