Canada: Reprisal Clauses In Municipal Procurement Policies/Tender Documents

Are "reprisal" clauses in municipal procurement policies or tender documents unconstitutional, or contrary to public policy? That was precisely the question before the BC Supreme Court in its recent judgment in J. Cote & Son Excavating Ltd. v City of Burnaby, 2018 BCSC 1491.

In general, reprisal clauses allow a municipality from excluding contractors from bidding on procurement projects, if the contractor is, or has been engaged in legal proceedings against the municipality. In many cases, such clauses are included within a given municipality's procurement policy.

The Plaintiff, a construction and excavation contractor, securing most of its work by way of competitive bidding for municipal construction contracts, sought the Court to declare that a reprisal clause, which was included by the municipality in its Invitation to Tender, was of no force and effect, as it unjustifiably infringed upon the constitutionally protected rule of law; its right of reasonable access to the courts, contrary to the Canadian Charter of Rights and Freedoms (the "Charter"); and prevented access to the courts in a manner inconsistent with s.96 of the Constitution Act, 1867. Further, the contractor argued that the reprisal clause was contrary to public policy.

A dispute had previously arisen between the contractor and the municipality in 2013, over the collapse of a structural retaining wall, which occurred while the contractor was carrying out a contract for sewers, services connections and paving. This resulted in the unfortunate death of one of its employees. A notice of dispute was filed, and the referee decided in favour of the contractor; however, the municipality declined to follow the referee's nonbinding decision. The municipality also refused to consent to arbitration. In December 2013, the contractor commenced an action in the BC Supreme Court, against the municipality, and approximately two months later, the municipality added a new clause to the Invitation to Tender on its municipal works. This "reprisal clause" stated:

Tenders will not be accepted by the City of Burnaby (the "Owner") from any person, corporation, or other legal entity (the "Party") if the Party, or any officer or director of a corporate Party, is, or has been within a period of two years prior to the tender closing date, engaged either directly or indirectly through another corporation or legal entity in a legal proceeding initiated in any court against the Owner in relation to any contract with, or works or services provided to, the Owner; and any such Party is not eligible to submit a tender.

By virtue of the contractor's action against the municipality, and the clause, the contractor was prevented from bidding on work for the municipality. Prior to the hearing, the municipality had, in fact, deleted the impugned clause from its tender terms. Despite this, the Court had ruled that the contractor's constitutional and Charter claims in relation to the legitimacy of the impugned clause was not moot (J. Cote & Son Excavating Ltd. v City of Burnaby, 2017 BCSC 2323).

The contractor claimed that the impugned clause violated its right of access to the courts and, had it known that the municipality would introduce such a clause, it would not have chosen to commence its initial action, given the negative financial impact on it, from loss of future work for the municipality.

Rather than claiming an infringement of a particular section of the Charter, by virtue of the impugned clause, the contractor claimed that it breached the preamble to the Charter ("... Canada is founded upon principles that recognize the supremacy of God and the rule of law"), and its underlying principles. The Court held that the contractor must be able to point to a breach of a specific right or freedom set out and guaranteed in the Charter, in order for a remedy to be available under same. It held that there was no general and freestanding right of access to justice under the Charter, and because the contractor's argument was not anchored in a particular section of the Charter, there was no constitutional remedy available for same.

The Court also held that the impugned clause was not unconstitutional. The contractor's challenge in this regard was based on the Constitution providing protection for access to justice in the civil context, under s. 96. It relied upon a decision of the Supreme Court of Canada in Trial Lawyers Association of British Columbia v. British Columbia (Attorney General), 2014 SCC 59, where the Court held that British Columbia's scheme of graduated court hearing fees was unconstitutional, as it prevented access to the courts in a manner consistent with s. 96 of the Constitution Act, 1867. In that decision, the Supreme Court of Canada struck down the impugned legislation, but recognized that not all limits on access to justice are unconstitutional, and created an "undue hardship" test for whether access to justice was being denied to a prospective litigant.

Here, noting that "undue hardship" is a high threshold, the Court considered the contractor's evidence that it had lost the opportunity to bid on several projects for the municipality, as a result of the impugned clause. The contractor claimed that, given the potential financial consequences of losing the opportunity to bid on projects for the municipality, it would have chosen to forgo its action, had it been aware that the municipality would introduce the impugned clause. Given that the impugned clause was rendered inactive after the contractor had commenced its action, the contractor based its arguments on what it would have done rather than what it, in fact, did. The Court noted that this was because the contractor was, in reality, not prevented from accessing the courts (as it had, in fact, commenced an action against the municipality). The contractor claimed that it had lost approximately 17% of its normal business as a result of taking the municipality to court. Its president deposed that during the existence of the impugned clause, there were nine contracts tendered by the municipality, which the contractor would have bid on, but for the impugned clause. However, as the Court noted, it was unknown whether the contractor would have been successful in its tenders. The Court found that there was no evidence that the contractor actually suffered undue hardship.

The Court ultimately found that if the impugned clause were applicable, contractors would lose out on business opportunities, if they chose to sue the municipality. While this might cause some contractors to choose to forgo recourse to the courts, this is insufficient to establish that the clause is inconsistent with s. 96 of the Constitution Act, 1867 and the rule of law. The Court noted that for such a clause to be unconstitutional, it would have to be shown to cause "undue hardship" to a potential litigant seeking access to justice.

It was further held that the reasoning in the Trial Lawyers case only applied to legislation or direct rules which positively limit access to the courts. Such "right of access" cannot be extended to contractual or tender provisions, which indirectly discourage corporations from commencing litigation.

Lastly, the Court considered the contractor's argument that the impugned clause was invalid, on the basis that it was contrary to public policy. Having considered the Alberta Court of Queen's Bench's decision in Cox Bros. Contracting & Assoc. Ltd. v. Big Lakes (Municipal District), [1997] A.J. No. 759, and its own decision in Sound Contracting Ltd. v. Nanaimo (City), 2000 BCSC 1819, the Court noted that a municipality is entitled to inclusion of a term preventing contractors engaged in litigation with the municipality from bidding for its work, as part of the public bidding process, so long as there is no indication of bad faith, and it is within the municipality's power to implement the clause. In such cases, such "reprisal" clauses are valid, and not contrary to public policy. Accordingly, the Court found that the impugned clause was not invalid on public policy grounds.

In its decision, the Court expressly refused to follow the approach taken by the Québec Court of Appeal in the 2001 decision of Cie de construction & de développement Cris Itée c. Société de développement de la Baie James, [2001] R.J.Q. 1726 [La Baie James]. In that decision, the Québec Court considered a clause similar to the impugned clause in this case, where bidders who were in litigation with the government were deemed ineligible to submit tenders. In that case, the Court held that the clause impeded the constitutional right of access to justice, and was invalid on the basis that it contravened the rule of law principle and was "contrary to public order". The Court noted that the Québec decision in La Baie James had only been considered five times since its pronouncement, and no subsequent decision had followed the reasoning of the Québec Court of Appeal in this regard. It was also decided long before the Trial Lawyers case by the Supreme Court of Canada, and was not consistent with recent jurisprudence on the rule of law and s. 96 of the Constitution Act, 1867.

If you are a contractor reliant heavily upon municipal construction contracts with specific municipalities, and are involved in a dispute, it is important to consider the existence of "reprisal clauses" within the given municipality's procurement policies or tender documents, before weighing the pros and cons of seeking recourse from the courts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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