Canada: Ontario Court Upholds Debarment Of Municipal Contractor, Confirms Municipalities' Broad Discretion In Commercial Decision-Making

In its recent decision, Interpaving Limited v. City of Greater Sudbury, the Ontario Superior Court of Justice (Divisional Court) (Court) upheld a municipality's four-year debarment of a contractor, affirming municipalities' broad discretion to make business decisions. The Court also described the scope of the duty of procedural fairness in public sector debarments.

BACKGROUND

Interpaving Limited (Contractor) is a road paving company that did work for the City of Greater Sudbury (City). The City has authority to debar contractors (i.e., exclude them from bidding on future City procurements), which is set out in a procurement bylaw (Bylaw).

The City debarred the Contractor from participating in City procurements for four years. It relied on three grounds for debarment listed in the Bylaw: the Contractor had brought litigation against the City; documented evidence of poor performance, including violations of health and safety laws; and the Contractor had demonstrated abusive or threatening behaviour towards City staff.

After the Contractor was notified about the debarment, it sought to have the decision rescinded. The Contractor met with the City's decision-makers twice to discuss the debarment, and made written submissions. The City reconsidered the debarment, but ultimately confirmed it.

The Contractor then brought an application for judicial review of the City's debarment decision (Decision). It also asked the Court to strike down certain provisions of the Bylaw.

COURT'S DECISION

The majority of the Court, Justices Wilton-Siegel and Thorburn, upheld both the Bylaw and the Decision. Justice Ellies would have set aside the Decision on procedural fairness grounds, but otherwise agreed with the majority.

Bylaw Review

The Contractor challenged the Bylaw for violating the principle of "access to justice", as it allowed the City to debar contractors for suing it. The Court unanimously rejected this argument. Justices Wilton-Siegel and Thorburn held that "a municipality has essentially the same right as a business person to decide with whom it will do business." The Court found that there are legitimate reasons for a municipality to debar a contractor that has sued it, including the effect of litigation on the parties' working relationship and the risks inherent in doing business with a litigious party.

Procedural Review

The Contractor argued that the Decision should be quashed because the City's decision-making process was unfair. The Court unanimously held that municipalities owe contractors they are considering debarring a duty of procedural fairness, but disagreed on its content.

The majority found that the duty of procedural fairness requires a municipality to give a contractor notice of its intention to debar and the proposed penalty, a summary of the proposed grounds for the debarment, an opportunity to respond, and reasons for the ultimate decision. Against this standard, the majority concluded that any breach of the duty of fairness by the City in making the initial debarment decision was cured by the subsequent reconsideration process.

The majority emphasized that the duty of procedural fairness is limited because, though debarment may have a significant impact on the contractor, debarments are discretionary, commercial decisions that do not involve an adjudication of rights: "there is no right to obtain contracts from the City". The majority further noted that absent bad faith or an improper purpose, municipalities are permitted to discriminate against suppliers provided such discrimination is not contrary to any legislation or the Canadian Charter of Rights and Freedoms.

The dissenting judge would have set aside the Decision on the basis that there was a breach of the duty of procedural fairness. However, he otherwise agreed with the majority regarding the validity of the Bylaw and the substantive reasonableness of the Decision.

Substantive Review

The Court was unanimous that the Decision was reviewable only for reasonableness, not correctness. It found that the Decision was reasonable in light of the evidentiary record before the decision-makers, and a four-year debarment was a reasonable time to give the parties' relationship a "fresh start". The Court also found that the City could consider issues that pre-dated by the Bylaw in coming to the Decision, because the power to debar contractors is intended to protect the public interest. Finally, it rejected the Contractor's arguments that the City was required to compare the Contractor's performance with other contractors before deciding to debar it.

IMPLICATIONS

This decision provides guidance to municipalities and other public sector procuring entities that are considering debarment. (The legal principles at issue in this case apply only to public sector procuring entities, and would generally not apply to private companies.) The Court affirmed that municipalities have broad discretion to make business decisions about whom to contract with, provided they are not acting in bad faith or for an improper purpose. This allows them to debar contractors for a wide range of reasons. However, this broad discretion is tempered by the municipality's duty to treat a contractor that may be debarred fairly, and provide notice of the proposed debarment and grounds and an opportunity to respond before making a decision.

Blakes lawyers Robin Linley, Nicole Henderson and Christopher Di Matteo successfully represented the City of Greater Sudbury in this matter.

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© 2018 Blake, Cassels & Graydon LLP.

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