In a recent Yukon Court of Appeal decision, Mega Reporting, the Court unanimously upheld a waiver of liability clause in the Yukon government’s Request for Proposals (“RFP”) process challenged by an unsuccessful bidder.
In the result, where sophisticated business parties enter into a bidding process on terms that include a waiver of liability, they have agreed to a contract that excludes remedies for a breach of its rules. It is not open to the courts to interfere with exclusion clauses in RFPs on public policy grounds, as the public interest in a fair bidding process does not override the strong public interest in the enforcement of contracts.
In 2013, the Yukon government issued an RFP seeking bids for a one-year contract for court transcription services. The tendering process had two stages: (1) a technical evaluation of the bidder’s experience and performance; and (2) an assessment of the price for each bid that met the minimum technical criteria.
The evaluation committee determined that Mega Reporting Inc. (“Mega”) did not pass the first stage, so it did not consider its (lower) bid price. Another bidder was selected. Mega met with government officials to receive feedback on its bid and learned that it lost points for criteria not disclosed in the RFP. There was also no evidentiary record of the evaluation. Mega sued the government, alleging that it breached its duty to fairly review its proposal.
The RFP explicitly provided that the process was subject to the Yukon Contracting and Procurement Regulation (the “Regulation”) and the Contracting and Procurement Directive (the “Directive”). The Directive sets out various principles for public procurement, including commitments to fairness, openness, transparency, and accountability. However, the RFP also included a clause purporting to waive the government’s liability for any costs associated with unfairness in the RFP process, except as awarded through a Bid Challenge Process.
The central question before the court: Could the government contract out of the duty of fairness through a waiver of liability clause, or is such an exclusion clause unenforceable as being contrary to public policy?
Yukon Supreme Court Decision
Justice Bielby of the Yukon Supreme Court ruled in favour of Mega, refusing to enforce the waiver of liability clause in the RFP process. She held that the government failed to meet its duties of fairness, accountability, and transparency, both at common law and under the Directive. Moreover, she found that the waiver of liability clause did not bar Mega’s claim based on the three-prong test from Tercon for the enforceability of exclusion clauses.
In Tercon, the Supreme Court of Canada set out the following test:
- Does the exclusion clause even apply to the circumstances?
- If so, was it unconscionable at the time the contract was made?
- If not, should the Court nevertheless refuse to enforce the valid exclusion clause because of an overriding public policy?
The first two prongs were not at issue. Justice Bielby found – on the third prong – that public policy reasons justified refusing to enforce the waiver. She relied on cases in which courts held that policy prevented a government from avoiding statutory duties (see for example, Niedermeyer, where the parties could not contract out of ICBC no-fault benefits). According to Justice Bielby, the Directive analogously created duties that could not be contracted out of and the exclusion clause was therefore void for overriding public policy.
Yukon Court of Appeal Decision
The Yukon Court of Appeal overturned the ruling, finding that the trial judge erred by not considering that the public policy must be “substantially incontestable” to justify not enforcing a waiver of liability clause. Even if the trial judge believed that one policy interest (avoiding unfair tendering) outweighed the other (enforcing contracts), the legal test is not a balancing act. The law sets a high bar to defeat an otherwise valid exclusion clause, and that bar was not met in this case.
Chief Justice Bauman, writing for the Court, held that it is not substantially incontestable that the public interest in ensuring fair procurement overrides the government’s ability to protect itself from liability. Cases that have risen to this level involved clauses excluding liability for human rights violations or fraud.
In contrast, Mega is a sophisticated business party and chose to participate in a bidding process with an exclusion of liability clause. Therefore, no public policy interest justified depriving the government of the exclusion clause that Mega had agreed to in the contract.
The Court noted that this case is distinguishable from Tercon, which similarly involved government procurement. There, the exclusion clause did not bar the unsuccessful bidder’s claim because it did not apply in the circumstances (the first prong of the test). The exclusion clause was interpreted to only apply where the contract is awarded through a process limited to eligible bidders. In this case, however, the exclusion clause clearly and unambiguously excluded liability for any costs associated with unfairness in the RFP process. This serves as a reminder of the importance of drafting clear exclusion clauses.
- The language of an exclusion clause will determine whether it applies to bar a particular action; it is important to draft clear and unambiguous exclusions of liability.
- A clear and valid exclusion clause will not be deemed void for overriding public policy unless the harm to the public is “substantially incontestable” (a very high bar).
- Exclusion clauses in RFPs are not necessarily contrary to public policy. The public interest in ensuring a fair bidding process does not meet the high bar required for courts to interfere with contractual terms freely agreed upon by sophisticated business parties.
Mega Reporting Inc. v. Government of Yukon, 2018 YKCA 10
Date of Decision: June 19, 2018