Frontier Justice and the End of Contract A

Transcription

1 Frontier Justice and the End of Contract A Paul Emanuelli Managing Director The Procurement Office paul.emanuelli@procurementoffice.com

2 Copyright Notice The following excerpts from Government Procurement (copyright LexisNexis Butterworths 2005, 2008, 2012 and 2017), The Laws of Precision Drafting (copyright Northern Standard Publishing 2009), Accelerating the Tendering Cycle (copyright Northern Standard Publishing 2012) and the Procurement Law Update newsletter (copyright Paul Emanuelli ) are reproduced with permission. The further reproduction of these materials without the express written permission of the author is prohibited. Paul Emanuelli, 2018 For further information please contact:

3 About the Author Paul Emanuelli is the General Counsel and Managing Director of the Procurement Office. He was recognized by Who's Who Legal as one of the top ten public procurement lawyers in the world. His portfolio includes advising on strategic governance in public purchasing and on negotiating high-profile major procurement projects. Paul has an extensive track record of public speaking, publishing and training. He is the author of Government Procurement, The Laws of Precision Drafting, Accelerating the Tendering Cycle and the Procurement Law Update newsletter. Paul hosts a monthly webinar series and has trained and presented to thousands of procurement professionals from hundreds of institutions across North America through the Procurement Office and in collaboration with leading industry organizations including NIGP, SCMA, the University of the West Indies and Osgoode Hall Law School.

4 Frontier Justice The End of Contract A For those still using Contact A tendering formats, the June 2018 Yukon Court of Appeal decision in Mega Reporting Inc. v. Yukon ( Mega Reporting ) serves as a last call to finally part company with the unclear Contract A rules and join the growing ranks of institutions using flexible, lowerrisk tendering formats.

5 Frontier Justice Mega Reporting Adds to Court Disagreement Mega Reporting, which dealt with a flawed evaluation process for court reporting services in a Yukon government Contract A RFP process, is another case where the courts could not agree on applying the ground rules for Contract A liability. In fact, forty years after the original 1978 trial dispute that led to the Supreme Court of Canada s 1981 R. v. Ron Engineering Contract A precedent, the rules around Contract A lost profit damages remain more uncertain than ever and, win or lose, leave Contract A users fully exposed to lengthy lawsuits.

6 Frontier Justice MJB Confirmed Contract A Alternatives However, there is an alternative. In 1999, the Supreme Court of Canada brought some order to the litigious tendering system in M.J.B. Enterprises Ltd. v. Defence Construction ( MJB ). This decision confirmed that purchasing institutions can avoid the fixed-bid Contract A process and run tendering procedures under traditional contract law rules where bids remain negotiable and losing bidders have no right to sue for lost profit damages. That precedent should have ended the lost profit liability debate years ago.

7 Frontier Justice Liability Disclaimers No Match for Contract A Risk Unfortunately, while an ever-increasing number of institutions left Contract A lost profit claims behind by adopting flexible, lower-risk negotiated RFP formats, other institutions persisted within the flawed Contract A operating system and have unnecessarily exposed themselves to protracted litigation and lost profit damages. This has cost hundreds of millions in court-awarded damages and countless more in out-of-court settlements and legal fees. As explained below, the experiment in attempting to limit litigation and reliably protect against lost profit awards by adding liability disclaimers to Contract A tendering formats has failed.

8 Frontier Justice Tercon s Three-Part Test for Liability Disclaimers By way of recap, in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways) ( Tercon ), the BC government banked on a disclaimer to try to shield itself from liability after it awarded a contract to a non-compliant bidder. In its 2010 precedent-setting decision, the Supreme Court of Canada established a three-part test for enforcing liability disclaimers: (1) Did the disclaimer apply to the breach? (2) Was the disclaimer unconscionable? (3) Are there public policy reasons against enforcing the disclaimer?

9 Frontier Justice Tercon Test Still Leads to Court Disagreement Unfortunately, the Supreme Court could not agree on how to apply its own test and rendered a 5-4 split decision. The ruling majority sided with the original trial judge and determined that the BC government should be liable for $3.3 million in lost profits, finding that the disclaimer was not drafted clearly enough to shield the government from liability. The four-judge minority went the other way, as had the three judges on the BC Court of Appeal, ruling in favour of the clause and against liability.

10 Frontier Justice Thirteen Judges, Three Levels of Court, Still Divided In summary, thirteen judges over three levels of court considered the same clause and divided 7-6 on whether it should shield the government from liability within Contract A. Notwithstanding these conflicting results, some institutions dismissed the problem as a wording issue that could be cured by drafting better disclaimers within their Contract A documents.

11 Frontier Justice Mega Reporting Divides Courts Over Liability Clause Mega Reporting has put an end to that wishful thinking. In this case there was no issue with the wording of the disclaimer. Rather, the trial court struck down the clause on public policy grounds under part three of the Tercon test and awarded lost profits. The Yukon Court of Appeal then reversed the trial decision, ruling that disclaimers should only be struck down on policy grounds in extreme situations where harm to the public good is substantially incontestable.

12 Frontier Justice Clause Application Under Scrutiny, Not Clarity In other words, while the courts agreed that the clause was clear enough to apply under part one of the Tercon test, they could not agree on whether it should apply under part three of the test and, for good measure, also failed to clarify whether the clause was unconscionable under part two of that test. This left many unresolved issues for a potential appeal to the Supreme Court and, win or lose, further exposed Contract A users to more protracted litigation.

