eCaseNote 2010 No. 02

Exclusion of Liability clauses in tenders and RFPs granted seal of approval

Tercon Contractors Ltd. v. British Columbia (Transportation and Highways) [2010], SCC 4

The Supreme Court of Canada has recently released its long awaited decision in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), which addressed the issue of exclusion of liability clauses in tender documents.

In 2001, the British Columbia Ministry of Transportation and Highways issued a request for proposals (“RFP”) for the construction of a highway. The terms of the RFP stated that only the six proponents who had responded to a prior request for expressions of interest could submit a proposal. The RFP also included an exclusion of liability clause, which stated:

No proponent shall have any claim for any compensation of any kind whatsoever, as a result of participating in this RFP, and by submitting a proposal each proponent shall be deemed to have agreed that it has no claim. In order to submit a competitive proposal, Brentwood Enterprises Ltd. (one of the six approved proponents) teamed up with Emil Anderson Construction Co. (“EAC”) to submit a joint proposal. The Brentwood/EAC proposal and the proposal from Tercon were shortlisted by the Province and the contract was ultimately awarded to Brentwood/EAC. Tercon brought an action for damages against the province claiming that the Province breached the terms of the RFP by awarding the contract to an ineligible bidder.

At trial, the Court found that the exclusion of liability clause was ambiguous and did not apply to Tercon’s claim. The BC Court of Appeal reversed the trial judge’s decision and found that the clause clearly barred all claims for damages. Tercon further appealed to the Supreme Court of Canada.

The Supreme Court unanimously found that exclusion of liability clauses should be enforced if they met the requirements of a three step analysis. The first step is to determine if the exclusion clause applies to the circumstances of the claim. Should the clause apply, the next step in the analysis is to render the clause invalid if it was unconscionable at the time it was made. Should the clause succeed at this step, the Court may refuse to enforce an otherwise valid exclusion clause if there is some overriding public policy concern.

In applying the analysis to the case, the Supreme Court came to a split (5-4) decision to overturn the Court of Appeal judgement and restore the trial judge’s ruling to award damages to Tercon. The majority interpreted the exclusion clause narrowly and found that the damages claimed by Tercon did not result from “participating in this RFP” but were as a result of the Province awarding the contract to an ineligible proponent. Alternatively, the court concluded that the clause was ambiguous and any ambiguity in a contract should be construed against the party which required its inclusion, which was the Province in this instance. The minority’s decision viewed the exclusion clause as enforceable and held that “participating in this RFP” meant submitting a proposal for consideration and as a result of Tercon submitting a proposal, the exclusion clause applied to it.

This decision has confirmed the Supreme Court’s stance to enforce exclusion of liability clauses in RFP and Tender contracts and effectively eliminates the doctrine of fundamental breach. A clearly-worded exclusion of liability clause will be enforced by the Court. However, the decision in Tercon demonstrates the importance of ensuring these clauses are carefully drafted. While a carefully drafted exclusion clause will aid in shielding an owner from some liability, it will not completely shield an owner from liability for all breaches.

Should you wish to receive a full copy of this decision, or discuss its implications, please feel free to contact our office at your convenience.

The comments contained in this eCaseNote provide general information only and should not be construed as legal advice or opinion. For more information or specific advice on matters of interest, please call our offices at (709) 579-2081.