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B.C.’s courts have upheld the use of reprisal clauses that allow municipalities to blacklist companies that sue them.

The issue arose when West Vancouver-based J. Cote & Son Excavating Ltd. took the city of Burnaby to court after a dispute over payment for a sewer project. The suit resulted in the company becoming blacklisted from future city projects.

The city’s reprisal clause, argued J. Cote, forces contractors to choose between a chance at future public contracts or their right to ask the courts to resolve a legal dispute. The clause used by the city stated that the city would not accept tenders from any party that is, or has been within the last two years, involved in legal proceedings initiated against Burnaby arising out of a contract for works or services. The company argued that this violates the Charter of Rights and Freedoms as it financially punishes contractors for choosing to exercise their rights to access the courts. The company listed nine city projects it would have bid on if not for the clause.

The company’s case was dismissed on appeal, with the courts determining that the jurisprudence does not endorse a broad general constitutional right of unrestricted or absolute access to the civil superior courts that precluded the city’s use of the clause.

The Canadian Construction Association (CCA), which helped fund the case, has been outspoken against reprisal clauses which it sees as a growing problem in the Canadian industry.

“The Canadian Construction Association is disappointed to learn that British Columbia’s appellate court denied the appeal brought forward by contractor, J. Cote & Son Excavating,” said Mary Van Buren, CCA president, in a statement to the Journal. “The Court of Appeal’s decision effectively upholds the use of ‘reprisal clauses’ in tender documents.”

Van Buren added that the ruling has serious implications for contractors.

“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 Van Buren. “This reprisal clause legitimizes placing contractors on a two-year blacklist from bidding on city projects. The inclusion of these clauses in contracts essentially allows contractors to be financially punished for exercising their legal rights.”

She added that the clauses also discourage contractors from bidding on jobs because they fear being banned from future participation in projects should they want to exercise their legal rights.

She said the CCA will continue to support J. Cote and Son Excavating and is closely following any developments as it believes the case ruling could have major implications for the construction industry in all of Canada.  

Stephen Bauld, president and CEO of Purchasing Consultants International Inc., a privately owned and operated consulting business based in Burlington, Ont., said that the practice of blacklisting began roughly 20 years ago in response to the flood of lawsuits contractors would file against cities. At the time Bauld was a purchasing manager for the city of Hamilton, Ont.

“There was a time when you would get 20 lawsuits a month,” Bauld said. “If I wasn’t the first, I was one of the first to say that maybe it’s a good idea to stop the onslaught of frivolous lawsuits. I never gave it much thought. Then it escalated into what it is now. It has been taken 20 steps further than the original concept.”

Bauld explained that he believes that stopping the onslaught of frivolous lawsuits was a legitimate concern, but the clauses now are so onerous they punish contractors who seek legal remedy, even if they are proven right. The result is fewer contractors bidding on city projects, and the ones who do add a premium to their price.

“You would be surprised how many contractors will not bid on government work,” said Bauld. “It is too onerous. It almost never works out and a lot of big contractors say they won’t bid on it.”

Bauld believes a fair compromise could be to tighten the clauses so that you only are barred from bidding during active lawsuits related to work with the city.

“But now that the court ruling has come down I don’t think anything will change,” Bauld said. “Some contractors will still not bid on municipal projects, the people who know how to do those bids will continue to do them.”