Contractor debarment in construction contracting by public-sector entities is a hot topic in Ontario’s construction industry. Debarment is a mechanism used by public sector entities to prevent contractors from bidding for various reasons, including contractor performance. It is sometimes referred to as “blacklisting”. Such provisions have come under scrutiny, particularly when used to debar a contractor from bidding where the contractor has been engaged with litigation with the contracting entity. Various municipalities and other public sector entities have debarment provisions in their policies, procurement, by-laws, tendering documents, and/or contract provisions.

In the 2018 decision of Interpaving Limited v City of Greater Sudbury,[1] Ontario’s Divisional Court examined the exercise of a debarment provision by the City of Greater Sudbury (the “City”). The City purported to exercise its discretion under a by‑law to debar Interpaving Limited (the “Contractor”) from bidding on City contracts for a period of four years (the “Debarment”). In its decision, the Divisional Court considered a request from the Contractor for an order to quash and set aside the Debarment and also a declaration that the relevant by-law was without effect and contrary to the law and rules of natural justice. Justices Wilton-Siegel and Thorburn, writing as the majority, upheld both the Debarment and the related by-law.

Background

The Contractor and its group of road work companies had been providing services to the City for over 40 years, and had worked on many City contracts valued at approximately $19 million annually. The Contractor regularly employed 200 people for City work and an additional 200 in summer months during heavier construction periods.

In 2014, the City introduced City By-Law 2014-1: A By-Law of the City of Greater Sudbury Governing Procurement Policies and Procedures (the “By-law”). The relevant portion of the bylaw states:

[…]

(2) A Bidder or Supplier may be excluded from eligibility to submit Bids or quotes or a submitted Bid or quote may be summarily rejected and returned to a Bidder or Supplier where the agent and the applicable [Senior Management Team Member] agree, in consultation with the City Solicitor, in their absolute discretion that one of the following circumstances has occurred:

(a) the Bidder or Supplier is or has been involved in Litigation[2] with the City, its elected officials, officers or employees;

[…]

(c) there is documented evidence of poor performance, non-performance or default by the Bidder of Supplier in respect to any Contract;

[…]

(g) the Bidder, Supplier or its personnel have demonstrated abusive behaviour or threatening conduct towards City employees, their agents or representatives; […] [emphasis added]

 

(3) In arriving at a determination for the disqualification of a Bidder or Supplier pursuant to this Section, the SMT Member and the Agent, in consultation with the City Solicitor, will consider whether the circumstances are likely to affect the Bidder or Supplier’s ability to work with the City, its consultants and representatives, and whether the City’s experience with the Bidder or Supplier indicates that the City is likely to incur increased staff time and legal costs in the administration of any dealings with the Bidder or Supplier.

(4) Based on the severity of the events leading to the disqualification, the SMT Member and the Agent, in consultation with the City Solicitor, shall establish the duration of the period during which the disqualification shall be effective.

On March 21, 2016, the City issued a letter to the Contractor debarring them from bidding on City contracts for four years based on three reasons (the “Debarment Letter”):

  1. The Contractor had issued a statement of claim against the City in 2014 in respect of five enumerated City projects or contracts (i.e. it was “involved in Litigation with the City” contrary to item 2(a) of the By-law);
  2. The Contractor violated health and safety legislation (e.g. issues in relation to orders issued by the Ministry of Labour under the Occupational Health and Safety Act); and
  3. A “significant history of abusive or threatening conduct” by the Contractor’s owners and employees towards City employees between 2003 and 2016 (i.e. contrary to item 2(g) of the By-law).[3]

The City also referenced evidence of poor performance by the Contractor on City contracts such as the “routine abuse” of the change order mechanism under the City’s General Conditions (i.e. contrary to Item 2(c) of the By-law).[4]

After receiving the Debarment Letter, the Contractor sought to have the Debarment rescinded by the City. At the Contractor’s request, several meetings occurred in March and April 2016 between the Contractor and City officials to discuss the matter. Following the meetings, the City invited the Contractor to formally request a reconsideration of the Debarment and to provide accompanying written submissions outlining the Contractor’s steps to address the City’s concerns. The Contractor provided written submissions in relation to why it should not be debarred. The City, after considering the written and oral submissions made by the Contractor issued a further letter on May 2, 2016 (the “Reconsideration”) which concluded that the reasons for the Debarment, as outlined in the Debarment Letter, remained valid and that the Debarment would not be rescinded or varied.

