Assessing Exclusion Clauses: The Supreme Court of Canada’s Three Issue Framework in Tercon Contractors Ltd v British Columbia(Transportation and Highways)

Abstract

IntroductionThe Supreme Court of Canada's 2010 decision in Tercon Contractors Ltd v British Columbia (Transportation and Highways)1 concerned the enforceability of a broadly drafted exclusion clause in the context of public procurement tendering. It is noteworthy for several reasons. First, the decision unanimously articulated a three-issue framework for determining the enforceability of exclusion clauses. Second, and on a more theoretical front, Tercon offered competing visions as to how contracts are to be interpreted. Though the Supreme Court was unanimous that parties to a contract should - of course - generally be bound by its terms, the majority and dissent followed significantly different paths for determining the scope of the agreement at bar. Justices LeBel, Deschamps, Fish, Charron, and Cromwell (in a majority decision delivered by Cromwell J.) approached the task of contractual interpretation by elevating the long-standing and judicially enforced values that specifically inform the tendering process2 including notions of integrity, transparency, and business efficacy. The dissent, per McLachlin C.J., Binnie, Abella, and Rothstein JJ., in a judgment delivered by Binnie J., emphasized another set of long-standing andjudicially enforced values, namely freedom of contract and fidelity to the legal principle thatcontracts are tobe enforced according to their words. And third, the Supreme Court of Canada laid to rest the doctrine of fundamental breach as it applies to exclusion clauses - or attempted to at least.3In order to explore these themes, this comment provides a brief account of the facts of Tercon and the Supreme Court of Canada's three issue framework concerning the enforceability of exclusion of liability clauses. It demonstrates that Tercon is, at bottom, simply a clearer statement of the law first articulated by Dickson C.J. and Wilson J. in Hunter Engineering Co v Syncrude Canada Lid.4 This comment then offers some brief conclusions, including that Canada's pre-Tercon caselaw retains much of its precedential shine.Tercon concerned the enforceability of a wide-reaching exclusion of liability clause (called a no-claims clause in this case) emanating from a request for proposals (RFP) for highway construction by the Province of British Columbia (the Province). The exclusion clause in Contract A stated as follows:Except as expressly and specifically permitted... no Proponent shall have any claim for 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.5The main question for the court was whether this clause sanitized breaches of Contract A by the Province which included intentionally accepting a bid from an ineligible bidder.6 The successful bid ostensibly came from Brentwood (an eligible bidder) but, in truth, was made on behalf of a joint venture between Brentwood and Emil Anderson Construction Co (EAC). EAC's participation rendered the bid patently ineligible; the Province plainly and clearly knew that.7 Also of tremendous concern was that the Province concealed its selection of an ineligible, joint venture bid by making it appear that Brentwood was the sole bidder.8 As noted by Justice Cromwell, the trial judge (Justice Dillon) made it clear that the Province:(1) fully understood that the Brentwood bid was in fact on behalf of a joint venture of Brentwood and EAC; (2) thought that a bid from that joint venture was not eligible; and (3) took active steps to obscure the reality of the situation.9Given these troubling circumstances, the trial judge refused to permit the Province to shelter behind the exclusion clause on two grounds. First, she concluded that the clause was ambiguously phrased, which contra proferentem resolved in favour of plaintiff Tercon.10 Second, she applied the Supreme Court of Canada's dual analysis in Hunter Engineering,11 as combined in Guarantee Co of North America ? …