Canada: Foreign Suppliers Cannot Use Agreement On Internal Trade To Launch Procurement Complaint

Copyright 2009, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on International Trade & Investment, November 2009

On November 5, 2009, the Supreme Court of Canada issued a ruling that clearly restricts the ability of foreign companies to initiate procurement complaints under the Agreement on Internal Trade (AIT). The decision in AGC v. Northrop Grumman et al. dismissed the appeal from a 2008 decision of the Federal Court of Appeal.

BACKGROUND

The initial complaint was made by Northrop Grumman Overseas Corporation (Northrop), a U.S. company incorporated in the state of Delaware, and it arose out of a procurement by Public Works and Government Services Canada (PWGSC). The procurement was for a supply of 36 advanced multi-role infrared sensor targeting pods and 13 years of in-service support for the pods. Northrop argued that PWGSC evaluated the bids in a manner contrary to the criteria contained in the published evaluation plan. One of the arguments raised by PWGSC at the Canadian International Trade Tribunal (CITT) hearing was that Northrop, a foreign company, did not have standing to make the complaint. The CITT considered the argument, but found that a foreign company could have standing to make a complaint under the AIT. PWGSC filed an application with the Federal Court of Appeal for judicial review of that decision. The Court of Appeal overturned the decision of the CITT on the basis that it only had jurisdiction to hear complaints under the AIT brought by Canadian suppliers. It ordered that the matter be sent back to the CITT for a determination of whether Northrop was a Canadian supplier. Northrop appealed to the Supreme Court.

SUPREME COURT OF CANADA DECISION

The Supreme Court of Canada (the Court) unanimously dismissed the appeal on the basis that Northrop, as a non-Canadian supplier, did not have standing to make a complaint under the AIT before the CITT. The Court ruled that access to the CITT, as a statutory tribunal, must be found in the statutory instrument. The relevant statutory provision is s. 30.11(1) of the Canadian International Trade Tribunal Act (Act), which allows potential suppliers to complain to the CITT in relation to designated contracts. A 'potential supplier' refers to a bidder or potential bidder on a designated contract (s. 30.1 of the Act) and 'designated contract', which is defined in the regulations, refers to a contract described in the NAFTA, the WTO Agreement on Government Procurements (WTO-AGP), the AIT and, more recently, the Canada-Chile Free Trade Agreement. Northrop argued that it had standing pursuant to these provisions as a potential supplier on a designated contract, which in this case was under the AIT. It also argued that there was no requirement that it be a 'Canadian supplier' in order to have standing.

After carefully reviewing the relevant provisions of the AIT, the Court concluded that only suppliers with an office in Canada will qualify as Canadian suppliers and therefore have standing to bring an AIT complaint to the CITT. In its analysis, the Court observed that the AIT applies to procurements within Canada by federal, provincial, or territorial governments (except Nunavut). To determine what constitutes "procurement within Canada", the Court interpreted several provisions of the AIT. For example, Art. 501 sets out the purpose of the procurement chapter of the AIT, which is to "establish a framework that will ensure equal access to procurement for all Canadian suppliers". The AIT also defines "Canadian supplier" as a supplier "having a place of business in Canada". The Court determined on the basis of this analysis that the AIT was essentially a "domestic free-trade agreement," negotiated between the federal, provincial and territorial governments.

Since Northrop did not have a place of business within the jurisdiction of a party to the AIT (i.e., within Canada), it was not entitled to standing under that agreement. The Court noted in passing that Northrop apparently has a subsidiary in Canada. If the subsidiary had bid on the procurement instead of Northrop, it may have had standing to make a complaint.

The Court also noted in its decision that where an entity is unable to meet the requirements for standing to bring a complaint before the CITT, it may still bring an application to the Federal Court for judicial review of a procurement decision.

In support of this conclusion, the Court noted the placement of the AIT alongside the NAFTA and the WTO-AGP and found that the international agreements involve the lowering of barriers to trade in exchange for market access. It also noted that if Northrop's argument had been accepted, and foreign companies could have standing under the AIT to make complaints to the CITT, an important concession that Canada can offer in trade negotiations would no longer be available. Moreover, the Court noted that the goods in question were specifically excluded from other trade agreements, such as the NAFTA, and held that it would be problematic to undercut those exclusions by giving rights under the AIT to a non-Canadian supplier.

The Court also held that Art. 504 (6), which speaks to the ability of a party to the AIT to limit its tendering to Canadian suppliers on the condition that all qualified suppliers be informed of this decision, is simply a statement that the AIT will not trump Canada's international agreements. It does not create any obligations to foreign suppliers.

IMPACT OF DECISION

The decision of the Supreme Court of Canada in this case clearly refutes the earlier CITT decision. The Court found that the AIT is focused on domestic trade, and in order to have standing to complain under the AIT, the complainant must fall within the agreement's scope. This means that not only must the procurement be within Canada, but a company making a complaint must have a place of business in Canada through which it intends to fulfill the procured contract.

Foreign-owned companies should be aware that if the subject matter of a procurement is excluded from NAFTA or the WTO-AGP, they may need to have a place of business in Canada through which to fulfill the contract if they wish to have access to the CITT complaint procedures. However, there are other potential avenues for judicial relief to foreign suppliers, as noted by the Court.

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