Issues before the Court

The Contractor brought an application under section 2(1) of the Judicial Review Procedure Act, R.S.O. 1990, c. J.1, asking the Divisional Court (the “Court”) to consider, among other things, the validity of the Debarment. In particular, the Court considered four issues:

  1. Was the By-law valid and enforceable?
  2. Was the Contractor denied procedural fairness:
    1. by the City failing to give the Contractor notice of its intention to debar before Debarment was effected, reasons why and how the decision was arrived at, and an opportunity to respond? and/or
    2. by failing to reconsider the issue after the Debarment Letter was sent to the Contractor?
  3. Was the decision to debar the Contractor reasonable?
  4. If the Contractor was denied procedural fairness, what is the appropriate remedy?

Issue 1: Was the By-law Valid and Enforceable?

The Court considered whether the By-law contravened Canada’s free trade agreements and whether it violated a right of access to justice of the Contractor. The Court found that there was no evidence of a contravention of trade agreements and also, by citing a decision of the Supreme Court of Canada, noted that “a municipality has essentially the same right as a business person to decide with whom it will do business.”[5] In relation to access to justice, the Court noted that “there are good reasons for doing this [i.e., ensuring that a municipality has the same rights as a business person] including the effect of ongoing litigation on the parties’ working relationship and the fear of doing business with a party prone to litigation”. The Court cited the Alberta Queen’s Bench case of Cox Bros. Contracting & Assoc. Ltd. v. Big Lakes (Municipal District) (1997), 215 AR 126 in support of this assertion, however it does not appear that many cases were brought to the Court’s attention in relation to this issue.

Issue 2: Was the Contractor Denied Procedural Fairness?

The Court stated that the standard of review for assessing procedural fairness by a tribunal requires “an assessment of the procedures and safeguards required in the particular situation”.[6] According to the court, this review would include, on a non-exhaustive basis, a review of:

  • the nature of the decision;
  • the process followed;
  • the governing statutory scheme;
  • the importance of the decision to the affected individual;
  • the legitimate expectations of the person challenging the decision; and
  • the choice of procedure by the agency.[7]

In reviewing the procedural fairness accorded to the Contractor, the Court examined eight factors  relating to the Debarment as summarized below:

  1. that the Debarment was an administrative decision (as to who was entitled to bid on contracts paid for with public funds) which involves an exercise of discretion and that there was no adjudication of any right of the Contractor, as there is “no right to obtain contracts from the City”;
  2. that the Debarment was a commercial decision regarding who the City was prepared to do business with and a municipality is “entitled to discriminate against a supplier, provided it does so within the confines of the enabling legislation and without contravening the Charter or prevailing legislation”. This factor relates to access to justice. The Court did refer to the Supreme Court of Canada case of Shell Canada Products Limited v. Vancouver (City), [1994] 1 SCR 231. This case examined a city’s ability to discriminate when carrying on business or acquiring property from suppliers or vendors and stated at p. 282 that “[d]iscrimination for commercial or business reasons is a power that is incidental to the powers to carry on business or acquire property”. However, and as noted above, it does not appear that the access to justice cases were a focus of the argument before the Court;
  3. public entities are subject to separate rules than private entities, i.e. public entities (e.g. municipalities) “cannot act in bad faith or for improper purpose”
    and “must have regard to the consequences for the municipality”;
  4. under the By-law, the decision-makers have “absolute sole discretion” to decide whether or not to debar a contractor, which suggests a reasonableness standard and there is no right of appeal or formal reconsideration process;
  5. the duty of fairness in such decisions includes entitlement to notice and the right to know the case to be met;
  6. the importance of the decision to the party being debarred, including the direct financial and reputational impact on the Contractor, while also considering opportunities to mitigate such impacts;
  7. the reasons given in the decision must be sufficient to explain what was decided and why it was decided that way, but not how it was decided; and
  8. the goals of the By-law, including “to ensure openness, accountability and transparency while protecting the financial interests” of the City.[8]

Given the above factors, and in particular the importance of the Debarment to the Contractor, the Court found that the Contractor should have received “notice of the intention to debar and the proposed penalty, a summary of the grounds for the proposed decision, an opportunity to respond, and reasons for the decision”.[9] Having failed to provide such notice, the Debarment was found to constitute a breach of procedural fairness.

