Canada: The Superior Court Confirms The AMF’s Refusal To Grant Authorization To Enter Into A Public Contract

The Integrity in Public Contracts Act1 (the "Integrity Act") sanctioned on December 7, 2012, amended the Act respecting contracting by public bodies2 (the "ACPB") such that firms seeking to enter into a public contract or subcontract for an amount equal to or greater than an amount determined by the Government must first obtain authorization to do so from the Autorité des marchés financiers (the "AMF")3. For the moment, all public contracts and subcontracts for services or construction involving an amount of $10 million or more are subject to the AMF's authorization, as well as certain contracts involving the City of Montreal4

Upon receipt of a request for authorization, the AMF sends the information submitted to an Associate Commissioner for Audits appointed under the Anti-Corruption Act so that he or she may conduct the necessary audit and provide the AMF with an opinion on the request as soon as possible5

On May 15, 2014, Quebec Superior Court Justice Marie-Anne Paquette rendered the very first decision on a motion for judicial review of the legality of an AMF decision refusing to grant a firm authorization to conclude a public contract6

The facts

On January 24, 2013, the applicant 9129-2201 Québec Inc., doing business under the name Les Entreprises Bentech Inc.  ("Bentech") submitted a request for authorization to the AMF. On May 31, 2013 the AMF sent Bentech a Prior Notice of Refusal containing reasons for not issuing an authorization and inviting Bentech to make submissions before a final decision was made7. The Prior Notice also informed Bentech of the negative opinion of the Associate Commissioner for Audits under the Anti-Corruption Act.   

On June 13, 2013 Bentech submitted its initial submissions, which it finalized on July 5, 2013. 

On July 12, 2013, the AMF formally refused to issue the authorization requested by Bentech, on the grounds that it did not meet the high standards of integrity that the public was entitled to expect of it. In particular, Bentech was found to have been acting as a front for company 9075-3856 Québec Inc., doing business as Bentech Construction, which had issued false invoices and, according to three witnesses heard by the Charbonneau Commission, had taken part in a system of collusion for the obtaining of public contracts. 

Bentech challenged the legality of the AMF's decision in a motion for judicial review before the Superior Court of Québec.

The judgment of the Superior Court

The Court first determined that only the evidence submitted by Bentech to the AMF for the purposes of deciding on the request for authorization could be taken into consideration on judicial review (par. 43). Otherwise, the Court noted, it would not be engaging in a judicial review of the AMF's decision, but rather of a new situation that had not been subjected to the AMF's decision-making power (pars. 50-51). The burden had been on Bentech to convince the AMF that it merited authorization, and the Court cannot take into consideration any evidence that Bentech had neglected or not chosen to submit to the AMF (par. 56). Moreover, Bentech could not assume that the Associate Commissioner for Audits would do Bentech's work for it and submit all documents that were relevant to the AMF (pars. 57-58):

 [TRANSLATION]

[59] Thus, a firm requesting authorization pursuant to the ACPB must not be able to play cat and mouse with the AMF by relying on the panoply of powers of the anti-corruption squad and betting on its extraordinary knowledge-gathering for the AMF. 

The Court next pointed out that the standard of reasonableness applies to the AMF's decision, given the nature of the questions involved (pars. 83 and 88). Basing itself on the parliamentary debates and on the decision of the Court of Appeal in Bruni v. Autorité des marchés financiers8, the Court stated that the AMF has special expertise for defining the meaning of probity and thus for assessing the integrity of firms requesting authorization to conclude public contracts (pars. 74-77 and 81). This special expertise warrants considerable deference on the part of the Court (par. 78). Bentech argued however that the AMF's expertise in this regard warranted a lesser degree of deference, as it was exercising new powers. The Court rejected this argument on the grounds that such an ad hoc variation in the degree of supervision and control would be purely arbitrary and incompatible with the legislative intent (par. 82). 

