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FactsEdit

The Province of British Columbia issued a request for expressions of interest (“RFEI”) for the design and construction of a highway. Six teams responded with submissions including Tercon and Brentwood. A few months later, the Province informed the six proponents that it now intended to design the highway itself and issued a request for proposals (“RFP”) for its construction. The RFP set out a specifically defined project and contemplated that proposals would be evaluated according to specific criteria. Under its terms, only the six original proponents were eligible to submit a proposal; those received from any other party would not be considered. The RFP also included an exclusion of liability clause which stated:

Except as expressly and specifically permitted in these Instructions to Proponents, no Proponent shall have any claim for compensation of any kind whatsoever, as a result of participating in this RFP, and by submitting a Proposal each Proponent shall be deemed to have agreed that it has no claim.
As it lacked expertise in drilling and blasting, Brentwood entered into a pre‑bidding agreement with another construction company ("EAC"), which was not a qualified bidder, to undertake the work as a joint venture. This arrangement allowed Brentwood to prepare a more competitive proposal. Ultimately, Brentwood submitted a bid in its own name with EAC listed as a "major member" of the team. Brentwood and Tercon were the two short‑listed proponents and the Province selected Brentwood for the project. Tercon brought an action in damages against the Province.

The trial judge found that the Brentwood bid was, in fact, submitted by a joint venture of Brentwood and EAC and that the Province, which was aware of the situation, breached the express provisions of the tendering contract with Tercon by considering a bid from an ineligible bidder and by awarding it the work. She also held that, as a matter of construction, the exclusion clause did not bar recovery for the breaches she had found. The clause was ambiguous and she resolved this ambiguity in Tercon's favour under the doctrine of contra proferentem. She held that the Province’s breach was fundamental and that it was not fair or reasonable to enforce the exclusion clause in light of the Province's breach. The Court of Appeal set aside the decision, holding that the exclusion clause was clear and unambiguous and barred compensation for all defaults.

IssueEdit

  1. Did the province breach the tendering contract by accepting a bid from an ineligible bidder?
  2. Does the exclusion clause bar a claim for damages for breach of the tendering contract?

DecisionEdit

Appeal allowed, trial judgment restored.

ReasonsEdit

Cromwell, writing for the majority, noted that the RFP model is a little more complicated than the simpler Ron Engineering Contract A/Contract B model, where the terms of Contract B are fully articulated from the outset, but that this did not impact the analysis of the case at hand, and further, it was not necessary to explore in full detail all the terms and conditions of Contract A. The question remains whether it was a term of Contract A that the Ministry accept bids only from eligible bidders.

Cromwell agreed with the finding of fact that the bid was ineligible and that the Ministry was aware, noting that Brentwood had notified the Province of a "material change in it's team structure" as required under the RFP. As a result, the Contract A was formed and was subsequently breached.

The majority held that it was time to "lay the [the doctrine of fundamental breach] to rest" and agreed with Binnie's (in the minority) analytical approach to the applicability of an exclusion clause, but disagreed with the interpretation of the clause. Emphasizing the principle that terms be read in the context of the entire agreement Cromwell found that the exclusion clause did not cover the Province's breach - the clause applied only to claims arising "as a result of participating in [the] RFP" and not to claims outside of this, such as the claim brought by Tercon against the participation of third parties.

Binnie, writing for the minority, accepts the finding of the lower court that the terms of the RFP had been breached by the province and turns immediately to the claim for relief from the exclusionary clause. He holds there were two separate questions to answer in addressing the clause’s applicability:

  1. whether there was a statutory or other legal reason why the parties would not have been free to negotiate the exclusion clause, and
  2. if there were any other reasons why the clause should not be enforced in the circumstances (such as fundamental breach).

Binnie rejects the statutory argument (that s.4 of the Transportation Act made an exclusion clause incompatible with the substance of the statute) stating that the statute "no where prohibits the parties from negotiating a "no claims" clause".

On the second question Binnie stated a three part test for assessing enforceability:

  1. As a matter of interpretation, does the clause apply to the circumstances established?
  2. If it applies, was it unconscionable at the time the contract was made?
  3. If it applies and is valid, should the court nonetheless refuse enforcement based on an overriding issue of public policy (the onus of proof lying with the party seeking to avoid enforcement)?

Applying this test to the case, Binnie found that the exclusion clause does apply, holding that Tercon did participate in the RFP process, whether or not the process was compromised. Tercon was a major contractor and while not at the same power level as government, was nonetheless able to bargain freely so the clause was not unconscionable. On public policy, while he agrees there is "a public interest in a fair and transparent bidding process, it cannot be ratcheted up to defeat the enforcement of Contract A in this case". While the Province's conduct was in breach of the RFP and the trial judge's condemnation was well founded, the misconduct was not of sufficient character to require the clause not to be enforced.

RatioEdit

When assessing enforceability of exclusion clauses, the courts must apply a three-part test:

  1. As a matter of interpretation, does the clause apply to the circumstances established?
  2. Was it unconscionable at the time the contract was made?
  3. Should the court refuse enforcement based on public policy (the onus of proof lying with the party seeking to avoid enforcement)?

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