In July 2006, the Legal Framework analyzed the 2006 decision of the British Columbia Supreme Court in Tercon Construction Ltd. v. British Columbia (Transportation and Highways). In this case, Tercon was awarded damages in the approximate amount of $3.3 million after the Ministry awarded a highways contract to another entity, a joint venture arrangement which was not permitted on the face of the proposal documents.

On December 3, 2007, the British Columbia Court of Appeal released its judgment, overturning the trial level decision and holding that the exclusion clause in the proposal documents was broad enough to prevent recovery for the type of claim that Tercon was advancing. As a result, Tercon's claim has been dismissed in its entirety.

The underlying project to the litigation was a 25km highways project in the Nass Valley of British Columbia. Tercon was one of six qualified proponents for the project. Although another proponent, Brentwood Enterprises Ltd., was qualified for the project, it did not have the capacity on its own to complete the project. As a result, Brentwood joined with Emil Anderson Construction Co. ("EAC") to submit a bid. While EAC was acknowledged to be experienced in the road-building industry, neither it alone nor as a joint venture with Brentwood was considered a qualified proponent. When the joint venture bid turned out to be the lowest bid, the Ministry awarded the project to Brentwood, aware that the work would actually be completed by the joint venture.

Tercon, who was the second lowest proponent, sued the Ministry, claiming that the Ministry had breached the duty of fairness it owed to the bidders for the project by accepting the joint venture proposal. At the trial level, the Court agreed with Tercon's submission that, although the project documents referred to a "request for proposal" process, the documents were in substance a call for tenders.

The trial judge further held that the decision to award the project to a non-compliant bidder was a fundamental breach of the "Contract A" contract and that the exclusion clause was not adequately worded so as to exclude a claim for damages based on a fundamental breach of contract. The Courts have defined a fundamental breach to be one in which "the failure of one party to perform a primary obligation has the effect of depriving the other party of substantially the whole benefit which it was the intention of the parties he should obtain from the contract."

On appeal, the Court of Appeal was asked to consider two issues: (1) whether the successful bid was in fact a non-compliant bid; and (2) whether Tercon's claim was barred by the exclusion clause in Contract A. The Court declined to address the first question, deciding the appeal based on its analysis of the second issue only. The exclusion clause under consideration stated that:

"Except as expressly and specifically permitted in these Instructions to Proponents, no Proponent shall have any claim for any 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."

In reviewing the exclusion clause, the Court of Appeal accepted that the integrity of the bidding process, particularly for public works, should be given high value. But the Court found that the "words of the exclusion clause [were] so clear and unambiguous that it is inescapable that the parties intended it to cover all defaults, including fundamental breaches." In writing the Court's reasons, Justice Donald held that it was not necessary for the Ministry to particularize or state expressly the breaches that would be excluded in order for the exclusion clause to be effective. Rather, the Court found that:

"A sophisticated contractor like the respondent [Tercon], which has already successfully recovered damages from the appellant on a bidding default in a previous case … would have had in contemplation at the time of the RFP all potential breaches by the [Ministry], including the most likely source of a grievance, the acceptance of a non-compliant bid. The broad words of the clause cover the full range. I see no room for exempting fundamental breaches from the scope of the clause."

In response to Tercon's argument that, to the extent that the clause excused the acceptance of non-compliant bids, the public interest in an orderly and fair scheme for tendering in the construction industry might be thwarted, the Court held that the answer did not lie in intervention by the Courts but rather in the industry's response to all-encompassing exclusion clauses:

"If the major contractors refuse to bid on highway jobs because of the damage to the tendering process, the Ministry's approach may change. Or, the industry may be prepared to accept that the Ministry wants to avoid suits for contract A violations, and the contractors will continue to bid in the hope that the Ministry acts in good faith."

The Court of Appeal's decision in Tercon indicates that, when a clearly drafted exclusion clause is included in tender or proposal documents, the Court will uphold the exclusion, even where the effect is to bar claims for fundamental breaches of contract A.