The Court allowed an application for judicial review of a decision of the Canadian International Trade Tribunal (“Tribunal”) which upheld two procurement complaints advanced by Trust Business Systems (“Trust”). The Court held that there was no evidence to support a finding that a “no substitute clause” was done for the purpose of avoiding competition and discriminating between suppliers, and there was clear evidence that this clause related to legitimate operational requirements. The conclusion of the Tribunal was therefore patently unreasonable.

Administrative law – Decisions of administrative tribunals – International Trade Tribunal – Interpretation of Evidence – Terms of agreement – Procurements – Suppliers – Discrimination – Judicial review – Standard of review – Reasonableness simpliciter

Canada (Attorney General) v. Trust Business Systems, [2007] F.C.J. No. 379, Federal Court of Appeal, March 6, 2007, Nadone, Malone and Ryer JJ.A.

Two procurements were issued by the Department of Public Works and Government Services Canada (“Public Works”) on behalf of the Department of Fisheries and Oceans relating to the purchase of certain replacement components for installation in the information system on Marine Navigation (“INNAV”). The procurements identified specific brands of equipment that were required and stated that no substitutes would be considered. A potential supplier took issue with the no substitute clause, and complained to the Canadian Trade Tribunal. The Tribunal held that the no substitute clause violated 504(3)(b), 506(7) and 506(9) of the Agreement on Internal Trade (“AIT”). The Tribunal held that the solicitation documents could have been written in such a way as to allow for equivalent products to be proposed, and that there was insufficient evidence to demonstrate that the true purpose of the no substitute requirement was to maintain public security, or to protect human, animal or plant life and the environment. Accordingly, the Tribunal concluded that the specification of particular products in the requests for proposals (“RFP”) was done for the purpose of avoiding competition and discriminating between suppliers.

On review, the Federal Court of Appeal weighed the various factors to be considered under the pragmatic and functional approach, and concluded that they favoured the more deferential standard of patent unreasonableness.

The first issue considered by the Court was whether the Tribunal erred in concluding that Public Works had failed to demonstrate that its specification of particular products in the RFP and refusal to consider substitute products was permissible. The Court found that the AIT establishes a general principle of non-discrimination between suppliers or goods and any government procurement, but that it also allows for exceptions to this general rule for legitimate operational objectives. The Court accepted that Public Works assumed the burden of proof related to the legitimate operational objectives, and found that it had brought to the attention of the Tribunal its own objectives as specified in the statement of work and detailed correspondence from INNAV’s engineering manager. The Court accepted that, given the significance of the operational purposes of the INNAV system and the minimal allowances for system fault or other downtime, that there must be the highest level of confidence that replacement parts are on hand and that they will work seamlessly with the rest of the established network, since there would be no time for testing, modification or reconfiguration of any allegedly equivalent product. The Court held that it was for this reason that no substitute products were permissible. The Court found there was no evidence upon which the Tribunal could properly have concluded that the specification of particular products in the RFPs was done for the purpose of avoiding competition and discriminating between suppliers. It held that it was patently unreasonable for the Tribunal to infer a purpose of avoiding competition or discriminating between suppliers on the part of public works without any evidence to demonstrate such an intention.

The second issue before the Court was whether Public Works had breached article 504(3)(c) of the AIT by not providing timely information to Trust, thereby preventing Trust from submitting a bid. This alleged breach stemmed from the Tribunal’s finding that Public Works had improperly failed to respond in a timely fashion to questions from Trust with respect to the possibility of allowing for equivalent products, and the failure to provide a network diagram. The Court found that no such breach had occurred. Having concluded that Public Works demonstrated a legitimate operational objective in demonstrating that brand named products were required to meet legitimate operational objectives, the Court held that a breach of Article 504(3)(c) could not arise and the Tribunal’s decision was patently unreasonable.

The third issue was whether the Tribunal erred in its interpretation of article 506(9) of the AIT which requires the RFPs to make a clear reference to article 506(11)(e) and to properly justify non-compliance with article 504. The Court accepted Public Works’ submission that Article 506(9) only requires that notice of an exclusion be given to potential suppliers. Nowhere in a provision does it specify that a justification for an exclusion must be given. The Court held that notice of the exclusion was provided to potential suppliers by the statement that no substitutes for compatibility purposes would be considered. It held that to impose a more stringent requirement than the Article provides was patently unreasonable.

In the result, the Court accepted that Public Works had established a legitimate objective under Article 404 and a valid exception to the general principle of non-discrimination as outlined in Articles 506(11)(e) of the AIT. Therefore, the purported breaches of article 504(3)(b), 504(3)(g), 506(7) and 506(9) as determined by the Tribunal were invalid being based on patently unreasonable errors. The application for judicial review was allowed, the decision of the Tribunal was set aside, and costs were awarded to the Appellant.

To stay current with the new case law and emerging legal issues in this area, subscribe here.