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Supreme Court of Canada Decision in Tercon

12-Feb-10

Nearly 11 months after the appeal was heard, the Supreme Court of Canada today released its decision in Tercon Contractors v. The Queen in Right of the Province of British Columbia.

The dispute arose when the Province of British Columbia accepted a proposal from an ineligible proponent on a road building project. Under the Province's request for proposals (“RFP”) framework, the project was only available to six specified proponents. The RFP also contained an exclusion clause stating that no proponent would have the right to sue the Province as a result of participating in the RFP.

The Province accepted a proposal from a joint venture between one of the six contractors and an outside contractor, which was not one of the approved proponents. Tercon, an unsuccessful proponent, sued the Province, claiming the successful proposal was invalid and the contract should have been awarded to Tercon, the lowest compliant proponent. At trial, the judge found that the successful proposal failed to comply with the terms of the RFP because the joint venture was not an approved party. Damages were awarded to Tercon for lost profits on the project.

On appeal, the Province was successful in arguing that the exclusion clause, which stated that “no Proponent shall have any claim for any compensation of any kind whatsoever, as a result of participating in this RFP”, barred Tercon's claim.

On February 12, 2010, the Supreme Court of Canada, in a 5-4 split decision, overturned the British Columbia Court of Appeal and restored the trial judge's award of damages to Tercon. The test for dealing with such exclusion clauses was set out by the Court as follows:

    1) Does the exclusion clause apply to the circumstances established in evidence?

    2) If “yes” to question 1, was the exclusion clause unconscionable at the time the contract was made?

    3) If “yes” to question 1 and “no” to question 2, should the court nevertheless refuse to enforce the valid exclusion clause because of the existence of an overriding public policy?

Although the Court split on the application of the test in this case, the court was unanimous in applying this three-part test to analysis of the exclusion clause.

The majority of the Supreme Court found that the exclusion clause did not bar Tercon's claim, because the phrase “participating in this RFP” did not apply where the actual RFP process turned out to include parties other than the six which were approved and contemplated. The majority also described the Province's conduct of breaching the express and implied terms of the RFP as an “affront to the integrity and business efficacy of the tendering process”.

The dissenting judges found that the exclusion clause was clear and unambiguous, applied to the circumstances, was not unconscionable, and could not be saved by public policy. The dissent contrasted this situation to circumstances where as a company knowingly sells a defective product, and excludes liability from resulting damage, which would invalidate an exclusion clause.

The application of this decision in future cases will prove to be interesting, not only for the law of tendering, but also for the interpretation of exclusion clauses in a variety of contexts.

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