The Supreme Court of Canada dismissed an appeal brought forward by J. Cote & Son Excavating Ltd. on December 12.

In so doing, says the Canadian Construction Association (CCA), the court has effectively upheld the use of reprisal clauses in tender documents.

“The clause effectively forces consultants or contractors who may have a dispute with the city to choose between pursuing their legal rights and bidding on city contracts for the next two years,” said Mary Van Buren, CCA president.

This ruling has serious implications for contractors; it condones placing contractors on a two-year blacklist that bans them from bidding on city projects.

“The inclusion of these types of clauses in contracts essentially allows contractors to be financially punished for exercising their legal rights,” explains Van Buren. “The result is contractors are deterred from accessing the courts to enforce their legal rights because they fear being banned from future participation in projects.”

Circumstances of the case

The circumstances of the Cote case date back to August 2012. The City of Burnaby entered into a contract for sewer construction with J. Cote & Son Excavating Ltd. The following October, the contactor and the city became embroiled in a legal dispute over a workplace accident that resulted in the death of one of Cote’s employees. The parties were not able to settle the dispute out of court, and Cote filed an action with the British Columbia Supreme Court in December 2013 to recover damages from the city.

In February 2014, the city updated its tender documents to include a clause that barred bids from proponents that had entered into legal disputes with the city within the past two years. Cote, which argued that as much as 20 percent of its annual revenue came from city contracts, argued that the clause would limit its right to access business from the city. It further argued that it had lost business as a result of the clause.

Once the issue of the workplace death was settled, Cote continued with legal action against the city. It argued that the reprisal clause was invalid because it infringed on the Charter of Rights and Freedoms and the Constitution Act, and ran contrary to public policy. Cote also argued that the clause forced businesses to choose between pursuing legal action to address wrongs and being able to bid on future public contracts.

The CCA helped fund Cote’s case, arguing that there was (and remains) a growing prevalence of the use of such clauses by municipalities. The company’s case was dismissed on appeal.

CCA will continue to monitor

The decision by the Supreme Court of Canada effectively means that there is no constitutional barrier to municipalities using reprisal clauses.

CCA has said it will continue to closely monitor any developments. The association believes this case ruling could have major implications for the construction industry in all of Canada.