Court of Appeal Decision of the Week

Bids & Tenders: Can Government Contract Out of Procedural Fairness?

Case: Mega Reporting Inc. v. Yukon (Government of), 2018 YKCA 10 (CanLII)

Keywords: Bids & Tenders; Request for Proposals; Public Policy; “Substantially Incontestable”; Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4 (CanLII)

Synopsis:

Yukon seeks to reduce costs on court reporting services by replacing live court reporters with a digital recording system and transcribing as needed. Yukon issues a Request for Proposals (“RFP”) seeking bids for a one-year contract to provide court reporting and transcription services. The bidding process is governed by the Yukon Contracting and Procurement Regulation, Y.O.I.C. 2013/19, and the Contracting and Procurement Directive.

The Directive sets out various principles for public procurement, including commitments to fairness, openness, transparency, and accountability. The RFP includes a clause purporting to waive Yukon’s liability for costs associated with unfairness in the RFP process. Yukon receives two bids. One is from the Appellant, Mega Reporting Inc. An evaluation committee concludes the Appellant’s bid does not meet minimum technical requirements. It does not open the envelope containing the Appellant’s price. The contract is awarded to the other bidder.

The Appellant alleges Yukon failed to properly conduct the RFP and claims damages for breach of contract. The Trial Judge finds Yukon breached its duty of fairness and refuses to apply the waiver of liability clause. Yukon appeals, challenging the Trial Judge’s conclusion that public policy reasons justify not enforcing the clause. The Court of Appeal allows the appeal.

Importance:

For the Court of Appeal, the Trial Judge’s primary concern was with whether it would be “…contrary to a principle of public policy that the government could perhaps blatantly contract out of duties imposed by statute.” (See para. 50).

For the Court of Appeal, the Trial Judge erred by not considering the appropriate framework and the very high threshold required – that the policy concern must be “substantially incontestable” to justify not enforcing a clause (in this case, the waiver of liability clause).

Citing Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4 (CanLII), the Court set out a “three-prong” test to determine whether a clause may be enforced. The issues to consider are:

  1. whether, as a matter of interpretation, the exclusion clause even applies to the circumstances based on the intention of the parties;
  2. whether the clause was unconscionable at the time the contract was made; and
  3. whether the Court should, nevertheless, refuse to enforce the clause because an overriding public policy outweighs the very strong public interest in enforcement of contracts, the proof of which lies on the party seeking to avoid enforcement. (See para. 26).

The Court of Appeal determined that, while there may be a public policy interest in ensuring fair procurement (i.e. more competition in bidding and increased value for public money), it is not “substantially incontestable” that such an interest should override the ability of Yukon to protect itself from liability:

With respect, the judge erred in law by not considering the high threshold necessary to establish that public policy outweighs the interests in enforcement. The judge held that “[t]hough the public has a strong interest in maintaining the right to contract freely, in this case, this interest is offset by a similar public interest in ensuring a fair, accountable, open and transparent bid process” (at para. 40). The judge appears to have merely considered whether one policy interest outweighs the other, without once referencing the test set out by Chief Justice Duff in In Re Estate of Charles Millar, Deceased, 1937 CanLII 10 (SCC), [1938] S.C.R. 1 at 7, cited above by Binnie J. in Tercon, and considering whether “the harm to the public is substantially incontestable”. In my view, the public policy interest which Mega points to in this case does not meet that high threshold. (See para. 32).

The Court noted that the Appellant is a sophisticated commercial party who was aware of the clause. On this point, the Court of Appeal cited Binnie J.’s statement in Tercon that it is not “the court’s job to rescue” parties from the consequences of their decision to bid on the terms offered. (See para. 36).

Moreover, notwithstanding the Trial Judge’s concern, the exclusion clause “would allow Yukon to say one thing and then do the opposite with impunity”, the Court noted that Yukon could change the clause, or the public can hold the government accountable at the ballot box. (See paras. 39 & 50).

Bottom line, the Court refused to find there were “substantially incontestable” public policy concerns at play and, simultaneously, as per Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at para. 50, refused to disturb the Trial Judge’s finding the clause was intended to exclude liability for breaches of the duty of fairness. (See para. 51).

The Court also noted, as Yukon pointed out, that the clause was not challenged as “unconscionable” below. (See para. 52).

Counsel for the Appellant: I.H. Fraser (Government of Yukon, Whitehorse)

Counsel for the Respondent: Mark Wallace (Austring Fendrick & Fairman, Whitehorse)

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Posted: Wednesday, June 27, 2018