Notwithstanding this finding, the majority of the Court found that the reconsideration of an original administrative decision could cure the procedural defects of an earlier decision. The Court found that such a reconsideration could be conducted by the same body that made the earlier decision so long as the potentially-curative reconsideration was a “fresh consideration of the events.”[10] The Court found that the Reconsideration by the City of the Contractor’s Debarment was, in the circumstances, a bona fide reconsideration of the Debarment.[11] Therefore, the initial lack of procedural unfairness of the Debarment decision (i.e. the failure to give notice and provide an opportunity for the Contractor to make submissions prior to receipt of the Debarment Letter) was cured by the Reconsideration by the City that followed.

Parenthetically, in his dissenting opinion, Justice Ellies found that the City breached procedural fairness in the Debarment and that this procedural fairness was not cured because the issues leading to debarment were not thoroughly canvassed between the City and the Contractor during the Reconsideration. [12]

Issue 3: Was the Debarment Reasonable?

The standard of review for a municipal decision made intra vires (i.e. within the municipality’s power or authority) is a deferential one, even if the relevant issue is a question of law (unless the question is of both central importance to the legal system as a whole, and is outside the adjudicator’s area of expertise).[13] In this case, the Court considered whether the Debarment was within a range of possible, acceptable outcomes which are defensible in respect of the facts and law[14] and found that the Debarment was reasonable.[15]

In reaching this conclusion, the Court considered there to be “ample support for each of the City’s grounds for the Debarment”. In particular, the Court considered that: (i) the Contractor’s lawsuit pertained to five City projects; (ii) instances of abusive behavior on the part of the Contractor’s representatives; (iii) instances of abuse of the change order mechanism; and (iv) a historical record of instances that could be relied upon by the City. In relation to the litigation against the City, the Court considered that the City was “likely to incur increased staff time and legal costs in the administration of any dealings with [the Contractor]” as a bidder on future projects.[16]

Issue 4: If the Contractor was denied procedural fairness, what is the appropriate remedy?

Finding no breach of procedural fairness, as a result of the curative Reconsideration, the majority did not address the issue of an appropriate remedy. However in dissent, having found a breach of procedural fairness, Ellis J. held that the decision should be remitted back to the City for fresh determination.

Implications of the Interpaving Decision

In its conclusion, the Court identified that public bodies must “make sound business decisions” while also considering the public interest. As noted above, in the case of the City and Contractor, the Court considered that any procedural unfairness that resulted from the Debarment was in fact cured by the Reconsideration. Further, the Court held that the Debarment was reasonable as was the amount of time provided for in the Debarment Letter (i.e. 4 years). As such, the application was dismissed and the Debarment was upheld.[17]

Broadly speaking, the Interpaving decision affirms and arguably strengthens the ability of public entities to exercise their discretion in relation to contractor debarment. This discretion provides public entities with latitude in relation to debarring contractors for a variety of reasons. The breadth of this discretion has potentially significant ramifications in relation to the contracting community. While public entities engaged in such an exercise of discretion must not act in bad faith, contravene the Charter, or make decisions for an improper purpose, they can nevertheless restrict a contractor in circumstances that can be punitive and detrimental to contractors.

In particular, the review of arguments related to access to justice bear further consideration.  The Contractor in Interpaving raised the infringement on its access to justice as a reason why the By-law should have been declared invalid or unenforceable. In that regard, contractors in Ontario have long been concerned with debarment provisions that can serve to limit their ability to engage the legal system to pursue legitimate claims and protect their business interests.

Here, the Court noted that there are “good reasons for including [such a provision] including the effect of ongoing litigation on the parties’ working relationship and the fear of doing business with a party prone to litigation”.[18] However, the Court did not consider in detail whether the Contractor was “prone to litigation” or what frequency of engaging the legal system would trigger this threshold.

It is not unexpected or unreasonable that a public entity, such as a municipality, would want to avoid doing business with a contractor that is unnecessarily litigious. In many instances, such an exercise of discretion might even be warranted. Unfortunately, however, the Interpaving decision does not provide clarity as to when an exercise of discretion actually infringes on the right to access to justice and as such, may have a chilling effect on the ability of contractors to access the courts in circumstances where the contractor is pursuing a meritorious claim.  This result may have been due to the fact that the By-Law, and the alleged infringements by the contractor, relates to a number of behaviours by the contractor, including litigation between the contractor and the municipalities, but also including poor performance of work, and abusive conduct. In contrast, some debarment by-laws address only the litigation issue, and it is these narrowly focussed anti-suit by-laws that are much more likely to be found to violate the contractor’s constitutional right of access to the courts.

