On Friday, February 12, 2010, the Supreme Court of Canada released the long awaited decision in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways).1 At issue was the effect of an exclusion of liability clause included in RFP documents. Owners, consultants and contractors will all be affected by this recent decision.

FACTUAL CONTEXT

In 2000, the British Columbia Ministry of Transportation and Highways issued a request for expressions of interest (“RFEI”) for designing and building a highway. After six teams made submissions in response to the RFEI, the Province informed them that it intended to design the highway itself and would issue a request for proposals (“RFP”) for construction. The RFP was formally issued on January 14, 2001, with terms that only the six proponents who had responded to the RFEI could submit a proposal. The RFP also included an exclusion of liability clause that stated:

[N]o 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 be able to submit a competitive proposal, Brentwood, one of the six approved proponents, teamed up with Emil Anderson Construction Co. (“EAC”) to submit a proposal. After reviewing the proposals, the Province short listed Brentwood/EAC and Tercon. The Ministry ultimately selected Brentwood, rejecting Tercon’s submission.

LOWER COURT DECISIONS

Following that rejection, Tercon brought an action for damages against the Province. Tercon claimed that it would have obtained the contract if the Province had properly disqualified the proposal from Brentwood/EAC, a team that had not responded to the original RFEI and was therefore not an eligible proponent for the RFP. The trial judge found that the exclusion of liability clause was ambiguous and did not apply to the damages being claimed by Tercon. Tercon was awarded $3.5 million. The British Columbia Court of Appeal reversed the trial judge’s decision, finding that the clause was not ambiguous and clearly barred all claims for damages, including the one made by Tercon.

SUPREME COURT OF CANADA DECISION

Although the decision of the Supreme Court of Canada was a split (5-4) decision as in the 2007 Double N2 tender case, the Court unanimously found that an exclusion of liability clause should be enforced where it is found to be applicable to the claim based on the facts of the case and that a valid contractual exclusion of liability clause can only be set aside if it is unconscionable or against public policy.

Applying this principle, the Supreme Court, by a majority decision, overturned the judgment of the Court of Appeal and restored the trial judgment. The majority found that the clause as drafted did not have the effect of excluding the damages being claimed by Tercon. The damages claimed by Tercon were found not to be damages resulting from “participating in this RFP,” but to be attributable to the Province accepting a bid from an ineligible proponent in contravention of the terms of the RFP. The majority of the Court, in its analysis, recognized that any ambiguity in a contract should be interpreted contra proferentem, the rule of contractual interpretation which provides that an ambiguous term will be construed against the party which required its inclusion in the contract—in this case, the Province.

The minority was of the view that the exclusion clause was enforceable. It would have held that “participating in this RFP” meant submitting a proposal for consideration and, since Tercon’s bid was considered, any damages at all resulting from the submission of the proposal were covered by the exclusion clause.

CONCLUSION

The Supreme Court’s analysis dispels any remaining uncertainty about whether contractual exclusion clauses are enforceable in Canadian common law. Clearly worded exclusion of liability clauses can and will be enforced. The actual decision on the enforceability of the exclusion of liability clause in Tercon, however, highlights the need for careful drafting of any such clause.

Following this decision, we can expect owners and those seeking RFP or tender submissions in common law provinces to use more restrictive language in RFPs and tender documents. Instructions to bidders will likely include wording to the effect that the submitting proponent waives the right to rely on the contra proferentem rule and any claim based on ambiguity in the RFP or tender documents.