The Court then concluded that the AMF's decision was reasonable in the circumstances. First of all, it was perfectly reasonable to conclude that Bentech was acting as a front for Construction Bentech (par. 97). It was also reasonable to conclude that Construction Bentech, for which Bentech was acting as a front, did not meet the high standards of integrity that public is entitled to expect (par. 100). Bentech had argued, moreover, that the notion of "a high degree of integrity" is vague and lends itself to abuse of power and the arbitrary exercise of the AMF's discretionary power (par. 102). The Court favoured a broad interpretation of the concept of "a high degree of integrity", which it said cannot be strictly confined to the specific situations described in s. 21.28 of the ACPB (par. 107). The Court added that a restrictive, formalistic and hermetic interpretation of the concept of integrity risked compromising the public-interest goals sought to be attained by the legislation (par. 109): 

[TRANSLATION] 

[110] The debates that led to the adoption of the provisions at issue indicate moreover that the legislature was concerned to avoid such a pitfall. In order to ensure that its goal would be achieved, the legislature deliberately chose to impose a high standard of integrity and to give the AMF broad discretion for assessing the integrity of the firms involved, in light of certain aspects of the legislation that it did not want to be limitative. 

[111] The application of these provisions and the broad discretionary power given to the AMF may be the source of frustration and disappointment for firms seeking to contract with the State. These contretemps do not however trump the public interest at stake and are not sufficient justification for setting aside the AMF's decisions in this regard where, as in this case, the decision is reasonably justified by the facts and the law. 

Thus, with respect to the participation of Construction Bentech in a false billing scheme, the "abstruse" observations of Bentech were not sufficient to convince the AMF (par. 123). As for the participation of Construction Bentech in systemic collusion, the Court noted that Bentech had not submitted any information or alternate version that would tend to contradict the three witnesses who testified before the Charbonneau Commission (par. 111), whose testimony allowed of the reasonable conclusion that there was a certain degree of collusion (par. 112). The Court pointed out that the presumption of innocence applies only in criminal and penal law, whereas the instant matter was governed by civil law (pars. 135 to 137). Fully aware of this distinction, the legislature considered that the presumption of innocence should not apply in the context of a request for authorization (par. 138). The Court did however acknowledge that testimony before the Charbonneau Commission could be a source of frustration for Bentech (par. 139). That being said, however, Bentech limited itself to maintaining to the AMF that the testimony in question was uncorroborated and inconclusive, despite having had full latitude to make its case during the authorization application process (par. 140.) 

Conclusion

This initial decision on the new provisions of the ACPB pursuant to the coming into force of the Integrity Act deals with fundamental questions surrounding the AMF authorization process, particularly the interpretation to be given to the notion of "a high degree of integrity". It will thus be interesting to see whether this decision will be appealed by Bentech. 

The decision does however establish that a firm must provide the AMF with all relevant information before the AMF makes its decision, as judicial review is in no way an opportunity to buttress the applicant's file. Moreover, if a firm does not succeed in convincing the AMF of its integrity during the processing of its request for authorization, it will have a heavy burden to discharge in order for the Superior Court to intervene, given the reasonableness standard that applies to the AMF's decisions, particularly on credibility issues. 

Finally, it is worth noting that this initial decision has been rendered in a context where the Government is being pressured to broaden the range of contracts subject to AMF authorization9 so as to include all public contracts for more than $100,000, which would result in some 20,000 firms having to seek such authorization10.

Footnotes

1 Bill no. 1 (2012, c. 25)

2 CQLR, c. C-65.1

3 ACPB, s. 21.17

4 The City of Montreal contracts that are subject to AMF authorization are all contracts for construction, reconstruction, demolition, repair or renovation involving roads, watermains or sewers for an amount of $100,000 or more, as well as all directly or indirectly related subcontracts for an amount of $25,000 or more.

5 ACPB, s. 21.30

6 9129-2201 Québec Inc. v. Autorité des marchés financiers, 2014 QCCS 2070

7 Pursuant to s. 21.37 of the ACPB and s. 5 of the Act respecting administrative justice, CQLR, c. J-3

8 2011 QCCA 994, pars. 85, 88-89

9 Pierre-André Normandin, Contrats publics: la Loi sur l'intégrité doit être resserrée, La Presse, May 23, 2014

10 Pierre-André Normandin, Des entreprises retirent leur demande à l'AMF pour éviter un refus, La Presse, May 15, 2014

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