In fact, there is case law to support the proposition that a discretion intended solely as an anti-suit mechanism constitutes a violation of the Charter of Rights and Freedoms. The Canadian legal system has recognized access to justice as a fundamentally important common law right,[19] and bidder exclusion or debarment provisions in contracts, by-laws and policies have been characterized as restricting the access of contractors to the courts.

This fundamental right is widely accepted and, as stated by the Supreme Court of Canada in Vilardell v. Dunham, “may only be abrogated by clear statutory language”.[20] The Supreme Court of Canada in Hryniak v. Mauldin[21] also performed a detailed analysis of the necessary cultural shifts in respect of access to civil justice. There, Justice Karakatsanis reiterated the principle goal of access to justice as being “a fair process that results in a just adjudication of disputes.” [22]  While the focus of this case was on the inability of individuals to be able to afford to participate in civil litigation, it is nevertheless significant as it emphasizes the importance of access to justice as part of the rule of law in Canada. In that case, the court stated: “[w]ithout an effective and accessible means of enforcing rights, the rule of law is threatened. Without public adjudication of civil cases, the development of the common law is stunted.”[23]

However, the fundamental right of access to justice is not without its limits. The Supreme Court of Canada has noted that there is no constitutional right to bring a frivolous or vexatious claim and measures that deter such claims actually increase efficiency and overall access to justice.[24] In Interpaving however, the language of the By-law did not suggest any limits on the nature of the litigation, but rather triggered punitive measures in the case of “any dispute between the City and any other party or related party adverse in interest”. Such a broad description would appear to potentially conflict with the principles espoused by the Supreme Court of Canada in relation to access to justice.

By way of example, the Quebec Court of Appeal in the decision of Cie de construction et de développement cris ltée c. Société de développement de la Baie James [25] examined a public policy for the award of service contracts by the Baie-James Development Society (the “Society”) which provided, inter alia, that bidders that were engaged in legal proceedings or which had commenced proceedings against the Society would not be eligible to submit bids for service contracts. The Court of Appeal found that this clause forced the contractor to choose between its fundamental right to recourse in the courts and obtaining the desired contract. The contractor could be barred, under that policy, from obtaining a contract whether its suit was valid or not. Ultimately, in that decision, the Quebec Court of Appeal found the policy was contrary to public order and the rule of law.

That said, and as noted in Interpaving, public bodies have a right to exercise discretion against contractors in relation to performance issues or abusive behaviour. In other words, if the Interpaving case had engaged only the litigation issue under the By-law, or if the allegations of poor performance and abusive behaviour had been found to be groundless in fact, leaving only the litigation issue, the Interpaving case may have been decided differently.

[1] Interpaving Limited v City of Greater Sudbury, 2018 ONSC 3005 [Interpaving].

[2] “Litigation” is defined by the by-law as “any dispute between the City and any other party or related party adverse in interest before any Court, administrative tribunal or arbitrator and includes a threat of litigation made in writing”.

[3] Interpaving at para. 5.

[4] Interpaving at para. 5.

[5] Interpaving at para. 24, citing Shell Canada Products Ltd v Vancouver (City), [1994] 1 SCR 231, [1994] SCJ No 15.

[6] Interpaving at para. 25.

[7] Interpaving at paras. 25-26.

[8] Interpaving at paras 29-36.

[9] Interpaving at para 37.

[10] Interpaving at 40-42.

[11] Interpaving at para. 68.

[12] Interpaving at para 98.

[13] Interpaving at para 69 (citing Dunsmuir v New Brunswick, 2008 SCC 9, [2008] 1 SCR 190).

[14] Interpaving at para 71.

[15] Interpaving at para 83.

[16] Interpaving at paras. 72-73.

[17] Interpaving at paras. 85-86.

[18] Interpaving at para 24.

[19] Vilardell v.  Dunham, 2014 SCC 59 [Vilardell].

[20] Vilardell at para 72.

[21] 2014 SCC 7 [Hryniak]

[22] Hryniak at para 28.

[23] Hryniak at para 1.

[24] Vilardell at para 47.

[25] (2001) 107 A.C.W.S. (3d) 994 (QCCA)