A bid for infrared sensors for Canada’s CF-18 aircraft led to a procurement complaint by a U.S. company. [Dave Chidley / The Canadian Press] Click here to see full sized version.

The Supreme Court of Canada recently concluded that only Canadian suppliers have standing to bring procurement complaints before the Canadian International Trade Tribunal (CITT) based on the Agreement on Internal Trade (AIT). This decision provides much-needed direction to practitioners and the CITT and, on that basis alone, should be celebrated. At the same time, the policy and analytical rationales behind the decision leave a bit to be desired.

The CITT plays a pivotal role in Canada’s trade remedy system. It conducts inquiries and hears complaints by suppliers concerning federal government procurement covered by various trade agreements, including the AIT. The CITT derives its power to hear procurement complaints from the Canadian International Trade Tribunal Act.

The Act and the Procurement Inquiry Regulations govern standing before the CITT in procurement complaints. Pursuant to the Act, the CITT has jurisdiction to hear complaints from 'potential suppliers' relating to 'designated contracts.' The regulations define 'designated contracts' as those to which various trade agreements, including the AIT, apply.

In Northrop Grumman Overseas Services Corp. v. Canada (Attorney General), [2009] S.C.J. No. 50, Northrop Grumman Overseas Services Corp., a Delaware corporation with no place of business in Canada, submitted a bid to the federal government in response to a solicitation for advanced multi-role infrared sensors (hardware used by Canada’s fleet of CF-18 aircraft). Northrop’s bid was not selected, and the business went to a competitor.

Northrop complained to the CITT, alleging that the federal government violated the AIT by failing to clearly identify the criteria used to evaluate bids. Northrop could not allege breaches of the procurement provisions of the North American Free Trade Agreement (NAFTA) or the World Trade Organization Agreement on Government Procurement (WTOAG) because the goods being purchased were not covered by these agreements.

In response to Northrop’s complaint, the government challenged the CITT’s jurisdiction to hear the case on the basis that the AIT only applied to 'procurements within Canada,' meaning that only potential suppliers with a place of business in Canada could bring complaints under that agreement. The CITT rejected the government’s jurisdictional challenge and held that, based on the wording of the Act and the regulations, non-Canadian suppliers do have standing to bring such complaints. This was contrary to earlier CITT decisions on the same issue. On judicial review, the Federal Court of Appeal quashed the CITT’s jurisdictional ruling, and Northrop appealed.

The Supreme Court of Canada dismissed Northrop’s appeal. In interpreting the AIT’s procurement chapter, the court considered the AIT’s preamble and general interpretive provisions. It concluded that the AIT was intended to apply to 'trade within Canada.'

Procurement within Canada was a subset of trade within Canada, and therefore, the procurement provisions applied to procurement by the federal or provincial governments and suppliers located within Canada. Since the complainant did not have a place of business in Canada and had bid through an American corporate entity, the AIT did not apply. As a result, this procurement was not in relation to a designated contract within the meaning of the regulations.

The result of the decision is certainly defensible. It is common sense that a trade agreement between Canadian governments should be for the exclusive benefit of Canadian entities. The difficulty is that neither the Act nor the regulations limit the CITT’s procurement review procedure to suppliers with operations located in Canada. The court had to read this requirement in, and its justifications for doing so are disappointingly thin.

The court hangs much of its decision on the proposition that access to the CITT procurement review procedure constitutes an important bargaining chip when negotiating trade agreements. Justice Rothstein expresses the concern that if any supplier could benefit from the commitments in the AIT, then Canada would have already unwittingly given away this bargaining chip to all potential countries with which it might negotiate trade agreements.

However, the value of this bargaining chip is questionable. As Justice Rothstein himself recognizes, any potential supplier can already easily bid through a Canadian shell company and receive the full protections of the AIT. In other words, for all practical purposes, the chip has already been relinquished.

Moreover, there are equally defensible policy reasons for extending the commitments in the AIT to all suppliers (whether or not located in Canada). Fair, open and transparent procurement procedures have an intrinsic value; they are an expression of Canadian democratic principles.

The fairness and openness standards in the AIT (and access to the CITT remedies) are more than chips to be bargained away in exchange for future market access concessions from other countries. Rather, they are an expression of Canadian democratic and fairness values and reflect modern norms of accountability and prudent stewardship of public funds. Regardless of the niceties of the Act, the regulations and the AIT, Canada probably should extend AIT (or AIT-like) protections to all bidders in relation to all government contracting, not because it extracted concessions from trading partners in exchange, but because it is in Canada’s interests to do so.

At the same time, the court fails to note that Canada has already demonstrated an expansive approach to the application of the trade agreements by allowing Canadian companies to bring complaints against the Canadian governments under the NAFTA and the WTOAG. Canadian government commitments intended to protect foreign companies have also been expanded to provide protection to Canadian suppliers who can complain about breaches of the agreements. This was a sensible approach that ensured foreign suppliers did not benefit from better remedies and rights than Canadian companies.

The court also missed an excellent opportunity to confirm whether (and to what extent) earlier decisions on the interpretation of statutes and the presumption of conformity with international treaties also applied to domestic intergovernmental agreements such as the AIT.

Northrop provides much-needed guidance and resolves a troubling inconsistency in CITT decisions. While the reasons could have provided a more fulsome dissection of the interpretive rules and policy considerations at play, the court has, for better or worse, settled a contentious issue. Practitioners will now be able to advise their clients very clearly: bid through a Canadian entity if you wish to benefit from the protections of the AIT.

Paul Lalonde is a partner with Heenan Blaikie LLP in Toronto and Ottawa. He thanks Jason Harrington, an articling student at the same firm, for his assistance with this article.