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CCCA_V4No2_Col-McCarthys-FIN.qxd:CCCA_V1No2_Col-Litigat-V1.qxd 4/29/10 4:32 PM Page 38 Legal Update – McCarthy Tétrault LLP Oh, to be fair The Tercon Decision and the future of procurement law. he Supreme Court of Canada’s Feb. the nature of free enterprise capitalism. In minority seems to have accepted that the T12th decision in Tercon Contractors Ltd.v. this case, the Government of British procurement process has grown up. British Columbia (2010 SCC 4), a seminal Columbia put forth a Request for Proposals Sponsors are repeat players in the market; case in the fast-growing area of procure- (RFP) for construction of a highway, ulti- Proponents are often major corporations ment litigation, will have immediate, mately accepting the offer of a pre-qualified that can choose not to bid in the face of unpredictable effects on any sophisticated Proponent that had formed a joint venture unfair exclusion or otherwise flex their corporate body that engages in the with another company — a violation of the commercial muscle. bid/tender process for services. In 2010, tender rules. Another Proponent, Tercon, Procurement litigators have feverishly set that means pretty much everyone. sued for breach of Contract A and won to parsing the decision.A Sponsor’s natural Through the 1980s and 1990s,with deci- roughly $3.5-million in damages at trial. inclination is to rewrite future exclusion sions such as Ontario v. Ron Engineering, The B.C. Court of Appeal overturned clauses with even more over-the-top lan- [1981] 1 S.C.R. 111 and M.J.B. Enterprises the decision, relying on a seemingly iron- guage: “…no Proponent shall have any claim Ltd.v.Defence Construction (1951) Ltd.,[1999] clad exclusion clause in the RFP: for unreasonable, unfair and/or unequal treat- 1 S.C.R. 619, the Supreme Court strived to ment, including, but not limited to, fundamental give legal weight to the bid/tender process, Except as […] permitted […],no Proponent breaches of ContractA,complete disregard for any wherein a buyer (Sponsor) puts forward a shall have any claim for compensation of any other clause in this RFP,and general sneakiness.” scope of work for which it requires services kind whatsoever,as a result of participating in This approach may keep the process and invites specific qualified sellers this RFP, and by submitting a Proposal each afloat, but as the Supreme Court has sig- (Proponents) to respond with proposals Proponent shall be deemed to have agreed nalled its intellectual willingness to over- (including fixed prices or rates). Bid/tender that it has no claim. come any language thrown its way, its de has become the predominant manner in facto role as Guardian of the Fair Process which governments and corporations pro- This brings us to our capitalist divide. seems assured for now. cure many services,from major construction Tercon appealed to the Supreme Court of The alternative is to focus on sturdy, projects and payroll management to techni- Canada,which reinstated theAppeals Court monitored bid evaluation rather than cal support.Accordingly,tenders have grown decision.The minority agreed the exclusion exclusion clauses.At its core, legal liability more formal and more complex. clause covered this situation, while the will rest not on the expansiveness of the Since Ron Engineering, at common law, majority focused on the exclusion’s applica- Sponsor’s words, but the callousness of its the bid/tender process creates“ContractA,” tion to claims “as a result of participating in actions. So exclusion clauses likely will a procedural agreement that precedes an this RFP,” holding that the clause did not cover minor technical deficiencies in actual services contract. In Contract A, the apply to claims based on actions outside of process, but not major ones. consideration from the Proponent is that it the RFP process — which such “egregious For now, it seems that procurement will hold its offer (including price) open for conduct” that “breached the implied duty remains the only mature area of modern cor- the Sponsor’s evaluation period. In return, of fairness to bidders” and “affront[ed the] porate contract law wherein multi-million the Sponsor has a legal obligation to treat integrity and business efficacy of the ten- dollar litigation can hinge on the validity of the bidders“fairly and equally.”Not surpris- dering process,” clearly was. the words “That’s not fair!”After Tercon,those ingly, those seemingly innocuous words Although the majority decision states are the only words that count. have spurred much legal analysis and many that the breach here escapes the applicabili- attempts at pre-emptive tender language. ty of the exclusion clause, arguably, howev- Awi Sinha is a partner in the Litigation Group That brings us to Tercon, in which the er, the clause does apply and the Court has of McCarthy Tétrault's Toronto office. His prac- majority reasons and the dissent have chosen to let the common law rules of tice includes commercial litigation, infrastructure revealed a fundamental disagreement among Contract A neutralize the exclusion for and procurement law, and project finance litiga- members of the court on nothing less than which the parties bargained.Conversely,the tion. (asinha@mccarthy.ca) 38 CCCA Canadian Corporate Counsel Association SUMMER 2010