13 Frontier Justice Contract A Disclaimers At Mercy of Courts As these cases prove, institutions that rely on Contract A disclaimers remain at the mercy of the courts, who, forty years after the trial decision that first led to Contract A, are still working out the bugs in the Contract A liability analysis. In the interim, for those interested in avoiding lengthy litigation and the risk of lost profit damages, the Supreme Court offered another solution in 1999 in MJB when it unanimously ruled that we can avoid the Contract A tendering system in its entirety by using more flexible tendering formats. The verdict is now in on the better option.

14 The End of Contract A?

15 The SCC s MJB Analysis 1 Did the Parties Create Contract A? Intention of the Purchaser (Offer) Intention of Supplier (Acceptance) 2 What Are the Terms of Contract A? Express Terms (The Written Terms) Implied Terms (Duty of Fairness) 3 Was There a Breach of Contract A? Were the Terms Followed? Is Variation Saved by a Privilege Clause? 4 Is There a Remedy? Causal Analysis Calculation of Damages Tercon Disclaimer Test

16 Did the Parties Create Contract A? 1 Did the Parties Create Contract A? Intention of the Purchaser (Offer) Intention of Supplier (Acceptance) 2 What Are the Terms of Contract A? Express Terms (The Written Terms) Implied Terms (Duty of Fairness) 3 Was There a Breach of Contract A? Were the Terms Followed? Is Variation Saved by a Privilege Clause? 4 Is There a Remedy? Causal Analysis Calculation of Damages Tercon Disclaimer Test

17 What Are the Terms of Contract A? 1 Did the Parties Intend to Create Contract A? Intention of the Purchaser (Offer) Intention of Supplier (Acceptance) 2 What Are the Terms of Contract A? Express Terms (The Written Terms) Implied Terms (Duty of Fairness) 3 Was There a Breach of Contract A? Were the Terms Followed? Is Variation Saved by a Privilege Clause? 4 Is There a Remedy? Causal Analysis Calculation of Damages Tercon Disclaimer Test

18 Was There a Breach of Contract A? 1 Did the Parties Intend to Create Contract A? Intention of the Purchaser (Offer) Intention of Supplier (Acceptance) 2 What Are the Terms of Contract A? Express Terms (The Written Terms) Implied Terms (Duty of Fairness) 3 Was There a Breach of Contract A? Were the Terms Followed? Is Variation Saved by a Privilege Clause? 4 Is There a Remedy? Causal Analysis Calculation of Damages Tercon Disclaimer Test

19 Is There a Remedy? 1 Did the Parties Intend to Create Contract A? Intention of the Purchaser (Offer) Intention of Supplier (Acceptance) 2 What Are the Terms of Contract A? Express Terms (The Written Terms) Implied Terms (Duty of Fairness) 3 Was There a Breach of Contract A? Were the Terms Followed? Is Variation Saved by a Privilege Clause? 4 Is There a Remedy? Causal Analysis Calculation of Damages Tercon Disclaimer Test

20 The Tercon Disclaimer Test 1 Did the Parties Intend to Create Contract A? Intention of the Purchaser (Offer) Intention of Supplier (Acceptance) 2 What Are the Terms of Contract A? Express Terms (The Written Terms) Implied Terms (Duty of Fairness) 3 Was There a Breach of Contract A? Were the Terms Followed? Is Variation Saved by a Privilege Clause? 4 Is There a Remedy? Causal Analysis Calculation of Damages

21 The Tercon Disclaimer Test 1 Does the Clause Apply? (Laws of Interpretation) Entire Document Rule Contextual Construction Expressio Unius Rule Contra Proferentem 2 Is the Clause Unconscionable? Relative Sophistication of Parties 3 Is it Void For Public Policy Reasons? (Balancing Interests) Fair, Open & Transparent Procurement vs. Freedom of Contract

22 Upcoming Free Webinars: 2018 Countdown of Top Newsreel Trends Our Media Monitoring Team tracks public procurement current events by staying on top of the latest news as it happens. After careful analysis of this year s news reports, we ve identified the major themes that ruled the 2018 news cycle and should serve as an early warning system for industry trends in public procurement. From international trade wars to local tendering scandals, this webinar offers a global perspective on the most pressing trends impacting public procurement and provides recommendations to avoiding becoming the next headline. October 17, 2018, 1:00 2:00 pm EDT REGISTER NOW

23 Upcoming Free Webinars: Hot Launching Major Projects Getting what you need, on budget, on time, and by the rules, is harder than it looks, especially when major projects are involved. This presentation will explain how to integrate design-planning, project management and business process mapping into your procurement process, while also leveraging leading technologies, so you can guide your project teams end-to-end through your project planning, document drafting, proposal evaluations and contact award negotiations with unprecedented speed and precision. Wednesday November 14, 2018, 1:00 2:00 pm EDT REGISTER NOW

24 Upcoming Free Webinars: The Art of Tendering: A Florida Deep Dive The Art of Tendering: A Global Due Diligence Guide is the third installment in a trilogy of practical procurement manuals written by Paul Emanuelli. This new work spans over 1000 pages covering leading public procurement practices from a global perspective in the areas of institutional governance, project governance, tendering formats, document drafting, bidding risks, contract management, training and innovation. Serving as the official US book launch, this webinar will draw on Florida-based highlights from the Art of Tendering to illustrate common global challenges faced by all jurisdictions in the areas of biased specifications, compliance controversies, fair evaluation challenges and cancellation disputes. This presentation will also contrast the procedural and monetary bid protest remedies available under the Florida rules with those that apply elsewhere across North American and around the world. Wednesday December 12, 2018, 1:00 2:00 pm EDT REGISTER NOW

25

26

27 For more information please contact: Paul Emanuelli Managing Director and General Counsel Procurement Office Marilyn Brown Senior Counsel Procurement Office Heather Baker Senior Procurement Advisor Procurement Office Julia Mills Senior Procurement Advisor Procurement Office