Disputes will inevitably arise on a construction project.  If those disputes are not resolved in a timely fashion, the parties may find themselves in costly and protracted litigation. That unpleasant experience is likely to discourage the parties from working with each other in the future.  However, can a local government use recent litigation as basis to exclude a contractor from competing for future work on public projects?  A recent decision indicates, somewhat surprisingly, that it may be allowed to do so: J Cote & Son Excavating Ltd v City of Burnaby.

In 2014, the City of Burnaby took the step of including a clause in its bid packages that disqualified from bidding any contractor who had initiated litigation against it within the last two years.  The clause said:

Tenders will not be accepted by the City of Burnaby… from any person, corporation [who]… is, or has been within a period of two years… engaged either directly or indirectly…in a legal proceeding initiated in any court against the Owner… and any such Party is not eligible to submit a tender.

This clause prevented a road construction and utilities contractor J. Cote from bidding on any City projects because of its litigation with the City from an earlier project. J. Cote was particularly concerned about the clause because the majority of its work was on City projects.

Cote applied to the Court for a declaration that the clause in the tender package was unlawful and should be declared invalid because it infringed the “constitutionally protected” rule of law, violated its right of access to the courts, and was contrary to public policy.

A Justice of the BC Supreme Court acknowledged that the effect of the clause was to discourage parties from commencing litigation against the City, but found that it did not operate to prevent access to the courts.  The Court said, ‘not every limit on access to the courts is automatically unconstitutional’.  As a result, J. Cote’s application to have the clause declared invalid was dismissed.  J. Cote appealed that decision.

In May, the Court of Appeal upheld the decision.  The Court of Appeal similarly noted that J. Cote had not been denied access to the Court.  While it recognized that the clause would have adverse business implications for J. Cote, the Court of Appeal found that the impact was not sufficient to meet the high evidentiary threshold to constitute “undue hardship”.  As a result, the Court concluded that J. Cote had failed to establish that the clause breached the limited Constitutional protection of access to the courts applicable to this scenario.

We expect that J. Cote will apply to have the matter considered by the Supreme Court of Canada.  Until then, or if the Court does not agree to hear the case, this decision recognizes a broad discretion for owners, including local governments in the Province, to exclude parties from participating in procurements, provided that it is not done in bad faith.