Canada: The Superior Court Confirms The Legality Of The AMF Process For Authorizing Enterprises To Enter Into Public Contracts

Charbonneau Commission. Permanent Anti-Corruption Unit. Corruption and collusion in the awarding of public contracts. These are subjects that have repeatedly made headlines in Quebec in the past two years. It is in this context that The Integrity in Public Contracts Act (the "Integrity Act") was adopted, which amended the Act Respecting Contracting by Public Bodies ("ACPB").

These amendments, sanctioned on December 7, 2012, now require any company wishing to obtain a public contract of $10,000,000 or more to obtain the authorization of the Autorité des Marchés Financiers ("AMF").

The process for obtaining authorization is as follows:

1. A request to be authorized to enter into public contracts is presented to the AMF;

2. The AMF transmits the information contained in the request to the Associate Commissioner for Audits, an individual appointed within the Permanent Anti-Corruption Unit ("PACU");

3. The Associate Commissioner for Audits carries out the necessary verifications with regard to the company and recommends that the AMF either grant or refuse the authorization;

4. Following this recommendation, the AMF grants the authorization or sends the company a prior notice of refusal advising it that the AMF intends to refuse the requested authorization. This prior notice of refusal sets out the reasons given by the Associate Commissioner for Audits that support its unfavourable recommendation and invites the applicant to present observations and to submit documents that it believes to be relevant;

5. The AMF then renders its decision.

The Bentech Case

In the context of the 9129-2201 Québec Inc. v. Autorité des Marchés Financiers decision (2014 QCCS 2070), rendered by the Honourable Marie-Anne Paquette on May 15, 2014, the Superior Court addressed the process set out above for the first time.

The facts of the case are relatively simple: 9129-2201 Québec Inc., doing business under the name Les Entreprises Bentech Inc. ("Entreprises Bentech"), made a request to the AMF for authorization to enter into a public contract, pursuant to the ACPB. The AMF transmitted the information regarding this demand to the Associate Commissioner for Audits. The Commissioner, after reviewing the relevant information, recommended that the AMF refuse the request for authorization. The AMF then asked Entreprises Bentech to present its observations regarding this recommendation and Entreprises Bentech did so on two occasions. The AMF ultimately decided to refuse the request authorization.

Entreprises Bentech then filed a motion at the Superior Court for judicial review claiming that the AMF exceeded its jurisdiction.

Superior Court Cites Protection of Public Interest in Upholding Broad Discretionary Powers of the AMF

First, the Court reiterated the importance of the public interest objective, that is, the fight against corruption and collusion in the field of public contracts. It also emphasized the particular mandate, skills, and the particular expertise of the AMF in its role in protecting the public.

With these considerations in mind and notwithstanding the argument put forward by Enterprises Bentech, the Court explained that the high integrity requirement set out in the ACPB is not a vague concept giving rise to the abuse of power, but rather a conscious choice on the part of the legislator to grant broad discretion to the AMF in the exercise of its function.

Thus, contrary to Entreprises Bentech's arguments, the Court confirmed that accusations of a criminal, penal, or fiscal offence are not a necessary condition for the AMF to refuse to grant an authorization pursuant to the ACPB.

The Court also indicated that the notion of integrity set out in the ACPB must receive a broad interpretation in order to permit the AMF to achieve the public interest objective that the legislator has set. The Court emphasized that, although the use of broad discretionary powers by the AMF in the pursuit of this objective could be undesirable for companies seeking such an authorization, these inconveniences are outweighed by the public interest that is at stake.

Applying these principles to the situation of Entreprises Bentech, the Superior Court concluded that the AMF was justified in:

1. Concluding that Entreprises Bentech acts as a nominee corporation ("prête-nom") for 9075-3856 Québec Inc. ("Construction Bentech"). Despite the terse observations submitted by Bentech in the context of its request for authorization, the AMF was able to identify, from the company's financial statements and bank reconciliations, a long list of sufficiently reliable and consistent evidence that led it to conclude that Entreprises Bentech was nothing but a nominee corporation;

2. Refusing to grant the authorization requested by Entreprises Bentech on the basis that Construction Bentech did not meet the high standards of integrity required by the ACPB considering its involvement in a system of false invoicing;

3. Relying on the testimony, heard by the Charbonneau Commission, of three different witnesses who claimed to have received sums of money from Construction Bentech through a system of collusion and rigged contracts. Bentech argued that it had not had the opportunity to cross-examine these witnesses, that it was not accused of a crime, and that this amounted to imposing a "presumption of guilt by media" on the company. The Court rejected these arguments, reiterating that the powers granted to the AMF pursuant to the ACPB involve civil matters and that the legislator rightly decided that the principle of the presumption of innocence does not apply in this context.

Thus, the Court rejected Entreprises Bentech's motion for judicial review and upheld the AMF's refusal to grant the authorization requested.

Construction Companies Must Demonstrate Adherence to High Integrity Standard to be Authorized to Bid on Public Contracts

The comments and conclusions of the Court in the context of the Bentech decision may be summarized as follows: the legislator has consciously chosen, through enacting the amendments to the ACPB, to give the AMF broad discretionary powers to force companies that wish to obtain public contracts valued at more than $10,000,000 to maintain an exceptionally high standard of integrity. In this context, companies requesting authorization are responsible for demonstrating that they respect this standard. These companies cannot therefore rely on gaps in evidence or in the elements considered by the AMF. Instead, they must present detailed and substantiated observations to the AMF in support of their request for authorization.

As of June 26, 2014, Entreprises Bentech has not appealed this decision. However, it is likely that this subject will arise again shortly in future cases before the courts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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